The Carry Trade Regime Revives...Barely

January 11, 2008

Elaine Meinel Supkis

The status quo continues! But it is also collapsing even as it is propped up. So the carry trade pouring out of Japan's black hole economy keeps reviving and this pleases the speculators and other pirates. Gold is soaring and so is oil. The present status quo is so easy and so deadly! But people make lots of money betting things will follow the present dynamics. The NYT editorializes that we must have tax cuts [temporary] to boost consumerism. They ignore the trade deficit, budget deficit, savings deficit and all the other red ink problems. I say, why have taxes? Why have interest rates at all? And so we head towards turning into Japan.

Yen Falls as Fed Eases Credit Concerns, Spurring Carry Trades

The yen fell against all 16 of the most-active currencies after the Federal Reserve said it would act to ease tightness in credit markets, giving investors confidence to buy higher-yielding investments funded in Japan.

The currency headed for a weekly decline against the dollar and euro as money-market rates fell for a ninth day yesterday. The yen also dropped versus the rand, a target for carry trades because South Africa's benchmark rate is 10.5 percentage points higher than Japan's.

``Expectations of the Fed's 50 basis-point rate cut are growing,'' said Hideaki Inoue, chief manager of derivatives and fixed-income investment in Tokyo at Mitsubishi UFJ Trust and Banking Corp., a unit of Japan's largest publicly traded lender by assets. ``This is giving traders more risk appetite to conduct the yen carry trade.''

A message for the Federal Reserve: the holders of the world's #2 reserves KNOW that if you drop rates, the 'carry trade' will roar into action and the world will be flooded with more DEBTS! And the guys who like to kiss Miz Risky and run riot with this crazy dame will go nuts and drink beers and throw them out of the car windows as Risky hangs around their necks, saying, 'Drive faster! Drive wilder!' And we then get to see the world's economy go right off a cliff.

Sigh. The mere fact that the Japanese who are our dire competitors, are openly gloating about how the Federal Reserve will continue the destructive status quo which has the Japanese exporters running riot over our own system, is reason enough for the Feds to NOT drop rates but RAISE THEM. The banking crisis we are seeing is a PIRATE CRISIS. The pirates are seeing all their loot evaporate. People in America who ran up huge debts on their assets are going to see trouble which they richly deserve. The people who save money and are sober will flourish. Wow. Isn't that the point?

Someday, we must reward savers. We must honor Miz Safety. We must stop the wizards from waving their wands and making money out of thin air. The fact that these wizards have gone berserk is obvious: serious global inflation. Above all, we must stop the mad Japanese carry trade. This is what the entire banking system and world finance is based on: the decade of sub-1% rates from Japan. NO nation in the last...1,000 years has run on such a system! It is an impossible and quite stupid system but it does what it is designed to do: increase exports and destroy consumption in Japan! And it works.

Dreadfully. Yet none of the other G7 nations are trying to stop this. Even when it is painfully obvious now. This is due to it being magical. It makes money appear out of this vast, dark hole to Infinity. And the Bank of Japan has the key to this darkness: no inflation from the entire planet can show up in Japan's STATISTICS. Of course, it is very much there and is eating everything up but the price is paid strictly and entirely by the Japanese workers who suffer the restrictions and losses silently. In the news there, I read stories of people throwing themselves in front of trains, killing their parents and then jumping from balconies, burning their homes or going silently into death in the forests or the sea. This carry trade continues because these poor people don't matter.

This illustrates how death and wealth are entwined. If we care about the Japanese, we would fight the carry trade tooth and nail. But Americans got free money this way and we thought, 'Hey, I can buy a Toyota at 0% interest!' And our financiers want that money, they use it to 'invest' and this is the basis of the vast growth in 'wealth' as everything on this blessed earth is LEVERAGED TO HELL.

And the Nikkei continues to fall. Something is very wrong here. All attempts at regaining the carry trade Holy Grail flounders after great efforts by the Japanese. It keeps failing due to the yen rising in value against the dollar. Just six months ago, it was 116 yen to the dollar. Now they celebrate when it drops to 109 yen to the dollar? HAHAHA. They know this is stupid but they hope to revive the carry trade or else.

