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Carried Out


The yen carry trade. A fancy name for something so simple: good old fashioned government manipulation.

The yen carry trade. A fancy name for something so simple: good old fashioned government manipulation. If you notice, every slip in stocks around the world is accompanied by strength in the yen. We have now reached the point where every up-tick in stock prices is due to more debt and every down tick is due to debt reduction. Stock prices don't go up unless someone can borrow money.

And the ultimate form of these shenanigans are LBOs. The deals that have been struck are so ridiculous I would be laughing if they were not so sad. For every LBO that is done there are twenty rumors. This is because there is no value, only greed. Take Blackstone's purchase of EOP. Sam Zell, not a stupid man, was all too happy to sell his properties at the price. The buyers were all too happy to use other people's money to buy them. Never mind the 5% cap rate on the deal (why not be prudent and just buy T-bills?). Never mind the ten fold leverage. Never mind the fact that a week after the deal was completed Blackstone had already sold half the properties out (the best ones of course) because the deal had way too much risk. Never mind they will earn the fees however for a long time to come.

I sit here in Japan long the yen when the world is short it. What does it say when hedge funds borrow in yen and use the "money" to buy junk bonds in the U.S.? It says they have to completely ignore the fact that they have currency risk: if the yen rises they are toast. The bank in Japan where I have deposits doesn't know what to do with me. No one in their right mind in Japan keeps deposits there for they don't pay interest. 75% of all the people who are naturally long the yen (Japanese consumers) can't stand it: they all put their deposits in Australia and New Zealand and take that currency risk.

So I sit and wait. The 4.5% interest I give up by having my deposits in yen I believe will make me 40% when the yen rallies against other currencies. I don't think I will have to wait several years.

Which brings me to my final point. The massive imbalances and the massive debt will eventually cause deflation. The facts are clear. Those who understand this are still invested, preferring to believe that the eventuality is not around the corner. But that is not logical: if the conditions exist for future deflation, no one knows where the corner is. We could be turning around it right now. The mortgage mess in the U.S. is a prime example. We hear from the pundits that it is contained in its own little box. Again illogical. There is no box, it is all connected.

I prefer to lose a little time value on my "money" rather than be carried out with everyone else.

So with great patience earned over 90 years, I wait.

Best Regards,
Mr. Practical
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