Wednesday, September 15, 2010

Asking the Right Question

Since September started the drive home has been murderous. I mean just unreal stupid. If there was an index fund for automotive repair for the Northeast Massachusetts area I would commit my entire net worth to it as this month it seems everyone is hell bent on wrecking their cars (right at 4:30pm of course) and causing a mess of every road in the state. If things are this bad now, when the snow starts I may have to quit my job and daytrade! That said, super short post tonight as I have no time at all to do anything.

Why I Stopped Buying Metal Miners
I hate to make blanket statements, so understand I am speaking for myself. There are much better investors out there that can pick and choose the best metal miners and they do great, I was never one of them! I did have a few winners, but mostly what happens is you get a nice run up in gold or silver, the miner you have exposure to moves up a little, then management makes a monster acquisition, blows a earnings quarter, or some other calamity and while the metals are up 15% your miner is down 20%. It gets annoying fast.

The Golden Truth has a tale of such a firm today:
AngloGold Ashanti Throws In The Towel On Its Massive Gold Hedge
Punch up AU versus GLD and you will see what I mean. I am not knocking all miners, just saying I stopped buying them a while ago.

Asking the Right Question
Jake over at EconomPic asks the most pertinent question about government interventions (in this case currency, but in reality across all interventions).

First off, a little color.

The Bank of Japan massively intervened in the Yen causing by selling around 20 Billion dollars worth of them, and of course Economic Disconnect does not play fiat currencies either because of extreme volatility!

For fun, check out the dueling headlines:
Japan intervenes to weaken yen; more to come
U.S. industry and lawmakers urge action on China's yuan

And if you want more fun, what if China was forcing Japan to devalue? (via Tim Duy):
Yen Intervention, or Why Japan is Now Carrying China's Water?

Now I have always been clear I am not an FX man, I don't like to deal in the imaginary too much. Whether Japan's move today can work will depend on how much follow through they continue with and how much traders want to go with them. Early reports (since changed tremendously) reported that Japan did this in concert with several central banks knowledge and help, but the story now is that Japan did this all alone and told nobody. I leave it to the reader to figure out for themselves which to believe.

Ok, back to EconmPic's question:
First of all... I am many things and a currency expert is not one of them...

With that said... I completely understand why Japan is intervening in the currency markets for economic purposes (a strong yen is hurting exports), BUT isn't the ability to literally print an overvalued piece of paper the ultimate prize?

For years, counter-fitters have printed worthless paper in the hopes of using it to buy things of value, but with Japan they can do this legally! Why not open up the printing presses and use that new currency to buy goods of value from abroad (I'm not talking other currencies, I'm talking REAL assets)?

To me this will result in at least one of the following (though, I'm sure there are 1000 more):

-A weaker Yen (i.e. the goal)
-Inflation (i.e. the best thing that could happen to Japan so that monetary policy would actually work)
-Nothing to the Yen or to inflation, which means you got a bunch of real assets... for free.
What am I missing?

Oh man what a great way to frame the question!

If you have been reading this site over the years I have covered this question (not quite in this form) many times. Rather than offer it again, I would love to see the readers answers in the comments here or over at Jake's site. I may give a written form of my answer in tomorrow's post. I think this question is of the utmost importance if you want to understand the way the world works. I know I can count on some good stuff.

Have a good night.


Lurker said...

My Friday night music pick is "Puff, The Magic Dragon" by Peter, Paul and Mary. Thanks.

insanity shelter said...

It's about getting free stuff. Sounds plausible. I mean, who's not down with that?