Rate Of Change

Bruce Krasting's picture



Say you're a Doc, working out of NYU Hospital on 1st and 34th, and on October 29 you park your car in the lot next door. Sandy rolls in, and the next morning your car is 20 feet underwater. You've got insurance, so a week later, check in hand, you look at new cars and narrow it down to two. A decked out Lexus LS460 and very nice Audi A8. The walk out price on both cars comes to 80 grand. Which one do you choose?


That was just three months ago. At that time the relative value of these cars was equal. If you assume that 80% of the cost of the car was the imported value, then you were "paying" 50,394 Euros for the Audi and 5,120,000 Yen for the Lexus. At the exchange rates in early November, the Euro component of the Audi was $64,000 (80,000 X 80% X EURUSD 1.27). The Yen cost was also $64,000 (80,000 X 80% /80.00). The EURJPY exchange rate was 102.

Today the EURJPY FX rate is 1.2650. The dollar cost of those Euros and Yen have changed substantially. $68,900 is now the Euro component of the Audi (+3,900). The dollar cost of the imported Lexus has fallen to $55, 350 (-$8,649). Looking at just the FX rate changes, the cost of the Lexus is down to $71,350, the Audi is up to $84,910. In three months there is a $13,560 price gap. Now which one do you choose?


I bring this up to make the point about how very rapidly the terms of trade have turned against Germany (all of the EU) and in favor of Japan. What is striking, is how quickly the adjustment has been. Consider this 15 year chart of the EURJPY:




What jumps out in the chart is the huge drop in the FX rate that occurred staring from July of 2008, and ending in February 2009. I discount that period of extreme volatility as it was marked by global instability. During those same months the S&P fell 50%. Everything was going wild.

If you exclude (or diminish) the 2008-09 experience, then you could could say that the movement in the EURJPY over the past six months is the most violent (vertical lines) in recent history.


The period from 1999 to 2004 is notable as an "up" period for EURJPY. The trend for that period was driven by steady currency intervention by the Bank of Japan. So the spikes higher for the EURJPY are quite different than what we are witnessing today. The Yen is not weakening because of a forceful Central Bank. If anything, the BOJ has "disappointed" on what it has promised to do.

What we are witnessing is Yen weakness (yes, coupled with Euro strength vs the $). The rate of change has been very substantial, arguably, this is the most volatile period in FX over the past 15 years.


Compare the prior periods of FX upheaval to today. In many ways, what has happened of late with the Yen versus the major currencies is unique to history. What is also amazing (to me) is that this FX violence is happening at a time when equity markets are soaring.

From 1999 - 2003 NASDAQ fell 70%, the S&P got clipped for 40%. 2008 - 2009 was a horror show. Today, the equity markets are thriving on the FX instability.


Are we in one of those "New Paradigm" things with markets again? A financial world that can go through a very turbulent period in FX, while there is no fallout anywhere else?

For what it is worth, I didn't believe in the New Paradigm in 2000, I don't believe in it today.







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moneybots's picture

"It's now all HFT with computers and algorithms, so what have human traders got to do with things anymore? "


The dark pools don't HFT.  HFT algoirithims are hunting out human activity, not simply what other HFT computers are doing.

Orly's picture


I am so glad you brought this to our attention.  Not that I haven't been watching it closely anyways, but most people don't.  You're right that the volatility in this market is unbelievable vis-a-vis the Japanese yen.

Technically speaking, if the EURJPY were to retrace fifty percent of the move from the highs of 170 to the lows of about 90, that would put the pair trading at just shy of 130.  A sixty percent retracement would put the pair at about 139.4.

The retracement has basically taken place over the past seven months and the monthly candles are showing little in the way of slowing down.  It has traded from a bottom of 95.5 to just shy of 127 in that short period.  That is, by any estimate, humongous.

Now, as always the conspiracy theorist, one must ask themselves why and how?

Up the thread, there is talk about Abe and his mouthpiece and, granted, that may have something to do with it but as you pointed out, if anything, the Japanese have disappointed on getting inflation to anywhere near 2% and even state that it may take years to achieve that goal.  Certainly, it doesn't justify such an unreal move in such a short period of time. Keyword there being, "unreal."

Not only that but over the past several weeks, the Triple A's of Abe (PM...), Aso (Deputy PM, famous for saying that the older Japanese should "hurry up and die"...) and Amari (Economic Minister...) have been talking and talking but not much has come of their jawboning.  Big moves have come in when they don't talk, mostly at shift change or on the "wonderful" US prints.

