• Italy's 10 year yield

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• Ireland 10 year yield

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• France 10 year yield

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• Portugal 10 year yield

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• Spain 10 year yield

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Japan's real interest rates are not similar to those of other countries. They are much higher, especaillly when compared to the US and Europe as dicussed here. And this is to me the primary reason for the Yen's strength and not the strong current account as mentioned by Andy Xie.

While I agree that the Yen has probably topped I am not sure it is about to collapse right now. The deficit was largely earthquake related and Japan will probably return to a surplus as believed by GS econmists.

Japan, as a country is also extremely wealthy as explained by Christian Carrillo at Societe Generale via FTAlphaville. He says that anyone shorting JGBs is going to have a difficult time, at least this year. The reason, he explains, is that Japan's net wealth actually rose in the last quarter of 2011, to ¥425tn or 90.1 per cent of GDP and will proabably keep doing so. There was also an increase in foreign indebtedness to Japan.

So the collapse of the Yen I think is more likely to be self orchestrated via debt monetization. I will citeDylan Grice who in a paper compares Japan's characteristic to those of Israel during its massive inflationary period (1972-1987).

During that period, Israeli spending was too high and the government chose to print money to deal with the problem. Inflation averaged approximately 84%. Grice says that Japan already spends 1/3 of its tax revenues on interest payments (imagine if yields currently at 1% were to double) and that the BOJ will have to buy any JGB the market cannot absorb.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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I said in an earlier post that to me Spain is much worse that Italy because of its private sector debt, the aftermath of its housing bubble and an extremely high youth unemployment.

It is no secret the Spanish banking system is under stress and with good reason. While Spanish government debt is around 50%, which is much less than many others, private sector debt is over 300% of GDP! Obviously, looking at recent history there is a strong chance the Government will have to endorse that debt.

But the scariest part of all of this is the unknown. I will expand on the topic later but anecdotal evidence from locals suggests that the leaders of those highly indebted regions and municipalities are corrupt, that a large part of the economy is cash and non taxed and that the relationship between the banking and housing sector is unethical at best.

Banks are not marking down house prices, they are inflating their values and still offering 100% financing etc..etc...one can apparently get offered an extra yield on a saving account in return for purchasing shares in a CAJA...that smell PONZI. Meanwhile, local Governments are turning blind eye and the show can go on courtesy of the LTRO. How long?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

"In the developed world, corporate profits are back on the moon, labour incomeis growing again and discretionary private spending near multi-decade lows.Logically, we should all be expecting private sector spending to boom notgloom.But that's hardly been the mood of the summer.Instead, the "uncertainty shocks" of the spring months rekindled the gutteringflame of fear in investor minds, steadily accelerating the shift to safer, moreliquid, more tail risk conscious portfolios.The flows have been massive, leaving developed equities looking cheaper thanemerging equities and very cheap versus developed bonds.This collective failure of nerve is profound, and profoundly dangerous, in ourview. But it has a huge silver lining. It has put policymakers firmly back in thelove business, which is actually where they belong, given how much economicslack there is still left in the system. Exit strategies are in the deep freeze.Indeed, it goes beyond that. QE2 is not just about trying to supply the almostinsatiable demand for safety in the system, it's about trying to lock the Fed intoa promise to keep real interest rates on the floor until the level of activity hasconverged back towards trend.Via the currency channel, Fed Chairman Bernanke is in effect almost forcingother major central banks (and perhaps some of his own colleagues) to join in ahistorical experiment in monetary policy - even as signs emerge that globalgrowth in August and September has improved from the June/July swoon.Which suggests the following paradox:That the next boom in the West will be based on the likelihood of above-trendgrowth in private spending as savings rates and animal spirits graduallynormalise, combined with abnormally low real policy rates and bond yields.For a (very) extended period.This is a scenario under which the fitter parts of the global economy graduallypull the weaker parts out of their post-bubble slump, with inflation risks largelyconfined to the emerging world and parts of the commodity complex.Lets call it "High Growth with Low Real Rates" for short.Now that would be a rarely spotted but potentially very bullish animal, though inthe end, much more so for equities than for bonds. And especially for secureyield, quality growth and deep value."

