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The Makings of the Fashionable Trade of 2008By
Monday, 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.
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.
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...
Market Notes
Silver Standard Resources (SSRI)... silver
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