No. 223 ~ Coronavirus and the watch market, Part 3

Hello! This is Kaneko from Commit Ginza. When it comes to assets, where do watches stand? As I mentioned in my blog yesterday , in terms of relative value, US dollars, art, fine art, gold bullion, etc. can be used as assets in any country in the world. You are in a position to be recognized. Art, fine art, gold bullion, platinum, and gasoline are also valued in US dollars. To put it simply, for example, the Daytona Ref. 116520, If you have $20,000 in assets, that's a US dollar asset. If you have $20,000 in assets, It would not be an exaggeration to say that it is a US dollar fixed term deposit. Of course, if the yen appreciates, the value converted into Japanese yen in Japan will fall. If the yen weakens, the opposite will be true. I think you should not worry about that and just think about the amount in US dollars. If 1 dollar is 110 yen, it would be 2.2 million yen, and if it is 100 yen, it would be 2 million yen. It's a good way to diversify your assets, and you can also enjoy owning it. Of course, there is the risk of it being dropped or stolen. Considering the type and condition of the watch, in US dollar terms, it has been increasing year by year! A typical physical asset is gold. Gold and watches are real assets, Since there is no cell division or proliferation, interest rates are zero. When the global economy is doing well, stocks and other financial products with yields are bought, This is what is known as risk-on. A strategy to take risks and increase money is adopted. Gold, a physical asset and a "stable asset," is not being purchased. Conversely, when the economy becomes unstable, stable assets such as gold and Cash (US dollars) will be purchased, as was the case during Lehman Brothers and the current economic shock. As a result, bonds are purchased as safe assets in a risk-off environment, and interest rates fall. In response to the sharp decline in the Nikkei average since the end of February this year, Many economic commentators are of the opinion that the exchange rate will exceed 100 yen to the dollar and fall to the 90 yen range. There is a common belief that when stocks crash, the safe asset of the Japanese yen will be bought around the world. In fact, over the past few years, when stocks have crashed, there has been a strong tendency for the yen to appreciate on the same day. Certainly, the exchange rates after the Lehman Shock were linked in this way, but Since then, the Bank of Japan has had the lowest interest rates in the world for a long time. Around the world, the Japanese yen was being sold and other currencies were being bought. →This is the risk-on phenomenon. In short, after Lehman Brothers, risk aversion occurred. The yen carry trade is being unwound, so a large amount of yen is being bought back, I personally feel that the yen has become stronger. I don't think it's because the Japanese yen is a very safe asset. Before the current coronavirus economic crisis, In fact, the euro had a negative interest rate and was lower than the Japanese yen. So, I think the low interest rate currency that was unwound during the risk-off period was the euro, not the Japanese yen. I feel that way. Even though Europe is in such a difficult situation with the coronavirus, The euro won't get cheaper. I feel that this is due to a recovery in the euro carry trade. Recently, the Federal Reserve's emergency interest rate cut has caused the dollar to weaken and the yen to strengthen. The interest rate differential between the yen and the dollar will narrow, causing the yen to appreciate. This time, every commentator was saying that the yen would become frighteningly strong, This remains the case even after taking into account the Federal Reserve's emergency rate cuts. I wonder if the US dollar, the world's base currency, will continue to maintain its position in the future. In fact, the yield on the 5-year U.S. Treasury note today is 0.35%. This indicates that a lot of money is flowing into U.S. Treasury bonds, which is causing yields to fall. In other words, a currency with a lower interest rate will depreciate relatively. This is the yield on the 5-year U.S. Treasury bond, close to the lowest yield recorded when the exchange rate was at around 80 yen to the dollar after Lehman Brothers. Even so, I think the 107 yen range means that the yen is quite weak and the dollar is strong. On the other hand, I also feel that this is evidence that the US dollar is at its strongest. Relative asset thinking, considering the Japanese yen as one asset, changes the way you view the economy. A few years ago, after the Lehman Brothers collapsed, when the dollar was trading at around 80 yen, the Nikkei average was below 10,000 yen, at 7,000-8,000 yen. In fact, for the overseas buyers who sell most of it, it's in dollars, so it's around 90-100 dollars. It was said that the Nikkei average subsequently tripled from its lowest point to 20,000 yen. The exchange rate at that time was around 120 yen to the dollar. In dollar terms, it's $166. I think three times is an exaggeration. The economy is likely to become more uncertain and unstable from now on. I feel that at that time, the position of the US dollar will become even more solid. Continued in Part 4 Commit Ginza Executive Advisor Commit Ginza Executive Advisor Tsuyoshi Kaneko