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Re: Bank of Japan



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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