DJIA and USDJPY: Is this correlation telling us something?

dominoes“I grieved to think how brief the dream of the human intellect had been. It had committed suicide. It had set itself steadfastly towards comfort and ease, a balanced society with security and permanency as its watchword, it had attained its hopesto come to this at last. Once, life and property must have reached almost absolute safety. The rich had been assured of his wealth and comfort, the toiler assured of his life and work. No doubt in that perfect world there had been no unemployed problem, no social question left unsolved. And a great quiet had followed. It is a law of nature we overlook, that intellectual versatility is the compensation for change, danger, and trouble. An animal perfectly in harmony with its environment is a perfect mechanism. Nature never appeals to intelligence until habit and instinct are useless. There is no intelligence where there is no change and no need of change. Only those animals partake of intelligence that have to meet a huge variety of needs and dangers.”

- H.G. Wells, The Time Machine (1895)


Interesting how tight this correlation has become lately.  I have removed the labels to allow you to focus on the visual only at first look. Can you name these two price series?  

040212 dji jy resized 600

If you said Dow Jones Industrial Average and Japanese yen, you nailed it!  Below, DJIA is in black (right scale), the USD-Japanese yen in blue (left scale):  

040212 dji jy scaled resized 600

Now take a look at the same relationship, around the same time of year back in 2011.  Back then, USD-JPY peaked in early April and led US stocks lower; eventually dragging the Dow down about 2000 points into September 2011 where it bottomed:    

040212 dji jy scaled long resized 600

You may be asking: Well, what about 2010?  Well, we saw a similar pattern back in 2010 also! USD/JPY topped in early May, the market topped in late April, both moved sharply lower together:    


Just saying ... stay tuned!


Reader Mail on Germany:

I got some excellent feedback on the piece I wrote on Friday, in which I purposely chose a provocative title: Germany: Heroes or Hubris-filled Control Freaks?, in order to summarize some key views that portray Germany as a bit more of manipulator of the Euro structure than they are savior or hero. I agree with one of our readers who wrote “they are neither.”  

Germany - neither heroic nor hubris-drunk, as far as I can see. And by the way - who is stopping other countries' industries to develop new and cost-efficient production-lines? Who is thwarting scientific research resulting in product-developments? Look at the institutional frameworks (which are far from optimal in Germany, anyway) of the weaker EZ-countries. By the way, the € was invented by M. Mitterrand hoping to rein in German economic prowess.

Germany has interests, as any country does; this stuff is not about altruism, never was. The piece on Friday was not meant to “chastise” Germany for doing what is in its best interest.  But I do think it is important to understand: a) there could be much more blowback (economic and political) as Germany expands its control over the Eurozone region to a degree that was never imagined when countries initially signed up for this union; b) Germany’s export focus may not serve them as well as they believe in a world where demand still seems quite tepid relative to past cycles; and c) there are strategic consequences as Germany deepens its relationships with both Russia and China as export markets to replace sagging demand in Europe (the US, a country whose foreign policy is almost always hubris-filled, will react).