The Resourceful Bear Blog

Kondratieff Winter began on August 7, 2007 as an Elliott Wave 3 Down began in the EUR/JPY (which saw a massive unwinding of the yen carry trade) and as the 'War in the Caucasus' began as referenced by by Michel Chossudovsky below.

'Peak Stock Wealth' followed in the period of August 11th to August 15, 2008 as is seen in the ongoing MSN chart of the financial ETFs iwn, iwo, jkh, xhb, xrt .... IWN, IWO, JKH, XHB, XRT.

Who was Kondratieff and what was his Kondratieff Wave Theory?
Following is an part of the Who Was Kondratieff? article found on Kwaves.com and KondratieffWinter.com. To introduce the Kondratieff Theory, we must go back over seventy years and examine a remarkable story in economic history, encompassed within the life of one still little known man. I am certain that, in time, Kondratieff will rank with the giants of discovery as Einstein and Newton. Like these men, his insights have begun to alter radically and permanently our perceptions of economic history.

The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.

Professor Nickolai Kondratieff ( pronounced "Kon-DRA-tee-eff") Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan , for which he analyzed factors that would stimulate Soviet economic growth. In 1926, Kondratieff published his findings in a report entitled, "Long Waves in Economic Life". Based upon Kondratieff's conclusions, his report was viewed as a criticism of Joseph Stalin's stated intentions for the total collectivization of agriculture.

Soon after, he was dismissed from his post as director of the Institute for the Study of Business Activity in 1928. He was arrested in 1930 and sentenced to the Russian Gulag (prison); his sentence was reviewed in 1938, and he received the death penalty, which it is speculated was carried out that same year.

Kondratieff's major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration. Kondratieff's study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff's theories documented in the 1920's were validated with the depression less than 10 years later.

Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work.

Reference by Michel Chossudovsky on 'War in the Caucasus'
War in the Caucasus: Towards a Broader Russia-US Military Confrontation? by By Michel Chossudovsky writing in GlobalResearch.ca August 10, 2008:

During the night of August 7, coinciding with the opening ceremony of the Beijing Olympics, Georgia's president Saakashvili ordered an all-out military attack on Tskhinvali, the capital of South Ossetia.

The aerial bombardments and ground attacks were largely directed against civilian targets including residential areas, hospitals and the university. The provincial capital Tskhinvali was destroyed. The attacks resulted in some 1500 civilian deaths, according to both Russian and Western sources. "The air and artillery bombardment left the provincial capital without water, food, electricity and gas. Horrified civilians crawled out of the basements into the streets as fighting eased, looking for supplies." (AP, August 9, 2008). According to reports, some 34,000 people from South Ossetia have fled to Russia. (Deseret Morning News, Salt Lake City, August 10, 2008)

The importance and timing of this military operation must be carefully analyzed. It has far-reaching implications.

Georgia is an outpost of US and NATO forces, on the immediate border of the Russian Federation and within proximity of the Middle East Central Asian war theater. South Ossetia is also at the crossroads of strategic oil and gas pipeline routes.

Georgia does not act militarily without the assent of Washington. The Georgian head of State is a US proxy and Georgia is a de facto US protectorate.
Who is behind this military agenda? What interests are being served? What is the purpose of the military operation.

There is evidence that the attacks were carefully coordinated by the US military and NATO.

Moscow has accused NATO of "encouraging Georgia". Russia’s Foreign Minister Sergey Lavrov underscored the destabilizing impacts of "foreign" military aid to Georgia: .

“It all confirms our numerous warnings addressed to the international community that it is necessary to pay attention to massive arms purchasing by Georgia during several years. Now we see how these arms and Georgian special troops who had been trained by foreign specialists are used,” he said.(Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

Moscow's envoy to NATO, Dmitry Rogozin, sent an official note to the representatives of all NATO member countries:

“Russia has already begun consultations with the ambassadors of the NATO countries and consultations with NATO military representatives will be held tomorrow," Rogozin said. "We will caution them against continuing to further support of Saakashvili."

“It is an undisguised aggression accompanied by a mass propaganda war,” he said.

(See Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

According to Rogozin, Georgia had initially planned to:

"start military action against Abkhazia, however, 'the Abkhaz fortified region turned out to be unassailable for Georgian armed formations, therefore a different tactic was chosen aimed against South Ossetia', which is more accessible territorially. The envoy has no doubts that Mikheil Saakashvili had agreed his actions with "sponsors", "those with whom he is negotiating Georgia's accession to NATO ". (RIA Novosti, August 8, 2008)

Contrary to what was conveyed by Western media reports, the attacks were anticipated by Moscow. The attacks were timed to coincide with the opening of the Olympics, largely with a view to avoiding frontpage media coverage of the Georgian military operation.

On August 7, Russian forces were in an advanced state readiness. The counterattack was swiftly carried out.

Russian paratroopers were sent in from Russia's Ivanovo, Moscow and Pskov airborne divisions. Tanks, armored vehicles and several thousand ground troops have been deployed. Russian air strikes have largely targeted military facilities inside Georgia including the Gori military base.

The Georgian military attack was repelled with a massive show of strength on the part of the Russian military.

In this image made from television, Russian military vehicles are seen moving towards the capital of South Ossetia, Tskhinvali, on Friday, Aug. 8, 2008. (AP / APTN)

Act of Provocation?

US-NATO military and intelligence planners invariably examine various "scenarios" of a proposed military operation-- i.e. in this case, a limited Georgian attack largely directed against civilian targets, with a view to inflicting civilian casualties.

The examination of scenarios is a routine practice. With limited military capabilities, a Georgian victory and occupation of Tskhinvali, was an impossibility from the outset. And this was known and understood to US-NATO military planners.

A humanitarian disaster rather than a military victory was an integral part of the scenario. The objective was to destroy the provincial capital, while also inflicting a significant loss of human life.

If the objective were to restore Georgian political control over the provincial government, the operation would have been undertaken in a very different fashion, with Special Forces occupying key public buildings, communications networks and provincial institutions, rather than waging an all out bombing raid on residential areas, hospitals, not to mention Tskhinvali's University.

Tskhinvali's University before the bombing.

The Russian response was entirely predictable.

Georgia was "encouraged" by NATO and the US. Both Washington and NATO headquarters in Brussels were acutely aware of what would happen in the case of a Russian counterattack.

The question is: was this a deliberate provocation intended to trigger a Russian military response and suck the Russians into a broader military confrontation with Georgia (and allied forces) which could potentially escalate into an all out war?

Georgia has the third largest contingent of coalition forces in Iraq after the US and the UK, with some 2000 troops. According to reports, Georgian troops in Iraq are now being repatriated in US military planes, to fight Russian forces. (See Debka.com, August 10, 2008)

This US decision to repatriate Georgian servicemen suggests that Washington is intent upon an escalation of the conflict, where Georgian troops are to be used as cannon fodder against a massive deployment of Russian forces.

US-NATO and Israel Involved in the Planning of the Attacks

In mid-July, Georgian and U.S. troops held a joint military exercise entitled "Immediate Response" involving respectively 1,200 US and 800 Georgian troops.

The announcement by the Georgian Ministry of Defense on July 12 stated that they US and Georgian troops were to "train for three weeks at the Vaziani military base" near the Georgian capital, Tbilisi. (AP, July 15, 2008). These exercises, which were completed barely a week before the August 7 attacks, were an obvious dress rehearsal of a military operation, which, in all likelihood, had been planned in close cooperation with the Pentagon.

