Gekko

LIKE a financial World War I, the short selling of the Japanese government bond market was consuming the best of a generation last year. Only the most courageous and intelligent were willing to stick to the fundamentals, go over the top of the trenches, and sell the JGB in the face of determined buying by the Bank of Japan and its allies.

Now, after the loss of hundreds of millions, the black crepe is being taken off the stricken homes in Locust Valley. The JGB short is finally heading decisively into the money. JGB March futures have stumbled down from just north of 122 in November to around 119 at the end of the first week of January. Investors are finally getting the idea that reflation of the Japanese economy through a pumped-up money supply may revive domestic spirits, but at the cost of depreciated currency and higher long-term interest rates. That would sound like a very ordinary, logical conclusion, but for some reason people have gotten the idea that the Japanese really have repealed the law of gravity.

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LIKE a financial World War I, the short selling of the Japanese government bond market was consuming the best of a generation last year. Only the most courageous and intelligent were willing to stick to the fundamentals, go over the top of the trenches, and sell the JGB in the face of determined buying by the Bank of Japan and its allies.

Now, after the loss of hundreds of millions, the black crepe is being taken off the stricken homes in Locust Valley. The JGB short is finally heading decisively into the money. JGB March futures have stumbled down from just north of 122 in November to around 119 at the end of the first week of January. Investors are finally getting the idea that reflation of the Japanese economy through a pumped-up money supply may revive domestic spirits, but at the cost of depreciated currency and higher long-term interest rates. That would sound like a very ordinary, logical conclusion, but for some reason people have gotten the idea that the Japanese really have repealed the law of gravity.