Continuing Cracks - Part 6

Could it be this week?

By Tom Dyson
DailyReckoning.com
Saturday-Sunday, March 12-13, 2005


"At some point the other afternoon, Addison Wiggin approached our desk with a twinkle in his eye."The Japanese are about to start dumping their dollars," he said.We didn't even bother asking for details; the dollar/yen chart we quickly pulled up said it all. The rate had moved from 104.67 to 103.70 in a matter of minutes...The spike was caused by Prime Minister Junichiro Koizumi, we found out later, as he answered questions before a parliamentary committee."I think it's necessary to have diversity," was all he said, answering a question on Japan's reserve.

But when you have the international currency markets hanging on your every word -- currency markets that are extremely sensitive to the idea of central bank diversification -- these were big words.Immediately following Koizumi's comment, top officials at the Ministry of Finance denied there were plans to dump the dollar -- but Addison didn't believe a word of it. He thinks they've let the cat out of the bag.

So does Dennis Gartman. He writes, "We suspect that Mr. Koizumi gave voice to the one truly great concern that the monetary authorities in Japan have quietly been discussing amongst themselves over the course of the past several months: 'How do we get ourselves out of the positions we (and the Chinese) have gotten ourselves into regarding these bulging foreign currency reserve positions so heavily skewed to the dollar?'""As we have long said, it takes buying and a lot of it to put a market up; it takes a mere lack of buying to send at market down. We fear the lack of buying ... and that is a fear far large enough!"

Dennis Gartman fearful? What if he had a $700 billion long position in U.S. Treasury bonds to worry about?Japan does. And on Thursday they had to swallow news of a $113.9 billion budget deficit in February, the biggest monthly gap ever seen.On Friday, fingernails would have been gnawed again. January's trade deficit came in at $58.3 billion, the second largest one-month shortfall in history.This news didn't escape the bond market. The 10-year note jumped 24 basis points last week, representing the largest one-week down-move in government bond prices since the week ending April 26, 2004.How much longer can the Japanese maintain their composure?

We don't dare to blink."