R Fell on Alabama–Presentation to Birmingham Open Source

Birmingham Open Source Software (BOSS) was kind enough to invite me to do a debut presentation on R.  I had a lot of fun.  Below is the embedded Youtube.  Please let me know how I can improve.  I really appreciate helpful feedback.

Opinions Not Backed by Money Updated Again

Strange that I am updating this post for a third time and nothing really has changed, but the fact that nothing has changed is incredibly interesting to me.  Since it is an update, I will not duplicate the explanation, so please read the last version Opinions Not Backed by Money Are Not That Believable--Updated and with R.  The basic conclusion is that we are in a bull market and AAII surveys are bullish, but nobody is willing to bet money on a good stock market.

From TimelyPortfolio

Data in a Google Doc (https://docs.google.com/spreadsheet/ccc?key=0Amqp2r96khJPdENIRnE1SG5nanJ5OXFyYVUxOXRBVmc) sourced from AAII- The American Association of Individual Investors and ICI.

R code (not even worth putting in GIST):

require(quantmod)
require(ggplot2)

aaii_ici=read.csv("aaii-ici-noblank.csv",row.names=1)

#using ggplot example from http://learnr.wordpress.com/2009/03/16/ggplot2-split-data-range-into-multiple-chart-series/
p <- ggplot(data=aaii_ici, aes(x = AAIIBULL-AAIIBEAR, y = runSum(aaii_ici[,4],3), colour = Range, shape = Range, label = Range))
p1 <- p + geom_point() + scale_y_continuous(limits = c(-200000, 200000),formatter=comma) + geom_hline(yintercept=0) + geom_vline(xintercept=0) + stat_smooth(method="lm", se=FALSE) + ylab("ICI Equity Rolling 3-mo Sum") + opts(title = "ICI Equity Flows by AAII Survey")
print(p1)

Japan Trade More Specifically with Korea

Macro analysis of Japanese trade in posts Japanese Trade and the Yen and Japan Trade by Geographic Region revealed some very interesting changes.  Since the Korean Won is so undervalued versus the Japanese Yen on a Purchasing Power Parity (PPP) basis, I was very interested in how this undervaluation might have affected Japanese and Korean trade between themselves and with the United States.  The 2008-2009 financial crisis ended the growing Japanese surplus with Korea, and currently the Japanese surplus with Korea is at its lowest level since January 2003.

From TimelyPortfolio

When we look at the Japanese and Korean deficits with the United States, we can see Korea has maintained the level of surplus achieved prior to the 2008-2009 financial crisis, while the Japanese surplus has eroded rapidly over that same time frame.

From TimelyPortfolio

If the Korean Won appreciates versus the Yen, will Korean exporters maintain their recent market share gains?  If the Korean Won appreciates versus the Yen, will there be any impact on the US $?  If there is unexpected inflation, will this exacerbate the Korean Won appreciation?

R Code from GIST:

Japan Trade by Geographic Region

To further the analysis presented in Japanese Trade and the Yen, I thought I would take the more granular data provided by the Japanese Ministry of Finance on trade by geographic region.  Of course, I will use R to read, analyze, and plot the .csv data.  Below you will see there are only two remaining regions where Japan has a trade surplus (North and South America), and those surpluses are declining very rapidly.

From TimelyPortfolio

R code from GIST:

Japanese Trade and the Yen

I have had the pleasure over the last couple of weeks to help plan the CFA Society of Alabama 2012 Dinner featuring Jim Rogers and Barron’s Senior Editor Jack Willoughby.  The event was fantastic, and I would like to publicly thank Jim Rogers and Jack Willoughby for investing so much time and effort into the State of Alabama.  Both are incredible men, and I was delighted to meet them.

Jack Willoughby challenged Jim Rogers’ statement “you must understand currencies” with the point that  leveraged forex trading that has grown popular is not suitable for investors.  Jim responded by saying currencies seem unsafe just like all investments seem unsafe before a bull run, and that with proper education and management, currencies represent outstanding opportunities.  I think both are right.

Over a year ago in Japan Intentional or Accidental Pursuit of Deflation, I contended that the persistently appreciating Yen was starting to pose an extreme competitive disadvantage to the Japanese exporters.  Korean electronic, auto, and appliance manufacturers (LG, Samsung, Hyundai, Kia, etc.) have exploded their market share in the US due to their huge pricing advantage over their Japanese neighbors discussed recently in Hyundai Motor Europe confident on 2012 goal. 

“…Japanese rival Toyota, which has been overshadowed by the success of South Koreans in Europe in recent years, said good products backed by a currency which is 'extremely competitive' make Hyundai and Kia outperform the market.

'It is probably the mirror of the yen,' Mr Alain Uyttenhoven, vice-president at Toyota Europe, told reporters, referring to the strong yen that hurt Japanese carmakers. “

Japan seems very slow to change, but the Yen seems to have finally found a limit as the Japanese now suffer a significant trade deficit with the world.  The Japanese no longer can pursue the harmful Yen policy of the past.  Instead of Yen to US$ and Euro, they should focus on the Yen versus their competing Asian currencies.

From TimelyPortfolio

The question then becomes does this represents an opportunity for investors, and if it does, how do you go from US stocks and bonds to a short Yen long emerging currency position?

R code from GIST: