Market Review: Japan's Greatest Trade

At some point yesterday afternoon, Addison Wiggin approached our desk with a twinkle in his eye.

“The Japanese are about to start dumping their dollars,” he said.

We didn’t even bother asking for details; the dollar/yen chart we quickly pulled up said it all. The rate had moved from 104.67 to 103.70 in a matter of minutes…

The spike was caused by Prime Minister Junichiro Koizumi, we found out later, as he answered questions before a parliamentary committee.

“I think it’s necessary to have diversity,” was all he said, answering a question on Japan’s reserve. But when you have the international currency markets hanging on your every word – currency markets that are extremely sensitive to the idea of central bank diversification – these were big words.

Immediately following Koizumi’s comment, top officials at the Ministry of Finance denied there were plans to dump the dollar…but Addison didn’t believe a word of it. He thinks they’ve let the cat out of the bag.

So does Dennis Gartman. He writes, “We suspect that Mr. Koizumi gave voice to the one truly great concern that the monetary authorities in Japan have quietly been discussing amongst themselves over the course of the past several months: ‘How do we get ourselves out of the positions we (and the Chinese) have gotten ourselves into regarding these bulging foreign currency reserve positions so heavily skewed to the dollar?'”

“As we have long said, it takes buying and a lot of it to put a market up; it takes a mere lack of buying to send at market down. We fear the lack of buying…and that is a fear far large enough!”

Dennis Gartman fearful? What if he had a $700 billion long position in U.S. Treasury bonds to worry about?

Japan does. And on Thursday they had to swallow news of a $113.9 billion budget deficit in February, the biggest monthly gap ever seen.

On Friday, fingernails would have been gnawed again. January’s trade deficit came in at $58.3 billion, the second largest one-month shortfall in history.

This news didn’t escape the bond market. The 10-year note jumped 24 basis points last week, representing the largest one-week down-move in government bond prices since the week ending April 26, 2004.

How much longer can the Japanese maintain their composure?

We don’t dare to blink…


Tom Dyson
The Daily Reckoning

P.S. Friday, March 4 was a pivotal day for Dow Theorists. Then, on Monday, March 7, the Dow crossed 11,000 for the first time in three-and-a-half years.

Chris Mayer explains the significance: “Really, you couldn’t ask for a better alignment. On Friday, both the Dow Jones Industrial Average and the Dow Jones Transportation Average topped their Dec. 28 highs. Volume, too, was a smidgeon higher on the breakout.”

“As if to provide further confirmation, the Dow Jones Utility Average also made a new high. As Richard Russell, long-time editor of Dow Theory Letters, writes, ‘It is an extremely rare occurrence to see all three Dow Jones averages – Industrials, Transports and Utilities – breakout out to new highs simultaneously.'”

“To go even further, they are all above their 50-day moving averages, as are the Nasdaq and the Russell 2000.”

“Therefore, we have, for the time being, a bullish signal, and we intend to favor bullish plays in our trading as long as this is the case.”

— Daily Reckoning Book Of The Week —

The Mystery of Capital by Hernando de Soto

“The most important book on global economics ever written.”
— Addison Wiggin



This week we introduced a second commodity expert into the fold. His name is Justice Litle, and he will work right alongside Kevin Kerr. (Kevin will make the trades and read the markets, while Justice will handle the investments and the fundamental research) We ran two essays by Justice this week – on Tuesday and Wednesday…

By Bill Bonner “On the outside, the U.S economy looks just fine and dandy, thanks to the ‘world improvers’…but if you dig a little deeper and open your eyes a little wider, you’ll see something quite different.”

By Chris Mayer
“What does an English hydrologist, a Harvard economics professor, and the Nile have to do with predicting the ups and downs of the stock market? A lot more than one would think…”

By Justice Litle
“While food is necessary for survival, energy is necessary for growth…and no country is growing at a faster clip than China. Their demand for energy increases everyday, and we explore their strategies to ensure energy security.”

By Justice Litle

“By examining the key elements of China’s strategy, we will be enabled to understand and anticipate its movements. Today, Justice Litle looks at the transfer of knowledge and technology from multinational corporations…”

By The Mogambo Guru

“Not that the Mogambo Guru is a glass-half-full kind of guy, but lately he’s been more downtrodden than usual. He’s realized inflation is eventually going to destroy us all, but he’s not going to take it sitting down.”

FLOTSAM AND JETSAM: How can an investor avoid market crashes, yet always be long at market bottoms? Addison Wiggin explains…

In 1929, a little known market timing system predicted stocks were overvalued due for a major crash – just days before the Dow Jones shocked Wall Street by tumbling 23% in 2 days.

Anyone who listened saved a fortune – literally.

That same system later told investors to get back in the market in 1932 – just before it rose 365%. It also called the 502.4% rise between 1949 and 1966, the 23% crash in 1987, the bull market of the 1990s and the crash in 2000.

In fact…

This market timing system has predicted EVERY major move on Wall Street for the last 100 years. And following its advice has proven far more lucrative than simple buy-and-hold investing.

Years ago, two analysts named Robert Edwards and John Magee put this system to the test. They wrote about it in a book called Technical Analysis of Stock Trends.

The study tracked this system’s performance using over 59 years of live stock market data. They compared the results to how much you would have made with buy-and-hold investing over the same period.

Buy-and-hold investors would have turned a single $1,000 investment into $17,570. This system turned every $1,000 into $112,360. Or about 112 times your money. That’s nearly seven times more than buy-and-hold investors made.

But that’s not even the best part…

While the S&P 500 has averaged about 11.3% over the last 34 years, this market-timing strategy helped investors move in and out of stocks skillfully enough to pile up average annual gains of 22.6%…for 50 years.

Those are Buffett-sized returns. And that’s why I am so excited…

Recently, our very own value expert, Chris Mayer, took this proven market timing system and made it even more powerful. He figured out a way to use the same proven indicators – that predicted every major market move since the early 1900s – to predict individual stock moves.

Chris actually looks for what are called “Crisis Points.” These are the very points when a stock is set to catapult – up or down.

That means in any given day, Chris is following about 8,000 potential moneymaking opportunities. And better still, he leverages those moves by up to four or five times by recommending appropriate puts and calls. And it works…

Chris has already racked up gains of 121%, 42% and 40% to a small group of investors. And now he’s asked that I invite you to join in the profit making. But you have to hurry…

In 14 days the price to join Chris will rise considerably. And I do have to warn you. There is a very limited number of people who can join Chris and his Crisis Point Trader System. So please hurry and reserve your spot today.

Best regards,

Addison Wiggin
The Daily Reckoning
March 12-13, 2005 — Baltimore, Maryland

P.S. You wouldn’t believe what this powerful system is saying about today’s market.


And The Markets…

FridayThursdayThis weekYear-to-Date
DOW 10,776 10,852 -165-0.1%
S&P1,200 1,209 -22-1.0%
NASDAQ2,042 2,060 -29-6.2%
10-year Treasury4.55%4.47%0.240.33
30-year Treasury4.82%4.76%0.170.00
Russell 2000627 627 -18-3.8%
Gold$444.95 $442.30 $11.501.7%
Silver$7.53 $7.49 $0.1810.5%
CRB318.62 315.15 9.5612.2%
WTI NYMEX CRUDE$54.43 $53.54 $0.6525.3%
Yen (YEN/USD)JPY 104.05 JPY 104.07 0.69-1.4%
Dollar (USD/EUR)$1.3450 $1.3428 -3170.8%
Dollar (USD/GBP)$1.9238 $1.9227 -108-0.3%