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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (66983)7/28/2006 12:18:36 AM
From: bond_bubble  Read Replies (2) of 110194
 
Food for thought:
safehaven.com
Aside from inflation sensitivity being one of the reasons, we emphasized the extreme dollar bearishness that is being built up among the major hedge funds. The net long positioning in the hedge funds' favored anti-dollar vehicle - EURUSD - that we show below is at a point where we need to consider the risk of the "depletion of dollar-bearish ammo".

Furthermore, even when the Fed does decide to pause, the bias should remain tilted to the USD side. Although counterintuitive at first, it is hardly surprising that the peak of Fed funds rates has historically coincided with dollar rallies, as bearish positioning ahead of the end of tightening suggests profit taking after the last hike. Logically, a dollar-bearish bias involves having established dollar-short positions. As dollar bearishness soars to record highs, the profit-taking potential upon completion of a tightening cycle surges as well.


Note [BondBubble]: I believe this is what happened when Japanese economy bust into deflation. Yen appreciated until 1995 against USD and inspite of that Japan had positive CPI!! (negative CPI started only in 1996). Imagine what would have happened if Yen collapsed in 1991!! Japanese CPI would have been too high and Japanes interest rate would have been even higher and credit deflation would have been nasty in Japan. However, going forward, Japan is going to have nasty credit deflation.

I also think, every country will plan to have their currency hold high ground when the credit deflation starts. People who get caught on the wrong side of currency is going to have massive CPI inflation and credit deflation. I think US will be part of latter.
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