Quick question for traders across the globe: name the Prime Minister of Japan. Don’t worry about the spelling. Can’t do it? Ok, how about naming just one of the last 4 that have held that title over the last few years. Still can’t do it? No worries, because it doesn’t matter. The next Prime Minister in Japan who sends delegates to the G8 and G20 meetings at the end of the month will likely offer no more solutions to help resolve the global credit crises or the global economy than they have offered in the past.
Why do I point this out? Markets do react to politics and fiscal policies that will impact economic performance and the markets. Japan will be asking for a weaker Yen at month end. Look for policy officials from other countries to be asking for the same thing – a weaker currency. This is a quick fix that doesn’t need the cooperation of their respective Parliaments. It’s too much work and effort to actually bring down a debt load than disrupt the ones who vote you into office. In the end, no one will receive a weaker currency and the markets will go back to focusing on the issues at hand.
That brings us to Warren Buffet’s comment on municipal bonds in the US. He stated Wednesday that they were a ‘terrible problem’. Not good. Don’t believe him as he might just be talking his own book? Familiarize yourself with the budget woes in New York and California. New York had been delaying aid to schools not just for a week or two, but for over 2 months. California is cutting aid to schools. The US does not exactly rank high in math and science when comparing to other industrialized countries and reducing aid on education to two of the most populous states is not a buy signal.
This is not lost on the president of the United States either. In his speech at Carnegie Mellon on Wednesday, Obama stated that “From China to India to Europe…they’re putting a greater emphasis on math and science…They’re making serious investments in technology and clean energy because they want to win the competition for those jobs.”
Friday’s job report will show job creation in the US but upwards of 80% of those jobs are census-related. High-level math requirements are not required. It’s fairly obvious that the US won’t be increasing their long-term investment in math and science any time soon. If anything, we’ll be bailing out municipalities as the debt crises flows from Europe to the US. At least it’ll have come as a shock to some investors because these munis were receiving AAA ratings at one point in time.
Where does this leave a trader or an investor? Sell the US Dollar at some point and buy the Yen? Currensee is showing that traders are long on the Yen versus such currencies as the CAD, NZD and USD by net positions at the time of writing. Traders seem to understand that politics in Japan don’t matter and the hard decisions ahead for politicians in the US do.
This report is for your information only and does not constitute investment or business advice or an offer to buy or sell securities.
Be sure to read the full risk disclosure before trading Forex. Please note that Forex trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved before trading. Performance, strategies and charts shown are not necessarily predictive of any particular result. And, as always, past performance is no indication of future results.