It all makes sense now:
Say you're a company specialized in "making money". You've got your investors assets, and since your business is good, you decide to leverage the returns through some debt.
So, you take your dollars, euros, whatever, and take a loan - the cheaper, the better.
And noones cheaper than the BoJ, so let's borrow (i.e. short) a couple of billions of yen. Hey, this way, you can make more profit on the same net assets, right?
But what shall you invest the money into?what about stocks? Or commodities? Or Bonds? Real estate in Hong Kong, anyone? What about T-Bonds?
As long as the yield you receive is higher than the one you pay, you make money. And if your leverage is, say, 10:1, you make more money. And if your net8 capital is, say, 1 bln $, you make some freakin money.
All you need is a profit margin - the yield you pay must be lower than the interest you receive. Soooooo.....
If your US-stock portfolio stops rising, while your yen debts appreciate (either through higher yields or appreciation towards the $), you're in trouble.
And if your stock portfolio decreases, while your debts increase (=yen continues getting stronger towards the $), you're in some big trouble.
To cut a long story short: USDJPY is approaching the extremely important 0.85 level, and the BoJ already announced, that they're gonna defend it. Like the Brits in the 90s.
If 85 breaks, we're in some major trouble, cause the yen is the root of all evil - it wasn't Greenspan. It's the carry traders. USDJPY Vs. DJIA correllatipn astounded me throughout the past days.
Interesting times ahead...
Say you're a company specialized in "making money". You've got your investors assets, and since your business is good, you decide to leverage the returns through some debt.
So, you take your dollars, euros, whatever, and take a loan - the cheaper, the better.
And noones cheaper than the BoJ, so let's borrow (i.e. short) a couple of billions of yen. Hey, this way, you can make more profit on the same net assets, right?
But what shall you invest the money into?what about stocks? Or commodities? Or Bonds? Real estate in Hong Kong, anyone? What about T-Bonds?
As long as the yield you receive is higher than the one you pay, you make money. And if your leverage is, say, 10:1, you make more money. And if your net8 capital is, say, 1 bln $, you make some freakin money.
All you need is a profit margin - the yield you pay must be lower than the interest you receive. Soooooo.....
If your US-stock portfolio stops rising, while your yen debts appreciate (either through higher yields or appreciation towards the $), you're in trouble.
And if your stock portfolio decreases, while your debts increase (=yen continues getting stronger towards the $), you're in some big trouble.
To cut a long story short: USDJPY is approaching the extremely important 0.85 level, and the BoJ already announced, that they're gonna defend it. Like the Brits in the 90s.
If 85 breaks, we're in some major trouble, cause the yen is the root of all evil - it wasn't Greenspan. It's the carry traders. USDJPY Vs. DJIA correllatipn astounded me throughout the past days.
Interesting times ahead...
