Last week, I warned that shorting the yen over the Italian election result may be a dangerous business, for fear the result threw up either a massively handicapped government unable to press ahead with the austerity and labour reforms required by Berlin, or an unstable government that would be forced to hold fresh elections in short order.
As I write, it's certainly not clear that the centre-left coalition of Pier Luigi Bersani has indeed put enough space between it and its contenders to govern the country. Indeed, there may be no space at all.
The other development in the interim, however, and yen-negative, has been the emergence of Haruhiko Kuroda as the front runner for the position of Bank of Japan governor, or, should I say, the man chosen to execute government reflation plans to the letter.
Meanwhile, I find sterling's reaction to the loss of the country's AAA rating extremely interesting and very negative. When news of the downgrade came out, markets were very illiquid, as London was closed at the time. Sterling immediately traded down to 1.5073 against the dollar and subsequently made a feeble recovery to the mid-1.51's by the time London opened yesterday morning. By this time, I expected that the market may well have got itself overly short of sterling, having had a whole Asian day to do so. Given the numerous examples of reserve currencies that have lost AAA status without suffering unduly, I had expected, if anything, quite a revival for the pound during London trading, as weak shorts were squeezed out. Not a bit of it, hardly any flicker of life. Indeed, just a gradual decline. This tells me there are many investors out there still long of sterling, maybe as a result of the safe-haven status it briefly enjoyed as the Eurozone teetered last year. This was a very weak performance.
The fact is there is very little to stand in the way of a fall in Cable. In contrast to the yen, sterling and the UK are just not significant enough on the world stage to merit accusations of protectionism from other G20 countries. And in any case, if the G20 found it acceptable for Japan to inflate its way out of trouble, they can hardly complain when the UK does the same. Also, if Europe does go into freefall, the USD stands to benefit as a safe haven, but also still the yen, whereas sterling is now so tarnished I can't see it regaining that status for a very long time.
So, if Italy settles down, Cable falls because the Bank of England is inflating its way to recovery, and if Italy blows up and people also need USD, it falls even more quickly. So Cable goes to 1.40 - and who cares? - whereas the yen is a more political animal and will be bought in a severe crisis as money floods home. I know which I'd prefer to short.
As I write, it's certainly not clear that the centre-left coalition of Pier Luigi Bersani has indeed put enough space between it and its contenders to govern the country. Indeed, there may be no space at all.
The other development in the interim, however, and yen-negative, has been the emergence of Haruhiko Kuroda as the front runner for the position of Bank of Japan governor, or, should I say, the man chosen to execute government reflation plans to the letter.
Meanwhile, I find sterling's reaction to the loss of the country's AAA rating extremely interesting and very negative. When news of the downgrade came out, markets were very illiquid, as London was closed at the time. Sterling immediately traded down to 1.5073 against the dollar and subsequently made a feeble recovery to the mid-1.51's by the time London opened yesterday morning. By this time, I expected that the market may well have got itself overly short of sterling, having had a whole Asian day to do so. Given the numerous examples of reserve currencies that have lost AAA status without suffering unduly, I had expected, if anything, quite a revival for the pound during London trading, as weak shorts were squeezed out. Not a bit of it, hardly any flicker of life. Indeed, just a gradual decline. This tells me there are many investors out there still long of sterling, maybe as a result of the safe-haven status it briefly enjoyed as the Eurozone teetered last year. This was a very weak performance.
The fact is there is very little to stand in the way of a fall in Cable. In contrast to the yen, sterling and the UK are just not significant enough on the world stage to merit accusations of protectionism from other G20 countries. And in any case, if the G20 found it acceptable for Japan to inflate its way out of trouble, they can hardly complain when the UK does the same. Also, if Europe does go into freefall, the USD stands to benefit as a safe haven, but also still the yen, whereas sterling is now so tarnished I can't see it regaining that status for a very long time.
So, if Italy settles down, Cable falls because the Bank of England is inflating its way to recovery, and if Italy blows up and people also need USD, it falls even more quickly. So Cable goes to 1.40 - and who cares? - whereas the yen is a more political animal and will be bought in a severe crisis as money floods home. I know which I'd prefer to short.
