October 29, 2008

Remember that an entire generation of investing was lost in the 70’s – is it happening now?

10/28/08 800+ pt gain in Dow. U.S. stocks surged more than 10 percent on Tuesday, capping a worldwide rally in equity markets, as investors snapped up shares that had plunged during the worst October on record, and the yen posted its biggest decline against the dollar in more than 30 years. The yen's biggest fall against the greenback since 1974.The Dow industrials and the S&P 500 had their second-biggest point gains after the record rally two weeks ago. A big catalyst for the late-day surge was a huge drop in the Japanese yen after a news report that the Bank of Japan may cut interest rates later this week. A sudden strengthening of the yen during the past week had been destabilizing stock markets around the world, and Tuesday's reversal of that trend was greeted with relief by investors.

- Japanese newspaper report saying the Bank of Japan is considering an interest rate cut sparked the dollar-denominated Nikkei 225 futures index NKc1 to jump 14 percent and hit an upward limit threshold, and helped ignite the U.S. rally.
- The yen's recent rally forced an unwinding of the so-called "carry trade" -- a phenomenon of Japan's low interest rates, in which investors borrowed yen to finance investments in higher-yielding assets, such as U.S. stocks. The yen has leapt about 20 percent on a trade-weighted basis this month alone as investors unwound carry trades, a phenomenon of Japan's low interest rates, in which they borrowed yen to finance investments in higher-yielding assets. The yen's biggest fall against the greenback since 1974.