BGR:
You made the point that falling U.S. bond prices and rising U.S. stock prices suggested that foreign investors were selling their U.S. bonds to buy U.S. equities and that the selling of U.S. bonds HAS NO RELATIONSHIP TO the credit worthiness of the U.S.
I responded by suggesting that there might be other reasons why U.S. bonds were being sold (to invest in domestic bonds,....Japan in particular. The pressure placed on Japanese Institutions to buy domestic bonds has been immense. Also to buy their own domestic stocks,...most foreign markets have also experienced major moves). But my main point was and is that the selling of U.S. treasuries, represents a dislodging of a multi decade trend that has been a major underpinning to the U.S. economy.
1999 WAS a banner year for inflows of foreign funds into the U.S. equity markets, but the huge U.S trade deficit, the massive printing of dollars, and the remarkable expansion of credit availability in the U.S., all exacerbate the growing worries about the viability of U.S. debt paper and the soundness of the buck. U.S. bond price trends of the last six months as well as Greenspan's four successive interest rate increases (with more to come) sort of reinforce my expressed concerns. Gold's massive leaps, both last fall, and again of late, more than confirm my point. As I have frequently noted, there are FOUR major currencies, not three ("Got Gold?")
That Japan is a mess is a given. In fact, I have posted plenty of details missed by others in this regard. What many investors currently disregard is that Japan's difficulties do not represent a positive for the U.S. situation (nor for the rest of the globe), as the former naive "banker-to-the-world" is MIA and there are no visible replacements, at least none with real (as opposed to printing press) money.
With respect to net flows into U.S. equities, it is worth noting that inflows to U.S. mutual funds that invest outside the U.S. jumped rather dramatically in December,..... up five times the preceding month. Does this suggest anything to you?
Before I leave the topic of foreign buying of U.S. equities, it's worth noting that many professional money managers in the U.S. have historically viewed powerful late stage inflows of European money into U.S. equities as the perfect indicator as to when to exit. I don't know how many times over the last two years I've heard, "It ain't over,...the Europeans haven't dived in yet." Ask anyone in the game if this is an accurate observation.
Why would anyone wish to sell U.S. treasuries to buy Japanese bonds? Well, if you were the Japanese central bank, the reason would be to help your domestic economy survive (recall that Japan USED TO BE the largest holder of U.S. treasuries on the planet). Obviously I wouldn't touch them with a ten foot pole, as it appears to me that the Japanese government is intent on blowing the whole island into the sea,.... but then again, I am not a Japanese insurance fund manager. I suspect a more useful question might be "Why is the U.K., selling treasuries?"
Your next comment, "As if indeed U.S. stock prices are not up, what is this mania that you folks keep talking about...." is in response to my observation that a large percentage of U.S. stocks were not up, but were in fact well below their lows of April 1998. Your latest response suggests that you still have not taken the time to check that situation out. You should.
This comment also suggests that you do not see the current situation as a mania. That is your business. I won't waste time reviewing the lengthy list that supports the mania view as it would be restating the obvious.
You refer to Europe's "sluggish growth". In fact Europe's growth is better than that of the U.S., if one subtracts the "chained dollar" lie. Only the U.S. uses such silly poop to pull the wool over the eyes of its own citizens.
Your comments about Europe's "inflationary background" suggest that you haven't noticed which jurisdiction has maintained the printing presses on 24 hour shifts. The U.S. inflation situation is every bit as bad as anything found in Europe.
Not to be picky, but I see the coming "wealth effect" squeeze as deflationary, not inflationary. I suspect that this is what you meant.
Your dismissal of a U.S./ credit rating organization placing U.S. debt on credit watch as being of no importance to the foreign inflow of funds situation is ludicrous. How can a foreign fund manager buy paper after it has been downgraded in its home jurisdiction? If it then falls, he is toast. These guys are not "clear stupid" and they treasure their big salaries as much as our guys do.
The Euro definitely looks a better bet to me (it doesn't have six trillion dollar albatross around its neck), but as I have said all along, currency worries should be hedged with gold, the ultimate real currency. Have I been right?
By the way, check out the move in gold in foreign currencies if you really want to see the situation with more clarity.
Your comment that "it is all speculation....." tells me that you have done nil homework on the gold or currency situations. Central bank leasing and mine forward selling are easily accessed figures that add up to a nasty near term problem.
I think you do solid homework on some of the tech stock situations (except Dell) but your lack of homework on the "big picture" shows. It could end up biting you rather severely.
Best, Earlie |
