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Thanks for your feedback. I did get a few private responses from O-list
members (mostly thanking for the "heads up").
As Omega-list is probably not the most suitable forum for this kind of
discussion, I've created (on request of others) a new thread at ET at:
http://www.elitetrader.com/vb/showthread.php?threadid=43628
Please feel free to share your ideas there.
Happy New Year,
M
Frank Fleisher wrote:
>
> Hello MT,
>
> I'm surprised no one has responded to this, so I'm forced to post my
> blabber, even though I'm not a bond person:
>
> Friday, December 31, 2004, 7:46:30 AM, you wrote:
>
> > Right now the ONLY reasons that it doesn't correct, is
>
> > 1) foreign central banks (of Japan and China) are intervening to support
> > the plummeting dollar, throwing billions into US bonds (I've done a
> > chart with the dates and amounts of intereventions and the impact on
> > JPY-USD and bond markets -- the week after the Japanese stopped
> > intervening in March-2004, bonds crashed losing >10% of their value in
> > 40days, which is a HUGE 100bp move). The Japanese and Chinese now have
> > accumulated over $1 trillion in US treasuries, which are losing value
> > everyday as dollar sinks further. For how long more they can keep losing
> > and ADD to losing positions, I have no idea!
>
> Asia will stop intervening and dump when they either don't need to or when they
> are forced to. They wish to prop the dollar until China's consumer class matures. But... the
> dollar falls because "the market knows," forcing China to think about
> floating their currency sooner than they wish to.
>
> As you know, as for the Euro, the Mexican Peso, and the rest: they rally because they are
> "Not Dollars" and rally as a hedge over the uncertainty over China
> floating. Combine that with today's markets' love affair with the Chinese,
> and the growing faith in a unified Europe, and you get a chorus over
> whether the US Dollar will remain as the Reserve Currency.
>
> Forget Iraq, that's for non-traders. As for America's
> multi-generational addiction to debt: America has had this type of debt for years. But because of China,
> and the newfound confidence in Euro Unification, this weakness about
> America's debt suddenly matters.
>
> Having said this, let's go beyond the usual interventions and realize
> today's current over-estimation of the Chinese, followed by years of underestimating them. The Chinese
> are human too, and are just as susceptible of screwing up
> on the way, causing the dollar to jump, as well as a renewed tolerance for
> low interest rate US bonds.
>
> > 2) the leveraged carry trade played by funds with other people's money.
> > Basically the fact that real interest rates have been negative for so
> > long (blame the Fed for that) has "forced" fund managers to take extreme
> > risks in the "search for yield" (there was a recent paper by Bank of
> > England on this issue and the implications to the stability of the
> > system (i.e. new LTCMs in the making)
>
> Interesting. REIT's maybe?
>
> > Personally I find it unbelievable the the Fed is doing this to the
> > American people, EFFECTIVELY DOUBLING DOWN the stock bubble of the late
> > 1990s. This policy of too much credit, has inflated all asset classes
> > (real estate, stocks etc) and when the inevitable correction comes, the
> > pain will be much greater for everyone.
>
> I think it's based on mass psychology engineering established from
> things that worked in the past. But they are breaking down today. The
> market is smelling a dead rat around the corner.
>
> As for the American People, they are intoxicated with the opium of
> credit, which has kept them content and mute. This cannot be sustained,
> since human beings are addictive in nature and will always want more
> until they lose access to the drug and cry wolf in pain. It's up to
> our youth to solve this.
>
> > What would be better: if Nasdaq composite topped at 5,000 or 15,000 ?
>
> A Nasdaq 15,000 is better if our own children are the ones leading the
> world.
>
> > People/investors should get IMMEDIATELY out of longer-term bonds (10yr
> > and 30yr ones) at these valuations. Get out of any bond funds in their
> > IRAs. If they absolutely HAVE to have US bonds in their portfolios, they
> > should buy shorter-term bonds (2yr or 5yr MAX) or TIPS (which are
> > inflation-protected, but as explained Fed "steals" from those bond
> > holders because it mis-reports true inflation). Or buy "reverse bond
> > funds" (which gain as interest rates rise). Until real interest
> > rates stop being NEGATIVE.
>
> > Traders could ofcourse short bonds.
>
> As I said, I'm not a bond person, so is the E-CBOT ZB a fair proxy?
> Looking at it I see distribution, which supports your claim.
>
> > Hope this helps. As I explained (see charts below of Japanese
> > intervention vs bond yield/price), this is an accident waiting to
> > happen.
>
> Yes. A necessary generational "kick in the butt".
>
> -F
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