An Obvious Trade in the World's Cheapest Big Currency

You have to dig as deep in the barrel as Pakistan to find a country where a Big Mac costs the same as it does in Japan. 

It's been a while since we put on a True Wealth currency trade... but the time is close to do it once again. 

The last time we put on a trade, the euro crashed by about 20%. At the time (the end of 2004), everyone hated the dollar and loved the euro. But the euro was very expensive, so we went against every trader we knew and bet against the euro... 

In fact, it was the big theme in our True Wealth newsletter for 2005 – "the buck stops here." The buck – the U.S. dollar – did stop then... it rose versus the euro for the whole year in 2005... by about 20%. And we closed out our position with a nice gain. 

Since then, we haven't seen a glaringly obvious trade like that one. Until now...

While in Tokyo, I was surprised... I paid full price at the Westin – an extremely nice hotel in Tokyo. My room charge was about $300 a night. Now I know that isn't exactly a Motel 6 rate... but I stayed at a Westin one night in Paris a few months ago, that was walking distance to the Louvre, and the room charge alone was over twice that (and quite frankly, the room wasn't very nice at all... seriously!).

Right now, a Big Mac is more expensive in Argentina, Brazil, Colombia, and Mexico than in Japan. Big Macs are more expensive in Latvia, Estonia, and Lithuania than in Japan. They're more expensive in Turkey and Saudi Arabia. You have to dig as deep in the barrel as Pakistan to find a country where a Big Mac costs the same as it does in Japan. 

The Economist points out the big discrepancy in the current Big Mac prices:"Perhaps the most telling numbers are those for the Japanese yen, which is 28% undervalued against the dollar, and the euro, which is 19% overvalued." 

Time to go long the yen and short the euro? Anyone bold enough for that trade? Not me, not yet. The trend is still against us. But when the trend changes... it will be time to pile in. At that time, the yen will be cheap, hated, and in an uptrend... just the recipe we look for! 

Interestingly, by owning Japanese real estate, you get the double benefit of owning cheap real estate that can go up in value, and cheap yen that can appreciate (by owning the buildings) at the same time. Also, you get the rent that increases in dollar terms as well. 

We have three ways to win... Real estate prices rise, rents rise, and both of those rising in dollar terms as the yen strengthens. It's the making of a great trade that will last for years...