The war on Southern Ossetia was not meant to be won, leading to the restoration of Georgian sovereignty over South Ossetia. It was intended to destabilize the region while also triggering a US-NATO confrontation with Russia.

On July 12, coinciding with the outset of the Georgia-US war games, the Russian Defense Ministry started its own military maneuvers in the North Caucasus region. The usual disclaimer by both Tblisi and Moscow: the military exercises have “nothing to do” with the situation in South Ossetia. (Ibid)

Let us be under no illusions. This is not a civil war. The attacks are an integral part of the broader Middle East Central Asian war, including US-NATO-Israeli war preparations in relation to Iran.

The Role of Israeli Military Advisers

While NATO and US military advisers did not partake in the military operation per se, they were actively involved in the planning and logistics of the attacks. According to Israeli sources (Debka.com, August 8, 2008), the ground assault on August 7-8, using tanks and artillery was "aided by Israeli military advisers". Israel also supplied Georgia with Hermes-450 and Skylark unmanned aerial vehicles, which were used in the weeks leading up to the August 7 attacks.

Georgia has also acquired, according to a report in Rezonansi (August 6, in Georgian, BBC translation) "some powerful weapons through the upgrade of Su-25 planes and artillery systems in Israel". According to Haaretz (August 10, 2008), Israelis are active in military manufacturing and security consulting in Georgia.

Russian forces are now directly fighting a NATO-US trained Georgian army integrated by US and Israeli advisers. And Russian warplanes have attacked the military jet factory on the outskirts of Tbilisi, which produces the upgraded Su-25 fighter jet, with technical support from Israel. (CTV.ca, August 10, 2008)

When viewed in the broader context of the Middle East war, the crisis in Southern Ossetia could lead to escalation, including a direct confrontation between Russian and NATO forces. If this were to occur, we would be facing the most serious crisis in US-Russian relations since the Cuban Missile crisis in October 1962.

Georgia: NATO-US Outpost

Georgia is part of a NATO military alliance (GUAM) signed in April 1999 at the very outset of the war on Yugoslavia. It also has a bilateral military cooperation agreement with the US. These underlying military agreements have served to protect Anglo-American oil interests in the Caspian sea basin as well as pipeline routes. (The alliance was initially entitled GUUAM, Uzkbekistan subsequently withdrew and the name was changed to GUAM: Georgia, Azerbaijan, Ukraine, Moldova).

Both the US and NATO have a military presence in Georgia and are working closely with the Georgian Armed Forces. Since the signing of the 1999 GUAM agreement, Georgia has been the recipient of extensive US military aid.

Barely a few months ago, in early May, the Russian Ministry of Defense accused Washington, "claiming that [US as well as NATO and Israeli] military assistance to Georgia is destabilizing the region." (Russia Claims Georgia in Arms Buildup, Wired News, May 19, 2008). According to the Russian Defense Ministry

"Georgia has received 206 tanks, of which 175 units were supplied by NATO states, 186 armored vehicles (126 - from NATO), 79 guns (67 - from NATO), 25 helicopters (12 - from NATO), 70 mortars, ten surface-to-air missile systems, eight Israeli-made unmanned aircraft, and other weapons. In addition, NATO countries have supplied four combat aircraft to Georgia. The Russian Defense Ministry said there were plans to deliver to Georgia 145 armored vehicles, 262 guns and mortars, 14 combat aircraft including four Mirazh-2000 destroyers, 25 combat helicopters, 15 American Black Hawk aircraft, six surface-to-air missile systems and other arms." (Interfax News Agency, Moscow, in Russian, Aug 7, 2008)

NATO-US-Israeli assistance under formal military cooperation agreements involves a steady flow of advanced military equipment as well as training and consulting services.

According to US military sources (spokesman for US European Command), the US has more than 100 "military trainers" in Georgia. A Pentagon spokesman Bryan Whitman "said there were no plans to redeploy the estimated 130 US troops and civilian contractors, who he said were stationed in the area around Tblisi." (AFP, 9 August 2008). In fact, US-NATO military presence in Georgia is on a larger scale to that acknowledged in official statements. The number of NATO personnel in Georgia acting as trainers and military advisers has not been confirmed.

Although not officially a member of NATO, Georgia's military is full integrated into NATO procedures. In 2005, Georgian president proudly announced the inauguration of the first military base, which "fully meets NATO standards". Immediately following the inauguration of the Senakskaya base in west Georgia, Tblisi announced the opening of a second military base at Gori which would also "comply with NATO regulations in terms of military requirements as well as social conditions." (Ria Novosti, 26 May 2006).

The Gori base has been used to train Georgian troops dispatched to fight under US command in the Iraq war theater.

It is worth noting that under a March 31, 2006, agreement between Tblisi and Moscow, Russia's two Soviet-era military bases in Georgia - Akhalkalaki and Batumi have been closed down. (Ibid) The pullout at Batumi commenced in May of last year, 2007. The last remaining Russian troops left the Batumi military facility in early July 2008, barely a week before the commencement of the US-Georgia war games and barely a month prior to the attacks on South Ossetia.

The Israel Connection

Israel is now part of the Anglo-American military axis, which serves the interests of the Western oil giants in the Middle East and Central Asia.

Israel is a partner in the Baku-Tblisi- Ceyhan pipeline which brings oil and gas to the Eastern Mediterranean. More than 20 percent of Israeli oil is imported from Azerbaijan, of which a large share transits through the BTC pipeline. Controlled by British Petroleum, the BTC pipeline has dramatically changed the geopolitics of the Eastern Mediterranean and the Caucusus:

"[The BTC pipeline] considerably changes the status of the region's countries and cements a new pro-West alliance. Having taken the pipeline to the Mediterranean, Washington has practically set up a new bloc with Azerbaijan, Georgia, Turkey and Israel, " (Komerzant, Moscow, 14 July 2006)

While the official reports state that the BTC pipeline will "channel oil to Western markets", what is rarely acknowledged is that part of the oil from the Caspian sea would be directly channeled towards Israel, via Georgia. In this regard, a Israeli-Turkish pipeline project has also been envisaged which would link Ceyhan to the Israeli port of Ashkelon and from there through Israel's main pipeline system, to the Red Sea.

The objective of Israel is not only to acquire Caspian sea oil for its own consumption needs but also to play a key role in re-exporting Caspian sea oil back to the Asian markets through the Red Sea port of Eilat. The strategic implications of this re-routing of Caspian sea oil are far-reaching. (For further details see Michel Chossudovsky, The War on Lebanon and the Battle for Oil, Global Research, July 2006)

What is envisaged is to link the BTC pipeline to the Trans-Israel Eilat-Ashkelon pipeline, also known as Israel's Tipline, from Ceyhan to the Israeli port of Ashkelon.

