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“It isn’t that they can’t see the solution. It is that they can’t see the problem.”

                             G.K. Chesterton

FX Trading – Global demand questions still…
If China is the spark for global demand, why are Japanese exports to China still in the proverbial toilet? If Europe is on the road to recovery, why have Japan exports to the continent been crushed?

In the AP story regarding the dismal export performance for Japan in July, noted above, were these tidbits of information:

  • “[Japanese] Asian-bound shipments fell 29.9 percent [in July], while those to China alone declined 26.5%, the ministry said.”
  • “Japan’s exports to the European Union decreased a steeper 45.8 percent.”

These numbers sound bad to us, no matter how you slice them. But the chief economist at Barclay’s Capital is not worried. He said he sees it as “an adjustment to the pace of increase.” Hmmm… Maybe it’s faith-based economics! This game of forecasting fundamentals seems quite far from a “science.”

We are not the only ones concerned about the old “double dip.” Reported party animal Professor Roubini is re-thinking his more optimistic forecasts from a couple of weeks ago, and re-forecasting back to his original forecast of growing concern of a double-dip. That is the M/O it seems when you become a media superstar, just keep forecasting and hope they remember the one that was right. It seems to have worked for Mr. Rubini, otherwise why would all those vivacious young investors be hanging with the Prof all the time.

Okay! What is the market telling us? It seems it may be at least hinting at something, if not outright ringing a bell…and that something may just be that another bout of risk aversion…

Below are some of the comments and charts we sent our Members yesterday (and Sunday)…we are positioned accordingly should markets turn:

The commodity currencies (NZ$ exception) failed to make new highs in line with stocks and oil, as they have in the past (refer to the key levels issue we sent on Sunday). In fact, crude was down around $2.45 today and the stock market has been unable to hold its gains and weakening into the close and commodity currencies reversed strong early gains.

SPU Daily: A perfect Japanese doji candlestick yesterday. Something to note as often the near-term move following a doji has legs; today stocks again failed to hold the high…

10-year Note Futures Daily: Bonds also reversed to trade higher yesterday and followed today (this in the face of the massive US deficit announcement). Higher bond prices have been correlated with weaker stocks and a stronger dollar lately.

Obviously we have found some charts to fit the story here. Granted! The point could be made this is simply a near-term correction setup and nothing more. True that! But if the market view morphs from complacency about recovery being on track to one of a double-dip mentality (we are not sure we emerged from the single dip) on the evidence global demand has not yet rebounded, al la powerhouse exporter Japan numbers, then a minor correction may lead to a lot more.

It’s not necessarily our forecast, unless of course it comes true.  But it is to at least make the case there is a whole bunch of real risk still out there in the real world the VIX and many others are looking right past…