Missing The Big Picture

Barry Ritholtz over at the streetdotcom has a column titled The Top 10 Myths of Tuesday's Correction. Just because I disagree with five of them and consider the other five non-starters (i.e. not part of the mythos) doesn't make Barry a bad guy. In fact he's a peach.

But when in doubt, kiddies, Rule One always applies - and rule one is - Nobody Knows Nothing - including me. Just say that to yourself once a day and you will get through life just fine.

But let's say Barry is correct in all regards and the global meltdown wasn't begun by some Chinese Bureaucrat. So what?

The fact is the Chinese market has been oversold for ages just as our own and just as Europe's and just as every other market in the world large and small. It only takes a meltdown in one to cause a meltdown in the rest because, lost in all they hype and hyperbole is the absolute fact that there are more American bucks in the Chinese market than Chinese bucks. That is - every market everywhere is currently being gamed by the U.S. and it's 12000+ funds 24 x 5 (no trading on the Sabbath and that varies around the world).

And what happened was this. On the 22nd February Mr. Smith's XYZ Offshore Makeamillionabillionandyou'renotallowedin Fund saw (maybe began) a meltdown in the Japanese Yen and started quietly unwinding its positions and that just snowballed.

And don't forget it was the Japanese Yen that really caused the problem - yes, we've been witnessing an unwinding of the carry trade implemented using Yen based instruments and dependent on cheap Yen. The Yen got expensive and the always tentative house of cards started crumbling. And guess what - that began on the 22nd of February - a little known, unreported fact available only on this Blog. So 4 days before China came unglued the Yen came unglued. And what part of chaos theory don't you understand, Mr. Smith?

Don't believe? Here's the picture -



Now do I know this for a fact? Of course not - see Rule One for God's sake - but don't you think that my explanation is a little more helpful in understanding the situation than a "10 myths about the Easter Bunny" column might be?

Here's a thought - Monday morning when you get up go look at this site - FXStreet.com - down the page on the right hand column you'll see the title Currencies at a glance and in that area there is a selection for USD/JPY. Click that, expand the java chart and see which way the Yen is going. It could get a lot more expensive (lower on the chart). And if it does it probably means another bad day on the street. And that's the real Big Picture.