From: Greg Simmons
Sent: Thursday, December 09, 2004 2:54 PM
To: Greg Simmons
Subject: "MARKET UPDATE" + JAPAN RELATIONSHIP TO DOLLAR ARTICLE
DECEMBER 9 2004
THE SPX CLOSED UP 6.43 @ 1189.24 AFTER TRADING AS LOW AS 1173.76 EARLY IN THE SESSION.
THE VIX CLOSED DOWN .31 @ 12.88 - - BACK IN THE 12s AGAIN SHOWING THAT THERE IS LITERALLY ZERO FEAR IN THE SYSTEM.
SEASONAL STRENGTH SEEMS TO CONTINUE TO OVERWHELM COMMON SENSE.
I WAS MISTAKEN THAT A FEW UPDATES AGO THAT THERE WOULDN'T BE ANY MORE INFO TO PASS ALONG REGARDS THE DOLLAR - - I TRULY THOUGHT I HAD READ, HEARD IT ALL, BUT I WAS WRONG.
BELOW IS A PIECE REGARDS THE RELATIONSHIP/LINK OF THE DOLLAR TO JAPAN THAT READS TOO AMAZING/UNBELIEVABLE NOT TO PASS ALONG.
Someone ought to thank him. Perhaps a little gift would be appropriate. Say, sleeping pills - or a hara-kiri sword. What the man needs now is sleep. Ritual disembowelment is for the future.
Masatsugu Asakawa, that is.
Without him, many Americans couldn't pay their mortgages. They couldn't buy more than they can afford at Everyday Low Prices at Wal-Mart. America's delusional EZ credit bubble would have already exploded - had it not been for Mr. Asakawa, who is the Japanese official with the daunting responsibility of managing Japan's $720 billion worth of U.S. government securities.
We saw his picture in yesterday's paper. The poor man looked tired, with circles under his eyes. In the text of the article, we found out why. It was just what we expected.
You recall, dear reader, how we've wondered why the Japanese continued to hold U.S. government paper in the face of a falling dollar? It made no sense. In the last three months, the dollar has lost 12% against euros... and 8% against yen. Let's see, 8% of $720 billion is $57.6 billion. That is a lot of money, even for people as rich as the Japanese.
"If you owe your banker $1,000, you don't sleep well," says the old American adage. "But when you owe him a million dollars, it's the banker who cannot sleep." Times have changed, of course, and in America both creditors and debtors sleep soundly - secure in the knowledge that Mr. Alan Greenspan is wide-awake, his bony fingers wrapped around every knob and lever of the Great American Economy of 2004. (More on that below...)
America is not only a debtor nation, but also the biggest debtor nation the world has ever seen. Its overseas liabilities total $3.3 trillion - or 28% of its GDP. No one has ever seen such a pile of debt. And no where are U.S. debts stacked higher than in Japan, where poor Mr. Asakawa tosses and turns at night - fearful that the whole mountain will fall down at any moment.
So worried is he that he keeps a sort of money seismometer ticking by his bedside, to alert him should the ground beneath him begin to give way. The International Herald Tribune reports:
"'This thing wakes me up, it is terrible,' Asakawa said as he toyed with a blue plastic portable currency monitor. After hours, the wireless device beeps by his bedside whenever the dollar strays beyond a set range."
Again, we stop dead in our tracks and hold our breath. We can scarcely believe it; what a wonderful, madcap world we live in. On one side of the world, 280 million people doze happily; apparently unaware that Mr. Asakawa could ruin their Christmas at any moment. All he has to do is pick up the phone and utter a single syllable: sell! In seconds, the U.S. bond market would begin falling apart. Seconds later, mortgage credit would disappear. Seconds later, stocks would crash...and real estate prices...and consumer buying...and GDP growth...and all the other delusions upon with the American consumer economy depends.
On the other side of the world, meanwhile...is Mr. Asakawa himself...with his ingenious little device by his bed. The alarm must have sounded more than once in the last few days, as the dollar sank on world currency markets. He must have sat up in bed, possibly in a cold sweat, wondering: Why do we still support the U.S. dollar? We are paying the price for America's overspending!
And then, waking, the horrible logic must have come back to him: Because we have no choice.
"With Japan's huge stake in the dollar losing value," explains the IHT, "the question is: What will Tokyo do next? The problem for Japan is that it is in so deep that, to a large degree, it is chained to its American debtor.
"Richard Koo, chief economist for the Nomura Research Institute, said that anything Japan might do to slow its dollar purchases would only create a self-inflicted wound. 'If they could move it all out of dollars in one day, I am sure they would do it in an instant,' Koo said. "But if they move 10%, and the dollar goes down 20%, they are stuck with 90% of the portfolio worth 20% less.'"
Poor Mr. Asakawa. The weight of the whole damned Dollar Era seems to ride on his shoulders. Experts now predict a further 20% decline in the greenback - maybe more. That will be a loss of $144 billion for Japan's central bank. But what then? How will he ever be able to get out? Or is Japan expected to finance America's deficits forever...no matter how much it costs?
We don't know the answers to these questions. But surely they come to Mr. Asakawa's mind when, in the dark of night, his dollar monitoring device goes off.
UNTIL READING THIS I HAD NO IDEA HOW HUGE THE LINK AND SIZE OF THE RISKS.