Sunday, June 14, 2009

Japanese and Russians Playing Games with Bonds & Reserve Currencies…

Less than one month ago, a Pravda report on Russian foreign holdings stated, “about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.” (See Russia Dumps the U.S. Dollar for Euro as Reserve Currency ).

Since that report Russia has been talking non-stop about replacing the Dollar as the Reserve Currency… Just on June the 10th Bloomberg reported that Russia May Swap Some U.S. Treasuries for IMF Debt.

Today the tune from the Russians abruptly changed:

Treasuries Rise After Russia Says It Has Confidence in Dollar

By Wes Goodman and Theresa Barraclough

June 15 (Bloomberg) -- Treasuries rose for a third day after Russian Finance Minister Alexei Kudrin said his nation has confidence in the dollar and there are no immediate plans to switch to a new reserve currency.

Ten-year notes extended their winning streak to the longest in a month on speculation a U.S. government report will show overseas demand for the nation’s assets increased in April. Kudrin’s comments came after Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, helping attract investors after 10-year yields climbed to the highest level in seven months.

“Overseas investors feel the current level is not bad,” said Kazuaki Oh’e, a debt salesman in Tokyo at Canadian Imperial Bank of Commerce, the nation’s fifth-biggest bank. “We’ll see some buying.”

The yield on the 10-year note fell four basis points to 3.77 percent as of 11:54 a.m. in Tokyo, according to BGCantor Market Data. The price of the 3.125 percent security maturing in May 2019 rose 9/32, or $2.81 per $1,000 face amount, to 94 23/32. A basis point is 0.01 percentage point.

The 10-year yield climbed to 4 percent on June 11, which was the highest level since Oct. 16, and they have risen from a record low of 2.04 percent on Dec. 18. A Bloomberg survey of economists projects the figure will be 3.65 percent at year-end, with the most recent forecasts given the heaviest weightings.

“It’s too early to speak of an alternative” to the dollar, Kudrin said in Lecce, Italy, in a television interview on June 13 after meeting with finance chiefs from the Group of Eight nations.

Trust ‘Unshakable’

Yosano said Japan’s trust in Treasuries is “unshakable,” in a Bloomberg News interview published June 12.

The comments helped ease concern that investors from outside the U.S., who hold $3.27 trillion of the $6.45 trillion in marketable debt, will stop buying as President Barack Obama borrows record amounts.
The government may sell a record $3.25 trillion of debt this fiscal year ending Sept. 30, according to Goldman Sachs Group Inc., as it tries to end the steepest U.S. recession in half a century. Goldman is one of the 16 U.S. primary dealers required to bid at the government debt auctions.

The sales helped send U.S. debt down 5.9 percent in 2009, heading for their first losing year in a decade, according to Merrill Lynch & Co.’s U.S. Treasury Master index. The MSCI World index of stocks returned almost 10 percent this year, Bloomberg data show.

Investors from outside the U.S. bought $57.5 billion more of the nation’s long-term bonds, notes and stocks than they sold in April, according to a Bloomberg News survey of economists before the Treasury Department issues the figures today. It would be a third straight month of net purchases.

Wow, investors bought $57 billion in April? That’s funny because we had to sell “only” $150 billion last WEEK!

And here’s the “unshakable” article:
Yosano Says Japan’s Trust in Treasuries ‘Unshakable’

June 12 (Bloomberg) -- Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, signaling the second-biggest foreign holder of the securities will keep buying them amid record sales.

“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending a Group of Eight meeting of finance ministers starting today in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

China and Russia, the largest and third-largest single holders of the debt, have said they may switch some of their reserves out of Treasuries, and economist Nouriel Roubini said yesterday the dollar won’t always be the world’s reserve currency. Treasury yields fell today after Yosano’s remarks, retreating from a seven-month high.

“Japan is, of course, mindful that selling Treasuries will cause the yen to strengthen and that would hurt corporate profits,” said Chotaro Morita, chief strategist in Tokyo at Barclays Capital Japan Ltd. in Tokyo. “Even with their strong ties, it’s possible Japan would consider selling U.S. Treasuries should the dollar say, halve in value.”
I have never heard so much baloney in all my life!

So, we have bonds that have been crashing while we issue more and more debt. Only a fraction of that debt is being sold, and when it is, it is now at higher and higher interest rates.

Now, if you held a bunch of our debt, what would you say if you saw a bond market CRASH in progress?

Uh, HUH… that’s what I thought.

Let me decode what the Japanese are saying for you… “Oh SHIT! We must get rid of some of our dollar denominated debt PRONTO! Quick, let’s stuff those secret bearer bonds in a briefcase and ship them around the world to be sold in pieces. While we do that we’ll put out a press release stating we have “unwavering” confidence in the dollar so that maybe some poor idiot sap will buy them from us!”

See, and I’ll bet you didn’t think I could translate Japanese!

Guess what, I can also translate Russian! “Now that the world knows that we own more Euros than Dollars and we are calling for a new reserve currency, the bond market is crashing, the dollar is losing value and so are our remaining dollar denominated assets! We’ll keep selling the dollar, but tell the world we have “complete confidence in the Dollar” so that we may sell our remaining dollar assets to the poor suckers who are stupid enough to believe a word we say!”

And thus the dollar rises slightly, bonds rise slightly, but equities are down in overnight futures trading.

These comments are nothing but DESPERATE GAME PLAYING and MANIPULATION by governments. This type of activity has always been around, but it never succeeds. I have never seen so much BULL flying in such a short time period. This tells me that the bull excrement is already hitting the fan. In short, the markets have got them under pressure…

ZZ Top - Got Me Under Pressure