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Rate Of Change
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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Have 20 acres in the UP which cost less than a mid-sized Amerikan car.
Good Choice. I've got a 2006 Honda too which I plan on keeping for next 10 years or so. I remember the shocked look after I took a test drive and told the salesman I'd buy it at the list price. Why shocked? He asked me how I wanted to finance it and I told him I'd write him a check. That's how I bought my Harley Road King too. Debt is slavery. If you can't save enough to buy something just don't. But I'm hardly alone on that view here at ZH.
I like my 1996 Honda more than you like your 2006 Honda!!!
No problems for 16 1/2 years, except a failed radiator.
We did buy it new.
I bought my 1992 Toyota for $10,000 in 1993 and probably won't have to buy another car. I had to change a timing belt once.
1995 4 cylinder Jeep Cherokee. All cast iron engine; no aluminum cylinder head like your Toyota. Simple easy vehicle to repair; I definetely won't be buying any cars. when I was young I owned a MB and a Jaguar XK sedan; now I'm grown up, (70); a car is just something to go somewhere in. Oh, by the way, I was given the Jeep as a "tow it out of my yard"; it had a loose battery cable; I started it and drove it out of the guys yard. I had to buy a new windshield for it; $368; and a set of four sparkplugs; that was three years ago.
I bought a 1927 Model A new off the lot way back when, and have never looked back. Fashions change but that car just drives and drives. Had it overhauled 8 or 10 times. Paid $300. Great little car!
"New Paradigm" Bubbles, Bubbles, and more bubbles ... 1996-2000 equities is hot go item, 2002-2007 real estate is hotty, 2010-2012 bonds, 2013 FX is the thing, 2014 Au+Ag, 2015 bunker bubble starta.
At least ammo is finally coming back down in price
As I noted yesterday, equities are so 90's, derivatives so 2008/2009, soverign debt so 2011/2012, as today, the game for the TSG's (i.e., traders, speculators, and gamblers) is in the FX markets. Just crazy movements that has got to be driving finance groups in corporations around the world crazy attempting to hedge this environment. Your core business, well forget this as that is left for the peons to manage. The real money is with foreign exchange management as gains and losses can accumulate and then vanish as quickly as a fart in the wind. But of course one must remember that trading FX is nothing more than trading debt as by definition, all currencies are a form of debt (i.e., the US's Federal Reserve Note) with most claims against assets that are, of all things, debt (i.e., the Fed's balance sheet assets are primarily worthless forms of debt).
To me, the instability is based in the fact that while everyone thinks they are smarter than the next TSG, the real issue is that nobody knows where to park their wealth or more percisely, in what paper currency. Today its the Euro. Last year it was the Yen. Before that the USD and around and around we go. No other currencies have the stablility or size (on a global basis) to park large amounts of capital so everyone is chasing the same BS stories, hopes, and desperation in a search for some type of stability. With PMs under the watchful eye of TPTB as well as oil, one is left to wonder when this powder keg will explode. Just think of the damage which could be created if just 2 to 3% of this paper wealth moved into smaller real asset markets (e.g., PMs).
Hard to believe that these violent FX swings are healthly or productive to the market/economy but rather, are really just the final canary in the coal mine in terms of the panic that could ensue when wealth leaves paper and looks for real assets. With everyone on the same side of the trade right now and by that I mean in debt based investments including government bonds/bills, derivatives, and currency, any slight panic and change in sentiment towards real assets away from paper would result in the mother of all exits (and one for the record books). Maybe TPTBs have more up their sleeve, tricks, and/or tools that we know about as they've held on for quite some time but in the end, the study of economics really comes down to one simple idea/concept - time and pressure. With too much debt and not enough assets to support the debt, eventually, time and pressure will force all values to rebalance.
Debts that Can NOT be repaid won't be........
I'd give you three thumbs up if I could. Always remember to go back to basics; they predict the future real well.
The Eurozone is going to be dead meat if they don't do anything so you know they will so something. What and when are two questions but the most interesting for me is always what will be the unintended consequences. I entertain all speculations.
As a speculator my speculation will be shorting the Euro on the Futures Ex. I did it twice already, and lost money both times. I don't care. When I'm not stoped out; I'll get it back and a lot more; that's the way it works.
Don't worry. you will soon go bankrupt shorting EUR. Then you can stop playing this game.
Go long EUR long term.
And it Glows!
the yen was/is a perfct setup for devaluation. the tsunami and subsequent shutdown of nuclear power necessitating much higher fuel imports, the manufacturing slowdown until repairs and inventory replenishment caught up and now with the chinese import backlash over the island disputes resulted in the negative current account which natuarlly weakened the yen. abe's pounding the new year's mochi was the finishing touch for the ozoni to kick off the new year. i'd like to see a return to 120y/d but i think 110 is probably more realistic unless they unleash the quadrillion yen coin which i don't think is that far fetched.
Honda's coming out with a true rock star bike this year that will set you back...$7500. To buy a comparable machine from Harley or BMW you're talking $20 grand minimum. And of course "the Japanese machine is better." Don't get me wrong...love Harley's, love BMW's...but the value proposition is "more than just compelling." And of course the Japanese will sell this machine "exceptionally well and without complaint." If the same value proposition starts happening in the vehicle space I really fail to see how an already cash starved consumer isn't yet again convinced that "Japan actually cares about me as opposed to all the others." They already have the best brand reputation in the world. Is there anyone even willing to try and compete head to head with them?
I'd still get the A8 L Quattro (black)-Lexi are for chick real estate agents and suburban soccer moms.
For about a third of the money, I'd get the Optima SX T-GDI and spend the remaining $53,000 on gold/silver bullion.
http://gearpatrol.com/2012/10/11/behind-the-wheel-2013-kia-optima-sx/
The A8 is over rated anyways!
Go figure. One poster thinks of a car, I immediately thought of AMD and why they tanked.
I was thinking of the headlights on my lady... (hit the brights)
drive one-it will change your mind. as solid as a King Tiger tank.
I wonder if all the yuppies and those stinkin baby boomers will be able to drive up in style in premium cars to Obam-MAO"s soup lines.
I love how the cars are getting older per capita, but the head lites are all still new.
The Audi is not radioactive...yet.
the solution is as simple as it is obvious: resume the strong dollar policy that made this country the world's pillar of economic strength.
the cost of the audi and the lexus will drop down to mere peanuts, to the benefit of the american consumer
The fed always acts in the best interest of the american consumer.