In the last four days we have seen an unprecedented raise of treasury bonds in three continents,
the US, Japan and Europe. In this article I’ll debate that they are somewhat linked and that
these phenomena are not rooted in some exotic happenings in the financial markets.
The bond sell-offs, be it in Europe or Japan or the U.S., while locally grown, share the
same long term origin. That is, the disadvantage of an economic war in a measure that
Central Banks cannot handle.
As for a start, there surely are some sectors that are going to face short term losses,
such as the military, while investment banks will go through a mild growth and private funds
are going to have a spike for private investment.
But let’s begin the analysis of the discouragement of war in the three continents. I’ll start
with Japan.
It is no coincidence that japanese bonds are in a surge. This has to be one of the
center to look for an answer when it comes to global trade. In fact, the new japanese
military policy, alongside the encouragement of the tech industry in a parallel funding
with the new born japanese spy agency are posing the japanese investors a “morally”
and “historically” question whether the direction towards war can be a profitable business
for the peace in the Pacific as handled by Japan.
These new industrial poles impact on the routes of lithium and oil and therefore the Chinese
monetary export policy can be by such things affected.
The friction between Japan and Russia over the Pacific is a russian move in order to gain
a steady business for russian crude oil futures, as russian energy exports meet very
few outlets and the national prices fuel are determining a hard time for consumers.
In such a frame setting, the picture of AI business between China and the U.S. is affected
by the higher risk of Taiwan of suffering a disturbance in global supply for chips.
But as the chinese export of lithium to Taiwan has to increase, the chip cost devalues,
letting the AI giants to grow in market value.
It is possible to spot three ways in which the chinese yuan can be obliged to devalue.
The first one, the IPO of international AI firms, including chip giant NVIDIA into the Nikkei.
This way there can be a calming effect on japanese bonds for future international business
positioning.
A second way is to limit the export of australian lithium in the Asian continent. This way
the chinese yuan has to let the chinese lithium be exchanged at a fairer prices. While Australia
can partner with the West through U.S. oil.
The third way, a competitive policy for japanese automotive and aerospace supply chain. Such a thing
may even be favourable for the american military sector.
As for the american bonds, the Iran war is directly linked to the distrust of the investors.
That is two-sided. In the first place, the economic war that has been announced by POTUS Donald Trump
already is determining a distrust in the american consumer habts. Furthermore, the same
distrust of the investors can be seen as a deterrent not to engage economically with Iran.
As for safe-haven assets, one sure thing that is necessary, is that the BTCUSD exchange rate
must not depends on the law of supply and demand. That is, monetary policy cannot rely
one hundred percent on free trade by the private sector. In my view, such an exchange rate
has to meet the needs for savings and consumer spending of the population.
Furthermore, the high interest rates and the bond crysis are linked, or paralleled. Today’s problem
is that a decrease in the interest rates would determine a growth in the small private businesses,
which will cause a flow of capitals with no real job market growth, caused by AI.
This results in a decrease of purchasing power for the consumers.
The interest rates dilemma has to be quantitavely defined, as for a low enough level increases
immigration, while a high enough rate favours emigration, or, in political terms, the
same such thing that is happening, that is the distrust for long term treasury bonds.
Europe is facing another problem altogether, which consists of a very complex scheme of macreconomics.
Such a study will be done in a future article. The high immigration rate of Europe is also due
to its growth rate. And at the same time, the internal migrant crysis across
the internal borders is weakening the euro as a central bank tool to solve the single countries job markets and consumer spending problems.
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