Global Macro Trading Journal

Here's a different perspective on Japan's debt problem
http://pragcap.com/japans-financial-position-is-better-than-you-think

I have some problems with this guy accounting. If you are going to count 'land and buildings' I'm sure that vast majority of countries are in good financial shape, that does not mean that Japan will sell off major parts of Tokyo if they run into trouble
Although I haven't though about it deeply, netting out intragovernmental debt and assets could be flawed as well
 
It's not flawed... The point is that Japan is a country with large internal imbalances (inter-generational, etc), which manifest themselves in all these cross holdings of various obligations. Moreover, the political system is very dysfunctional. All in all, it's a very complicated dynamic, but I am pretty sure that it's emphatically NOT a recipe for a near term fiscal disaster. Long term, it's a death spiral for sure, but lots of things can happen, so how you gonna trade that?
 
Quote from Martinghoul:

It's not flawed... The point is that Japan is a country with large internal imbalances (inter-generational, etc), which manifest themselves in all these cross holdings of various obligations. Moreover, the political system is very dysfunctional. All in all, it's a very complicated dynamic, but I am pretty sure that it's emphatically NOT a recipe for a near term fiscal disaster. Long term, it's a death spiral for sure, but lots of things can happen, so how you gonna trade that?
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I agree on both counts(short and long term). Its the long-term thing that the guy from the article seemed to be questioning by arguing that the government is super solvent. At some point shorting JGBs should be an easy trade but if that guy is correct then its not. I understand netting out the FX assets they own but the other things I'm not so sure
 
Quote from Daal:I agree on both counts(short and long term)...At some point shorting JGBs should be an easy trade
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I've been hearing Japan is doomed since I believe 1998, when their rating was cut from AAA and the JPY hit multi-year lows vs. the Dollar. Then we had the 2002 bust with more ratings cuts.

In 2003/2004 the yield on the N225 was higher than on JGBs. I remember how many said the end of JGBs is near and for the next 10 years you simply short the bonds and buy the equities in a paired trade. In hindsight an epic disaster.

Now we have ratings warnings again.

Every now and then some arguably very smart people come forward and explain how they believe now is the time and how Japan is doomed and how they put on a big trade. Robertson, Tilson and Hendry come to mind. Add to that a battlefield littered with unnamed traders who blew up with similar trades against Japan over the last 15 years.

All the arguments were very convincing when they were made 15 or 5 years ago or even today. Was the trade ever easy though, and will it be easy to spot in the future? I don't think so. Sooner or later (maybe much later) one of these guys will be right and claim he knew it all along.
 
Quote from Butterball:

I've been hearing Japan is doomed since I believe 1998, when their rating was cut from AAA and the JPY hit multi-year lows vs. the Dollar. Then we had the 2002 bust with more ratings cuts.

In 2003/2004 the yield on the N225 was higher than on JGBs. I remember how many said the end of JGBs is near and for the next 10 years you simply short the bonds and buy the equities in a paired trade. In hindsight an epic disaster.

Now we have ratings warnings again.

Every now and then some arguably very smart people come forward and explain how they believe now is the time and how Japan is doomed and how they put on a big trade. Robertson, Tilson and Hendry come to mind. Add to that a battlefield littered with unnamed traders who blew up with similar trades against Japan over the last 15 years.

All the arguments were very convincing when they were made 15 or 5 years ago or even today. Was the trade ever easy though, and will it be easy to spot in the future? I don't think so. Sooner or later (maybe much later) one of these guys will be right and claim he knew it all along.
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I remember an Trump interview where he scorned housing bubble prophets by saying 'they are calling it a bubble every year since 2002' or something to that effect. I understand the timing thing thats why one has to be careful before taking the other side and size the position well but the fundamentals of Japan government debt aren't good at all
Derivatives are probably the way to go in shorting these JGBs. CDSs would be ideal but I also think you need hundreds of millions to play in these
 
I agree the fundamentals aren't good for Japan but how does being convinced of that give you an edge trading it? The fundamentals aren't good since at least 1998 and still no cigar.

I am not in the camp of those saying Japan won't blow up at just because it held up until today. Yes, there will be a pot of gold for people with far out fat tail long put positions on JGBs... at some point in time.

You have to wonder though: Will the payoff that will be eventually made by a few brave (lucky?) ones outweigh the strings of losses of those who have previously tried unsuccessfully?
 
The only way I would ever play it (as I mentioned on the other thread) is by buying far OTM long-dated JPY puts. Ideally, you a) get a nice pickup on the fwds (at least judging by USDJPY); b) if you do it vs the basket, rather than just USD, you can probably get a lower vol, 'cause of the correlations. I certainly wouldn't dream of doing it outright for reasons butterball pointed out. Problem with the long-dated options is that it would have to be a structured sorta product and bid/offer would be rather punitive.
 
This uranium miner i've been following (Denison Mines) is already up 40% from the lows last week...

It's kind of hard to take advantage of these supposed events with longer term effects when everything moves this fast.

Give it a week with improvement in Japan and they'll blast right past their pre meltdown highs.
 
Quote from Butterball:

I've been hearing Japan is doomed since I believe 1998, when their rating was cut from AAA and the JPY hit multi-year lows vs. the Dollar. Then we had the 2002 bust with more ratings cuts.

In 2003/2004 the yield on the N225 was higher than on JGBs. I remember how many said the end of JGBs is near and for the next 10 years you simply short the bonds and buy the equities in a paired trade. In hindsight an epic disaster.

Now we have ratings warnings again.

Every now and then some arguably very smart people come forward and explain how they believe now is the time and how Japan is doomed and how they put on a big trade. Robertson, Tilson and Hendry come to mind. Add to that a battlefield littered with unnamed traders who blew up with similar trades against Japan over the last 15 years.

All the arguments were very convincing when they were made 15 or 5 years ago or even today. Was the trade ever easy though, and will it be easy to spot in the future? I don't think so. Sooner or later (maybe much later) one of these guys will be right and claim he knew it all along.
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What an absurd post.

Long Japan stocks, short JGBs in 2003/2004 was a spectacularly profitable trade. The Topix 2nd section rallied over 400% in the next 4 years, with moderate pullbacks, and JGBs puked almost 20 handles. Even the N225 went up about 150%.

Hugh Hendry just cleaned up with his Japan CDS bet.

How exactly do you 'blow up' when you take a considered level of risk? Only a piker risks everything on one trade, anyone with a brain only risks sums they can afford to lose. Hendry for example was accepting a 2% loss per annum to hold his CDS positions, hardly a loss that is going to put him out of business. The TSE2 index from the 2003/04 lows rallied almost 200% without having a drawdown in excess of 3%.

What are you smoking?
 
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