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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (230)	7/19/2003 1:17:15 PM
From: Wyätt Gwyön	Respond to of 110194

Also did you see that point from CI that Japanese interventions may have caused recent bond rally? yes, i thought that was very astute. if you look at that table of the UST holdings, Japan was certainly doing the lion's share of the work with net purchases of some $39BB, followed by China at a distant second with $2BB and change. i guess Japan can afford to buy the dollar higher, whereas China, with its growing economy, cannot afford it to the same extent? especially when you look at the level of UST buying as a percentage of trade surplus with the US. certainly if you go back a few decades in Japan's economy they didn't have the kind of extreme (or even secular) C/A surplus that they carry now. one could say they couldn't afford it--i.e., they couldn't afford to fund the overseas assets with domestic liabilities created for that purpose (as they would later during their bubble), given the high capital requirements in their rapidly expanding real economy at the time. as a result there was all the upward pressure on the yen from the dollar peg in the 1960s, culminating in Nixon's closing of the gold window in the early 1970s after which the yen broke loose to the upside. flash forward 30 years and we have China, trying to keep a lid on the RMB with a dollar peg, perhaps not able to afford the aggressive UST buying necessary to stave off a revaluation. is this a setup for a big rise in the RMB? 1971 redux with China playing Japan's role as the up-and-comer? it would be interesting if gold again made an appearance in this tragedy in three acts.