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Flu Trumps Treasuries & Juicy Yen Rumor

Chuck Butler (April 28, 2009)

Tuesday, April 28, 2009

Also In Today’s Letter…

By Chuck Butler I’m in Bermuda all week for this wonderful Sovereign Society Total Wealth Symposium.

You should see the list of speakers and presenters that they have put together for this conference! I got to go on a “three-hour tour” (makes you think of Gilligan’s Island didn’t it?) between meetings yesterday of the island. Simply something out of the “old world.” And beautiful!

Yesterday, I told you about the “flu fear” that was sweeping across the markets. Well, there was no inoculation for the markets as the day went on, and the “flu fear” really got a hold of the risk assets. Just when traders were finally starting to focus on the U.S. and their US$100 Billion Treasury Auction, this flu breaks out.

You don’t think that the two are connected do you? Nah… I know I always got that conspiracy blood flowing, but this is a little too farfetched…

Flu Trumps Treasury Auctions

But the focus IS completely removed from the Treasury Auctions this week. Then, on top of the “flu fear,” we have a leaked story reported by the Wall Street Journal (WSJ) that Citigroup and Bank of America were told that both banks MAY need to raise more capital based on the stress test results.

So risk assets don’t have a fighting chance this week, it’s that plain and simple! But what do you make of this report in the WSJ? I don’t find it surprising in the least bit.

So, the euro has given up the 1.30 handle once again, the high yielders are running for the hills, while dollars and Japanese yen bask in the sunbeams provided by the “flu fear” and the stress tests. Speaking of the Swine Flu, the World Health Organization (WHO) now says the epidemic is NOT containable!

GM announced that they would discontinue the Pontiac brand. That means a loss of 21,000 jobs. I saw some numbers that are quite chilling. Before this recession, GM employed 395,000 people, and had 150 plants / factories.

Pretty soon, they’ll be less than 50,000 jobs and less than 35 plants /factories. Now, that’s bone chilling right there folks!

Juicy Rumor May Push Up the Yen

Okay, here’s another story that’s going around the horn today. There’s a rumor going around that Japan’s Sumitomo Mitsui is considering buying Citigroup Japan, for US$5.2 Billion.

Think about the currency trade. All that yen is being sold for dollars to make the trade. Remember, this is a private company in Japan and does not have access to the dollar reserves that the government does.

So a currency trade would be in order. I would think that if this rumor becomes reality, that it would not be wise to own yen, in the short-term while this trade is in play.

Once again from Bermuda…Have a Terrific Tuesday!
Chuck Butler

P.S. While I was out touring yesterday, I hear Frank Trotter made a splash at the Total Wealth Symposium. Read on for his big pick of the day

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