What a difference 25 years of economic stagnation make. Japan's economy has contracted so often during the last few years alone, it's hard to keep track of its seesawing fortunes. Signs are now emerging that the country's gross domestic product may have declined again in the third quarter, dragged down by the flagging economy of China.What's worse is that three years after Prime Minister Shinzo Abe won office with the goal of ending the slump with aggressive monetary stimulus, the country still remains mired in stagnation.
(It's not just Japan that's ailing. Check out this list of critically weakened stocks that are on the verge of collapse. If you own them, you need to sell them now.)
Most analysts are betting that when the Bank of Japan meets this week, it will launch yet another round of easing. By betting against the yen now, you can position yourself to make money off Japan's latest gamble to jump-start its moribund economy.
It's exactly how hedge fund billionaire George Soros made $4 billion in 2013. Combining political with investment acumen, he accurately predicted the downward direction of the yen. Here's why this tactic will be effective again.
For starters, another infusion of inflationary policies from the Bank of Japan will likely strengthen the country's stock market. After three years of infrastructure projects and easy lending, Japan has few economic or fiscal tools left to wield. Moreover, the country's graying population makes it exceedingly difficult to achieve higher labor productivity.
That gives Japanese policymakers little choice but to expand the scope of the country's already ambitious quantitative easing program. A falling yen makes the products of major Japanese exporters such as Honda Motor, Sony andHitachi cheaper overseas, which in turn boosts the "wealth effect" at home.
These forces all set the stage for a declining Japanese yen against a basket of currencies, especially as the Federal Reserve gets ready to end seven years of near-zero interest rates by tightening the monetary spigot.
The dollar is strong not so much because the U.S. economy is growing like gangbusters (it isn't), but because Europe and Japan, which form the largest components of the Dollar Index, are intentionally devaluing their respective currencies.
There are many reasons for the fear and certainty that now grip global markets, but China is a key culprit. As the Middle Kingdom continues to grapple with slowing growth and a busted stock market bubble, the country's economic policymakers increasingly seem desperate.
Beijing's recent devaluation of the yuan reflected how the nation's leaders are running out of tools to keep the economy and stock market afloat. A "currency war" is now breaking out across Asia, as countries dependent on manufacturing exports compete to produce the cheapest goods. Growth in emerging markets overall is sputtering, which leaves the markets vulnerable to more shocks down the road.
According to Goldman Sachs Asset Management's chief of fixed income in the Asia-Pacific region, the yen could decline as much as 20% over the next two years as Japan seeks growth through inflation.
You can bet against the yen by shorting the Guggenheim CurrencyShares Japanese Yen Trust (FXY) , which tracks the price of the yen.
FXY data by YCharts
Or you can take a more aggressive approach through a leveraged inverse yen fund, the ProShares UltraShort Yen ETF (YCS) , which seeks returns that correspond to two times the inverse of the daily performance of the U.S. dollar price of the yen.
YCS data by YCharts
(The yen isn't the only investment that's about to plunge. Click here for a list of 29 popular stocks that are in such perilous shape, you must avoid them at all costs.)
By John Persinos
Source:http://www.thestreet.com/story/13338492/1/george-soros-used-this-strategy-to-make-billions-you-can-use-it-too.html?kval=dontmiss
No comments:
Post a Comment