Remember the Thing with North Korea? KRW is Still a Good Short


Oh so long ago, in the halcyon days before "Charlottesville", our number one worry was a nuclear conflict with North Korea. Hmm, yes, it has been a slow news cycle, hasn't it?


And while we're on the subject, am I the only one that noticed the word "Charlottesville" is already being used as a pejorative adjective to describe all that is wrong with the country, the far-right, intolerance, or whatever is stuck in your craw, no different than places like "Watts", "Stonewall",  or "Midtown". Trouble is Charlottesville *was the home of one of the Fathers of our Country and the author of the Declaration of Independence*. He's on the money. Literally. Sorry guys, this one's taken.


But I digress. Getting back to North Korea, or the relative lack of interest after cooler, or at least, simpler, heads prevailed, probably won't stand as the last word on the subject.


I clipped this chart from the folks at BCA. They highlighted how a short KRW/long JPY position is still near historical extremes, and sets up nicely for a risk-off move, especially one driven by events on the peninsula which would drive both sides of the trade--a weaker KRW, and an unwind of short JPY carry trades.




I suspect part of the driver here has been not only the pickup in manufacturing demand over the past year or so, but also the massive inflows into EM, which for some reason benefits South Korea, despite looking nothing like an EM country. This article in Bloomberg noted that the bond market saw only the second weekly outflow of the year--a trend which is can't last when yields are as pathetic as they are there.


I did kick this idea around a few weeks ago, and while I noted the market has been complacent on Trump’s propensity for craziness, I thought there would finally be a bid for USD after six months of a good old fashioned horse whipping. Well, maybe that’s finally starting to turn...time will tell.




Looking at the chart, we’ve seen a good 2-3% move in both USD/KRW and the JPY cross since late July--the cross is finally breaking out of a range that has held since the US election, and usd/krw continues to be a cheap short for a number of geopolitical risks, EM/China risk, and “USD fuerte” risk. And still screens cheap! Carry on….


Great to have abee and Detroit Red going live again... this subsidiary of TMM2 is going to put out the “Gone Fishin’” sign until Labor Day--although there will be more abuse of spreadsheets and databases than fishing. But I will probably break down and post if something really compelling pops up. Stay safe out there.


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IPA
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August 25, 2017 at 4:44 AM ×

RBOB, three more cents and it'll break out to new highs since Feb 2016 lows. Hurricaine or not, price is King. Crude will follow. Tail wags the dog.

Congrats bro IPA you got PERTAMAX...! hehehehe...
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