Investing in the Yen

There are many reasons why the Yen may be a good long-term bet:

  • If you see the Yen as a share of Japan, Inc., it is a country where unemployment is at a historical 9-year low, whose population is one of the most educated in Asia, with the biggest savings rate in the world (and one of the main creditors of the US), and whose yield curve is pointing to an increase in interest rates.
  • It is undervalued by 21% with regards to the US dollar according to the Economist’s Big Mac Index shows.
  • The undervaluation of the Yen has a lot to do with the “carry-trade”, a process that will surely revert as soon as the yield of US assets, particularly equities decreases, or as the Bank of Japan increases its interest rate once global inflationary pressures gives them some comfort.

Note that this last point makes the Yen a particularly good hedge against the fall of the US equities as this graphical comparison between the Dow Jones Industrial Average and Yen/USD conversion rates shows (when the DJI decreases, the Yen increases, most notably during the late February mini-crash).Note: As I wrote this article, the last 5 days have seen a relatively large decrease (-1.13%) of the US dollar agains the Yen.

If all this does not convince you, consider that according to sources mentioned in this Financial Times article, “One object of Mr Buffett’s affection could be the yen”

Investment vehicles

One simple way to invest in the yen is the CurrencyShares Japanese Yen Trust (FXY), which is roughly equivalent to holding Yens on a Japanese deposit account. In addition to the appreciation or depreciation, the trust may pay a monthly interest to shareholders based equal to the Bank of Japan Overnight Call Rate minus 27 basis points, minus the Trust’s expenses. Note that under Internal Revenue Code section 988, gains or losses related to an investment in FXY will be viewed as ordinary income or loss for U.S. federal income tax purposes.

Another way is to invest in Japanese stocks. I don’t believe that companies traded on US market through ADRs are very attractive in the face of a raising Yen: the US is typically a very large market for them and a raising Yen’s weigh on their exports would offset any effect of the exchange rate on their share price.

Mapping musical tones to colors

In his 1978 book titled The Cosmic Octave, Swiss mathematician and cosmologist Hans Cousto provides an interesting way to map musical tones to colors.

The idea is based on the tonal equivalence of the octave: doubling a tone’s frequency produces the same tone at a higher pitch, and vice-versa. If you double enough times a given tone, you quickly leave the range of frequencies that can be heard by a human. But if you continue doubling the frequency, for a total of 40 times, you reach the range of visible frequencies.

For instance, if you start with an A/La at 440Hz, by multiplying 40 times 440Hz by 2, you obtain 483,785,116,221,440Hz, i.e. approximately 483.78THz. Using the Spectra software, you can then obtain a visualization of this frequency. You get the following color:

483.78THz (A 440Hz)

While one can argue whether the tonal equivalence of the octave can be pushed that far, switching along the way from sonic waves to electromagnetical ones, since I’m not qualified to discuss this seriously, I thought it would be at least fun to apply this technique to 12 colors of the chromatic scale. Here are the results for your viewing pleasure:

F or

San Francisco home prices increased .15% in March 2007

According to the S&P Case/Shiller® published last Tuesday, home prices in San Francisco have increased by .15% since February 2007. This the first uptick since May 2006.

Since May 2006, San Francisco home prices have dropped by 3%. This is to be compared to a 8% increase between May 2005 and May 2006, which leaves me with the feeling that the correction is not over yet.

The data is available here.