Americans underestimate the 'psychological damage' of inflation: Jim Bianco

All right folks, a lot of headlines out today about the Japanese yen just really crumbling, if you will, to its lowest level versus the US dollar, I think since 1986. The big question, of course is why is it so important? Why should we care about this? No one better to walk us through this. And Bianco, research President Jim Bianco and Jim, you know, a lot of hullabaloo or you know, but this is really critical and and I know you connect the dots and I just want to share one chart as before you even start the explanation, because we do see the US 10 year yield and the Japanese yen, the spot price they've traded in tandem until recently and they've kind of gone their separate ways. And you know, I know obviously it's very critical because they've been major buyers of of our of our treasuries. Yeah, that's right. I mean, you know, it matters if you're a leveraged yen trader, but I assume we don't have a lot of them watching us right now. So how does it matter for everybody else? The Japanese own over $1 trillion of U.S. Treasury securities. They're the largest foreign owner in the world, much larger than China. Their currency is weakening against the US dollar. That's why the Japanese yen keeps going up in price through 160. That means they own a trillion dollars worth of bonds that are losing value against their currency. The fear is if the currency continues to fall, they'll start selling those trillion dollars worth of bonds to invest in Japanese bonds. Why take the currency risk? And so that's why you see that tight relationship between yields in the US and the currency. Now, it broke recently because they intervened and the market was thinking, OK, the Japanese government is going to try and manipulate the currency lower or, I'm sorry, manipulate the the currency higher, the dollar lower. And that should help the US Treasuries, but that's given way now. So now the concern is that this big foreign buyer might be less interested in buying Treasury. And, and I got up the other chart just to under score what we're talking about here, because for years the blue line is China, they were the largest holders of our Treasuries. And then we're recently started to aggressively sell and the slack has been picked up by Japan. To your point, there was also this yield curve thing, right where they, they removed the yield curve cap on their own, on their own bonds, making them more attractive. I mean, the yields aren't anywhere as, as close. But if you're a Japanese investor, at some point you may say, hey, these are, are attractive enough for me. And of course, at a time when our, our Federal Reserve just keeps printing, you know, keep we just at the Federal Reserve, the Treasury, we do, we're doing so many bond auctions. We need buyers, all the buyers we can get. And certainly if Japan walks away or starts to fall off, it's a big question mark, right? Maybe the Fed changes its mind quickly. Hey, I want to get ask you something. There's a tweet and I want your thoughts on it. From the from market to mayhem. So much money we don't even have has been spent fighting this normalization by an administration that is gaming the election but not realizing the obvious. American families would rather have a a moderate recession than persistently elevated prices. Do you do you agree with that statement? You know, there was a study done by some Harvard professors last month and that they, they pulled a bunch of people and they said that the American public would be more favorable to a 1% rise in the inflation in the unemployment rate, which is 1.7 million people losing their jobs, then another 1% rise in the inflation rate. And they talked about the psychological toll in the amount of stress that inflation has. Bear in mind, inflation impacts 100% of the population, where 1% rise in the unemployment rate impacts 1% of the population. Now, this isn't going to be some kind of Hunger Games kind of thing where we're going to have to, you know, decide which one goes first. But the point is, I think we underestimate the amount of psychological damage and how difficult inflation is for everybody. It's a big problem and we tend to dismiss it or we tend to think it's going away, but the public is telling you no, We're really, really concerned about it. And it's interesting because the Fed seems like they can't wait to pivot back to jobs as opposed to, you know, me again, more focused on putting inflation away or, you know, listen, the recession they were supposed to give us, it's ironic. Maybe we wanted it. We could have pulled the Band-Aid off this thing and been back to real normalization instead of this sort of engineered normalization. Jim, I love these discussions. Can't wait to talk to you again real soon. Thank you.