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The Makings of the Fashionable Trade of 2008
By Dr. Steve Sjuggerud
February 12, 2007
How did 40-year-old housewives end up thinking it's cool to wear jeans so low that they can't bend over without fear of showing their rear?
I remember when the fashion was the exact opposite, and jeans snapped north of their navels.
I'm not in fashion (as my wife can confirm)... but in my business, I can see trends coming. Like fashion (I assume, of course), it's about the early buzz, and the right people buzzing about it.
At first, the trend appears so daring, it's seems wrong. It couldn't make sense to wear jeans that low... first the rebels do it. Then if it's for real, teenagers pick up on it. And finally, after a few years, once the 40-year-olds are doing it, the trend is close to over.
I can tell you now, there's a new trade coming in the investment world later this year.
I can tell you this because the "rebels" – the guys who think for themselves in the investment world, are all buzzing about it.
The "teenagers" – the big mutual funds and institutions – won't place the trade yet. It's too risqué for them to consider right now. But they will.
And the "40-year-olds" – the armchair investors of the world – haven't even thought about it. But here's the idea: the Japanese yen is about to go into a multiyear bull market.
I first wrote about this last week. But since I wrote about it, I've noticed the investment "rebels" have been talking about it... Jim Grant dedicated the latest issue of his newsletter to this idea. Marc Faber talked about it as his favorite idea this year in the Barron's roundtable.
More importantly to me, my network of contacts is buzzing about it. When I talked to Jason Goepfert of sentimenTrader on Friday, he asked me "Steve, what do you think about the yen?" in the same voice I asked him six months ago about the homebuilders.
In an ideal DailyWealth investment, we look for three qualities: 1) cheap 2) hated and 3) just starting an uptrend.
Right now, in the Japanese yen, we have two out of three. Last week, I told you that the yen is so cheap, a Big Mac in Japan is the same price as a Big Mac in Pakistan. As for “hated” – both Jim Grant and Jason Goepfert point out that we're at an all-time record in the number of people betting on a falling yen.
So the first two of these setup conditions are in our favor. But I'll only jump into an investment after I've seen "confirmation" that the trade is moving in our favor. So I'm waiting for the trend to change – for the Japanese yen show some signs of beginning an uptrend – before I'm willing to commit to the trade. I do think that day is coming. I just don't know when it'll be here. I'm willing to wait.
I think it will be soon – as countries are starting to try to "jawbone" the yen higher. In Germany, the G7 leaders have been meeting, and pressuring Japan about its weak currency has been high on the agenda.
The "rebels" are just buzzing about this potentially fashionable new investment trend. They're all doing it, even if it looks a bit silly to outsiders now. They are the mavericks that are willing to do the opposite of what everyone else is doing now, even if it costs them some money at first.
If it catches on, and I believe it will, the "teenagers" of the investment world will take the trade on. Then the trend will really catch fire. By 2009, if it really takes off, you'll start hearing about it at cocktail parties.
And by 2009 (possibly), the yen bull market will be simultaneously at the peak of its popularity, and coming to an end.
Where do you want to be? Are you a rebel, willing to look ridiculous for a little while, for a potentially big payoff? Or are you an early adopter of fashion, like teenagers?
When it comes to trading, I prefer to go into a trade just after the rebels, but before it's mainstream among the cool kids.
We're not quite there yet when it comes to the Japanese yen. The trend is still down. But I believe we're close. And I think this trade will be here before the end of 2007, actually.
I'll keep you posted on it here...
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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