Deflation has kept a bid under the Yen for 20 years, since the huge load of bad debt denominated in that currency creates demand. The Japanese government took advantage of that bid and ridiculously low long-term rates and has issued unpayable quantities of debt, squandering the nation’s current and future wealth on government jobs and [...]

I’m back home from overseas, though a bit tired after running the gauntlet of cattle pens and inquisitors that has ruined the air travel experience. It’ll never be like this again:

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Here’s a quick look at the pattern in the long bond, noting a possible 12-13 day high/low cycle:

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I see the Yen is still moving in [...]

There is a meme going around that because some financial players own CDS on Greek debt and the prices on those swaps have increased, that the actual risk of default is now higher as a result of the price increases. See this article in the New York Times, which is dependably ignorant of and hostile [...]

From Bloomberg:
Striking Greek workers shut down transport and tried to storm parliament as lawmakers passed 4.8 billion euros ($6.5 billion) in budget cuts, including wage reductions, needed to trim the region’s biggest budget deficit.
Police with riot shields fired tear gas at demonstrators outside parliament in Athens today as lawmakers approved the measures, which Finance Minister George [...]

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This from CNBC.
Greece should consider selling some of its islands as one option to reduce debt, two members of the German parliament in Chancellor Angela Merkel’s centre-right coalition said.
Josef Schlarmann, a senior member of Merkel’s Christian Democrats, and Frank Schaeffler, a finance policy expert in the Free Democrats, were quoted on Thursday as saying that [...]

Taleb thinks hyperinflation is a strong enough possibility to justify way OTM bets on gold (long) and bonds (short). The one bit I agree with is the long gold / short stocks play (though I think gold is likely to fall with stocks, just not as much), and I suspect that deflationist Hendry would concur.
Hendry [...]

A friend just sent me a link to this excerpt of Michael Lewis’s new book, The Big Short. It’s the chapter about  Michael Burry, a California recluse who emersed himself in mortgage bond prospectuses, figured out that it was an historic bubble, and then convinced Goldman and other TBTF banks to write his value fund [...]

A question of Keynes vs. Kondratieff
Until recently, the sovereign debt of nearly all governments would rally during panic episodes as stocks and commodities fell. This makes sense, as strong sovereign debt is cash for big boys, and investors are forced to reach further and further out for yield as short-rates are driven to zero or [...]

I don’t know exactly what to make of this pattern, but it is not unusual to see these two move together. As forms of cash, they each tend to do well when the deflation trade is on. In fact, other than short positions, they are the only things that beat the dollar when everything else [...]

Put this down in the list of no-fuss, no-brainer, long-term trades. Simply buy 10-year Treasury notes and short junk bonds. There is no purer deflation play than this. It doesn’t even matter if Treasury yields rise (unlikely anytime soon IMO), since you’re playing the spread and junk yields will always include Treasury yields plus a risk premium.

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What [...]