"Turkey and Israel are negotiating the construction of a multi-million-dollar energy and water project that will transport water, electricity, natural gas and oil by pipelines to Israel, with the oil to be sent onward from Israel to the Far East,

The new Turkish-Israeli proposal under discussion would see the transfer of water, electricity, natural gas and oil to Israel via four underwater pipelines.

http://www.jpost.com/servlet/Satellite?cid=1145961328841&pagename=JPost%2FJPArticle%2FShowFull

“Baku oil can be transported to Ashkelon via this new pipeline and to India and the Far East.[via the Red sea]"

"Ceyhan and the Mediterranean port of Ashkelon are situated only 400 km apart. Oil can be transported to the city in tankers or via specially constructed under-water pipeline. From Ashkelon the oil can be pumped through already existing pipeline to the port of Eilat at the Red Sea; and from there it can be transported to India and other Asian countries in tankers. (REGNUM)

In this regard, Israel is slated to play a major strategic role in "protecting" the Eastern Mediterranean transport and pipeline corridors out of Ceyhan. Concurrently, it also involved in channeling military aid and training to both Georgia and Azerbaijan.

A far-reaching 1999 bilateral military cooperation agreement between Tblisi and Tel Aviv was reached barely a month before the NATO sponsored GUUAM agreement. It was signed in Tbilisi by President Shevardnadze and Israel's Prime Minister Binyamin Netanyu. These various military cooperation arrangements are ultimately intended to undermine Russia's presence and influence in the Caucasus and Central Asia.

In a pro forma declaration, Tel Aviv committed itself, following bilateral discussions with Moscow, on August 5, 2008, to cut back military assistance to Georgia.

Russia's Response

In response to the attacks, Russian forces intervened with conventional ground troops. Tanks and armored vehicles were sent in. The Russian air force was also involved in aerial counter-attacks on Georgian military positions including the military base of Gori.

The Western media has portrayed the Russian as solely responsible for the deaths of civilians, yet at the same time the Western media has acknowledged (confirmed by the BBC) that most of the civilian casualties at the outset were the result of the Georgian ground and air attacks.

Based on Russian and Western sources, the initial death toll in South Ossetia was at least 1,400 (BBC) mostly civilians. "Georgian casualty figures ranged from 82 dead, including 37 civilians, to a figure of around 130 dead.... A Russian air strike on Gori, a Georgian town near South Ossetia, left 60 people dead, many of them civilians, Georgia says." (BBC, August 9, 2008). Russian sources place the number of civilian deaths in South Ossetia at 2000.

A process of escalation and confrontation between Russia and America is unfolding, reminiscent of the Cold War era.

Are we dealing with an act of provocation, with a view to triggering a broader conflict? Supported by media propaganda, the Western military alliance is intent on using this incident to confront Russia, as evidenced by recent NATO statements.

This article was update August 14, 2008 and also on September 4, 2008

The USD/JPY has broken down
Here is the ongoing five day chart of the Yahoo Finance USD/JPY with an August 13, 2008 price of 109.53.

Here is the ActionForex.com Action Forex USD/JPY Daily Outlook For August 14, 2008 showing the closing of August 13, 3008 price of 109.38

The 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown -- it shows the USD JPY is a "failed investment instrument".

Here is the FXStreet.com August 14, 2008 chart of the USD/JPY showing the Bear Cross in the USD/JPY on August 11, 2008.

The USD/JPY will fall lower on risk aversion to inflation, lack of economic growth, and the level two and level three assets in banks and investment bankers.

In my article 'The Russell 2000 Will Fall Fast And Hard Now That The Dollar Rally Has Ended', I relate that lacking liquidity from investing long via 0.5% interest loans from the Bank of Japan, disivenstment will be coming out of all stocks globally and especially the fianancial sector and dollar driven Russell 2000.

The yen carry traders will be selling the financial sector to take profit and the Russell 2000 shares, IWM, will fall rapidly.

In addition to the Russell 2000 shares, these recent high flying consumer, value and financial ETFs will fall quickly as well: UYG, RKH, TKF, PJB, IXJ, XLF, URE, BBH, IIF, PBE, XHB, ICF, IHF, PXN, RWN, IFN, SMN.

Monday August 11, 2008 was the start of an Elliott Wave 3 Down in the USD/JPY
Also as I look at the on going Yahoo Finance two year chart of the USD/JPY, and also the ongoing Yahoo 5 day chart of USD/JPY, I see that the Monday August 11, 2008 value of 110.25, is the turning point into an Elliot Wave 3 Down in the USD/JPY.

Monday August 11, 2008 was also when Peak Dollar occurred.

The Elliott Three Waves are the most sweeping and dramatic of all waves; they build wealth on the way up and destroy wealth on the way down.

The economic destruction that is coming is beyond my ability to comprehend.

Invesment Application
The investment application is for those with a Forex account to immediately go short USD/JPY.

The investment application for the common investor is two fold.

First, I recommend a two-thirds investment in GoldMoney.com and BullionVault.com to protect one's wealth from mutliple systemic risk event potentialities, and the financial dislocations that will come from a war in Iran over its nuclear ambitions.

Second, I recommend that one have a trust account with investment in these three following ETFs and ETNs ... DGP, SKF, FXP

DGP ... 200% gold ... DGP -- it's oversold

SKF ... 200% inverse of the financial sector ... SKF -- it's on its way up again

FXP ... 200% inverse of China ... FXP -- it has left the launch pad, it is going to fall lower in a correction any day, before it continues dramatically higher.

The yen carry trade, that is the EUR/JPY, is actively unwinding on rising risk aversion to inflation, reduce growth opportunities and the level two assets and level three assets at banks as well.
FXP is up as China, FXI, is down, as an Elliott Wave 3 of 3 Down in underway in the EUR/JPY, FXE:FXY, causing disinvestment from stocks world wide, VEU, and most aggressively in China and Brazil, where a lot of interest differential trade investment abides. Shares in China and Brazil since mid May 2008 have been aggresively sold off.

The Bank of Japan met on May 19, 2008, and then released minutes of that meeting in mid-June which related that rising inflation is an investment risk concern. Yen carry traders started to sell the yen immediately after the announcement, and the BRICs, EEB, rose in short sell covering, and then began to sell off as seen in this MSN.com chart.

Anchalee Worrachate and Stanley White of Bloomberg report in article Yen Rises to 12-Week High Against Euro as Carry Trades Pared that the yen rose to a 12-week high against the euro and its strongest in two months versus the British pound as Japanese investors cut bets on higher-yielding assets abroad.

Investors pared so-called carry trades on concern the global economy is slowing after a report showed Japan's economy contracted last quarter. The yen climbed to a two-year high against New Zealand's dollar and the strongest in four months versus Australia's as prices of commodities the nations export extended declines. The yen also rose for a third day against the U.S. dollar as financial companies led stocks lower worldwide.

``The yen is being driven higher by liquidation of carry trades,'' said Neil Jones, head of European hedge-fund sales in London at Mizuho Capital Markets. ``We are still in a risk- aversion type environment. Also, it's a seasonal story. Japanese investors tend to stop buying foreign currencies at this time of the year, which is a holiday season.''

Related Article
Elliott Wave USD/JPY, USD/CHF provided by Daily Forex Technicals | Written by TheLFB-Forex.com | Aug 13 08 12:27 GMT

Related Insight: Kondratieff Winter Began On August 7, 2007
Kondratieff Winter began on August 7, 2007 as an Elliott Wave 3 Down began in the EUR/JPY (which saw a massive unwinding of the yen carry trade described above), and as the 'War in the Caucasus' began.

