$Microsoft(MSFT)$ Neutral
WHY IS THIS HAPPENING? I thought id share a little insight as to the first leg of my macro analysis. I’ll keep it broad. Hedge Funds and Investment banks bought yen and borrowed against it at extremely cheap rates in Japan. They took those funds and invested. They secured lines of credit against those investments and leveraged it again. Japan has had currency issues. The bank of Japan had to step in the last three months and strengthen their currency. It worked. As the yen gained strength against the dollar and other currencies it caused margin calls against the loans in Japan. There were deficits. This should not have been that big of a deal. It has turned into a big deal because no one knew how big this yen carry trade was. I would have thought our fed would know. I called for interest rates cuts for many reasons. One was to make sure the yen carry trade wouldn’t flip the scales. The fed didn’t cut rates. Margin calls have ensued. We are seeing a sell off that will continue until these lines are brought into compliance. Its going to continue. Snow Ball effect. Once the selling starts, there will be bounces of maybe 2 to 3% but it’s going to keep coming down. The fed wants the market to correct for several reasons and none of which I agree with. So no one really knows how big this yen carry trade was or is. The unknown amount of required selling is also causing a sell off.
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