The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...
2 Very Tradable Trends in Play Now
05/02/2012 1:00 pm EST
Gold and the Japanese yen are likely to be among the most compelling trade targets for 2012, says Michael Paulenoff, who explains the forces impacting each asset.
I’m here with Michael Paulenoff and we’re going to talk about how traders can use what’s going on in today’s risk-on/risk-off market to make their best money.
As it relates to the last three, four, five months, Greece is off the table; Japan and gold are on the table. The reason why Japan is on the table is because of the yen.
After a multi-decade bull market in the yen—that is, the yen appreciating against mostly the dollar and the euro—the yen has now reversed, and my work tells me we’re in a multi-month, if not a multi-year correction of that.
Since 1990, Japan, Inc. has basically sputtered fundamentally, and it has been in a bear market, recession, and a deflationary spiral since.
My work tells me that’s all going to bottom out and reverse; that Japan, Inc. will be back. A lot of it has to do with the currency market and the value of currency, but my sense is that we’re having sort of a reverse Plaza Accord.
The Plaza Accord, I think, was in September 1985, when the dollar was so high against the yen that we reversed it. A bunch of leaders got together at the Plaza Hotel in New York and decided to orchestrate a reversal in dollar/yen. The yen has been going up and the dollar has been going down pretty much ever since.
Well, now I think there is an implicit reversal of the Plaza Accord, and the yen could go down significantly. I’m talking about 10% to 15% to 20% in the next couple of years.
So if you’re looking at the situation and you say, well, how do we take advantage of the yen going down, Japanese stocks should benefit, because it’s an export-oriented economy, and within that, the auto stocks—Toyota Motor (TM), Honda Motor (HMC)—they should all have very bright prospects.
Just quickly, the other situation is gold. I think gold goes considerably higher. Notwithstanding the fact that the dollar would be going up against the yen; I think that’s a separate situation. My sense is that regardless of the currency valuation of that pair, gold has considerably more upside.
There are so many hot spots, so much of a wall of worry, and so much liquidity sloshing around the globe, that no government and no international agency is willing to mop up, because everyone is worried about the same thing, and that’s global deflation.
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