The depiction by Japanese Prime Minister Aso that his economy is in “a state of crisis” tallies well with the performance of the Japanese yen as the quarter and domestic fiscal year end draws to a close. What might happen to its currency when trading starts in April is anyone’s guess, but the rise to 4.4% unemployment announced today gives neither optimism nor provides any sense of urgency to investors considering stepping up risk appetite in the nation. Despite last minute corporate repatriation of overseas earnings back into yen, the unit is weaker all around today and stands at ¥98.30 from ¥97.24 on Monday is an early sign that the dollar will most likely rally to above ¥100 within days. The yen fell for the first quarter against the euro since June 2008 and is closing at around ¥130.75 despite having reached ¥126.71 on Monday.

03-31-2009 10:40 AM EDT Current Price Put Open Int Weekly Change in Put Open Int Call Open Int Weekly Change in Call Open Int Put/Call Open Int Ratio 30-day Historical Vol (%) Implied Volatility (%)

Euro Euro 1.3310 70,895 4,875 19,773 190 3.6 17.6 18.5

Yen Yen 98.5150 59,462 -450 12,438 190 4.8 18.6 17.7

Pound Pound 1.4305 36,901 -61 23,073 -1,936 1.6 20.1 18.6

Canada Canada 0.7952 3,819 60 9,722 23 0.4 17.0 16.4

Aussie Aussie 0.6944 3,804 229 11,261 1,112 0.3 23.1 22.7

Swiss Swiss 1.1365 23,232 -416 3,488 -90 6.7 17.6 16.3

The dollar gave up some ground overnight with investors apparently taking the prospect of a GM bankruptcy on the chin and believing it to be a positive step for change rather than signs of a further downwards march for the economy. At $1.3301 the dollar is weaker from $1.3188 as of Monday’s close. According to an OECD report released earlier today the ECB should consider adopting quantitative easing, which is something it has resisted over and above monetary and existing fiscal efforts put into place. We’ll await the outcome of Thursday’s ECB meet, at which the central bank should announce a further reduction in policy. We will wait to see whether any additional surprise package is attached. If so, that would be negative for the euro, which is currently buoyed by the apparent immunity from quantitative easing.

In the U.K. a poll of consumer confidence rose to its highest reading in 10 months, while the nation’s leading clothing retailer, Marks & Spencer announced better than forecast fourth quarter sales. The pound gained in addition to a rebound for equities, and today purchases $1.4308 against the U.S. dollar. The Gfk consumer confidence reading came in at negative 30 and compares to a May 2008 low point at negative 39. Meanwhile, sales at stores open for at least 12 months shrank 4.2% instead of falling in line with analysts’ expectations of 6.8% to see out 2008. This data appears to be in line with other anecdotal evidence that a trough is forming, which has the potential to mark an ease in the pace of contraction. The pound will continue to trade in a ‘glass half empty, half full’ fashion as investors determine whether there is a larger risk of rolling over or finding a permanent resolution.

The problem from our perspective is that most investors appear to be eager for a recovery and a return to former glory days. What they fail to recognize is that the crazy days of levered economics are likely good for good, at least in the fashion that consumers became accustomed to. To what level of economic activity we return is a huge question. Investors are really trying to position themselves for a level of activity predicated upon government spending, which is replacing absent private capital.

Private capital and private earnings may be a long way off yet in finding an independent and sustainable level that is not dependent in some form or another on government spending. So looking for a return to more aggressive stock market valuations at this point appears to be a losing game. The onset of the G20 meeting in London, which concludes at the weekend will hear a clarion call from British PM, Gordon Brown to save or create 20 million jobs around the world in order to avoid lasting long-term unemployment. This highlights the backdrop against which these finance officials meet and the challenges that they are up against. There is no easy fix and certainly as time passes by, investors will inevitably ask the question as to where the exact destination is.