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Mervin -
I suspect this is exactly the opposite of what the Fed wants to see.
They want interest rates higher! And they want stocks at least flat, if
not lower.
Steve Poser
--
Steven W. Poser, President
Poser Global Market Strategies Inc.
http://www.poserglobal.com
Mervin Yeung wrote:
>
> Hi RTs,
>
> Last week, Japanese GDP came out with a surprise. GDP was up. The
> result was that Nikkei shot up and Jap. Gov't Bond (JGB) went down.
> Foreign money started coming into Japanese equity market.
>
> Jap.Yen went up as a result. As the spread (yield) between JGB and US
> T-Bond narrows, Jap. investors have less incentive to buy US Treasury.
> Also, the rising yen against US Dollar make traders think twice about
> doing the yen carry trades. Hence, US T-Bond went down. US stock
> market, as investors worried about the rising long term interest rates,
> went down, too.
>
> In my opinion, this problem can be solved very easily. The key is Bank
> of Japan. Bank of Japan can print as much yen as it wants. My proposal
> is: first, Bank of Japan should print a whole lot of yen, say 9000
> trillion yen. Then, use these 9000 trillion yen to buy US Dollar.
> After acquring US Dollar, use it to buy US Treasury Bonds and Bills.
>
> The net result of these actions will be:
>
> 1. US Dollar goes up against Jap.Yen. Jap. exporters will be in
> ecstasy. If yen also weakens in the crosses, that will be even better.
> Import prices will rise, and Japan will solve the deflationary pressure
> (Japan biggest problem in the 90's) right away.
>
> 2. US Treasury Bonds and Bills will shoot up as a result of these
> buying. The rising interest rate problem in the US will be solved
> immediately.
>
> 3. Sensing that the interest rates, both long rates and short rates,
> are going down, US investors will interpret it as the best sign that the
> inflation daemon is truly dead, and they will start buying. A new
> (re-new) runaway bull market in US stocks will appear.
>
> 4. A runaway bull market in US equity market will attract huge capital
> inflow from the rest of the world. US Dollar will then shoot up. The
> scale of this USD's rise will overwhelm our imagination. Any remaining
> worries about US Dollar's potential weakness, will be extinguished.
>
> 5. The "wealth effect" from this runaway bull market will stimulate the
> US economy. A strong US economy combined with wild-spending US
> consumers will save the economies in the rest of the world and support
> Asia and Latin America's recovery. The global recession crisis, once so
> threatening, will soon be a distant memory.
>
> However, this plan has some side-effects:
>
> a. US trade deficit will rise. This will not be a problem as long as
> the capital inflow into America occurs. Politically, if Jap. gov't
> promises to keep the T-Bond and T-Bill that they have bought UNTIL THE
> END OF TIME, then US gov't should be happy.
>
> b. A financial bubble and an economic bubble may occur in the US. (I
> don't worry too much about this prospect because we are already in one.
> )
>
> All of the above are my personal opinion. They should not be used for
> trading purpose. I do hope that Bank of Japan will do exactly what I
> suggest.
>
> All the best!
>
> Mervin
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