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

To: russwinter who wrote (54760)	2/27/2006 12:45:53 PM
From: bond_bubble	Read Replies (2) \| Respond to of 110194

Russ, FCBs can buy US Bonds only with USD and they can get USD only through trade surplus (plus FDI, or current account surplus), isnt that correct? So, if the current account surplus is shrinking (for japan), then there is not much USD in japan to buy bonds (and the US Bond auction is getting bigger and bigger). This should mean that, FCBs are leveraging to buy bonds i.e based on whatever bonds they bought in the past, they are using it as a collateral to buy more US Bonds through leverage!! If ever there is a loss in the US bond market, there should be multiplier effect loss for the FCBs!!! Currently, there is probably lot of FDI in Japan because of the rising Nikkei. When the Nikkei starts dropping, there should be huge negative FDI in japan, causing the leverage by FCB in US Bonds to shoot even higher!! If the Nikkei and NYSE crash, then the bond market is hoping that, bonds will be saved by lowering of interest rates. But if the Fed doesnt lower interest rates, then comes the great GREBB day!!