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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (19899)	12/30/2004 11:27:12 AM
From: gregor_us	Read Replies (2) \| Respond to of 116555

Japan's Holdings of Treasuries Changes Things Every Day. How much did Japan's buying of the US$ change things. Things were changed over time by the accumulation of treasuries by Japan. And, the fact that they hold .8 trillion of treasuries changes things, every single day. And that's just Japan. Collectively, foreign CB's have effectively removed a substantial percentage of supply of Treasuries from the tradeable float. The market believes they cannot sell. The Daily Reckoning for example also asserted the obvious: what is the point of Mr. Asakawa's blue beeper by his bedside? Both he and his country are imprisoned with their treasury holdings. Mr. Asakawa might as well sleep. Again, this distorts the tradeable float, severely so. Which leaves the other market participants to haggle over the float itself--but, in the shadow of the locked-up mountains of potential supply, held by the foreign CB's. What you get is one seriously effed-up market that no longer tells us anything--except what people do in the face of such distortions. Again, this is why you have such high negative sentiment among active bond market participants--more associated with a market bottom, not a top. You speculate (poorly IMO) that if Japan stops buying treasuries there will be no other buyers. I disagree. Yes. When you accumulate an amount of US Treasuries that represents at least 8+% of our country's entire money supply, I speculate that any changes introduced by such an entity (Japan) to either that accumulation, or, holding, is unlikely to be mopped up by other buyers. More broadly however, I should say that the most pointed aspect of my interest in this subject is not in the possiblity that foreign CB's either dump, or stop accumulating holdings. That is a tad dramatic, and over-focus on such an event is leading people astray. (Not you, though. I think you see through this as well.) Rather, my interest is in the way the market is distorted, and how that gives birth to distorted analysis of the market in its present condition. Best, LP

To: mishedlo who wrote (19899)	12/30/2004 11:41:08 AM
From: russwinter	Respond to of 116555

<Finally I do not necessarily agree that buying treasuries is intervention. They are looking for a place to park US$ and that is a vehicle that for whatever reason happens to be in the best interest of Japan (or so they think). You speculate (poorly IMO) that if Japan stops buying treasuries there will be no other buyers. I disagree.> I'm going to reluctantly apologize in advance about my tone on this one, but what a bunch of utter crock! First of all it's not the "Japanese" that buy the Old Maid Cards (OMC), it's the BOJ, which is a Japanese govt institution. That's a key distinction. You see, private investors bring the USD home from exporting activities and immediately get rid of them (for "real" money and goods in their eyes) through the monetary authorities, who then recycle it and without regard to investment merit. That's not a private market at all, the BOJ sets the level, period. It's a rigged market, paid for by Japanese taxpayers (lemmings). <If there would be other buyers then perhaps Japan did not move treasury yields at all! A very reasonable figure would be about 25bps, and that is the one I will make right now>. How can any sane person looking at the facts say this kind of heavy handed activity by central banks only affects rates by 25 bps? Here's the smoking gun, tatoo it on your forehead. jessel.100megsfree3.com And this is only the major part of the story, add all the cheap money, carry trade lending the Fed carries on to entice dealers and speculators to borrow to hold the OMCs. ny.frb.org bullandbearwise.com And here's some of the guys who use these cheap loans: hedge funds and criminals, now there's a real stable bunch! idorfman.com There is nothing normal at all about this activity now. Again it's a totally rigged market. Play it if you insist, but understand the mechanisms that drive it. I'll bet you any amount you want that if the authorities backed off on this manipulation by even $1 billion a week, rates would skyrocket. In fact, it's so bad right now they are running well over the $12 billion a week, (note ramp cluster from mid-Sept) jessel.100megsfree3.com and that rates would skyrocket if they returned to the trendline.