Up the Stairs, Down the Elevator – The Reversal in Dollar Yen Has Started
This has been a strange year in the markets, with many securities, currencies, and commodities having been driven way beyond rational valuation levels due to the building up of massive speculative exposures. Eventually these distortions will get sorted out and corrected by market forces, but this process can take a long time. Accordingly, we should remember the famous warning of John Maynard Keynes that markets can remain irrational for longer periods of time than many players can remain solvent. As I survey the markets looking for investment opportunities, I can safely note that nowhere has this distortion been more obvious this year than in the movement of dollar-yen and the various yen crosses, and I can further confirm that the market’s corrective forces in the yen are now coming into play.