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eshmun

12,261 Posts.

3833

18/09/16

13:03

Post #: 19233899
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Originally posted by goldbear77 ↑

absolutely wombat53. thats why i said i see the usdjpy breaking down through the neckline to complete the head and shoulders its been building for past 3 years

this is the same reason why i think usd will fall not rise after a rate hike is digested.

the market doesnt just work off the official rates - it assesses the income and asset/liability behind the paper. rate differentials are important but only one part of that.

thats why - as soon as it announced negative interest rates - japan has faced a rising Yen ever since.

Because the currency market doesnt believe Japanese rates can go materially lower and - when push comes to shove - the BoJ's bonds are regarded as the highest quality in the world - moreso than the US

In the same way - the US could well increase its interest rates - but because their economy is in such aenemic health with negative trending data - the market will see any rise in rates to immediately increase prospect of falling gdp, negative outcomes etc and increased probability of lower rates in future

The big difference between the USD in the 90s to now is the debt + slowing gdp/productivity. That higher liability lower income shift first started becoming an issue in the early 2000s - now its reaching epic proportions.

If the US werent the world's largest economy - on a straight assessment of its balance sheet and national income - it would be much worse than where Australia was in the late 80s - ie Banana republic

The perennial optimists has thought that with recovery US gdp might return to 1990s levels. And so it could start to chip away at its debt.

Has not come even close - and meanwhile its debt is now crushing. That s an everpresent finger on the scale of USD valuations.

This is why i expect a big global inflationary push to start fairly soon. US data continues to trend south, USD falls through the neckline, commodities suddenly 'rise' in price because they are priced in USD, as do interest rates (because central banks want to move to quell overinflation)

- that means two things- everywhere in the world - rents rise (because landlords always pass on as much input cost as possible) and oil/energy price, food and other 'core' inflation elements rise

thats why zerohedge was banging on about stagflation the other day - though 'he' only sees it in the small sense of domestic US data not the trendshift im talkign about

historically big bouts of disinflation end with big bouts of inflation. because everything in inflation is a math calculation and the longer you go the lower the 'year before' you are comparing to becomes.

so when that relationship flips - the apparent flip is much larger in % terms than historical norms

and when i head people talking about 'new normal in global interest rate cycles' - to me its just another 'new normal' like the dot.bom

there's some truth to the changing demographic. but if core cpi starts rising globally - the central banks will still be bringing the 1% interest rate increases to head off any hyperinflation - whatever the gdp

how;s that for a hot pile of thought process to steam clean your ears on a sunday with!

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You lost me after you said.

"the BoJ's bonds are regarded as the highest quality in the world - moreso than the US"

The BoJ might hold the bulk of the bonds but it is the government of Japan that issues them. The fact that the trade in these bonds is so one-sided and the BoJ has been the only taker speaks to the quality of these bonds.

Japan's debt to GDP ratio tells the real story (229% in 2015). Now that's how you measure quality. Markets are just playing to the fast traders drum beat for the moment. Japan survives because it is more politically stable than places like Europe and the population have been nationalists and compliant, rallying around the Emperors since the first Emperor Jimmu in 660BC. Japan's finances are a complete mess but their society is highly cohesive. That's the only reason you'd take a bet on them. Esh
7 Upvote

0 Great analysis

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