Even Dennis Gartman is Shorting the Yen…

As CNBC reports, even Dennis Gartman is now shorting the Japanese yen. Along with every Tom, Dick, Harry, their aunt Elsie and her dog Freddie as it were. If ever there was a consensus trade, this must be it. Let us look at Gartman's arguments. They actually make superficial sense as you will see:

“The Japanese government has given a "sell" signal for the yen, Dennis Gartman, editor of The Gartman Letter, said Wednesday on CNBC.

"I've been short of yen for quite some time," he said. "I'm short of yen against dollars, generally."

On "Fast Money," Gartman said he was short of yen in U.S. Dollar, Canadian dollar, Australian dollar and New Zealand dollar terms. Over the past six or seven months, Gartman added, the trade is working out.

"I think it's abundantly clear that this new administration has made it very clear it intends to force the Bank of Japan to supply Japanese yen in unlimited terms," he said. ""I can't remember ever having heard that before.

"You have to remember, a government has a hard time strengthening its currency. But governments can very easily weaken their currencies simply by printing them. And when the Japanese said they're going to print them in an unlimited fashion, you have to believe them."


"What do I care whether they can or cannot create inflation as long as they are going to create more yen? This is the first time we've seen an authority in Japan use the term 'unlimited,'" he said.”


(emphasis added)

Well, duh. We all know what Shinzo Abe has said. However, since when do we “have to believe” a government? One should perhaps not consider the obvious, but rather the less obvious elements in play. Such as:











Yen consensus

The analyst consensus unerringly expects a weakening yen year after year. It has been wrong for several years in a row, but undaunted by this series of failures expects the same once again (one of these days we will be right and then we'll be heroes!)



yen CoT

Commitments of traders in yen futures. A record high small speculator net short position was recently recorded. The move in speculative positioning overall is completely out of proportion with the actual move in the currency. Far bigger corrections in the past have produced far less speculative enthusiasm (chart via sentimentrader). Can it really be that this big mass of speculators has discovered the turning point in such a timely fashion? It would be a first.



We would also add here as a small correction that the trade hasn't been “working out for the past six or seven months”, but only since early October. If our ability to count to three hasn't been impaired, that's three months, not six.


What Could Go Wrong?

Now what could go wrong? After all, Shinzo Abe has promised “unlimited printing”, right? How about: Bernanke has promised the very same thing and has a head start. Or how about: it is actually not up to Abe to make such a “promise”. He is Japan's prime minister, not its central bank chief. We'll say it again: it does not matter whether he uses terms like “unlimited”, or whatever. What he is saying is not relevant – what actually happens in the future is, or rather, is going to be. So far the entire sell-off in the yen is based on nothing but perceptions – the idea that this time, they really mean it!

We may well all find out that they actually don't. We already pointed out yesterday that the Japanese bond market does not believe one word of what Abe says. So what does the bond market thinks it “knows” that the currency market doesn't? Consider who the traders in JGBs are: most of them are actually Japanese domestic investors. Guess who trades the yen and the Nikkei? The gaijin. Who is likely to be better informed?

Mind, it is always possible that the bond market gets it wrong in this case. If so, then its upcoming decline should suffice to change Abe's mind in a real hurry. Japan simply cannot afford rising interest rates on its existing debt, least of all at a time when this debt is set to continue to grow even further.  And if we're not mistaken, they do have an abacus somewhere at the 'ministry of dreadful dreams' as well. And they actually only have to be able to count to three as well as it were. In a pinch, they can always take a look at how the Holy Hand Grenade of Antioch works.


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7 Responses to “The Yen – What Everybody Knows Probably Isn’t Worth Knowing”

  • ab initio:

    Perversely for Abe, it is likely that Yen could strengthen as the Japanese repatriate their overseas assets to fund their current income. Pension funds not only hold JGBs but also lots of non-Yen assets that will be liquidated as they draw down. Long Yen with tight stops may prove to be good trade.

    The question for Japan is when does their bond market break down. The biggest holders of JGBs are redeeming. Their current account is going negative. Even after having refinanced all their debt at ZIRP, interest expense is consuming 25% of government receipts and growing. If Abe spends as he says he will like a drunken sailor and runs the debt/GDP well past the 240% mark, even with the BoJ monetizing the bulk of it, interest expense will continue to eat a bigger chunk of receipts. The quadrillion Yen question remains – when does the bond market break it’s zero bound shackles?

    My sympathies are with the Japanese pensioners and their middle class destined to penury as a consequence of neo-keynesianism and money printing run amock.

  • The rate of interest will get his attention faster than the CPI. I have been on this trade, usually backwards and I can relate one observation. The yen has only rallied when the Euro declines the past few days and it appears to me the hedges are financing their trade by selling yen for dollars and dollars for Euros. If this is the case, the unwind isn’t going to be pretty.

  • SavvyGuy:

    The JPY had been strengthening against the USD quite persistently since about July/Aug 2007, from 85 all the way up to 132. There’s more than 5 years worth of “air” on the JPY monthly chart that has to be retraced in some fashion or the other. A typical 50% retracement will bring the JPY down to the 108-110 level, with possible Fib supports along the way.

    As the JPY has been much used/abused as a funding currency throughout the solar system since the dawn of time, there was probably more than just a casual correlation between the strengthening of the JPY in July/Aug 2007 and the start of the GFC around the same time. Conversely, it is quite possible that the recent weakening in the JPY may spawn bull markets anew, not just in the Nikkei but globally as well. Shorts beware!

  • JasonEmery:

    The timing is all wrong to weaken the Yen. You want to weaken your currency when you are a big exporter, not when you have become a net importer, if you must do it at all.

    If the price of oil were to take a dive, that might be a good cover to weaken the Yen, but not now.

  • jimmyjames:

    Even Dennis Gartman is Shorting the Yen…


    “I hate gold and I especially hate goldbugs” Gartman-

    Maybe he will end up hating the Yen and the Japanese housewives-if the trade goes as badly as most of his proudly announced “I am short of gold” calls of the past-

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