The Daily Reckoning
Weekend Edition
March 26-27, 2005
Baltimore, Maryland
By Addison Wiggin and Tom Dyson

MARKET REVIEW: ZOMBIE INVESTING

Like the crocuses and daffodils in the flower box outside
our window, bond yields have been blooming.

It's the season. Look at a two-year chart of the ten-year
Treasury bond. Yields seem to rise in spring and then wilt
for the rest of the year.

Last week, ten-year yields sprouted 9 basis points to
4.60%, their highest weekly closing level since June 2004.
Meanwhile, two-year yields bloomed 16 basis points this
week to 3.85%, their highest level since August 2001.

That rates are rising is no surprise. We've been expecting
it for years. That they got so low - below 4% just seven
short weeks ago - is the conundrum. After all, there hasn't
been a whiff of stagnation in months. We've seen growth.
We've seen inflation. Output. Consumption. Employment.
Peace. Improvement…in short, the perfect environment for
rising bond yields.

We blame the zombies. Bond-buying zombies.

Zombies is how GaveKal economist Anatole Kaletsky describes
the mindless investors who buy treasury bonds. By far the
most important zombie-cohort, he says, is the private
savers and retail investment institutions of Japan.

"We suggested last month that probably the best explanation
for today's 'conundrum' of global bond yields was the
asset-liability matching of Japanese private savers," he
says. "Why have the Japanese been buying so many U.S.
bonds? Let us try to go beyond the two easy explanations:
that Japanese banks and insurers act on manipulative
'guidance' from the Ministry of Finance or that they are
simply mad. The alternative explanation is that yields of
4% plus on foreign bonds are irresistibly attractive to
savers who live in a financial system permanently distorted
by zero rates."

But what's this? Could the sweet fragrances of spring be
bringing the zombies back to their senses?

According to new research from Goldman Sachs, there's
evidence that the soulless private Japanese investor is no
longer drooling and moaning at the idea of holding
Treasurys…

Dow Jones reports that "Goldman Sachs chief interest rate
strategist Francesco Garzarelli and strategist Hina Choksy
noted…that total net sales of foreign bonds by these
investors so far in 2005 has reached Y6.7 trillion ($63
billion) - the largest three-month decline in holdings
since March 2002. The economists estimate about half of
these sales involved U.S. Treasurys."

If the undead are snapping out of their trance and selling
Treasury bonds, where might the money go, we wondered?

On Thursday, we found an interesting piece of data from
Bloomberg: "Average residential land prices rose in Tokyo's
five main wards last year for the first time since 1987,
indicating Japan's slump in property values may be ending.
Commercial real estate prices in those five areas also
gained for the first time in 14 years."

Furthermore, said Bloomberg, "nationwide land prices, which
fell 5 percent and extended a 14-year slide, dropped at the
slowest pace since 2000."

The data suggests the zombie bond buyer may be packing up
and heading home. Whether this marks the bottom of a long
bear market in Japanese real estate remains to be seen.

Regards,

Tom Dyson,
The Daily Reckoning

P.S. Zombie-slayer Chris Mayer is as rational as they come:
He used to be a commercial loan officer! Now - as a
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THIS WEEK in THE DAILY RECKONING: What a cracking line-up
of essays this week…We've got Marc Faber, Chris Mayer, a
new one from long-time DR friend Rick Ackerman, and your
usual contributions from Bill Bonner and of course, the
MoGu…

AMERICA'S BEST AND BRIGHTEST 03/25/05
By Bill Bonner
"Instead of setting out to improve the world one war at a
time, U.S. presidents should take a page out of former
President Harding's book, and take up a hobby to keep out
of trouble - like gambling or chasing women…"
http://www.dailyreckoning.com/Issues/2005/DR032505.html

 
THE DECAY OF PAPER CURRENCY 03/24/05
By Chris Mayer
"In the 20th century, the rising cost of living is nothing
new. Since the creation of the Federal Reserve, the dollar
has lost about 95% of its purchasing power. Luckily, there
are other options for making sound investments…"
http://www.dailyreckoning.com/Issues/2005/DR032405.html

