*** PRESENTATION UPDATE: June 2011 ***
Find below a presentation I put together in January/February about Japan.
After reading a lot about the subject from people like Kyle Bass, Hugh Hendry, John Mauldin, David Einhorn and others, I decided to study it too. I like these guys because they demonstrate they have sound investment processes and play their ideas through ways that give them a big upper hand in case they're right x what they would lose if wrong. A lot of money managers do the opposite. They gain small for a long time until they don't. And they're gone.
The data presented was sourced from a variety of entities and might not be 100% accurate/on the spot, but it sure gives you a very good idea about where Japan now stands in terms of growth potential, debt sustainability and risk-reward. It hasn't been updated to include after-earthquake/tsunami economic data and governtment/central bank response, however these tragic facts only make the case even more interesting. In my opinion they only increased the probability of my desired outcomes.
At the end I presented trade ideas that, together, from what I call the pillars for the bet against Japan.
Pricing has, of course, changed since then, but not a lot. As others have mentioned, the asymmetry is huge.
The final word on this trade is simple: confidence. If the music stops for JGBs, Japan could be gone quickly.
And if the trade proves to be correct the owner of the bets must therefore be worried about who the counterparties are. Because OTC dealers could be wiped out.
Find below a presentation I put together in January/February about Japan.
After reading a lot about the subject from people like Kyle Bass, Hugh Hendry, John Mauldin, David Einhorn and others, I decided to study it too. I like these guys because they demonstrate they have sound investment processes and play their ideas through ways that give them a big upper hand in case they're right x what they would lose if wrong. A lot of money managers do the opposite. They gain small for a long time until they don't. And they're gone.
The data presented was sourced from a variety of entities and might not be 100% accurate/on the spot, but it sure gives you a very good idea about where Japan now stands in terms of growth potential, debt sustainability and risk-reward. It hasn't been updated to include after-earthquake/tsunami economic data and governtment/central bank response, however these tragic facts only make the case even more interesting. In my opinion they only increased the probability of my desired outcomes.
At the end I presented trade ideas that, together, from what I call the pillars for the bet against Japan.
Pricing has, of course, changed since then, but not a lot. As others have mentioned, the asymmetry is huge.
The final word on this trade is simple: confidence. If the music stops for JGBs, Japan could be gone quickly.
And if the trade proves to be correct the owner of the bets must therefore be worried about who the counterparties are. Because OTC dealers could be wiped out.
The Tail Chaser - The Land of the Setting Sun
*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com