'Peak Stock Wealth' followed in the period of August 11th to August 15, 2008 as is seen in the ongoing MSN chart of the financial ETFs iwn, iwo, jkh, xhb, xrt .... September 4 MSN Finance Chart of IWN, IWO, JKH, XHB, XRT

Who was Kondratieff and what was his Kondratieff Wave Theory?
Following is an part of the Who Was Kondratieff? article found on Kwaves.com and KondratieffWinter.com. To introduce the Kondratieff Theory, we must go back over seventy years and examine a remarkable story in economic history, encompassed within the life of one still little known man. I am certain that, in time, Kondratieff will rank with the giants of discovery as Einstein and Newton. Like these men, his insights have begun to alter radically and permanently our perceptions of economic history.

The Kondratieff wave cycle goes through four distinct phases of beneficial inflation (spring), stagflation (summer), beneficial deflation (autumn), and deflation (winter). Since, the last Kontratyev cycle ended around 1949, we have seen beneficial inflation 1949-1966, stagflation 1966-1982, beneficial deflation 1982-2000 and according to Kondratieff, we are now in the (winter) deflation cycle which should lead to depression.

Professor Nickolai Kondratieff ( pronounced "Kon-DRA-tee-eff") Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan , for which he analyzed factors that would stimulate Soviet economic growth. In 1926, Kondratieff published his findings in a report entitled, "Long Waves in Economic Life". Based upon Kondratieff's conclusions, his report was viewed as a criticism of Joseph Stalin's stated intentions for the total collectivization of agriculture.

Soon after, he was dismissed from his post as director of the Institute for the Study of Business Activity in 1928. He was arrested in 1930 and sentenced to the Russian Gulag (prison); his sentence was reviewed in 1938, and he received the death penalty, which it is speculated was carried out that same year.

Kondratieff's major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration. Kondratieff's study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff's theories documented in the 1920's were validated with the depression less than 10 years later.

Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work.

The Political Component Of Kondratieff Winter Was The 'War in the Caucasus' Which Began On August 7, 2008
The article War in the Caucasus: Towards a Broader Russia-US Military Confrontation? by By Michel Chossudovsky writing in GlobalResearch.ca August 10, 2008 details the political component that accompanied the economic component of the start of Kondratieff Winter.

During the night of August 7, coinciding with the opening ceremony of the Beijing Olympics, Georgia's president Saakashvili ordered an all-out military attack on Tskhinvali, the capital of South Ossetia.

The aerial bombardments and ground attacks were largely directed against civilian targets including residential areas, hospitals and the university. The provincial capital Tskhinvali was destroyed. The attacks resulted in some 1500 civilian deaths, according to both Russian and Western sources. "The air and artillery bombardment left the provincial capital without water, food, electricity and gas. Horrified civilians crawled out of the basements into the streets as fighting eased, looking for supplies." (AP, August 9, 2008). According to reports, some 34,000 people from South Ossetia have fled to Russia. (Deseret Morning News, Salt Lake City, August 10, 2008)

The importance and timing of this military operation must be carefully analyzed. It has far-reaching implications.

Georgia is an outpost of US and NATO forces, on the immediate border of the Russian Federation and within proximity of the Middle East Central Asian war theater. South Ossetia is also at the crossroads of strategic oil and gas pipeline routes.

Georgia does not act militarily without the assent of Washington. The Georgian head of State is a US proxy and Georgia is a de facto US protectorate.
Who is behind this military agenda? What interests are being served? What is the purpose of the military operation.

There is evidence that the attacks were carefully coordinated by the US military and NATO.

Moscow has accused NATO of "encouraging Georgia". Russia’s Foreign Minister Sergey Lavrov underscored the destabilizing impacts of "foreign" military aid to Georgia: .

“It all confirms our numerous warnings addressed to the international community that it is necessary to pay attention to massive arms purchasing by Georgia during several years. Now we see how these arms and Georgian special troops who had been trained by foreign specialists are used,” he said.(Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

Moscow's envoy to NATO, Dmitry Rogozin, sent an official note to the representatives of all NATO member countries:

“Russia has already begun consultations with the ambassadors of the NATO countries and consultations with NATO military representatives will be held tomorrow," Rogozin said. "We will caution them against continuing to further support of Saakashvili."

“It is an undisguised aggression accompanied by a mass propaganda war,” he said.

(See Moscow accuses NATO of having "encouraged Georgia" to attack South Ossetia, Russia Today, August 9, 2008)

According to Rogozin, Georgia had initially planned to:

"start military action against Abkhazia, however, 'the Abkhaz fortified region turned out to be unassailable for Georgian armed formations, therefore a different tactic was chosen aimed against South Ossetia', which is more accessible territorially. The envoy has no doubts that Mikheil Saakashvili had agreed his actions with "sponsors", "those with whom he is negotiating Georgia's accession to NATO ". (RIA Novosti, August 8, 2008)

Contrary to what was conveyed by Western media reports, the attacks were anticipated by Moscow. The attacks were timed to coincide with the opening of the Olympics, largely with a view to avoiding frontpage media coverage of the Georgian military operation.

On August 7, Russian forces were in an advanced state readiness. The counterattack was swiftly carried out.

Russian paratroopers were sent in from Russia's Ivanovo, Moscow and Pskov airborne divisions. Tanks, armored vehicles and several thousand ground troops have been deployed. Russian air strikes have largely targeted military facilities inside Georgia including the Gori military base.

The Georgian military attack was repelled with a massive show of strength on the part of the Russian military.

In this image made from television, Russian military vehicles are seen moving towards the capital of South Ossetia, Tskhinvali, on Friday, Aug. 8, 2008. (AP / APTN)

Act of Provocation?

US-NATO military and intelligence planners invariably examine various "scenarios" of a proposed military operation-- i.e. in this case, a limited Georgian attack largely directed against civilian targets, with a view to inflicting civilian casualties.

The examination of scenarios is a routine practice. With limited military capabilities, a Georgian victory and occupation of Tskhinvali, was an impossibility from the outset. And this was known and understood to US-NATO military planners.

A humanitarian disaster rather than a military victory was an integral part of the scenario. The objective was to destroy the provincial capital, while also inflicting a significant loss of human life.

If the objective were to restore Georgian political control over the provincial government, the operation would have been undertaken in a very different fashion, with Special Forces occupying key public buildings, communications networks and provincial institutions, rather than waging an all out bombing raid on residential areas, hospitals, not to mention Tskhinvali's University.

Tskhinvali's University before the bombing.

The Russian response was entirely predictable.

Georgia was "encouraged" by NATO and the US. Both Washington and NATO headquarters in Brussels were acutely aware of what would happen in the case of a Russian counterattack.

The question is: was this a deliberate provocation intended to trigger a Russian military response and suck the Russians into a broader military confrontation with Georgia (and allied forces) which could potentially escalate into an all out war?

Georgia has the third largest contingent of coalition forces in Iraq after the US and the UK, with some 2000 troops. According to reports, Georgian troops in Iraq are now being repatriated in US military planes, to fight Russian forces. (See Debka.com, August 10, 2008)

This US decision to repatriate Georgian servicemen suggests that Washington is intent upon an escalation of the conflict, where Georgian troops are to be used as cannon fodder against a massive deployment of Russian forces.

US-NATO and Israel Involved in the Planning of the Attacks

In mid-July, Georgian and U.S. troops held a joint military exercise entitled "Immediate Response" involving respectively 1,200 US and 800 Georgian troops.

