- Investors borrowed yen because of low interest rates in Japan. And they bought stocks and commodities with the money they borrowed. As the Japanese economy gained strength, interest rates and the yen rose. Being short yen, investors started losing money. Outcome: raise cash by selling stocks and commodities, and re-pay the yen loans. And stocks and commodities dived.
- The housing debacle is causing a subprime lending crisis. It could spread to major banks. Outcome: credit crisis. And the market sagged.
What to do? Raise cash and become defensive. This is the time when stocks decline and bond prices rise. But not for long. Why? Because stable or lower short-term interest rates have always been good news for stocks...eventually.
More on www.peterdag.com.
George Dagnino
aka Peter Dag
Editor, The Peter Dag Portfolio
Since 1977
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