China's Trade Surplus Surges to a Record $262.2 Billion in 2007

China's trade surplus surged to a record for 2007 adding pressure on the government to let the yuan rise faster to prevent the economy from overheating and cool inflation.

The trade gap surged 48 percent to $262.2 billion, the state-run Xinhua News Agency reported today, citing customs data. The surplus for December narrowed to $22.7 billion from $26.2 billion in November, Xinhua said. The monthly figure was lower than the $24.4 billion median estimate of 21 economists surveyed by Bloomberg News.
*snip*
``If exports slow in China, you'll see a lot of overcapacity, you'll see margins collapse, you'll see deflation and you'll see a lot of non-performing loans,'' said Huang Yiping, chief Asia economist at Citigroup Inc. in Hong Kong.

China still roars ahead. If we get a global contraction, it will hit China but it will absolutely hammer Japan. And Japan knows this which is why, despite the brave talk, they are filled with great fear. They know they can't keep things going by being honest or following the promises of the Plaza Accords to open Fortress Japan to world trade. Instead, they hope the lure of free money will stop other nations from demanding Japan change. And China's rulers are ready for a downturn. What happens in great downturns when the ruling empire that runs the Seven Seas with a navy that is scared of a few speed boats?

Well, knowing the ruling empire is rotten to the core and unable to function very well, most rising empires destroy the old, rotting empires. Japan can't do this but Russia and China can. The only thing preventing this is nuclear bombs in the US. We will use them.

So Russia and China will gingerly disarm us or in a more hilarious move, simply insure we go bankrupt much faster than they lose authority. In this case, they have a great chance of winning.

ECB Keeps Key Interest Rate at 4% as Growth Slows

The European Central Bank left interest rates unchanged today as concern that economic growth is slowing prevents it from acting against faster inflation.

The Frankfurt-based ECB kept the benchmark refinancing rate at 4 percent, as predicted by all 59 economists surveyed by Bloomberg News. Separately, the Bank of England left its key rate at 5.5 percent to assess the effects on the economy of last month's cut.

ECB President Jean-Claude Trichet today threatened to raise rates as workers demand bigger pay increases to compensate for the higher cost of living. Signs of slowing growth in the 15- nation euro region are staying his hand. The U.S. Federal Reserve has lowered rates three times to stave off a recession in the world's largest economy.

Unlike in Japan where the workers are treated like robots and have the will power of inhuman machines, in Europe, there are still unions. In America, workers are atomized and unable to fight back but in Europe, the demands for redress are loud. The strong euro has made the 8% inflation we have in the US rise only to 4%. But note the silence here. In the US, we accept our 8% inflation and we want carry trade free loans so we can run up more debts, instead of getting pay raises.

So Europe will have higher interest rates and lower inflation while the US has lower rates and higher inflation? And guess who goes bankrupt?

Gold Reaches Record, Silver at 27-Year High on Declining Dollar

Gold rose to a record and silver matched its highest level since 1980 as a weakening dollar increased the allure of the metals as alternative investments.

The dollar was headed for a third weekly loss against the euro on bets benchmark borrowing costs in the U.S. will fall below those in Europe for the first time in more than three years this month. The currency declined after Federal Reserve Chairman Ben S. Bernanke suggested policy makers will have to cut interest rates to counter risks to the economy.

Gold buyers, enjoy this! I hope you all have fun when gold shoots past $1,000 an ounce. We can make a bonfire of paper dollars and dance naked around it. And drink some booze, of course. I was horrified with all the top economic professors were all demanding interest rate cuts and oodles of funny money. Everyone who matters has surrendered to the madness. So if we are going to have 'blood in the streets' Cramerisms determining fiscal and banking policies, we might as well profit from this. And this is too predictable. All the money people know this game now, all the elements of the status quo are set in cement and any deviations are quickly squelched. This will be like child's play, making bets. Like betting on the Patriots in the Super Bowl: painfully easy.

