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

To: Jim Willie CB who wrote (27805)	3/4/2005 3:07:32 PM
From: mishedlo	Read Replies (2) \| Respond to of 110194

The YEN carry trade is losing money. My take is Japan does not care and likely never will care. Actually "never" is far too long a time, but let me say no time soon instead as in at least the next couple years and possibly much much longer unless Japan defaults or officially pegs. IMO it is not really a "carry trade" per say as it is losing money and possibly even known up front that it will lose money. Central banks unlike you or I or Russ, have other overriding concerns than showing a profit. Japan's concerns are well stated and understood but no one believes them. As stupid as this sounds it is feasible that at some point the YEN simply collapses. At that point their "carry trade" will show a profit. Perhaps the big US treasury blowup comes not when Japan stops taking losses but when they try and cash out profits! So far I am the only one I know to mention that possibility. OK what could cause a collapse in the YEN? 1) default of govt debt 2) Japan decides to devalue the YEN and pegs to the US$ at a much lower exchange rate (fewer $ to the YEN). Why isn't 1 or 2 above possible? Otherwise you are preaching to the choir about secular deflation. Hell right now it is not possible to see it except in Japan (and possibly they are even coming out of it) and also Europe who appears to me to be heading prong into it. The inflation we see in the US, comes from an insane effort to prevent deflation and for the time being there is no doubt it has been staved off. This stock market rally and home prices as well as monetary printing are all one needs to see as proof. There not being deflation now, and there not being the seeds of extreme deflation being sown are two completely different things. The problem is people look at conditions of today and extrapolate out to the future as if the current conditions will go on forever. They have gone on far far longer than anyone here thought possible. Perhaps I am mistaken and it takes a spike in interest rates to kill this optimism, but I still think people that borrowed at 1% on arms now getting hit with rising property taxes and rising gas prices and rising interest rate expenses and falling real wages will eventually be done in by perhaps as much as even one more hike. Since I thought it would be three and out perhaps I am mistaken and it goes on until everyone spends every dime they have in refis and second home buying. Every credit boom in history ended the same way: a mammoth credit crunch and destruction of money. I fail to see why or for that matter even how, "this time could be different" Mish