The trader who has made huge profits by trading in the options market over the last few years is back for 2024 with a brand new strategy:
If you want to avoid the VIX option (which is why he's called VIX), then don't buy it.
In his latest letter, he explains to investors
He is a he
Has a "big" position in the Japanese Yen – betting that currency will "violently collapse" soon
(As a reminder: The BoJ will meet next week).
"The yen's been falling for quite some time." It is dangerous to predict currency movements, even if the fundamentals demand it. Our performance suffered as a result. The yen, we believe, is oversold due to technical reasons. When these factors dissipate it will likely move sharply upwards. When it happens, it will likely be concertinaed to a rapid uncontrollable upward move. It was to our benefit in 2008 and we think that the current backdrop will have a similar effect.
Ruffer believes that two factors are working together to strengthen his business:
Forced sellers of foreign currency and forced buyers of the yen.
The compulsion to purchase yen comes from two sources, one domestic and one international.
The local demand for the yen is expected to increase as a result of Bank of Japan Governor Ueda’s increased isolation, in his efforts to keep the yields of government bonds below the international rate.
Most likely, the only way to get out of this situation is for authorities to force domestic institutions to purchase these bonds at their current (anomalously high) prices. These institutions will need to sell off large holdings of foreign bonds denominated in foreign currency. Most of these holdings are already hedged in yen. However, a large portion will remain in local currency.
Foreigners who borrowed in yen in order to benefit from a lower rate of interest than that in which they purchased the assets make up the international constituency for forced sellers.
This constituency is more aware than most of the dangers associated with a currency mismatch that, at the crucial moment, works against them."
Ruffer believes that these events could occur as part of a market disruption.
The exchange rate could rise as dramatically as it did against the pound sterling in 2008 (by 50% in a short time).
USDJPY is battling against 150/USD since a long time, prompting a variety of interventions.
Ruffer says that the illusion of stability in the stock market is a myth, and that everyone is about to swallow the red pill.
Our investment strategy is based on the belief that the year 2023 will be a landmark in the history of the world.
Fundamental truths are momentarily overshadowed by market forces, despite their gravitational pull on valuations
In the short-term, these forces are much stronger than just a 'gravitational force'.
Gravity always wins out over a good time in the long run.
As Ruffer, an armchair philosopher, concludes, "Never bet against gravity."
"In conclusion, the world is more than just a little bit aurora borealis."
The West is a dystopian place where everyone is a 'victim'. Central authorities buy off dissatisfactions with money that they don't have. A new order is still to come.
You can find eternal truths by looking at eternal evidence.
In the West, the day when the cost of interest payments on the nation's debts surpasses its (rapidly increasing) defence budget is the one that marks the transition from father to son.
"We know the outcome of the yen's journey, but it doesn't mean that the road will be smooth."
Ruffer's opinion is not so out of the ordinary, but it is unique.
It is rare to find two distinct groups of forced buyers
Finding just one of them is sufficient. It is the
Strong possibility of an exceptional upward move
In the Japanese currency, which gives us the stamina we need to endure the daily erosion of the yen. We will be disappointed if the net result is merely a satisfactory final return."
He could have the perfect timing
As we have noted earlier this week
There is an immediate sense of urgency coming from the Bank of Japan in regards to its experiment with curve-control.
Just hours after the central banks intervention in the bond markets, including
Bank of Japan officials are likely to closely monitor the bond yield movement until the very last moment before deciding whether or not to adjust the yield curvature control program.
This language implies that the central banks may be prepared to adjust their curve control prior to next week's announcement, if need be.
This is especially true if the performance of the bond markets deteriorates.
The tipping point of any intervention is not determined by the amount spent to defend a policy, but rather by the disruptions it causes.
The BOJ sources' story indicates that the threshold of pain is close, if it has not been reached already.
Even though the end of negative rates is still a long way off, a change in curve control could come sooner than market analysts think, especially with recent events.
"Firm conviction that inflation is on an inexorable upward cycle.
"We cannot put a time frame on it but we do know that two factors are more powerful than one to stoke rising prices - the impact central bank tightening."
Vols are so low...
Maybe it's time to get on board the Japanic Trade!