Currencies

The global currency markets started feeling the impact of the Fed's decision not to begin tapering practically immediately, writes MoneyShow's Jim Jubak, also of Jubak's Picks, who feels the repercussions are far from over.

The Federal Reserve's decision not to begin tapering off its monthly $85 billion in purchases of Treasuries and mortgage-backed securities sent the dollar even lower against most global currencies. Yesterday, September 19, the Dollar Index fell to a seven-month low. The dollar fell against the currencies of most US trading partners—except Japan. And it looks like the dollar will stay under pressure for, at least, the next few sessions.

The big question is how long this trend lasts. If you think it will run for a while, then you want to join in on the rally in emerging market stocks that has accompanied the rally in emerging market currencies, such as the rupee, and real. If you think the run is getting a little over-extended—the euro is, after all, at levels against the dollar that have marked resistance in the past, BUT it has recently broken above resistance at $1.345 to close yesterday above $1.35—then this is a time to take some profits.

A lot will depend, in my opinion, on how big a scare Washington politics throws into global financial markets. I can't imagine overseas investors rushing to move into dollars in the face of rhetoric threatening a government shutdown and a default on US debt. I'd say current trends could hold for a couple of weeks yet, but I wouldn't be rushing to add new positions that depend on dollar weakness right here.

The one currency that is running against the weak dollar tide is the Japanese yen. The yen initially climbed on the Fed's no taper decision—rising to 97.75 on the news—but then fell all the way back to 99 yen to the dollar and finished yesterday at 99.42. (Remember that since the yen is quoted in yen to the dollar, a higher number is a sign of a weak yen and a smaller number means the yen is getting stronger.) The thinking seems to be that the recent Japanese trade deficit will push the Bank of Japan to further weaken the yen, in order to boost Japanese exports. I continue to think that the yen will finish 2013 at weaker levels than current trading, and that leads me to continue to hold positions in Japanese stocks such as Toyota Motor (TM) and Mitsubishi UFJ Financial Group (MTU). Both stocks are members of my Jubaks Picks portfolio.

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of both Mitsubishi UFJ Financial and Toyota Motor as of the end of June. For a complete list of the fund's holdings as of the end of June see the fund's portfolio here.

Tickers Mentioned: Tickers: TM, MTU

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