Dead man wheeled through NYC streets to cash check

Two men wheeled a dead man through the streets of New York City in an office chair to a check-cashing store Tuesday and attempted to cash his Social Security check before being arrested on fraud charges, police said.

David J. Dalaia and James O'Hare pushed Virgilio Cintron's body from the Manhattan apartment that O'Hare and Cintron shared to Pay-O-Matic, about a block away, spokesman Paul Browne said witnesses told police.

Are they certain it wasn't Greenspan they were wheeling around Manhattan? Or Paulson? All I know is, this story is a good analogy for today's news.

Beijing University strikes it rich as "Cradle of Tycoons"

With 27 alumni appearing on China Rich Lists from 2003 to 2007, Beijing University was chosen the "Cradle of Chinese Tycoons" in a report released by China's University Alumni Association (CUAA) on Wednesday.

More than 300 alumni of 131 universities showed up on China Rich Lists in the past five years, including two foreign lists -- Forbes China and Hu Run Report -- and two domestic ones, which were Nanfang Weekend and New Fortune 500. Hu Run Report provides rich lists in different industries.

The Chinese love money and make excellent capitalists. I knew this years ago. They are also one of the oldest and most refined empires on earth, one that has been destroyed and reborn repeatedly for thousands of years. A very durable system. And this culture also loves gold. Congratulations, B.U.

Goldman Sachs to Invest In Chinese Partner

Goldman Sachs Group Inc. plans to back a new, $2 billion private-equity fund being set up by its China partner, Fang Fenglei, as many of China's top deal makers try their hand at their own funds.

Goldman plans to put around $300 million into the Hopu Fund as a limited partner, people familiar with the situation say.

The birth of a cluster of competitive private-equity firms run by Chinese deal makers marks an important entrance for China on the global financial scene. Those firms, including Mr. Fang's, hope to compete with the likes of Carlyle Group and TPG, which have dominated private equity in China.

Goldman Sachs runs our Treasury and lots of other things. The Chinese are luring these Gollum guys into the dragon's cave. There, they learn how to be the Dragon's slaves. They then come back here and tell us to keep the carry trade going so we can go bankrupt, faster. And the Chinese then laugh as we drown in debts. And they know that in the end, sovereign wealth turns into sovereign rule. I wish our own country figured this out.

Freddie Mac's Strength Rating May Be Cut by Moody's

Freddie Mac, the U.S. mortgage-finance company that lost a record $2 billion in the third quarter, may be downgraded by Moody's Investors Service because damage from loan defaults could be worse than the ratings company expected.

Moody's threatened to lower Freddie Mac's financial strength rating from A-, the second-highest grade, which may prompt the government-chartered company to raise additional capital. McLean, Virginia-based Freddie Mac's Aaa senior long-term debt rating and Prime-1 rating for its commercial paper or short-term IOUs won't be cut, Moody's said.

I read that in September, Lennar Homes sold at a 60% discount. OUCH. If people can't buy houses at 5.45% interest, this means houses cost too much, period! I was burning old Wall Street Journals from 2006 and noticed a headline about people canceling contracts for new houses even if this meant losing a $30,000 deposit. And this was in mid-2006, not last fall! This housing collapse has been going on for rather a while. And it will continue. I have bought and sold in several ups and downs in real estate. NONE last less than 5 years. The desire of millions that this collapse end instantly is childish. And always, the economy dies when real estate dies. Real estate died in 1927. Stocks collapsed in 1929. I see a pattern here! Obviously.

EDITORIAL
Not Just the Fed

The American economy is weakening fast, and some prominent economists are saying a recession is already here. The Federal Reserve, with its prodigious lending capacity and power to cut interest rates, could yet save the day. But with prices, and fears of inflation, also rising, the Fed has less room to maneuver.

That is why it is imperative that President Bush and Congressional leaders begin a serious discussion about how to help revive the economy, if need be, with a short-term stimulus package.
*snip*
Democrats are broaching more sensible measures, like bolstered spending for unemployment compensation and food stamps and direct aid to states. They should consider adding the idea of a targeted tax rebate. A one-shot rebate would be another way to stimulate the economy — and could draw the tax-phobic White House into a constructive discussion.