Another thing that bothers me is just what you point out.  No one is going to test drive a $90,000, high-maintenance car when they can get world-class luxury at two-thirds of the price.  Yet, where's the noise?

Sure, there's been some squawk, but it has been mostly out of the US automakers, who should know after thrirty years, that the Japanese don't buy their junk anyway.  Waiting for the uproar and you get...crickets.  Why?

Then, there's this blatant, MSM-type blabber out of the Japanese newsapers, as reported by Eamonn Sheridan over at forexlive.com:


It makes one scratch their head and wonder just what in the wide, wide world o'sports is-a goin' on around here. There are absolutely no fundamentals to back up any of this stuff, save the increasing yield in the US 10-year Treasury.  Which brings me to my question: (Sorry so long-winded here but it is quite important...)

  • With the rise in the 10-year yield, doesn't that make Chinese holdings of US notes worth billions less every day?  I am not familiar with the Chinese durations of their holdings but it makes sense that it has to be costing them money.
  • With the USD and the EUR rising precipitously against the yen, doesn't that effectively make Chinese products much more expensive in the West?
  • With the vast holdings of Chinese gold, who have bought tonnes of it over the past several months, and given the renewed "confidence" in the US economy, wouldn't that make the price of gold susceptible to a similar correction as we are seeing in the Japanese yen, thus massively reducing Chinese spending power, as the value of their holdings plummet?
  • In short, couldn't this all be a knife directed at the back of the Chinese that could eventually topple the fragile economy?  Does it look to you that TPTB are going to dig it in and give it a twist?

As a rhetorical aside, doesn't this also mean that we haven't seen anything yet, as the price of gold is only leaking downward and not plunging?  Is it possible that we could see a retracement on the EURJPY to 148 or even 156 before all is said and done?

Any input you can give on these questions would be greatly appreciated.  Thanks so much, Bruce.


Itch's picture

While everyone is busy pouring over the nuances of central bank balance sheets and their correlations to FX rates, the delayed kick back will come from people getting hammered on ordinary day to day transactions. Trade balances barely even move FX markets anymore, which begs the question...what is the point? Have important FX traders took their eye off the ball? Surely hundreds of billions in trade is worth more than 3 billion taken of the ECB's balance sheet. 

Setarcos's picture

It's now all HFT with computers and algorithms, so what have human traders got to do with things anymore?  Even the maths nerds who write the stuff that enables 'trades' which take place in nano-seconds?

Forget everything we all believed about Capitalism and markets (and traditional banks).

Welcome to the new age of Financialism and the cyber-universe in which nothing is 'real', unless displayed as some chart on a computer sreen.

Marx predicted that, with Capitalism, everything of genuine human value (such as personal relationships) would "melt into air".

Well that happened as individualism and greed swamped social/communal/co-operative existence during the 19th and 20th Centuries, but he did not quite envision this post-capitalist stage of total alienation, with banks now being the SOLE measure of existence, with everything being sold and taxed to keep banksters afloat, whilst EVERYTHING social goes to hell in endless wars all over this planet, as the Washington/Wall Street Empire seeks global hegemony, with Israhell as the "unsinkable aircraft carrier"/"frontier fort" in conquest of the East ... the West having been won with the slaughter of Indians decades ago; so now it is the slaughter of Arabs in the East.

PS You may hate Marx, but only because you've never read him and only because you've believed what you have been told ... which is not that in fact he refused to join socialist parties and that he rather despized the working class.  My point to mentioning Marx is that he had very profound insights which should not be ignored because of ignorant prejudice.

Capitalism is DEAD.

Now it is all about Financialism and the banksters owning everything worldwide ... the ultimate in Fascism in fact, a global NWO, with everything controlled by affiliated central banks and the corporate/military-industrial complex ... NOT a conspiracy theory, because it was all spelled-out with the PNAC and neo-cons during the 1990s (Google and see).

It's all taking place in plain sight, including 9/11, so everyone is wasting time "busy pouring over the nuances of central bank balance sheets and their correlations to FX rates" and so on.

The financial world no longer resembles anything before 9/11 and/or before the repeal of the Glass-Steagal Act under Clinton.


Seize Mars's picture

Who the fuck pays 80 grand for a car?