The announcement by the Georgian Ministry of Defense on July 12 stated that they US and Georgian troops were to "train for three weeks at the Vaziani military base" near the Georgian capital, Tbilisi. (AP, July 15, 2008). These exercises, which were completed barely a week before the August 7 attacks, were an obvious dress rehearsal of a military operation, which, in all likelihood, had been planned in close cooperation with the Pentagon.

The war on Southern Ossetia was not meant to be won, leading to the restoration of Georgian sovereignty over South Ossetia. It was intended to destabilize the region while also triggering a US-NATO confrontation with Russia.

On July 12, coinciding with the outset of the Georgia-US war games, the Russian Defense Ministry started its own military maneuvers in the North Caucasus region. The usual disclaimer by both Tblisi and Moscow: the military exercises have “nothing to do” with the situation in South Ossetia. (Ibid)

Let us be under no illusions. This is not a civil war. The attacks are an integral part of the broader Middle East Central Asian war, including US-NATO-Israeli war preparations in relation to Iran.

The Role of Israeli Military Advisers

While NATO and US military advisers did not partake in the military operation per se, they were actively involved in the planning and logistics of the attacks. According to Israeli sources (Debka.com, August 8, 2008), the ground assault on August 7-8, using tanks and artillery was "aided by Israeli military advisers". Israel also supplied Georgia with Hermes-450 and Skylark unmanned aerial vehicles, which were used in the weeks leading up to the August 7 attacks.

Georgia has also acquired, according to a report in Rezonansi (August 6, in Georgian, BBC translation) "some powerful weapons through the upgrade of Su-25 planes and artillery systems in Israel". According to Haaretz (August 10, 2008), Israelis are active in military manufacturing and security consulting in Georgia.

Russian forces are now directly fighting a NATO-US trained Georgian army integrated by US and Israeli advisers. And Russian warplanes have attacked the military jet factory on the outskirts of Tbilisi, which produces the upgraded Su-25 fighter jet, with technical support from Israel. (CTV.ca, August 10, 2008)

When viewed in the broader context of the Middle East war, the crisis in Southern Ossetia could lead to escalation, including a direct confrontation between Russian and NATO forces. If this were to occur, we would be facing the most serious crisis in US-Russian relations since the Cuban Missile crisis in October 1962.

Georgia: NATO-US Outpost

Georgia is part of a NATO military alliance (GUAM) signed in April 1999 at the very outset of the war on Yugoslavia. It also has a bilateral military cooperation agreement with the US. These underlying military agreements have served to protect Anglo-American oil interests in the Caspian sea basin as well as pipeline routes. (The alliance was initially entitled GUUAM, Uzkbekistan subsequently withdrew and the name was changed to GUAM: Georgia, Azerbaijan, Ukraine, Moldova).

Both the US and NATO have a military presence in Georgia and are working closely with the Georgian Armed Forces. Since the signing of the 1999 GUAM agreement, Georgia has been the recipient of extensive US military aid.

Barely a few months ago, in early May, the Russian Ministry of Defense accused Washington, "claiming that [US as well as NATO and Israeli] military assistance to Georgia is destabilizing the region." (Russia Claims Georgia in Arms Buildup, Wired News, May 19, 2008). According to the Russian Defense Ministry

"Georgia has received 206 tanks, of which 175 units were supplied by NATO states, 186 armored vehicles (126 - from NATO), 79 guns (67 - from NATO), 25 helicopters (12 - from NATO), 70 mortars, ten surface-to-air missile systems, eight Israeli-made unmanned aircraft, and other weapons. In addition, NATO countries have supplied four combat aircraft to Georgia. The Russian Defense Ministry said there were plans to deliver to Georgia 145 armored vehicles, 262 guns and mortars, 14 combat aircraft including four Mirazh-2000 destroyers, 25 combat helicopters, 15 American Black Hawk aircraft, six surface-to-air missile systems and other arms." (Interfax News Agency, Moscow, in Russian, Aug 7, 2008)

NATO-US-Israeli assistance under formal military cooperation agreements involves a steady flow of advanced military equipment as well as training and consulting services.

According to US military sources (spokesman for US European Command), the US has more than 100 "military trainers" in Georgia. A Pentagon spokesman Bryan Whitman "said there were no plans to redeploy the estimated 130 US troops and civilian contractors, who he said were stationed in the area around Tblisi." (AFP, 9 August 2008). In fact, US-NATO military presence in Georgia is on a larger scale to that acknowledged in official statements. The number of NATO personnel in Georgia acting as trainers and military advisers has not been confirmed.

Although not officially a member of NATO, Georgia's military is full integrated into NATO procedures. In 2005, Georgian president proudly announced the inauguration of the first military base, which "fully meets NATO standards". Immediately following the inauguration of the Senakskaya base in west Georgia, Tblisi announced the opening of a second military base at Gori which would also "comply with NATO regulations in terms of military requirements as well as social conditions." (Ria Novosti, 26 May 2006).

The Gori base has been used to train Georgian troops dispatched to fight under US command in the Iraq war theater.

It is worth noting that under a March 31, 2006, agreement between Tblisi and Moscow, Russia's two Soviet-era military bases in Georgia - Akhalkalaki and Batumi have been closed down. (Ibid) The pullout at Batumi commenced in May of last year, 2007. The last remaining Russian troops left the Batumi military facility in early July 2008, barely a week before the commencement of the US-Georgia war games and barely a month prior to the attacks on South Ossetia.

The Israel Connection

Israel is now part of the Anglo-American military axis, which serves the interests of the Western oil giants in the Middle East and Central Asia.

Israel is a partner in the Baku-Tblisi- Ceyhan pipeline which brings oil and gas to the Eastern Mediterranean. More than 20 percent of Israeli oil is imported from Azerbaijan, of which a large share transits through the BTC pipeline. Controlled by British Petroleum, the BTC pipeline has dramatically changed the geopolitics of the Eastern Mediterranean and the Caucusus:

"[The BTC pipeline] considerably changes the status of the region's countries and cements a new pro-West alliance. Having taken the pipeline to the Mediterranean, Washington has practically set up a new bloc with Azerbaijan, Georgia, Turkey and Israel, " (Komerzant, Moscow, 14 July 2006)

While the official reports state that the BTC pipeline will "channel oil to Western markets", what is rarely acknowledged is that part of the oil from the Caspian sea would be directly channeled towards Israel, via Georgia. In this regard, a Israeli-Turkish pipeline project has also been envisaged which would link Ceyhan to the Israeli port of Ashkelon and from there through Israel's main pipeline system, to the Red Sea.

The objective of Israel is not only to acquire Caspian sea oil for its own consumption needs but also to play a key role in re-exporting Caspian sea oil back to the Asian markets through the Red Sea port of Eilat. The strategic implications of this re-routing of Caspian sea oil are far-reaching. (For further details see Michel Chossudovsky, The War on Lebanon and the Battle for Oil, Global Research, July 2006)

What is envisaged is to link the BTC pipeline to the Trans-Israel Eilat-Ashkelon pipeline, also known as Israel's Tipline, from Ceyhan to the Israeli port of Ashkelon.

