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Yen’s strength is Sony (SNE) and Toyota’s (TM) weakness

Today's Financial News - Posted October 27, 2008

The Japanese yen has soared in value over the last month. To the uninitiated it may sound like a boon for the country’s economy. But in reality, it is creating some huge problems and destroying a lot of wealth. Companies like Toyota (NYSE:TM) and Sony (NYSE:SNE) are in trouble.

By Andrew Snyder

Baltimore – (TFN): Financial crises like the one we are enduring tend to have a mind of their own. While the talking heads on TV will quote historic recessionary trends or technical trading wisdom, their market wisdom is rarely wise.

Just as no two bull markets are the same, no two bears are alike. If they were, figuring out what will happen tomorrow, or the next day, or next year would be easy.

But we are not that lucky. Every day, we are given new variables, new moves by global governments, and new investor interpretations. Combine the seemingly infinite number of variables and you will get a financial environment like we have never seen before.

Look at what we have today. The credit markets are still ultra-tight. Economies across the globe are are declining at incredible rates. The United States, where this mess started, is actually one of the financially strongest economies and our currency is jumping in value.

And so is Japan’s yen. It has risen nearly 20% versus the American dollar and over 30% to the euro and the British pound.

Worth more is worthless

Japan’s currency valuations are starting to worry economists. As a huge global exporter, an expensive Japanese currency will mean expensive Japanese imports.

Last Friday, the yen jumped so high, one American dollar would buy just 90 yen, a 13-year high. The surge in value and the downturn in global demand are coming at exactly the wrong time for the country, creating a one-two economic punch.

Japan’s stock market has been destroyed by the crisis. After dropping more than 6% over the last day, the Nikkei index hit lows that it has not seen in 26 years.

There are plenty of Japanese manufacturers suffering from the downturn. Sony (NYSE:SNE), which earns the vast majority of its revenues outside Japan, cut its annual profit forecast by nearly 60% last week. It is the same news out of Toyota (NYSE:TM). Experts believe its earnings will be slashed in half. That is not good news for a company that has been a strong leader over the past 36 months.

During economy crises like this one, the world’s interconnected economy becomes obvious. Fortunately, the United States has become a haven to investors looking for safety. That means our stocks and our bonds will remain relatively stronger than our global brethren.

There are more tough times ahead; that is certain. Fortunately, there are some international financial catastrophes that will overshadow America’s problems, creating opportunity for us. Our stock market will be the first to climb. And we will be the first to profit.

Pay attention to the news. Keep an eye on foreign markets. And watch how it is all connected. There are some very interesting phenomenons shaping up across the globe. All of them have the potential to make you money.


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Posted by Andrew Snyder · Filed Under International Investing 

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