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Gather 'round, fellow doomers and malcontents! Here it is...the Tuesday Chart-fest!

Praise be to Soren for showing me the error I made with the html code last night...that also means he is partially to blame for all of Ike's charts being here in screaming clarity ;)

Thanks for keeping the nightly Wrap-Up going in arete's absence!

Thanks for posting Market Wrap-Up for us since Arete got "kicked out of the class"...

Nicely done. Thanks for posting.

There is an interesting theory being discussed on lemetropolecafe.com regarding the yen. The question is why does Japan appear to be defending 106 so vigorously (with about $70 BILLION spent in January alone).

The theory requires a bit of history: with Japanese interest rates close to zero, a Yen carry trade developed, where people borrowed yen, sold them for dollars, bought US Treasuries, and pocketed the difference in yield. So they are long Treasuries and short Yen.

Apparently the average Yen/USD level of the short positions is around 106. So once the yen falls below 106 you would expect the carry trade to unwind as the shorts cover their positions. To cover, they must sell their Treasuries and buy yen, further strengthening the yen. To prevent this unwinding, 106 is being defended.

On top of that, apparently this level was known and it was assumed by the marketplace that 106 would be defended, so a large number of call options were written at 105. To the extent these were naked calls, it would require buying yen to cover. Also, to the extent they were written by the well-connected big money players, there would be behind the scenes pressure to bail them out by defending 106.

The bottom line, if this theory is correct, is that once 106 is broken decisively, we could see a strong move in the Yen and perhaps, Japan's abandonment of such agressive support of the dollar. This in turn means problems in financing our trade deficit and probably higher interest rates. This could be a key turning point.