 
PUTTING YOUR ASSETS ON THE LINE 03/23/05
By Marc Faber
"Millions of Americans have been viewing their humble
abodes as their own, personal ATM. Marc Faber wonders when
people will realize that they shouldn't have everything
riding on their household assets…"
http://www.dailyreckoning.com/Issues/2005/DR032305.html

 
BORROWERS SHOULD GO FOR BROKE 03/22/05
By Rick Ackerman
"The new bankruptcy bill may deter some debtors from
further 'credit card kamikaze,' but if property prices
decline, the bill could leave millions of homeowners
underwater on their mortgages. Read on…"
http://www.dailyreckoning.com/Issues/2005/DR032205.html
 
 
ATTENTION TO DEFICITS DISORDER 03/21/05
By The Mogambo Guru
"Some people go through life with blinders on, happily
oblivious to the state of the economy; they never give the
trade deficit or inflation more than a fleeting thought.
Sadly, The Mogambo doesn't have the luxury of ignorance…"
http://www.dailyreckoning.com/Issues/2005/DR032105.html

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HEADLINE, NEWS And INSIGHT: Dan Ferris lives in a town
where real estate prices have been soaring at one of the
highest rates in the country, and the value of his house is
way up. So why does he think it may have been a bad
investment?

BUBBLE GROUND ZERO 03/23/05
By Dan Ferris
"I'd rather take my money out of this house and put it in a
pile of gold coins, a few cheap stocks, maybe some nice
arbitrage situations…and an apartment in the city."
http://www.dailyreckoning.com/Featured/BubbleGroundZero.html

WHY BUY A CHEVY 03/21/05
By Rick Ackerman
"Maybe it's just patriotism that keeps customers coming
back to Ford and Chevy showrooms. And maybe its also
patriotism that has restrained investors from dumping GM
shares wholesale, at least until Wednesday."
http://www.dailyreckoning.com/Featured/WhyBuyaChevy.html

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FLOTSAM AND JETSAM: Chris Mayer is on the hunt for an
obscure book called 'Margin of Safety.' If you have it,
Chris may make you an offer…

I've been looking for a copy of Seth Klarman's book 'Margin
of Safety' for several years. If you don't know who Seth
Klarman is, let me just tell you that he is one of best
value investors around. His Baupost Group partnerships have
returned nearly 20% annually since 1983, and Klarman has
also developed a reputation for his insightful and witty
writing.

Anyway, I finally found a copy on eBay and made a bid. Soon
thereafter, I got an e-mail from eBay saying that I'd been
outbid. Who outbids me? What other person on this planet
could possibly be looking for such an obscure title? Why,
none other than my pal and colleague Dan Ferris, editor of
Extreme Value. There is extreme irony in this, dear reader.
Two value guys outbidding each other for a book called
Margin of Safety.

Neither of us got the book, unfortunately. When I called
Dan about it, we had a good laugh. Of all the people I know
in this business, Dan is the one guy whose investment
philosophy most closely resembles my own. And it seemed
incredible that, of all the people scrounging around for
stuff on the Internet, I would run into Dan.

In my next issue, I was thinking I might write a bit about
Klarman and some of his investing insights. I have his
annual report to shareholders for 2004 (courtesy of another
buddy of mine), and it's filled with insight and important
concepts. Depending on how much space I have, I may put an
article about it in next month's issue or, if not, you'll
see it in an upcoming hotline.

In the meantime, if any reader has a copy of the book and
is willing to part with it, let me know. I'll make you an
offer. Drop me a note at fleetstreet@agorafinancial.com.

*** CrisisPoint Trader Deadline

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Sincerely,

Chris Mayer

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And the Markets…(courtesy of the Rude Awakening)

The Daily Reckoning is FREE!
Click below…

The Daily Reckoning is FREE! Click below…