Beware the Ides of March
The Ides of March (Latin: Idus Martii or Idus Martiae) is a day on the Roman calendar that corresponds to March 15. It was marked by several religious observances, and became notorious as the date of the assassination of Julius Caesar in 44 BC.
Asianmacro like all macro dudes raised in the old days while not superstitious for its own sake would give due respect to the Trading Gods, ancient or modern, wherever they may reside … I guess that is why Samsung decided to launch their new Samsung S4 (http://youtu.be/j_IcN9Tn9SY) today rather than on 15 March 2013!
Illustration 1: JPYKRW … Korean vs Japanese export competitiveness
Asianmacro still carries an iPhone but not feeling particularly cool these days with all those slick Samsung S3 (and soon new S4) …. and from illustration 1 above, it is pretty obvious the Koreans will not sit back eating their bulgogi and kimchi washed down with soju while Japan stabs them from behind. While Japan may have engineered a first round currency war victory, don’t be surprised by the counter-reaction by Korea and the rest of Non-Japan-Asia coming up next.
Illustration 2: ADXY continues to weaken as Non-Japan-Asia hits back at Abenomics weak JPY policy
A weak JPY in reality does not help Japan as much given the low export to GDP ratio of less than 15% and the new paradigm where Sony, Toyota and many previously recognised world beating Japanese companies were exporting brilliant products at competitive prices and these companies do not really exist anymore or are a pale shadow of their former self (*wake up Japan, you have been left behind!). But a weak JPY hurts Non-Japan-Asia like a punch below the belt since exports to GDP range from 50% to 200% across these countries. From illustration 2, expect ADXY to continue to grind lower as ‘beggar-thy-neighbor” FX depreciation already started in Asia.
Illustration 3: China M2 growth (yoy) … it drives SHCOMP with sheer liquidity injection/withdrawal
Xi Jin Ping is officially proclaimed as the President of China today (*again ahead of the Ides of March!). Anybody expecting some new quick stimulus forthcoming from him like a new CEO coming onboard a listed company will have to scale back this expectation soon. Signals seem to point to slow deliberate continuation of whatever conservative policies already announced (*yawn yawn …) with the warning on inflation by PBOC chief just yesterday (http://www.bloomberg.com/video/pboc-chief-warns-on-inflationary-pressures-M6cUZa04QeCWczq3h6z~0g.html). From illustration 3, it is pretty obvious that China M2 growth is like one big water pistol carried into the SHCOMP speculation playground injecting liquidity on demand to drive stocks to whichever level that Chinese leaders are comfortable with. Till we see clear and obvious signs that M2 growth yoy is back to the good old days of at least 15-20% yoy, SHCOMP rallies are not sustainable beyond sharp corrective bounces higher on mis-directed policy expectations.
Illustration 4: Double bottom in DXY .. long term move higher in DXY (USD)
OK, after all that above, so what is the right trade to make money safely through the Ides of March? If you look at the ”Sell away in May and go away!” mantra, it has been looked upon as one of the ”Investment 101” rules for ages. In reality, stocks and risky assets typically make their highs actually at the Ides of March more often than not. While it is still pretty uncertain in stock markets, one thing is becoming increasingly clear from everything above, which is USD has finally made a comeback that may surprise everybody in its staying power this time round. From illustration 4, DXY (*you can go long the DXM3 June futures trading on I.C.E.) currently at 83 should gain 10% heading back to 90 on my radar for sure, it is a matter of when and not whether.
Good luck, fortune favors the bold and those who avoid the Ides of March!
*Asianmacro is a beach bum managing his own wealth. Besides deciding what to have for lunch (or hitting the gym sometimes), he is mostly found listening to loud music while trading and investing for himself. While every care has been taken in preparing the information in and/or materials, such information and materials are provided “as is” without warranty of any kind, either express or implied. In particular, no warranty regarding accuracy or fitness for a purpose is given in connection with such information and materials. The opinions expressed do not constitute investment advice and independent advice should be sought where appropriate. In no event will Asianmacro be liable to you for any direct or indirect or any other damages of any kind arising from or in connection with your reliance on any information in and/or materials attached herewith. Asianmacro may already have or intend to have a trading or investment position in the financial instruments or products referred to in this communication. This is not intended as an offer or solicitation for the purchase or sale of any financial instrument and Asianmacro may also have interests different from or adverse to your interests.