He also disagrees with the three myths of what he describes as a structural pessimism:

"These low spirits often seen to flow from what we call the three myths:

• That US consumers are overleveraged;

• That governments debt levels are already insupportable; and

• That potential growth in the West is set for a (rapid) structural decline.

We don't believe any of them.To the contrary, we think US consumers might now be underleveraged; that in the end this crisis may do more to put government finances on a sustainable track than any amount of mindless prosperity could have; and that a whole range of new technologies will likely contribute to faster trend productivity growth in the future, while changing work patterns(notably later, more flexible retirement) will lead to a much smaller decline in labour force growth than most people expect. Indeed, once the robot revolution takes off, potential growth might actually end up higher than it is now."

Time will tell, but when I read those arguments this picture comes to my mind:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

However, as you can see in the copper chart below, commodities prices have skyrocketed every time the Fed has engaged into monetary easing.

Mr Bernanke says the Fed is not responsible for high commodity prices as they are a result of supply and demand. When asked about the correlation between QE and commodities, he says that prices increase in anticipation of higher economic activity. When accused of exporting inflation in emerging market economies, he replies that if a country has too much inflation it is because its exchange rates or interest rates are too low and not because of the Fed's policy.

Mr Bernanke's arguments make sense except that one of the aim of QE is to raise inflation expectations. Also, I find it very difficult to completely isolate US monetary policy in a global economy. This is why some have argued that in a global economy, monetary policy should be set looking at the global output gap and not national ones. In Fact, Mr Bullard, last year was the first Fed official ever to question whether the Fed should look at it instead of the more narrow measures of US unemployment and capacity utilisation.

And since the divide among Fed officials about inflation, unemployment and QE is back, I would like to look back at John Kemp's work on global output gaps via FTAlphaville.

Kemp uses the chart below to argue that for the world as a whole, the output gap is non-existent. According to him, rapidly rising commodity prices support that fact.

If true, the implications for monetary policy and the global economy are tremendous.

It means that the Fed or the ECB cannot ease monetary policy without creating large price increases in the prices of food, energy and raw materials. So what the Central Bank gives one side with low interest rates it takes it back on the other with increasing input costs thus greatly reducing the effect of its policy.

Rapidly increasing commodity prices are of course of greater harm to resource hungry emerging economies or the poorest of society. Hence, when the FED eases to stimulate demand in the US economy it indirectly destruct demand in emerging economies once again reducing the effect of its policy.

I guess Mr Bernanke's response to that would be that the US policy is appropriate and that if there is such a thing as a global output gap, then the reason for it being negative is that developing countries are letting their economies overheat.

But more importantly, this concept implies that globalisation is generating competition for a finite amount of natural resources and employment. Kemp goes even as far as saying that the integration of emerging markets in the global economy could is reducing the living standards of those competing directly with them.

While I certainly understand Kemp's points and agree to a certain extent with the impact of the Fed's policy on commodity prices I think the imbalances or the rebalancing created by a rapidly globalising world economy are temporary and should on a longer time frame increase the living standards of all.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Credit Suisse Wilmot via FTAlphaville has intresting thoughts on the coming revolution:

"Here's a heretical thought to sign off with.

Some day, and perhaps not in the very far future, robots will become the low cost producers in global manufacturing. Displacing and replacing a high percentage of human workers, whether in the developed or the emerging world.

Will that mean triumph or disaster? Mass unemployment or a Marxian state of grace in which we can all share in the prosperity these smart machines and systems may one day create?

There's a very long way to go before robots transform our world the way the PC did, but the writing is already on the wall in our view.

When Google steers a car through California without a driver, Dr. Robot performs ultra-delicate kidney surgery or Sharp builds its latest LCD factory in Japan (not in China!) and there is not a single worker on the floor, it shows how far automation has advanced - and hints at how far it will eventually go.

At least a couple of other thoughts spring to mind about that kind of world:

Surely factories will be built close to where the consumers and best qualified workers are, not where the cheap workers live.

Or will it be taxes, good regulation and the rule of law that determine where the robots do their work?

And what about inflation if the cost of making things really does go through a robot revolution?"

More on Robots Here:

Robotic Trends

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.