Why, because it...falls apart more gracefully than a 10 grand car?


Setarcos's picture

Spot on.

I realized this with Rolls Royce nearly fifty years ago, only worse.

Light globes can be no better than those on cheaper cars, nor brake linings mostly, nor wheel-bearings, nor most engine components, nor the body-work basically, nor most of the trim, etc. and increasingly the case since cars like Mazdas and Hyundais have come on the market.

I'm not even sure that luxury brands fall "apart more gracefully", considering stories I've heard about Porsche, Ferrari and so on.

I recently had a ride in new Jaguar, and it was more noisy and cramped than my 1996 Mazda 626 with 260,000 kms on the clock (about 170,000 miles) on the original engine.

When I were a lad you'd be lucky to get about 80,000 miles without some serious engine (and other) rebuilds.

These days, especially, owning a luxury car is just an ego-trip and it will buy you FAR more expensive trouble than a Hyundai Getz, or any number of other cars costing FAR less than $80,000.

(I'm writing as a former tool-maker and a man who has restored old cars - very appealing, but objectively none were a patch on modern standards produced around the world, including China now.)

e-recep's picture

pleasure has a price. people buying luxury cars look for more than moving from point a to point b.

mantrid's picture

"The Yen is not weakening because of a forceful Central Bank. If anything, the BOJ has "disappointed" on what it has promised to do."


on the contrary, yen is weakening because of a central bank that promised one thing and delivered something else...

Aussiekiwi's picture

Go Abe!!, print ,print,print

Yen Cross's picture

 Bruce I caught you on CNBS this morning.  (one question) When you were asked about ( government statistics) were you biting your tongue, while you were BTFD?

  Or was that yesterday Bruce?

Bruce Krasting's picture

Huh? I was not on TV this week (sadly). I wasn't on any radio either (who cares). So I'm not sure what you're referring to.

Got a link? And are you referring to CNBC (vs CNBS)??? If so, it wasn't me. The folks at CNBC hate me. They would never have me as a guest.


New_Meat's picture

shorting JPY is evil.

did I get that right?

- Ned

{until it is? or is not?}

cbaba's picture

Yes Bruce , very good point. Thanks a lot for giving attention to this, Very rare volatility.

Indeed i will call this "Abe kick". He kicked the bee-heave. Japan has enormous depth and it will explode in the near future, there were many articles about this in Zero Hedge .. (i.e. see Kyle Bass).

When Abe said he will ease, the Japanese yen started to drop in value, the Japanese people have enormous savings, they were making money through carry trade before, now they see that Yen is crashing, and looking at rates and seeing that gold is increasing more that 1 % a day compared with less than 0.7% yearly interest they make through Japanese Government Bonds they have only one choice left, they sell their bonds and buy gold or euro or dollar..Then government has to print Japanese yen to pay for these bonds, and this causes Yen to drop more and then more people start to sell their bonds.. This is a chain reaction, it will not stop until it explodes either in japan or somewhere else ( such as Europe exploding) so that Yen becomes valuable again.

We are seeing the early stages of collapse..

THE DORK OF CORK's picture


All credit and no wages makes American & European Jack a very poor consumer when the leverage  hits the real world input wall.




Imagine all the capital spent to avoid building factories closer to raw materials ., cheaper energy etc etc.


The Great lakes / Gulf of st Lawrence area is the best geographical place to have a auto supply chain (car parts is even now a labour intensive industry)

ghostfaceinvestah's picture

Don't worry about Audi, they are shifting more of their production to Eastern Europe and Mexico, that will keep them competitive.



TrustWho's picture

The western world has accepted the price fixing of the Soviet Union. Price fixing caused empty grocer shelves and the eventual downfall of a superpower. They say the future is unknown?

onlooker's picture

Six years ago I bought a 2001 Hyundai Santa Fe with 9,000 miles for $10,000. Now, with 90,000 miles it is worth the same. The 1994 Chev 4x4 pick up is worth more than what it cost new (close anyway) at 200,000. The Grand Cherokee I paid $1200 for 4 years ago is 30,000 miles older and maybe $2,000. ALL within the USA Currency inflation system---- you cant loose.

SKY85hawk's picture


I don't pay retail, even when I was young!

I've never bought a new car because of the first day depreciation.

Jap cars have always treated me well.


