Wednesday June 14, 2006 - 10:21:41 GMT
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Black Swan Capital - www.blackswantrading.com
â€śThere are worse things in life than death. Have you ever spent an evening with an insurance salesman?â€ť
Letâ€™s blame it on Japanâ€¦sounds better than the other rationales weâ€™ve seen...
â€śTo the extent that easy money has been responsible for driving up global asset prices, the main source of this excess liquidity has not been America but Japan. In the past five years, the Bank of Japan has not just kept interest rates at zero but also flooded the markets in Tokyo with 30 trillion yen (roughly $300 billion) of excess reserves every night. This policy expanded Japanâ€™s money supply to the same level as Americaâ€™s, in an economy only one third the size â€” and much of this money has flowed abroad, resulting in ultra-low interest rates and rising asset prices around the world.â€ť
Anatole Kaletsky, TimesOnline
What people don`t realize is that the Japanese Central Bank has withdrawn something like over $200 billion worth of excess liquidity from the Japanese banks. Now, that money wasn`t put to work in Japan because there was no room for it. A lot of that went abroad, went into the emerging markets. There was a so-called carry trade. And it isn`t that suddenly people are risk-averse. It`s really that liquidity has been drawn out of the market.
George Soros, paraphrased from a recent appearance on CNBC
The good news is Mr. Kalentsky expects Japanâ€™s low interest rates to be with us for a while, they should remain â€śnear zero for another year or so and, even more importantly, they will not rise above 1 per cent for the rest of this decade,â€ť he writes. If that be the case, Mr. K expects it to â€śunderpin surprisingly high prices in global financial markets.â€ť
Underpinning is exactly what metals and equity traders are searching for. Yesterday was ugly for gold. If we try to play the Elliott Wave game with the gold chart, here is what we generate on a weekly basis:
The measuring point for the lowâ€”to create retracement levelsâ€”goes back to $255 per once in April 2001, making the first key retracement area at $550 (38%); gold reached $555 yesterday:
Given the maxim that nothing goes straight up or straight down, which is called into question when you look at the chart above, does it mean we are in for a bounce today? A lower than expected US CPI number at 8:30 a.m. EST would do the trick, we think.
If inflation proves to be â€śmanageable,â€ť then we can get back to the more comfortable playâ€”rising gold and falling dollar. After all, thatâ€™s how itâ€™s supposed to work, isnâ€™t it?
Jack Crooks, Black Swan Capital
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