Bond rally nearing an end?

[Optionpro007]

Tony, if you haven't read the "Japanese Liquidity Flows" essay in John Mauldin's Outside the Box e-letter last week, I would recommend it.

enclosed pls find the link for your review. Would enjoy hearing your comments.




http://www.investorsinsight.com/otb.aspx

 

[gharghur2]

Hi!

Read his article thanks.
I'm not a monetarist, only an OEW technician that observes the affects of monetary policies on the markets.
Japan was in a monetary depression for over a decade: nominal interest rates were too high, even at 0%, because of the rate of deflation in hard assets. So they reinflated their monetary base and gradually came out of deflation. Now to think that Japan's reinflation caused a worldwide commodity boom is a bit far fetched. It definitely added to it, of course.

It appears to me that China's entry into the world's marketplace, along with the moderization of its economy, and the dramatic increases in the standard of living of its peoples, is the main catalyst to the commodity boom. Twenty percent of the world's population now has needs they could not afford previously.

China has become a very competitive exporting machine. Kind of reminds me of Japan in the 1970's - 1980's, but with a major difference. China is coming out of economic isolation and transforming from an agricultural society into a manufacturing society, as opposed to Japan's rebuilding of its economy with our help after the war.

The rise in commodity prices is building to a crest. It shouldn't last that much longer as the incremental increases in demand are now leveling off. After the crest, they will probably linger at high levels for a while before turning down when the world's economies contract after this bull market ends.

 

[originalskunk]

Quote from gharghur2:

So they reinflated their monetary base and gradually came out of deflation. Now to think that Japan's reinflation caused a worldwide commodity boom is a bit far fetched. It definitely added to it, of course.

What fraction of the "free money" that was being dispensed by the Japanese Central Bank ended up being invested in US Treasuries? 1%? 10%? 50%? What do you think is/was the cause of Greenspan's long term rate conundrum?

 

[futures_shark]

I read the article as well but for me it made a lot of sense because I've been thinking along those same lines. That no central bank alone can really affect the economy when all national economies are now linked more than ever.

How would a global business be affected by the fed raising USD rates if they can just as easily borrow Yen at 0%?

This is something I've been thinking about on a macro scale. Most pessimists out there look only at the US in a vacuum. But if you expand your perspective to the entire globe the picture may look much brighter.

I'm a strong opponent of free-markets over government interventionism. And I am starting to belive that this time may indeed be different because the global market has become large enough to not be seriously effected by any one governments misguided interventions.

This could still mean trouble for fiat currencies since their only backing is future income streams due to taxation. Many other currencies don't really look much better than the dollar. All of the long term problems of the US face Japan & Europe as well.

 

[mtzianos]

Quote from futures_shark:

How would a global business be affected by the fed raising USD rates if they can just as easily borrow Yen at 0%?

Exactly. And be "assured" that the BoJ / MoF will defend the 110 or 100 level.

Borrow Yen risk-free and invest in anything yielding more. That's been going on for years.

 

[gharghur2]

Quote from originalskunk:

What fraction of the "free money" that was being dispensed by the Japanese Central Bank ended up being invested in US Treasuries? 1%? 10%? 50%? What do you think is/was the cause of Greenspan's long term rate conundrum?

Maybe so, the BOJ I believe holds the largest position in USB's

 

[gharghur2]

Quote from mtzianos:

Exactly. And be "assured" that the BoJ / MoF will defend the 110 or 100 level.

Borrow Yen risk-free and invest in anything yielding more. That's been going on for years.

Makes sense to me too!

 

[gharghur2]

Quote from futures_shark:

This is something I've been thinking about on a macro scale. Most pessimists out there look only at the US in a vacuum. But if you expand your perspective to the entire globe the picture may look much brighter.

Agree to that too!

 

[Optionpro007]

http://www.treasury.gov/tic/mfh.txt

 

[Optionpro007]

Thanks Tony.

I respect your view even though I tend to see the present situation in a different light.
I was hoping the article would bring into question your assessment of this being just a "correction".

I do believe we are at a major top in equity indices.

We will soon find out. Never a dull moment in this business.

Quote from gharghur2:

Hi!

Read his article thanks.
I'm not a monetarist, only an OEW technician that observes the affects of monetary policies on the markets.
Japan was in a monetary depression for over a decade: nominal interest rates were too high, even at 0%, because of the rate of deflation in hard assets. So they reinflated their monetary base and gradually came out of deflation. Now to think that Japan's reinflation caused a worldwide commodity boom is a bit far fetched. It definitely added to it, of course.

It appears to me that China's entry into the world's marketplace, along with the moderization of its economy, and the dramatic increases in the standard of living of its peoples, is the main catalyst to the commodity boom. Twenty percent of the world's population now has needs they could not afford previously.

China has become a very competitive exporting machine. Kind of reminds me of Japan in the 1970's - 1980's, but with a major difference. China is coming out of economic isolation and transforming from an agricultural society into a manufacturing society, as opposed to Japan's rebuilding of its economy with our help after the war.

The rise in commodity prices is building to a crest. It shouldn't last that much longer as the incremental increases in demand are now leveling off. After the crest, they will probably linger at high levels for a while before turning down when the world's economies contract after this bull market ends.