That's why I can live comfortably even tho I haven't worked since June 2009.


ajax's picture



You can't lose ?? Fuck you with your "loose"


Joe moneybags's picture

Finally: guys talking about cars and bikes again, instead of electronic toys.

Anglo Hondo's picture

You guys must try out the Audi R8.  I have never, and I mean never had a vehicle like it.  Hand-built, and it will kick almost anything else on the market. Best car I ever had.  I mean, try it out!


TrustWho's picture

Hand-built? Always, I mean ALWAYS, buy the car built by computers and robots. Humans can NOT compete on the quality dimension with robots.

ouchtouch's picture

I'd keep my 2003 A4 3.0L AWD six speed.  Never had a Japanese car I wanted to drive for ten years.

the grateful unemployed's picture

i'd buy the lexus, but the first thing i would do is rig a coat hanger wire around the accelerator.

kaiserhoff's picture

Keep a spare anchor and chain in the back seat, just in case.

kaiserhoff's picture

Nice display of the volatility, Bruce.  This is not the way orderly markets work.

This would be a great time to be a Honda dealer, except that they make most of them here now.

In fact, Japan may shoot itself in the foot.  Imports of raw materials, food, LNG, coal, and everything else will be more expensive.

Exports?  Not much left now that they have been blown out of consumer electronics.  Some machine tools maybe?  Saki, sushi,

radioactive poison puffer fish?  Get yo double deadly fish, right here, kill you twice as nice.

Sounds like one of Ben & Timmy's clusterfucks.

GMadScientist's picture

Doesn't bode well for Senator Turtleface from Tokyo Prefecture.


H E D G E H O G's picture


EnslavethechildrenforBen's picture

You get more mileage out of a columbian hooker.

MrBoompi's picture

My M3 is paid off and there aren't many new cars on the market better than that.  I'd take that $64k and buy some silver.

ptoemmes's picture

I'll keep my six year old paid off Chevy with 72,000 miles thank you and buy PMs with the fiat I did not spend.  

THE DORK OF CORK's picture

I really don't think this international trade & especially inter continental trade is at the heart of the eurozone and perhaps ? the Japan breakdown.

Its the tertiary cause of the breakdown perhaps because of the eurozones focus on exporting to afford imports rather then seeking to reduce international inputs via normal / old nation state investments such as its pre 1986 fixed capital nuclear investments.


The euro money cannot be used for local trade / commerce anymore.


This is far more important for real economies.


The eurozone has created a vast amsterdam like Entrepot economy.............

Entrepots need a hinterland they can access at a suitable cost........


Euroland can no longer access oil without a contraction of domestic demand........


Its over dudes.




The European entrepot.

No longer sustainable me thinks.



The Amsterdam Entreport.



You cannot run a entire continent as if it were a large Amsterdam.


kaiserhoff's picture

Nothing looks sustainable Cork, but Amsterdam entrePOT is way too close to the truth;)

THE DORK OF CORK's picture



Yes , well people don't really get why French wine consumption has crashed  , why the irish don't drink in pubs anymore........


Its not some benign cultural event................


They simply don't have the money tokens.......as everything is thrown into the global trade black hole of endless externalties.


The eurozone has built this gigantic and pointless trade between former countries so as to avoid labour value.


Who gives a fuck if you can drive a fancy hi tech Merc and yet the massive real resources thrown into creating "added value" for redistribution & resale  prevents you having a few beers with your mates.


I want to live to to see the European  experiment completely fucking destroyed.

kareninca's picture

Sorry to be a moron, Dork of Cork, but I don't understand your point.  I looked at the PDF you linked:  it shows that Europe imports most of its raw materials.  And so Europe has to manufacture stuff, to trade for these raw materials (e.g. oil).  Are you saying that the cost of stuff that you have to import, is really high, and so your quality of life is going down?  And that if the Eurozone had a "hinterland" with lots of physical resources, then they could get stuff like oil cheaply?  And you're also saying that the cost of exporting ("creating additional value for resale") takes resources away from people in the Eurozone (but how is that avoidable,if you want to sell stuff in order to get e.g. oil?)?

Obviously everyone else understood what you're saying, since you got five arrows up.  I do understand that the Eurozone is an anti-democratic entity run by unelected bureaucrats who suck out as much value as they can from the population.  But that doesn't seem to be your point here.

THE DORK OF CORK's picture

Think of German car production.

