Gersh; RE:" Japan, Inc. "
...from what I can tell - Gersh, the BOJ-Bonds tanked - I mean, they collapsed, man - suddenly sending the world-wide cost of kapital through the roof (since they are the probable original source for most big investment funds).
I *think* that US-TYX were sold, in an abrupt fashion, to raise USD to buy BOJ-Bonds, and so prop them up, re-stabilize them at a new level. As you calculated the other day, we know all that liquidity didn't go into stox - and DJ says it didn't go into EuroBundz.
Something happened in Brazil. There are some political things going on in the region, but lots of USD has been flowing into LatAm equities.
But that LatAm flow is probably peripheral to what happened in Japan.
I don't know why the BOJ-Bonds collapsed, Gersh. Some reports on the wires talk about the Diet potentially coming out with a massive series of new BOJ-Bonds to fund their pending "recovery programmes", motivating people to sell their BOJ-Bonds. But it would take more than heavy retail selling of BOJ-Bonds to cause them to just collapse the way they did, IMHO.
It might have been an intentional thing, Gersh, coordinated between FED + ECB - BOJ. So we'll speculate, FWIW...
The world doesn't want the FED to increase the cost of kapital: the USA is the only economic engine firing on all cylinders right now, and the rest of the world needs this engine to keep on keeping on. But the FED is clearly worried about the "equity bubble" resulting from all the liquidity it created a few months ago. The FED wants to reduce liquidity = increase the cost of investment kapital somehow, but keep the economy strong enough to absorb all the world's surplus production... that's the way I read Greenspan and Rubin.
The ECB needs to lower the cost of kapital: businesses on the Continent are just spinning their wheels right now - they need more liquidity to grow and sustain their social programmes and hopefully, create some new jobs. That's the way DJ appears to be reading the ECB.
Japan needs the EU, too: the USA cannot absorb all the surplus Asian production, and LatAm too. FWIW the EU has made it clear that they will focus on absorbing LatAm production primarily from their former colonial interests (this so-called "banana dispute") rather than via traditional US distributors.
So, the ECB wants to add liquidity. The FED wants to remove liquidity but keep the engine running. Japan's gotta cut export production and grow domestic consumption, somehow.
The global balance would be to increase the cost of kapital in Japan, and decrease the cost of kapital in Europe, and leave US rates unchanged.
I would like to think that this situation is indeed being "managed", Gersh - else, the collapse of BOJ-Bonds could signal some sort of last-gasp breakdown of The Greater East-Asia Co-Prosperity Sphere = Japan Inc.
-Steve |
