Stan, your post offers a blinding glimpse of the obvious while completely missing my point altogether despite my attempts to articulate my point in the simplest terms possible.
Your post can be summed up as follows: If you’re engaging in the yen carry trade you might want to be long some yen in case it increases in value vis-a-vis the dollar. There’s nothing “overly technical” about that I can assure you; I think we can all follow you on that one.
My point – again – was that this is not a yen issue, per se, but a relative yield issue between the short and long ends of the curve and the relative risks incurred. As I stated in my last post, if you have some reason to be long the yen then just buy the currency or some short-maturity bill. But, for god’s sake, don’t buy that piece of 5-year paper yielding 1.5% because you’re just not getting compensated for the risk.
Perhaps you’d like to proffer a good reason for buying a 5-year piece of paper yielding 1.5% in any currency when the 6-month equivalent in that same currency is yielding 0.76%. Perhaps you believe that the long end will decline to 1% over a couple of years? If so, we can definitely do business.
(P.S. I’ve already read “Fooled by Randomness,” and while it’s a fine book – one of my favorites, in fact – I don’t see how it is any more relevant to this discussion than to any discussion on investing and humans’ various built-in behavioral biases, including the tendency to underestimate the probability of outliers.)
