Blood Sacrifice

Fallen heroes

Following the hawkish BOJ “leaks”, in Asia trading overnight the Nikkei closed down -2% and Hong Kong closed up nearly +2%.

This reminded me of the blood sacrifice of a hedge fund called Genesis which had to shut down after a disastrous long China / short Japan trade, which cost the fund nearly 20% just in January.

I went to look at the relative performance of the two countries. China is down 50% relative to Japan in a year. You can see where Genesis closed. Right at the lows of the relative trade. Hence why I used the word “Blood Sacrifice”.

We recently went back to the lows of that spread, until the BOJ hawkish “leaks” started hitting the tape. I was expecting a sell-off in Japan but I was also expecting the sell-off to spread to the rest of Asia, including China. It seems not.

I didn’t even have to wonder why. The answer in this tape is always the same: