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Realistbear

Fed Heavy Guns Overrule Bernanke And Go For Deflation?

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7962825/Hard-nosed-Fed-sends-global-markets-reeling.html

Hard-nosed Fed sends global markets reeling
The global bond markets and the twin havens of the yen and Swiss franc have been flashing warning signs for weeks, tracking leading indicators as they topple like dominoes. They always sniff trouble first.
By Ambrose Evans-Pritchard
Published: 9:31PM BST 24 Aug 2010
The yen smashed through resistance against all major currencies on Tuesday, reaching a 15-year peak against the dollar. Wall Street and Western bourses have until now brushed aside worries that recovery in the US, Japan and southern Europe may be stalling as have commodity markets betting the lords of finance will come to the rescue with more liquidity if needed.
Equity investors learned this week that they had misjudged the risk of a relapse as fiscal stimulus wears off, and misread the willingness of the US Federal Reserve to respond. Wrongly viewing Ben Bernanke's Fed as a soft touch, they took a fresh blast of quantitative easing for granted before it was agreed.
..../
More ominously, some Fed officials fear the central bank is already "pushing on a string" and does not have the means to revive the economy. Whether or not they are right, this comes as a psychological shock for investors schooled by the "Greenspan Put' into thinking that there is a deus ex machina in the wings.
Market tensions have been simmering for days. They erupted on Tuesday when Japan's yen smashed through resistance against all major currencies, reaching a 15-year peak against the US dollar. The Nikkei index buckled below 9,000 as yen strength pushed Japan's export industry deeper under water.
Yields on 10-year bonds fell to 0.92pc in Japan and record lows of 2.23pc in Germany and 2.88pc in the UK. They hit 2.47pc in the US, a
Depression level
. Irish spreads ballooned to the highest since the launch of EMU. Greek spreads neared 900 basis points, as if the EU's €110bn bail-out never happened.
"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point.
Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."
In the US, the 27pc collapse in existing homes sales in July leaves no doubt that America's property market cannot stand on its own feet without the prop of homebuyer tax credits. "Home sales are in free-fall. These are truly dismal numbers," said Teunis Brosens from ING.

Looks like they may be taking the deflation path knowing that inflation is a quick fix to Amageddon (the last boom was almost a boom too far--they must allow the housing market to collapse and settle the financial markets down to rebuild them later on).

Edited by Realistbear

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What we need is for hyperinflation to kick in in the US and Japan. That should get the US business cycle going again and sort out the "strong Yen".

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They were flashing red beginning of April.

If anything they're saying the opposite.

Or perhaps it's different this time....................

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http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7962825/Hard-nosed-Fed-sends-global-markets-reeling.html

Hard-nosed Fed sends global markets reeling
The global bond markets and the twin havens of the yen and Swiss franc have been flashing warning signs for weeks, tracking leading indicators as they topple like dominoes. They always sniff trouble first.
By Ambrose Evans-Pritchard
Published: 9:31PM BST 24 Aug 2010
The yen smashed through resistance against all major currencies on Tuesday, reaching a 15-year peak against the dollar. Wall Street and Western bourses have until now brushed aside worries that recovery in the US, Japan and southern Europe may be stalling – as have commodity markets – betting the lords of finance will come to the rescue with more liquidity if needed.
Equity investors learned this week that they had misjudged the risk of a relapse as fiscal stimulus wears off, and misread the willingness of the US Federal Reserve to respond. Wrongly viewing Ben Bernanke's Fed as a soft touch, they took a fresh blast of quantitative easing for granted before it was agreed.
..../
More ominously, some Fed officials fear the central bank is already "pushing on a string" and does not have the means to revive the economy. Whether or not they are right, this comes as a psychological shock for investors schooled by the "Greenspan Put' into thinking that there is a deus ex machina in the wings.
Market tensions have been simmering for days. They erupted on Tuesday when Japan's yen smashed through resistance against all major currencies, reaching a 15-year peak against the US dollar. The Nikkei index buckled below 9,000 as yen strength pushed Japan's export industry deeper under water.
Yields on 10-year bonds fell to 0.92pc in Japan and record lows of 2.23pc in Germany and 2.88pc in the UK. They hit 2.47pc in the US, a
Depression level
. Irish spreads ballooned to the highest since the launch of EMU. Greek spreads neared 900 basis points, as if the EU's €110bn bail-out never happened.
"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point.
Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."
In the US, the 27pc collapse in existing homes sales in July leaves no doubt that America's property market cannot stand on its own feet without the prop of homebuyer tax credits. "Home sales are in free-fall. These are truly dismal numbers," said Teunis Brosens from ING.

Looks like they may be taking the deflation path knowing that inflation is a quick fix to Amageddon (the last boom was almost a boom too far--they must allow the housing market to collapse and settle the financial markets down to rebuild them later on).

Bleedin 'eck

This comment underneath is interesting: The reason why the Yen is rising is not because or Japanese families repatriating their Yen it is because the international carry trade is unwinding. The carry trade is a standard play by hedge funds. They borrow Yen at very low interest rates sell the Yen and use the money to invest in USD and Euro markets.

This trade works very well so long as the currency market remains stable. However what can be seen is that traders are unwinding their positions and buying back Yen to close off their short Yen positions. This is a self reinforcing event as the higher the Yen rises the more positions will need to be sold to cover the short Yen exposure which will lead to more yen being purchased. The other side of this transaction will be sales of equities so expect a stock market crash in the very near future.

Edited by gruffydd

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Bleedin 'eck

This comment underneath is interesting: The reason why the Yen is rising is not because or Japanese families repatriating their Yen it is because the international carry trade is unwinding. The carry trade is a standard play by hedge funds. They borrow Yen at very low interest rates sell the Yen and use the money to invest in USD and Euro markets.

This trade works very well so long as the currency market remains stable. However what can be seen is that traders are unwinding their positions and buying back Yen to close off their short Yen positions. This is a self reinforcing event as the higher the Yen rises the more positions will need to be sold to cover the short Yen exposure which will lead to more yen being purchased. The other side of this transaction will be sales of equities so expect a stock market crash in the very near future.

http://online.wsj.co...1713301694.html

The strange circumstances surrounding Japan's long deflation battle has created other anomalies. Because the Bank of Japan kept nominal interest rates fractionally above zero, the yen became the world's funding currency. Investors borrowed in yen, traded them for other currencies and bought higher yielding assets. This "carry trade" was effectively a massive, ongoing short on the yen, pushing down its value. But as inflation rates in the U.S. and elsewhere have fallen, the interest-rate differential has disappeared, and the dollar has become an even more appealing source of leverage. To the extent the yen carry trade unwinds, it becomes a giant short squeeze.

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Bleedin 'eck

This comment underneath is interesting: The reason why the Yen is rising is not because or Japanese families repatriating their Yen it is because the international carry trade is unwinding. The carry trade is a standard play by hedge funds. They borrow Yen at very low interest rates sell the Yen and use the money to invest in USD and Euro markets.

This trade works very well so long as the currency market remains stable. However what can be seen is that traders are unwinding their positions and buying back Yen to close off their short Yen positions. This is a self reinforcing event as the higher the Yen rises the more positions will need to be sold to cover the short Yen exposure which will lead to more yen being purchased. The other side of this transaction will be sales of equities so expect a stock market crash in the very near future.

Verrrry interesting. I dumped most of my stocks months ago and now hold about 2% in equities overall with quite a bit with PIMCO Total Bond Fund and High Grade Corporates which have been steaming so far this year (up c. 10% YTD). If they inflate bonds will be the sick man. Finnger inches near sell button?

Edited by Realistbear

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Very alarmist language from RBS there...

"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point. Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."

What does he mean by the end game? :blink:

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Very alarmist language from RBS there...

"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point. Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."

What does he mean by the end game? :blink:

We all bend over to make payment?

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Very alarmist language from RBS there...

"This has been one of the most interesting days in finance ever," said Andrew Roberts, head of credit at RBS. "We are right at the tipping point. Yields are about to collapse even further, equities are about to turn over. The end game approaches, probably in next few weeks."

What does he mean by the end game? :blink:

That's where the cheques for the bonuses clear and the banks suddenly discover that they need to get some more money, hence playing the traditional 'Hand over the cash or we collapse the economy' routine.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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