The Hard Trade
As readers know, I have had exposure to Japanese equities, currency hedged, for the past year. That position has been difficult at times, especially since the yen’s strength confounded me. So the recent events have erased any previous gains we witnessed, and in fact turned a winning position into a losing one – not a great turn of events under any circumstances.
The tsunami forced me to reassess the position and as of yesterday, the research into nuclear meltdown made me ever-more hesitant to maintain my exposure. I am still wary. However, as a contrarian, I am often early, and often making uncomfortable decisions with a lot of headline risk. I do not know the complete fallout from the nuclear reactors, nor do I know the full force of currency repatriation. All the models I’ve seen are guesstimates at best.
That being said, the hard trade is often the most profitable! In this case, buying Japanese equities is hard and selling the yen is hard. However, the logic of the trade is in tact, and a natural disaster, while unexpected, hasn’t changed the dynamics, and in fact, the revaluation lower by 10-15% (equities+currency moves) or more has only made the expected return higher.
Relevant ETFs: DXJ, EWJ, FXY
Last 5 posts by Yaron Sadan
- That sinking feeling - May 18th, 2012
- Opportunity on the horizon - May 18th, 2012
- Early can hurt - May 16th, 2012
- Diversify your Diversification - May 15th, 2012
- Losing Money Isn't a Crime - May 15th, 2012
Currency, Strategy/Allocation | Yaron Sadan | 
March 16, 2011 2:57 pm
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