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May 9, 2006

From one central banker to another, Tues., May 9, 2006, 9:34 AM

Will the Fed raise, pause or lower? A couple days ago, there was a wave of hope rush through Wall Street that the bank rate would drop by 25 bp, or at least pause. I took the signs of a huge rally in interest-rate sensitives last Thursday and Friday as a tell.

But maybe there is some collaboration going on here between the Fed and the Bank of Japan.

I'll tell you when I think the commodity markets will have a short-term pull-back. It's the moment that the governor of the Bank of Japan infers or states that the Bank is raising the central bank rate.

And that will take some pressure off Bernanke because it will permit the U.S. Treasury yield curve to start sloping higher, without the Fed dropping rates or maybe even pausing (if not this meeting, then next).

Do you know that the total money supply of Yen now exceeds the USD? If not, I'm sure you know that these bankers are in the management business. And I think they might be getting their act together.

If not, commodity prices will certainly spiral higher.

btw, $GOLD is up +$11.30 on the day to over $692.20. I think we'll hear from the Bank of Japan soon.

Posted by Posted by Bill Cara on May 9, 2006 09:35:44 AM | Category: Economics

Discourse

Article from Reuters;
http://today.reuters.com/investing/financeArticle.aspx?type=bondsNews&storyID=2006-05-09T092918Z_01_T197037_RTRIDST_0_ECONOMY-JAPAN-BOJ-UPDATE-1.XML

Gavkal has the same opinion and sees the carrytrade as more wide spread as some people think.

Andrew

Posted by: Andy [TypeKey Profile Page] at May 9, 2006 10:46 AM [link]