It must import oil / gas, iron ore and other materials to make a input heavy car  - it thus adds great value to these materials.


But the very act of making this luxury adds greatly to basic life support input costs.


Europe must now sacrifice domestic demand to keep ahead of the entropy posse.........as Germany borrows off the entire Eurozone s account to do so.

You thus get this strange event where Italain oil consumption reaches mid 1960s lows (with a much larger population) so that Germany can afford (be competitive) to export cars to China!


Remind me again - what is the purpose of economic activity ?



Look at the latest IEA oil market report.



The latest IEA oil market report.

Italy now consumes less then half of the German oil consumption !!
It also consumes slightly less then Spain despite having a extra 13 and a half ~ million people.

OECD Demand based on Adjusted Preliminary Submissions – November 2012

Germany 2.5 MBD (2.1% PA growth)
France 1.8 MBD (3.9 % PA growth)

Italy 1.24MBD (-11.8% PA growth)
Spain 1.26MBD (-7.2% PA growth)

Who got to eat those Italian & Spanish oil rations ?


kareninca's picture

Thanks for answering.

I guess I did get it, in general.  The economic cost of turning imported raw materials into something exportable is high.  And so what you get as a result of the exporting (given all the Asian and other competition), makes it hardly seem worthwhile.

I read the link re oil you added.  So if oil is going up in cost, all of these pressures will become worse.

Once you add in the parasitic EU, I don't really see things getting better for you.

hardcleareye's picture

D of C

Thanks for the link to the IEA Report, enjoyed the read, provided a couple of laughs and groans......

Melson Nandela's picture

Germany is quite fine with the new hordes of immigrants and squeezing people into mini-jobs and reduced benefits. Hartz IV appealed directly to the German massacistic hard working instinct perfectly,  max weber + bernays taken to its logical modern day economic conclusion.

Draghi has covered up the Euro wreckage masterfully. German banks are still carrying bankrupt Las Vegas casino and empty construction sites in Spain. Southern Europe is headed for industrial oblivion and social disaster. Think Japan without the technology.

Somebody´s going to lose their shirts on Euro soveriegn debt, Euro banks. When the EUR/USD corrects, the easy US MNC profits magically disappear. Oh there´s that pesky 16 trillion in debt and god knows how much personal debt. Ben will never catch up, no matter how much he prints.

Ans when the interest rate event horizon hits all bets are off. 


THE DORK OF CORK's picture

"Southern Europe is headed for industrial oblivion and social disaster"


That event has already happened.


You are correct the losses lie in Germany as that is where the industry remains (for now)


Southern Europe does not need that much technology.

Think of Europe in the 1960s.............it did not need to "add value" to its cars back then.


Each nation produced minimial cars with low non labour input costs.

No need to push high value diesel cars down 30 mile a week pensioners throats so as to add value.


Italain & French wine consumption was much higher back then - why ?

More surplus was available for real end use consumption , no need for pointless frills.




The Spanish miracle car.........



The function of almost every Industrial law in Europe is to "add value" to pay for raw material inputs.

Including health & safety stuff.


GCT's picture

Spot on Dork!  Germany must continue to roll over the rest of Europe.   

kaiserhoff's picture

Much the same here.  The government drones were crowing about adding 157,000 jobs last month, but it's bull shit.

Nearly all of that was part time, near minimum wage stuff.  Not a job, really.  More of an insult.

When California debt cracks, that may bring them down. 

Take good care of that wine.  It's the frog's best skill.

Tijuana Donkey Show's picture

Female "frogs" have plenty of other skills......

ebworthen's picture

$80,000 grand for a car that will be worth $2,500 in ten years?

Definition of a bad investment.  And that is, if it doesn't get wrecked or stolen, not to mention the chips, door dings, key scratches.

ajax's picture



Thank you ebworthen!!!  80,000 for a fucking car??  Are you all insane??

Get a fucking grip.

q99x2's picture

EUR/JPY 1.82% today.

That is quick. With the dollar falling inflation must be about to spike.

TonyCoitus's picture

I like my 2006 Honda cause it's paid for and I ain't buying no stinking new car!

I like expensing it through my business at $1,400/month.  Tax free bitchez!

Instead of buying a new Escalade I opted to buy 20+ acres in Northern Michigan.  Great view of the lake, plentiful, clean aquifer for my well and I can lasso deer from my deck!

Life is good bitchez.