Panic at Warmongers Inc.? Well, they want war, war, war. They want billions for Israel. They want Palestine turned into ghettos. They want no impeachment and hate Ron Paul. And they want, above all, Santa Claus. So we get this piece of garbage from the NYT: they want tax cuts and free money to all Americans so we can what? Buy houses we can't afford? Buy Toyotas at 0% interest? Or buy new flat screen TVs at Walmart, made in China? HAHAHA! Yes, buy more Chinese stuff! And of course, since Goldman Sachs, Merrill Lynch and all the others are allied with the Chinese and are like Citigroup, owned by the Chinese government, why, we get free money, tax cuts and flat screen TVs so we can watch our brave navy tremble with fear at the sight of Iranian speed boats!

And go bankrupt! This stupid editorial doesn't mention the fearsome trade deficit nor the fearsome budget deficit or the fearsome lack of savings. None of the things that matter are mentioned. What they want is MORE SPENDING. Like after 9/11, Bush said we were at war and should go to Disneyland and spend money! And we did. How wonderful. When Bush seized power in that judicial coup, he gave everyone big tax rebates and cuts. And so his rule will end with the same, of course! And the hope that this will fix things is pure insanity but it will cheer up the Japanese who will sell us more stuff. Along with the Chinese.

Why pay taxes? Why have any interest rates at all? Why worry about inflation? All one has to do is take out all the things that are rising in price and voila! No inflation. Or destroy the wages of the workers so they can't buy necessities. Ditto: no inflation. Or replace them all with robots and have the very rich live in paradise peopled with no people. I remember science fiction stories about world run by robots where the wealthy hated personal contact with each other. Then the robots killed all the humans by interfering with them reproducing. End of story.

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Comments

[shargash]

"Gold buyers, enjoy this!"

They could kill the gold market in 2 seconds. All they have to do is raise interest rates to defend the dollar and encourage savings. The odds of this happening in this administration or the next is as close to zero as anything gets in the politico-economic realm.

I get into arguments with people. "You can't eat gold," they say. Do they think you can eat a stock certificate? Do they think you can eat a $20 bill? Do they think the people in the Weimar Republic pushing wheelbarrows full of money down the street were on their way to a BBQ?

Very few things have real lasting value besides good land. And almost nothing is as ephemeral as the value of a stock certificate.

[mock turtle]

congress is investigating the influence of sovereign wealth funds on the operation of US banking.

America is soon to be "on the block" at fire-sale prices. Congress wants to close the door after most of the horses have left the barn. maybe we can still save a trusty mare or two.

http://custom.marketwatch.com/custom/tdameritrade-com/html-story.asp?guid={d51ad717-963c-4e0c-baca-a607be7eeafc}

[Teddy]

IMO, China is going to find out that all the assets in Africa and South America that they are investing in will be nationalized when the locals riot as their poverty level standard of living goes down even further when they realize the wealth is being drained out of the country at their expense. There is no middle class in these countries, mainly just the impoverished and indentured individuals. The consumers of the food producing countries of South America are experiencing a significant rise in food prices and inflation as the wealthy export the agricultural products and mineral resources from their land.

[Elaine Supkis]

Teddy, China will happily prop up the governments and economies of the commodity nations. And cut US out. Indeed, this is their plan.

[Teddy]

Elaine, it ain't gonna happen. Book it!

[Teddy]

Jon Nadler at Kitco was also reporting that China was going to keep the price of carbamide and phosphate fertilizer steady. It could be raised if the cost was increasing, but only with the approval of the regulators. It appears that China can't feed itself anymore,and if so, how long will it be before the people of Brazil which is exporting soybeans and other food in massive quantity to China start to riot? You tell me. China also has a water shortage.

[Elaine Supkis]

The US has a water shortage in the South! Lucky for the West this last month's worth of floods and snow will replentish the water table which is very, very low.

Fertilizer: a problem for the US, too! And China already has deals with Brazil concerning their crops. They made this last spring when Hu visited. I blogged about it.