"Turkey and Israel are negotiating the construction of a multi-million-dollar energy and water project that will transport water, electricity, natural gas and oil by pipelines to Israel, with the oil to be sent onward from Israel to the Far East,

The new Turkish-Israeli proposal under discussion would see the transfer of water, electricity, natural gas and oil to Israel via four underwater pipelines.

http://www.jpost.com/servlet/Satellite?cid=1145961328841&pagename=JPost%2FJPArticle%2FShowFull

“Baku oil can be transported to Ashkelon via this new pipeline and to India and the Far East.[via the Red sea]"

"Ceyhan and the Mediterranean port of Ashkelon are situated only 400 km apart. Oil can be transported to the city in tankers or via specially constructed under-water pipeline. From Ashkelon the oil can be pumped through already existing pipeline to the port of Eilat at the Red Sea; and from there it can be transported to India and other Asian countries in tankers. (REGNUM)

In this regard, Israel is slated to play a major strategic role in "protecting" the Eastern Mediterranean transport and pipeline corridors out of Ceyhan. Concurrently, it also involved in channeling military aid and training to both Georgia and Azerbaijan.

A far-reaching 1999 bilateral military cooperation agreement between Tblisi and Tel Aviv was reached barely a month before the NATO sponsored GUUAM agreement. It was signed in Tbilisi by President Shevardnadze and Israel's Prime Minister Binyamin Netanyu. These various military cooperation arrangements are ultimately intended to undermine Russia's presence and influence in the Caucasus and Central Asia.

In a pro forma declaration, Tel Aviv committed itself, following bilateral discussions with Moscow, on August 5, 2008, to cut back military assistance to Georgia.

Russia's Response

In response to the attacks, Russian forces intervened with conventional ground troops. Tanks and armored vehicles were sent in. The Russian air force was also involved in aerial counter-attacks on Georgian military positions including the military base of Gori.

The Western media has portrayed the Russian as solely responsible for the deaths of civilians, yet at the same time the Western media has acknowledged (confirmed by the BBC) that most of the civilian casualties at the outset were the result of the Georgian ground and air attacks.

Based on Russian and Western sources, the initial death toll in South Ossetia was at least 1,400 (BBC) mostly civilians. "Georgian casualty figures ranged from 82 dead, including 37 civilians, to a figure of around 130 dead.... A Russian air strike on Gori, a Georgian town near South Ossetia, left 60 people dead, many of them civilians, Georgia says." (BBC, August 9, 2008). Russian sources place the number of civilian deaths in South Ossetia at 2000.

A process of escalation and confrontation between Russia and America is unfolding, reminiscent of the Cold War era.

Are we dealing with an act of provocation, with a view to triggering a broader conflict? Supported by media propaganda, the Western military alliance is intent on using this incident to confront Russia, as evidenced by recent NATO statements.

Introduction
We have passed through Peak Currencies.

And we have passed through Peak Bond Wealth.

Soon we will reach Peak Dollar.

Then gold will arise as the global currency and the means of preserving wealth.

The big news of the day is that the US Dollar rose strongly, and the Yen and the other commodity currencies went through the floor
The yen carry traders went long the dollar and short the yen and other commodity currencies as oil traded off some today; this blasted USD/JPY higher.

The US Dollar, $USD, rose 0.5% to close at $74.25 at 200 day moving average.

The ongoing Google Finance chart of the Yen, FXY, the Euro, FXE, the Australian Dollar, FXA, and the Canadian Dollar, FXC, shows the currencies went kaboom down.

And Stockcharts.com relates that the Yen died today, FXY -1.4%. And the others were butchered: FXA -.7%, FXE -.3%, and FXC -.5%.

This action caused a dramatic rise in the USD/JPY: it zoomed to 109.47.

We passed through Peak Currencies on the unwinding of the Yen Carry Trade on July 22, 2008
The world has passed through Peak Currencies on July 22, 2008, as can be seen in the lollipop hanging man candlestick serving as dark cloud cover in the daily Stockcharts.com chart EUR/JPY, FXE:FXY, and the daily MSN.com chart of the Euro, FXE, relative to the Yen, FXY.

Yes, in an investment sea change, on July 22, 2008, the yen carry trade unwound as the US Dollar traded up and oil down following hawkish comments as reported by ActionForex and CEP News.

The unwinding of the yen carry trade continued as ActionForex and Adam Button of CEP News reported that U.S. Dollar Bulls Trample Commodity Prices.

Then on July 28th, 2008, the EUR/JPY, FXE:FXY, fell sharply lower, as all commodity currencies sold off with the Australian Dollar, FXA, taking the biggest plunge, as seen in this daily MSN.com chart of the Australian Dollar, the Euro and the Yen.

This on dual news: First of Australian inflation as reported by Matthew Bradbard in Seeking Alpha: "Australia's Bureau of Statistics said that consumer prices were up 4.5% in the second quarter from a year ago, the biggest gain since 2001. The September Australian dollar was down just under 150 ticks on the week".

And secondly in response to the decision of the Australian National Bank, NAB, to write off 90% of its US conduit loans.

Today, the EUR/JPY, FXE:FXY, rose back to resistance today at 1.699, as the US Dollar rose to 74.251; in other words the currency traders activated liquidity, that is they activated their loans, to take the dollar higher on lower oil prices as reported by William L. Watts and Lisa Twaronite of MarketWatch in article Dollar Gains On Rival Currencies Lifted By Weak Crude; this took US stocks higher.

The tide has turned, the commodity currencies of the world have turned over, one can no longer garner wealth by trading in world currencies as risk aversion is rising to inflation and also to bank debt.

Borrowing from the Bank of Japan at 0.5% interest to go long currencies is over; borrowing for interest rate differential investing in the world currencies is done.

Now with oil falling, the US Dollar, $USD, is the destination of interest rate differential investing using Bank of Japan funding.

The weekly chart of EUR/JPY, FXE:FXY, shows the liquidity window of the Bank of Japan closing. Yes, one of the two spigots of fiat wealth is being turned off by rising aversion to inflation and bank debt. The well of lending at the Bank of Japan is starting to run dry. The EUR/JPY shows an Elliott Wave One Down On August 5, 2008 To 1.680. And today, August 6, 2008, the EUR/JPY has risen to an Elliott Wave Two Up to 1.6999. And soon, an Elliott Wave 3 Down will commence, which will cause a great unwinding of wealth not only from currencies, but also from stocks and most likely debt, that is bonds of all types, as well.

The falling volume in the weekly chart of FXE:FXY suggest that one invest immediately, short EUR/JPY in a Forex account.

The EUR/JPY is now at the top of an Elliott Wave 2 Crest; and is thus soon going to fall lower.

This will be the 'mother of all Elliott Wave 3 Downs', there will be a terrific fall of the US Dollar, of US Stocks, and of stocks globally.

One should start to dollar cost average gradually, that is daily, into the anti-thesis of the US Dollar, that being gold, as gold trades inversely of the US Dollar, even though gold could be falling lower with oil. Gold, $GOLD, has been in a bull market run up since May 1, 2008 when the institutional investors traded out of financial stocks to go long the commodities with the yen carry traders. And gold broke out again on June 23, 2008, as carry traders sold out of stocks such as the BRICS, to go long gold.

Now today, gold, $GOLD, fell to the June 23, 2008 level and could fall all the way lower to the May 1, 2008 level or $850, or 82 for the GLD ETF, before going higher again as 'the last refuge of wealth'. Buying gold now fits into my investment maxim: in a bull market be a bull; in a bear market be a bear. In a bull market, one buys on dips; in a bear market, one sells into strength. Gold is in and has been in a bull market since May 1, 2008, so it makes sense to buy on its current dip.

