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Hey Bill,
You encourage your readers to "think".I have done some thinking and you can read it in the Word -document. It includes serveral charts so it is impossible to post it at your side. Hope you like it.

Greetings from Belgium
/Hugo Bertrand.

THURSDAY, AUGUST 09, 2007
USD/Yen and Interest Rates
By Whoever

Facts: What you are looking at is an overlay of the USD/Yen and the German Bund prices for the September future contract. Never mind the chart notations on the right side, they don't matter. Ignore them. From a European Continental perspective I used the Bund, you can use your Bond(s) or whatever they maybe called. You can see clearly that whenever the USD strengthens versus the Yen (rising green line), Bund prices fall (red line). The Bund contract is rising when the Yen strengthens versus the dollar.

In short, European interest rates (inverted chart of bund price chart) rise and fall together with the chart of the USD/Yen.

Explanation: If the USD is strong against the Yen and thus the Carry trade is in full swing, meaning a worldwide injection of liquidity thanks to the Central Bank of Japan, interest rates soar in Europe. Bund traders don't like that extra money printing at all, inflation in the pipeline, and demand higher interest rates. So it seems judging by the chart above, that the Japanese Central Bank is setting interest rates not only in Europe by also in the United States. A permanent stronger Yen causes the end of the Yen Carry trade worldwide. If the Central Bank of Japan raises interest rates, they will accomplish just that.

Thinking: The US needs lower interest rates desperately in order to keep their economy on foot. The Fed has not lowered rates on Tuesday. If only the Japanese raise their interest rates a little, they do the dirty work for the Fed and in fact lower interest rates worldwide. The catch for them, by doing so they cut off the extra liquidity that helped cause inflation in just about everything and kept their exports going. Is Japan willing to put their economy at risk by allowing a stronger Yen? If the answer is positive to that question, we will likely see a lower Nikkei index and lower prices for "things" including precious metals prices, in the short term at least. Financial stocks will be stronger and the illusion of Goldy Locks returns. This scenario buys the big boys time to prepare for the next battle. My hunch is that they will sell into strength later this year and buy the metals at their lows.

Let's see if the charts support that view:

Nikkei Chart Monthly + RSI 7

Divergence in the indicator and prices are at the top of a rising channel. The Nikkei clearly broke a long down trend line and should be bought at the lower level of the trend channel. Japanese Bonds might be the better bet right now.

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Monthly chart. Decision time for the XAU. Do we in a final push make new highs in the upper part of the trend channel or do we trend to the bottom of that channel?

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Chart of Goldman Sachs. In my view this will be "The Tell it All" chart.

See how far the current bounce goes and how long it lasts. See also chart below to give an indication. This is the ultimate "in crowd" stock. They for the time being are the Masters of the Universe. Just don't tell the Chinese landlords. I suspect the Fed only lowers rates when these guys are in trouble. Small fish like Jim Cramer and the homeowners or you and me for that matter, don't count that much.

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Weekly TLT chart, proxy for Long Interest rates in the US. Do we take out the dotted line? Buying Time is the main purpose, so that Wall Street can sell what they own now (CDO, bridge lending for private equity...) at higher prices and buy what they don't own yet at lower prices (Gold).

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Conclusion: If you agree with the theory that Stock Markets are ahead on the facts of Main Street and what we read in Editorials and see on Bubble vision is just a distraction and finally agree on the fact the "in crowd" is months ahead of us on fixing things, you just might have caught a glimpse into the future. Wild Card remains China.

Right or wrong, only time will tell.

Disclosure: I own physical gold and a junior mining stock. That stock is teaching me how to deep sea dive right now.

Thanks for reading, enjoy the islands and take good care,

/Hugo Bertrand
Belgium

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Thank you Hugo.