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Hi James,
My first impression comes from the statement "The irony is that
Japanese regulators were once hugely protective of retail investors
and placed tough restrictions on what products could be sold to
them."
Maybe regulators were strict about the types of investments, but
"hugely protective of retail investors" makes my navel boil tea
(makes me laugh hysterically). For decades here, regulators turned
an absolute blind eye to domestic brokers churning and burning retail
accounts until there was absolutely nothing left. The favorite:
convincing the unsophisticated to switch back and forth quickly from
one loaded mutual fund (investment trust in Japan) to another. These
were 2, 3, or even 5 percent loads that had to be overcome each time.
Some people were swapped several times a year. The promise was
always "we can get back what you lost in the other one in this one;
it's hot". They also did this with equities back before commission
deregulation came in, and people were paying 1 percent and more each
way to trade. I don't need to tell anyone here that if you are
getting whacked for 2 percent or more per round trip, active trading
becomes a fool's errand. But people were gulled into active trading
by feverish salesmen.
I don't know too much about complex yen vehicles, because I would
just naturally recognize that type of thing as outside of my
expertise, and probably designed more for the industry than for me.
Would I be surprised that the Japanese public was "had" again by the
securities industry? Not a lick.
I will tell you that domestic brokers for several years have been
touting foreign currency bonds to retail. The biggest online broker
here has had South African rand denominated bonds on its home page
(in the banner no less) almost every day for at least three years.
The paper has varied from 2 to 4 years, with coupons from 8.5 to 10
percent, give or take a bit. Most people who have bought these are
going to have negative returns due to the currency fluctuations. But
some yield-starved people are always going to bite. Not me. Sure,
they are both Moody's and S&P AAA (advertised prominently of course).
But the issue, obviously, is how many yen you'll get for those rand
at maturity.
Many retail investors lost big bundles last year on forex trading.
Lightly regulated companies that just sprang up like dandelions and
didn't always segregate customer accounts like required -- another
clue that protecting the public is not job number one with regulators
here. Forex trading was seen by the unsophisticated as a "can't
lose" bet on yen depreciation. They were still piling in when the
yen was nearly 120 to the dollar. Accounts collapsed, and so did
many companies. The collapse came shortly after some woman was
featured in newspaper reports as having made big money from her home,
which spurred even greater unsophisticated interest. She eventually
blew her account up, too. Talk about a contrary indicator.
As for the health of the big banks, unless the market continues to
tank, the banks will be fine. Mind you, even with substantial mark
to market this year on their stock holdings, they will make money.
They just won't make as much as last year, nor as much as forecast.
But they are not spilling red ink like in the US or elsewhere; they
are quite solidly in the black. So I don't see a crisis unless the
Nikkei sheds a few thousand more. Always possible in this climate I
guess, but the government would almost surely start buying shares
from the banks before it would let the banks get in trouble again.
So like elsewhere, it eventually becomes a taxpayer problem.
BoJ announced about an hour ago: down 20 bp from 0.5 to 0.3. Tie
vote decided by the governor. I don't see much reaction in the
market at this time. We are also closed on Monday for a national
holiday.
Yuki
Friday, October 31, 2008, 1:34:47 PM, you wrote:
J> http://www.nakedcapitalism.com/2008/10/fears-mount-in-japan-over-complex-yen.html
J>
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