Sunday, April 21, 2013

The “Abe Spreads” (excerpt)

I visited with a few of our hedge fund accounts around Greenwich, CT last week. The consensus among the macro strategy funds is that the Nikkei has more upside because the yen has more downside. They have been long the Nikkei and short the yen since late last year when they concluded that Japan’s new prime minister Shinzo Abe was intent on jolting the economy with a huge increase in fiscal spending and a massive round of QE. The hedge funds remain in the trade. Some have also been shorting the DAX, figuring that the plunge in the yen relative to the euro is bound to depress Germany’s exports and economy while boosting Japan’s exports, especially of autos.

These developments could explain some of the recent performance of the US stock market. The DAX peaked at a new cyclical high on March 14. It is down 7.4% since then. Global investors may be switching out of European stocks and into American ones, especially blue-chip defensive names that are viewed as safe havens. When the new governor of the BoJ announced on Thursday, April 4 that he intends to double the balance sheet of Japan’s central bank, bond yields plunged around the world. That might have attracted more money into American stocks, especially those with a dividend yield.

Today's Morning Briefing: Flash Consensus. (1) Macro hedge funds still playing “Abe spreads.” (2) Long Nikkei and short DAX. (3) Flash mob, flash crash, and flash consensus. (4) Getting the shakes about shaky global economy. (5) Pause more likely than correction or melt up. (6) Analysts raising revenue estimates, while companies lowering guidance. (7) Technicians see lots of bearish signs. (8) Health Care may be the cheapest defensive play left. (9) Have central bankers lost their groove? (10) No recovery in sight for Europe. (11) “42” (+ + +). (More for subscribers.)

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