Alf Field, writing in 321Gold.com article Elliott Wave Gold Update XXI, like myself, relates the potential of gold falling to $850 before moving higher. And the Privateer shows a 2x3 support level for gold at $850.

The other spigot of fiat wealth is liquidity provided by the Federal Reserve. The Great Purveyor of Credit Liquidity, Alan Greenspan, excelled at blowing asset bubbles world wide. Now his successor Ben Bernanke has been continuing in his place by lowering of the central bank interest rate to 2%, and by provisions of TAF, TSLF and PDCF, which become more liberal and generous all the time as LCOs are likely being traded out for US Treasuries.

And Bernankeism has expanded to rescue the mortgage GSEs as well. And yesterday he extended hope of a further interest rate cut or cuts with the FOMC quote "The FOMC believes that inflation will moderate later this year and in 2009".

Yes, the Fed Chief, I am sure would like to take rates to zero, or pay interest on reserves, or take new initiatives to further extend and expand liquidity to banks, which are for all practical purposes insolvent, being laden with level two assets and level three assets, as well as debt kept off balance sheet in SIVs and SPEs.

Economic nature may cut Mr. Bernanke's actions short by unleashing multiple systemic risk events.

And there is the principle of diminishing returns, his liquidity actions simply become less simulative over time. Soon the efforts will be totally down the drain as soon, as they are put into effect.

We passed through Peak Bond Wealth on March 18, 2008
We passed through Peak Credit on March 18, 2008 when the bond market place called the interest rate on the 30 Year US Treasury Bond, $TYX, higher on the Fed's announced assistance to JP Morgan buyout of Bear Stearns and provision of TAF, TSLF and PDCF.

We passed through Peak US Treasury Bond Wealth on July 16, 2008, as the bond market place again called $TYX higher as concerns grew over the Federal Reserve's interest to rescue the mortgage GSEs, Freddie Mac and Fannie Mae, via lending liquefaction and capitalization.

And now today, the interest rate on the 30 Year US Treasury Bond, $TYX, rose again on news that Freddie Mac Swings To 2nd Quarter Loss, and on the Jennifer Ablan of Reuters report that Pimco's Gross Says US Will Rescue Fannie, Freddie.

Weekly trading charts
Commodities are down
GLD -3.3%

USO -3.6%

Stocks are up
DIA 3.0%

IWM 1.3%

QQQQ 3.9%

SPY 2.2%

US Treasury Bonds are down
TLT -1.4%

Interest rate on the 30 Year US Treasury is up
$TYX 2.7%

The US Dollar rose today to close at $74.2517 .... Peak Dollar is coming "soon"
NY BOT DX Daily shows a close at 74.251.

US Dollar, $USD shows a 1.10% weekly gain to close at 74.25.

The fall of the Yen, FXY, today, coupled with a fall in oil, USO, propelled the dollar up -- these goosed the dollar up.

Given the rise in the US Dollar, and its support by the yen carry traders, we could see a continued rise in the Dollar, and in US stocks as oil may be falling lower.

The ongoing Google Finance report shows today's activity:
IYF: -0.6 down on Fannie and Freddie Falling lower.
QQQQ: 1.5
DIA: 0.4
SPY: 0.4
IWM: 0.5

Here is the catch, that is the terrific risk to the bullish dollar: the other currencies have died; yes died, and cannot be resurrected.

This means one day, very soon, the dollar will run out of gas so as to speak and when it does, the US Dollar is going into a death spiral lower with all the other currencies together.

Furthermore, when the dollar runs out of gas, the contraction will not be gentle it will be sharp.

But the real danger is the EUR/JPY, and its Elliot 2 Wave Crest, it could break lower any day, and the stock loss of value from that is going to be severe beyond belief; that is just one reason why I encourage an investment in gold today.

The financial risk of a systemic risk event, as well as the risk of deployment of civil security police by the EU US government suggests the wisdom of investing in gold
I have written a lot about multiple systemic risk potential events such as in the article Tax Exempt Mutual Fund Investors Could Suffer More Than Other Investors When The Coming Financial Breakdown Starts.

Another systemic risk event potentiality is the Pay Option ARMS Implosion -- the POA Implosion covered by Jesse and Mr. Mortgage. And MockTheMarkets writes that Option Arms Chart Signals Looming Disaster

I am growing more greatly attuned to the reality of the EU US Western World Government, and its plans for civil security through an international police body to oversee global governance rule of the Euro Asia nations as well as the entire North American Continent in response to any number of emergencies, which would result in the provisions of the Security and Prosperity Partnership, the SPP, being enforced.

Both of the above factors, that is rising systemic risk, and the risk of civil security measures being deployed in an emergency, suggests the wisdom of investing immediately in gold.

Specific suggestions for a diversified wealth preservation investment strategy
Wealth preservation comees primarily from gold and is based upon diversification of investment locations; it's much like having a three legged stool:
1) gold at BullionVault.com and
2) gold at GoldMoney.com and
3) ETFs and mutual funds GLD, SKF, RYWJX, and TBT, in a trust account and not a brokerage account.

It would have been good to buy TBT lower, rather that now when it is in breakout.

There is coming a time to go short the financial sector with SKF. And there is coming a time to go short the dollar with RYWJX.

Yes, the wealthy should take note of the scientific investment research: The author in Calendar Yen Trading Patterns provides historical record that EUR/JPY and USD/JPY is frequently down in the month of August

Today's action in the USD/JPY definitely is contrary to the seasonal norm as it boomed to 109.40, and could continue to do so; it is difficult to go short at this time; but going short EUR/JPY seems reasonable.

The yen carry trade is starting to unwind, having attained and gone through Peak Currencies: the stock market is "set to fall".

The ETFs SKF and SJF are the two best performing bear market ETFs; they are short the poorest performing sectors of the stock market. That is, they are short the financial sector and short the Russell 1000 Value Shares.

The financial sector performed well compared to the overall market over the last five years, and payed a handsome dividend as well; but in April 2007, the finanical sector started to falter with subprime troubles, and then took the stock market lower in October and November of 2007 with the Citigroup CDO Bust, as is seen in this ongoing five year Yahoo Finance chart; the Freddie Mac, FRE, and Fannie Mae, FNM, rescue rally that began July 16, 2008, is now over. The concept is that the bottom has not been reached; so the idea is sell the financial shares until the bottom has been reached ... the 'age of financialization' that came through the reapeal of the Glass Steagall Act, that inflated stocks, and created leveraged CDOs, and LBOs, is over; there must now be a great unwinding of fiat wealth ... the level two assets and level three assets at banks, KBE, and investment bankers, KCE, as well as the mortgage backed securities held by Freddie Mac, FRE, and Fannie Mae, FNM, and the US Treasury Bonds, TLT, and BTTRX, as well as the junk corporate bonds, HYG, must all, according to the Liquidation Thesis, be liquidated, that is done away with.

It is interesting to observe that the Russell 1000 Value Shares have been under performing the Russell 2000 shares for the last five years, as is seen in this ongoing five year Yahoo Finance chart; the 1000 Value will now fall even faster than the Russell 2000; the concept here is that there is no value left in investing; so the idea is sell the "so called value shares", sell them hard, sell them to the max.

Yes the value stocks have underperformed the growth; and they will continue to fall faster and faster away from the growth: the value shares, next to the financial shares, are going to win the race to the bottom; that is why one should be short selling them.

SKF is 200% inverese of the Financial Shares, that is, 200% inverse of IYF.

