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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (7680)	3/13/2007 9:46:13 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

"Carry trades are not easily unwindable. It cannot go on forever either. The U.S. economy might slow down further, or Japan, where inflation is near zero, might see interest rate changes. In these cases carry might be unwound," he said. Boy.. talk about a pregnant statement!! Kuroda dances around the issue of who is going to borrow all that excess depositor money in Japan unless it's foreigners? The way to eventually unwind the carry trade is for Japan to grow its INTERNAL economic assumption of debt so that the cost/benefit analysis to foreign borrowers is less attactive. Bottom line.. Japanese companies and borrowers must replace foreign borrowers in order to insure Japan's monetary base does not contract and launch a recession/depression and deflationary spiral. And everytime the Japanese raise interest rates, that cost/benefit analysis becomes more risky to the foreign borrower of yen. They have to find other investments that pay even higher rates of return. And it ignores the obvious fact that until Japanese depositors are no longer willing to be satisfied with 1/4 percent returns on their money, that carry trade will HAVE TO CONTINE.. But changing to the matter of the sub-prime loan markets, I have a question. If I'm not mistaken, those loans represent the down payments that are normally paid cash by the home buyer. So, it begs the question.. considering that most of these homes were purchased by lower middle class (and maybe middle class) individuals, the only value on those homes that currently is at risk are the 10-20% of the home value those loans covered. Is is fair to say that 80% of the home that is covered by the primary mortgage will be covered by Mortgage insurance typically associated with such loans? Secondly, if those sub-prime loans are now practically worthless, is it not incumbent upon those primary mortgage lenders to re-purchase those obligations and renegotiate the terms with the mortgage borrower? Finally, those sub-prime loans were securitized and resold to the public markets. If those loans were not as sound as they were presented to be to those re-purchasers, do we not have a situation where fraud can be alledged against the mortgage lenders, both sub and prime? Still trying to get a grasp, like most of us, on the actual, or potential ramifications of these sub-prime lenders going belly up. I know that people didn't buy these securitized sub-prime loans without some kind of hedge or insurance. And certainly the mortage lenders demanded insurance in the form of PMI. It's usually directly included in the overall mortage payment. businessweek.com realtytimes.com Hawk

To: John Pitera who wrote (7680)	3/20/2007 4:31:26 PM
From: John Pitera	Read Replies (2) \| Respond to of 33421

China to stop accumulating foreign reserves - Zhou GUATEMALA CITY, March 20 (Reuters) - China will stop stockpiling its massive foreign reserves, China's central bank governor Zhou Xiaochuan said in an interview published on Tuesday. "Many people say that foreign exchange reserves in China are (already) large enough," Zhou told the Emerging Markets magazine, whose latest issue was released at a meeting of the Inter-American Development Bank in Guatemala. "We do not intend to go further and accumulate reserves," Zhou said, adding the government will "cut a small piece of reserves" for a new agency to be set up by China's central bank and finance ministry to manage its massive foreign reserves, which have swollen because of the trade surplus. He said the agency would begin operating this year and focus on profitability and absorbing liquidity, although he did not say how much money would be passed to it. China's premier, Wen Jiabao, said last week that plans to form a new agency to invest part of the country's swollen foreign exchange reserves, the world's biggest at more than $1 trillion, would not have an adverse impact on the U.S. dollar. China's central bank also said last week it would not significantly adjust the composition of those reserves. A large part of them are denominated in dollars. As the reserves have ballooned on the back of China's record trade surpluses, demands have grown for part of the hoard to be invested more aggressively. Investors have long fretted over Beijing's plans to diversify its foreign exchange investments because of their potential impact on global markets. Studies have shown investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by as much as 2 percentage points. The original interview with Zhou can be found at www.emergingmarkets.org ------------------- China reserve comments send dollar lower vs yen Tuesday, March 20, 2007 12:13:42 PM (GMT-06:00) Provided by: Reuters News (Updates prices, adds comment, changes byline) By Steven C. Johnson NEW YORK, March 20 (Reuters) - The dollar fell sharply against the yen on Tuesday, surrendering earlier gains after a magazine reported that China would stop stockpiling foreign exchange reserves. But analysts said People's Bank of China Governor Zhou Xiaochuan might have been misquoted, since China's $1 trillion stash of reserves will keep growing as long as its central bank keeps buying dollars to keep the yuan from appreciating, a practice it has shown no sign of abandoning any time soon. Zhou was quoted by Emerging Markets magazine, a Euromoney publication, as saying "many people say that foreign exchange reserves in China are (already) large enough. We do not intend to go further and accumulate reserves." The magazine was released during a meeting of the Inter-American Development Bank in Guatemala. "Most people in the market just assumed he was misquoted and the intention wasn't that they were going to stop accumulating reserves, but more that they would stop accumulating reserves in the same way as they are now," said Camilla Sutton, foreign exchange strategist at Scotia Capital in Toronto. The dollar dipped to 116.97 yen <JPY=>, down 0.5 percent from levels seen late on Monday. It had touched 118.01 in overseas trade. The euro was 0.4 percent lower at 155.76 yen <EURJPY=> after hitting 156.96 earlier. Against the dollar, the euro traded at $1.3312 <EUR=>, up 0.1 percent. Sterling <GBP=> rallied broadly after above-forecast inflation data boosted the case for higher British interest rates, while the dollar fell 1.2 percent against its Canadian counterpart to trade at C$1.1617 <CAD=>, a three-week low