[Soren]

Nicely done. Thanks for posting.

There is an interesting theory being discussed on lemetropolecafe.com regarding the yen. The question is why does Japan appear to be defending 106 so vigorously (with about $70 BILLION spent in January alone).

The theory requires a bit of history: with Japanese interest rates close to zero, a Yen carry trade developed, where people borrowed yen, sold them for dollars, bought US Treasuries, and pocketed the difference in yield. So they are long Treasuries and short Yen.

Apparently the average Yen/USD level of the short positions is around 106. So once the yen falls below 106 you would expect the carry trade to unwind as the shorts cover their positions. To cover, they must sell their Treasuries and buy yen, further strengthening the yen. To prevent this unwinding, 106 is being defended.

On top of that, apparently this level was known and it was assumed by the marketplace that 106 would be defended, so a large number of call options were written at 105. To the extent these were naked calls, it would require buying yen to cover. Also, to the extent they were written by the well-connected big money players, there would be behind the scenes pressure to bail them out by defending 106.

The bottom line, if this theory is correct, is that once 106 is broken decisively, we could see a strong move in the Yen and perhaps, Japan's abandonment of such agressive support of the dollar. This in turn means problems in financing our trade deficit and probably higher interest rates. This could be a key turning point.

[Orangedog]

Considering how the yen is now at ~105.37, I looks like 106 yen has been violated like a drunken prom date. If it cracks into the sub 105 region then things could get "interesting." Stage 2 of the gold bull market seems to get closer day by day.

[jwh_Denver]

I'm looking for advice and I know no better place than here. Right now all my investments are in gold. Sounds crazy but I have my reasons at this point. You see my wife works at Oppenheimerfunds and I want to diversify at this point to a "safer" point?

They have a bond fund ticker OPPHX that I've been looking at.

http://www.oppenheimerfunds.com/commonJhtml/fund_info/profile_facts.jhtml;sessionid=UWZM4ZOIAXMR3UGLLZCCF3Q?catId=5%20%20&_requestid=5024&fundcode=280

YTD has yielded %2.18. The thing that I lack tremendously is a lack of knowledge of bonds.

Any advice, info or whatever will be greatly appreciated. Good, bad, or ugly! TIA!