SJF is 200% inverse of the Russell 1000 Value Shares, that is, 200% inverse of IWD.

The ongoing MSN Finance chart of SKF and SJF, seen here, shows that these two started to perform well in October 2007, as the Citigroup CDO Bust struck the stock markets.

I am of the conviction that the banks, KBE, and investment bankers, KCE, were "techinically insolvent" the very moment that Glass Steagall was repealed. And that they were "marketplace insolvent" on October 7, 2008, when the Citigroup CDO Bust commenced; it was at that time they became viable candidates for short selling; and their toxicity spread to the general stock sector in November when an Elliott Wave 3 Down got well underway.

The ongoing Yahoo Finance 5 day chart of SKF and SJF shows these two ETFs are now stable, having recovered from being oversold.

The Stockcharts.com chart of SKF, and SJF, shows these two are prime and ready to go long again.

In as much as the Russell 1000 Value is heavily weighted with oil production shares, at least 12%, and financial shares at least 6%, I recommend that one, go short the financial sector with SKF for the sake of simplicity.

I am encouraging that one either be invested in gold, or be fully leveraged to the bearish side; thus my investment strategy, for the stock investor, is 3/3 in Bearish Leverage. This contrasts with Lynn T who is 1/3 in Bullish Leverage and 2/3 in Cash mode. Please note, any ETF positions should be in a trust account and not in a brokerage account.

And I've said it before, and I say it again, I am not a licensed investment professional; I am a blogger; I have never taken any compensation for anything I have written in this blog; I suggest that one consult a licensed investment professional before making an investment decision.

Related
A contributor to Your Trading Stock was paying attention to the SKF during trading this last week and picked up on the double down explosion pattern in SKF, and bought at a very handsome price on Thursday July 24, 2008 when SKF was really oversold and coming back up in price.

Robert Gottliebsen writing in Business Speculator July 25, 2008, relates that NAB Will Shock Wall Street: "The National Australia Bank's, NAB, decision to write off 90 per cent of its US conduit loans will have dramatic repercussions around the world. Wall Street will be deeply shocked when they understand the repercussions of what NAB has done.

It is clear global banks have nowhere near provided for their exposures to US housing loans which in the words of John Stewart are experiencing a “meltdown”.

We are now way beyond sub-prime. NAB says that it is suffering a 55 per cent loss on American housing loans – an event that has never happened in the history of a developed country in recent memory.

This is an unprecedented event and means that the cost of bailing out the US financial system is now far beyond the highest estimates. A US recession is now locked in, but more alarmingly, 55 per cent loan losses point to the possibility of a depression.

It means the cost of bailing out housing exposures to the two mortgage insurers will be so great that it will leave no room to bail out anything else and there are several US banks that are now in big trouble.

NAB says that the dislocation in the residential market is separate from the corporate market, but the flow on is inevitable".

Kondratieff Winter arrived today, July 25, 2008
Real estate is now only worth 45%: the analyst is saying that NAB "has come clean" and is telling it "like it is": US real estate is now worth only 45%. What will the real estate be worth six months from now? 35%?

This is a deflationary hurricane of immediate impact -- American real estate just got a 55% haircut ... That's right 55% off the top, now, today!

The world today, July 25, 2008, has passed through Peak Currency: The National Australia Bank's, NAB, decision to write off 90 per cent of its US conduit loans was a watershed event that means we have passed through Peak Currency: all currencies are now in a death spiral lower with the US Dollar.

The Australian Dollar, FXA, fell; it will not be achieving parity; and it is no longer a yen carry trade interest rate differentially favored investment destination.

The Canadian Dollar, FXC, is in a bearish pattern and it fell like a rock today as Bloomberg's Jamie McGee reports that Canada's Dollar Poised for Weekly Decline on Oil, Sales Data.

We are going to be seeing disinvestment from traditional long the Aussie and short the Yen based on risk aversion to debt; and we are going to be seeing disinvestment from long the Loonie and short the Yen due to risk aversion to stagflation.

Thus the Yen Carry Trade, EUR/JPY, FXE:FXY, will be unwinding from its chart value of 1.702.

The world currencies have tanked and are now sinking; gold has risen supreme over stocks, bonds and all currencies; the on going chart of gold, GLD, compared to stocks, VTI, and Treasuries, TLT, and world currencies, DBV, which is seen here, shows that since May, 1, 2008 when institutional investors went long commodity futures, mutual funds, and indexed ETFs such as RJI, DBA, GLD and USO, gold has risen in value. Then on May 19, when the TAF, TSLF, and PDCF rally ended, gold rose more; and then during June 2008, as the yen carry trade unwound as investors took flight from stocks due to the announcement of the Bank of Japan May Meeting, gold rose still higher.

Clerly, the investment demand for gold, GLD, is rising.

For the common investor and all investors for that matter, gold is the now the sole means of maintaining wealth: even if it, for a time falls lower, now that the gold currencies, the Euro, FXE, the Aussie, FXA, and the Loonie, FXC, are failing.

Speculators may be borrowing from the Bank of Japan to go long gold in the futures market, or invest in gold ETFs such as GLD and IAU.

Those with access to the 0.5% Bank of Japan lending window will now be going short the markets to garner wealth; which will only increase the Deflationary Hurricanes that Mike Mish Sheldon references.

My investment recommendation remains unchanged: I recommend that one dollar cost average a buy in gold within the next ten days with a diversified investment in gold at BullionVault.com, GoldMoney, and in a gold ETF, in a trust account, in Switzerland.

Kondratieff and those of Long Wave theory, hold that economics and politics are intertwined, interwoven and interconnected: the two must always be presented together.

Democratic candidate Obama calls for the Western World Global Government to rise, to address global issues of security and prosperity
Associated Press reports that Angela Merkel says Obama's Speech sent a positive signal. His speech called for greater cooperation of the type presented in The Declaration of EU US, which is the Leaders framework agreement, for Western World initiatives in threats to security and prosperity poised by international terrorism and a noncoopeative Iran.

The Obama For President organization relates that Barack Obama called on Germany to send a clear message to Iran to abandon its nuclear ambitions: Speaking to an enthusiasitic Berlin crowd on Thursday, Obama urged renewed U.S.-Europe solidarity on a host of issues, from the war on terror to global warming to the threat of a nuclear Iran.

The time has come to “answer the call for a new dawn in the Middle East,” Obama said. “My country must stand with yours and with Europe in sending a direct message to Iran that it must abandon its nuclear ambitions.”

The presumptive Democratic nominee for U.S. president delivered his speech within sight of the Brandenburg Gate, where 21 years ago President Ronald Reagan publicly called on Soviet leader Mikhail Gorbachev to “tear down” the Berlin Wall.

“The greatest danger of all is to allow new walls to divide us from one another. The walls between old allies on either side of the Atlantic cannot stand,” he said. “The walls between races and tribes, natives and immigrants, Christians and Muslims and Jews cannot stand. These now are the walls we must tear down.”

Obama’s choice of location was the subject of some controversy, with German Chancellor Angela Merkel making it known that she was uncomfortable giving a reception more suited to a U.S. president than to a presidential candidate.

Obama ended up giving his speech at some distance from the symbolic Brandenburg Gate, at the 1864 Victory Column. That podium was moved to its current spot in 1939 by Hitler, to enlarge the avenue to make way for massive marches.