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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 (23369)	12/14/2004 5:02:55 PM
From: russwinter	Respond to of 110194

CI today on the USD intervention hypothesis. The chart showing indirect bidders might be iluustrative? Indirectly Speaking...In late November we penned a discussion you might recall entitled, "From Around The World And Up Your Street". The point of the discussion was that amidst all the Street noise and din of that moment regarding the foreign sector perhaps jumping ship in terms of buying US financial assets, the facts simply did not bear that assumption out. In fact, far from it. Not only was the foreign sector not backing off in any type of significant fashion relative to historical experience, we pointed out in the piece that we all need to keep in mind looking ahead that the global savings pie, from which these foreign purchases of US financial assets is in part funded, is indeed expanding. By now you are probably aware that in last week's five year Treasury auction, indirect buyers (almost the entirety of which are foreign buyers) took down 65.8% of the total deal. Just for reference, this is a record amount. The poor primary dealers in the US only received 18.9% of what they had tendered for. What you see below is the history of "indirect" buyers in purchasing Treasuries during each 5 year auction of the last year and one half. As was the point of our article, to suggest that foreign central banks are backing away from buying US financial assets is at best uninformed. At least for now. Let's descend just momentarily into a bit of conspiratorial thinking, shall we? Probably a week and one half back, China issued a press release in which one of its officials admonished the US to get its financial house in order. Following on the heels of that article a week later came a communiqué from Japan suggesting much the same thing. Moreover, Japan intimated that US officials were perhaps inviting a crisis of some type in terms of the falling dollar by adopting a benign attitude in recent months. And, of course, the dollar fears hit the US headlines hard. As you know, there are a lot of dollar bears around these days. Far too many for any contrarian to feel comfortable in their midst short term. Of course this is now coming after literally years of a falling dollar. Could it be that Japan and China were simply fanning the flames of currency fears knowing full well they would be participating in the 5 year auction in a big way in just a week or so? In essence, perhaps picking up US financial assets potentially near short term dollar lows? After all, if Japan and China were so upset about the declining dollar as of late, why did they load the proverbial boat at the 5 year auction? To be honest, we suggest keeping a very sharp eye out for currency intervention in the weeks and month ahead. As we suggested some time back, and something every technician and their brother is fully aware of, the area near 80 is a multi-decade support level for the dollar. It's hard NOT to expect at least some type of a bounce there. Literally THE perfect time to conduct currency intervention operations is when the dollar has already begun a rally, not when it's falling. Intervention when the dollar is already lifting is like throwing gasoline on an open fire. And these days, heaven knows the dollar shorts will be the first victims of any rally bonfire. Watch for potential Japanese currency intervention directly ahead if the dollar can hold its own and perhaps rally a bit more. Buying Treasuries in a big way is simply part of the broader dollar support/intervention game.