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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Earlie who wrote (30876)	8/11/1998 12:35:00 AM
From: PaperChase	Read Replies (1) \| Respond to of 132070

Earlie. In one of your earlier posts or perhaps it was MB's post (which I can't seem to find) you or MB suggested that if Japan raises it's interest rates, then the inflow of Japanese funds into the U.S. stock market will slow. I also understand from one of MB's posts that there isn't an inverse relationship between the Japanese stock market performance and their interest rates because the Japanese have a higher savings rate. What I can't figure out is how an increase in Japan's interest rates will cause inflows into our stock market to slow. I could see a slowing of their purchase of U.S. T-Bills. However, the wild expectation of Japanese investors in our stock market is to make 20% to 30% on their money and so they probably won't view an increase in their interest rates as a reason to keep their money at home. What is your view on this?

To: Earlie who wrote (30876)	8/11/1998 10:10:00 AM
From: cardcounter	Read Replies (2) \| Respond to of 132070

derosa's article was dated, but I agree with most of his points... and as a currency trading strategist that is a part time prof at Yale, I wouldn't call him uninformed. We are having a theoretical "what-if" discussion. Go look at the Treasury Yields for today and tell me that the boj's selling of T's is repatriating those notes in a significant way. It isn't. The only thing that's keeping T's prices and the dollar from going any higher is Jap side intervention fears. > He endeavours to refute the idea that the Japanese won't sell treasuries. The fact is that they are and have been since last fall. I don't think he's saying that there will be no selling whatsoever. He's saying that there won't be significant selling pressure of the T's. So if T yields keep going lower and the boj has been selling since the fall of last year.. Then we can see just how much buying pressure can be attributed to the "flight to quality" and how insignificant the boj selling pressure is. The boj has to sell the T's for currency defense. But the jap citizens, companies, and anyone who wants to protect their wealth is buying these notes. Its a circular process. Boj sells treasuries, gets dollars. Citizens sell yen get dollars go buy treasuries. Treasuries price keeps going up. I would hardly call that repatriation. - He is accurate with respect to the current account surplus. He sees the excess moving into foreign markets, which is exactly where it is going, but more importantly, so is the dough being stripped out of the Japanese banks by anxious Japanese savers. Either he doesn't know about this or he is ignoring it. The article suggests the former. Maybe I'm missing something here. I'm not sure what point you're making here. You agree with derosa (exporters aren't reinvesting their dollars in japan) then you point out that Jap savers/citizens are sending their money overseas as well and somehow derosa isn't aware of this. Whether jap companies or citizens are sending their money overseas makes no difference in that the effect is the same... the money flees to areas with real investment opps (the us being a major benefactor of this) and the treasury prices go higher. Your post #30786, which I first responded to, the last paragraph, presents a very bearish outlook in which g-span will have to hike rates to keep foriegn capital from heading for the exits (ie, they give us back all of our treasuries, knock the almighty dollar lower). So the real question here is will the selling pressure on treasuries be so great that 1) yields go up significantly and 2) and interest rate hike is necessitated. Your 30786 argues the bearish side. We shouldn't get sidetracked on whether treasuries are getting sold or not, because as the yields keep going lower due to all the buying pressure there must obviously be a seller on other side of every transaction. We can identify a seller as the boj. But I'm very confidant that they won't dump the treasuries into the market in a significant way. As I said in an earlier post, dumping would only screw themselves over. Which means that the boj knocking treasury prices lower would hurt all the jap citizens that are protecting their wealth. And thats no way to kick start that economy. Sidenote: the humpey hawkins speech by g-span pretty much says that although the fed will maintain its tightening bias (like it can portray any other facade), he basically ruled out any interest rate increasing options b/c of corp earnings and asia crisis.. labor and housing are the only things keepin rates from gong lower, IMO. - He actually cites one of the main causes of the currency exodus problem, which is the desire of those who managed to rescue their capital wanting to find a safer abode for it. That is of course exactly what is happening. Again, are you agreeing with what derosa said or are you trying to suggest that the same scenario will be played out in the US. As investors flee the emerging markets and the asian fallout zones (esp. in fear of the china/russia devaluation), they head for the areas with viable investment opps. That would be the us and europe. Just because the US has a big account deficit doesn't mean pple are going to get spooked and leave.. Capital flows pursue the higher rates of stable return and the US has lotsa of investment oppz . This scenario is even more noticeable when there is unceartainty and fear (ie fear of devaluation and a plunge in the emerging markets)... Looking at the overall monetary base and where it's sitting, isn't important (there are more dollars outside the US than in the US by a significant amount). Interest rates and safety/stability/certainty are important... >> His list doesn't include "buying up truck loads of Yen from Japanese who want to deposit U.S. dollars in U.S. bank accounts". That is what drives the treasury selling by the BOJ. That would be included in the "throwing good money after bad". Buying buttloads of yen is a very temporary fix. An anticipated intervention will be even more temporal in it's lasting effects. If they thought it would be a permanent fix, the Yen wouldn't be sitting at 147 today.