Before you read today's investment idea, look at the chart below. It's Toyota's worst nightmare.
In the last five months, the yen has moved from 110 to 90 against the dollar, making it 2008's strongest currency. The yen is the highest it's been in 14 years... and it's only a few points away from its highest level ever.
Toyota sells cars all over the world. When the yen rises against other currencies, Toyota's cars are more expensive to foreigners. They don't buy so many. They choose American, European, or Korean cars instead. Toyota loses money.
According to the Wall Street Journal, every point the yen rises against the dollar costs Toyota $433 million in annual operating profit. In other words, over the last five months, Toyota saw $8.6 billion in annual profits disappear... That's about a quarter of its annual operating profit.
This chart shows the Yen Trust. When this fund rises, it means the yen is getting stronger.
Japan's entire economy is a large version of Toyota. Japan is an export economy. Its strategy for prosperity is producing goods and selling them to foreigners. Every point the yen rises costs Japan billions of dollars in profits for its companies, billions of dollars in tax revenues for the government, and thousands of jobs in the economy.
In the past, when the yen rose too high, Japanese authorities intervened in the markets to make the yen fall. One tool they use is cutting interest rates. Low interest rates discourage people from storing their money in yen and encourage them to save their money in other currencies with higher interest rates.
Right now, the Japanese yen has the world's second-lowest official interest rate, after the U.S. The official central bank rate in Japan is 0.3%.
The second tool Japanese officials use to devalue their currency is direct intervention in the foreign exchange markets. The Bank of Japan prints money and then exchanges the yen for dollars in the foreign exchange market, pushing down its price.
The last time the Japanese got worried about the yen being too high was in 2003 and 2004. The yen was around 105 at the time. They spent $2.5 billion pushing their currency down about 20% against the dollar.
The Japanese yen is now around 15% higher than it was in 2003-04. And Japan's economy is much sicker than it was back then. The stock market is close to 20-year lows and GDP is shrinking. There's no room to keep cutting interest rates. I'm certain the Japanese authorities are going to start intervention again soon. It may be happening already. Last week, the head of Japan's central bank told the press he was looking at ways to devalue the yen.
Japan's currency pays no interest. Japan's economy is in tatters. But debt is the big reason I expect the yen to fall. Japan's government is the most indebted in the world... with a government debt-to-GDP ratio expected to hit 150% next year. (It averages between 70% and 75% for the six largest economies in the world.)
To devalue its currency, Japan's going to have to print money using the same "quantitative easing" techniques Bernanke is using right now. These techniques are highly inflationary... and guarantee the yen will fall against other currencies.
You won't hear any other writer in the world predicting inflation and currency devaluation in Japan right now. That's why it's such a good bet. Plus, as you can see from the chart above, we've got the trend in our favor.
FXY is the symbol of the Japanese Yen Trust. When the yen falls against the dollar, this fund falls. The easiest way to bet on a fall in yen is to short this fund or buy put options on it.
JetBlue (JBLU)... airline
VSE Corp (VSEC)... military systems
Apollo Group (APOL)... secondary education
Brink's Home Security (CFL)... home security
Force Protection (FRPT)... military vehicles
Applied Signal Technology (APSG)... terrorist surveillance
Answers Corporation (ANSW)... answers... duh
Emergent Group (LZR)... surgical equipment
Crucell (CRXL)... biotechnology
Repros Therapeutics (RPRX)... biotechnology
Ecology & Environment (EEI)... environmental consulting
Aceto Corporation (ACET)... drug materials and distribution
Tiens Biotech Group USA (TBV)... nutritional supplements
NEW LOWS OF NOTE LAST WEEK
Steelcase (SCS)... furniture
Hill-Rom (HRC)... hospital beds
M&T Bank Corp (MTB)... bank
United Bancshares (UBOH)... bank
Lloyds TSB Group (LYG)... bank
Texas Capital Bancshares (TCBI)... bank
Lions Gate Entertainment (LGF)... movie studio
CurrencyShares Russian Ruble (XRU)... Russian ruble ETF
Legal Notices: Stansberry Research LLC (S&A) is a publishing company and the indicators, strategies, reports, articles and all other features of our products are provided for informational and educational purposes only and should not be construed as personalized investment advice. Our recommendations and analysis are based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.
Readers should be aware that trading stocks and all other financial instruments involves risk. Past performance is no guarantee of future results, and we make no representation that any customer will or is likely to achieve similar results.
Our testimonials are the words of real subscribers received in real letters, emails, and other feedback who have not been paid for their testimonials. Testimonials are printed under aliases to protect privacy, and edited for length. Their claims have not been independently verified or audited for accuracy. We do not know how much money was risked, what portion of their total portfolio was allocated, or how long they owned the security. We do not claim that the results experienced by such subscribers are typical and you will likely have different results.
Any performance results of our recommendations prepared by S&A are not based on actual trading of securities but are instead based on a hypothetical trading account. Hypothetical performance results have many inherent limitations. Your actual results may vary.
Stansberry Research expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. And all Stansberry Research (and affiliated companies), employees, and agents must wait 24 hours after an initial trade recommendation is published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation.
Stansberry Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This website may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202.