Dollar Driven Stock Rally Likely Ended Today ... August 11, 2008
Tuesday, 12. August 2008, 06:46:03
Introduction
Elaine Meinel Supkis shares these thoughts in article All Hail The Stumbling Status Quo! shares: "As the world races to reimpose the old status quo... commodities are being artificially suppressed, money is being encouraged to flow back into stocks and assets. And the desire to create more debt is the number one wish of the central bankers of the G7 consortium. Time to review the last year yet some more and to see if the US can resume being the consumer society despite not manufacturing anything except arms for World War III."
Commodities, particularly gold, is indeed being suppressed by currency traders going long the USD/JPY and short the EUR/JPY, which is driving the dollar and consumer and financial stocks up, and is causing disinvestment from metal manufacturing and gold stocks, and disinvestment from long favored interest differential stock investment in the emerging markets such as Brazil.
Currency traders are trading in relation to the central banker's "apparent move to zero percent central bank interest rate ".
Currency traders have abandoned expectations that the G-7 central banks, especially the European Central Bank, ECB, will raise interest rates to burn out inflation; and are positioned short the Euro believing that the ECB will lower rates to stimulate growth.
The United States is certainly on the way to create more debt as a $700 Billion dollar spending deficit looms. And this is likely to bubble higher as projected revenues fail to materialize and as investment managers globally, disinvest from US Treasuries, continuing a run on US government bonds, as can be seen in the zero coupon mutual bond fund BTTRX falling lower through a 'broadening top pattern' today to 55.89. The island reversal in the chart came on March 18, 2008 as the bond marketplace called interest rates higher in response to the Federal Reserve providing facilities of TAF, TSLF, and PDCF; and the recent black gravestone doji is in response to Ben Bernanke moving to rescue the mortgage GSSs by providing liquidity and capitalization, which has not worked as Freddie Mac and Fannie Mae fell 6% lower today.
The financial and bank rescue rally, began July 14, 2008 as the yen carry traders sold oil to take profits; and went long the financial sector.
The bank rally, which is really a debt support rally, is likely over as the daily chart of the financial sector, IYF, shows a triple top alert, and the weekly chart shows rising price on falling volume -- a bearish indication of an impending fall.
This rally has come at the benefit of yen carry traders; and they are going to be quick to sell, most likely by Thursday on the CPI interest rate report, or definitely on Friday of this week to take profit both on their financial stock investment and profit on the USD/JPY, as seasonally both the USD/JPY and the EUR/JPY fall lower in August.
A topping out of the USD/JPY, a continually falling EUR/JPY, the onset of World War III, and more importantly, multiple systemic risk event potentialities, suggests the wisdom of investing in gold.
Today Is Likely Peak Dollar ... And A Top To The Dollar Driven Stock Rally
The chart of the US Dollar, $USD, shows a pop to $76.25, which may turn out to be an abandoned baby candlestick, as currency traders take profit and go short their positions in USD/JPY, the consumer stocks, and the financial stocks. Here is the pop seen in the weekly $USD chart.
Yes a down turn in the US dollar is at hand, as Jesse in article Long Term Gold and US Dollar Charts shows this chart of DX Dollar hitting the upper side of it's downward channel.
The US Stocks Rise As USD/JPY Holds Steady In Front of Thursday's CPI Report
The US stocks rose today as the USD/JPY held steady.
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 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown -- it shows the USD JPY is a "failed investment instrument".
Consumer stocks, of all types, have benefited from the Dollar Rally. The pull of the dollar has been the strongest on the consumer electronic stocks, as is seen in CPWR, which rose from the apex of an 'braodening top pattern' at 9.5 to 11.84 near its all time high before the reatil stocks started to sell off in the first sub pime scare in July of 2007.
Here is the weekly chart of consumer services leader H&R Block, HRB, rising to an all time high on falling volume. One has to ask is a taxpaying service stock worth this much; that is does it really have this much economic value? Well no, it has investment value, it gets moved up on 0.5% Bank of Japan lending so it can be sold for a huge profit.
The chart of the consumer stocks compared to the commodity stocks, XLY:XME shows how the fall in oil prices made US consumer stocks the focal point of interest rate differential investing, as dollars fled out of traditional yen carry trade investments.
The chart of the gold relative to the consumer stocks, GLD:XLY, suggest that the downturn in gold stocks is at hand; and that monies will be flowing back into true wealth.
The chart of gold relative to Staples, GLD:SPLS shows how far Staples, SPLS, has run up in the dollar driven consumer stock rally. The chart of SPLS shows the strength of the current rally. Soon, Staples is going to be sold by the yen carry traders to take profit.
The chart of gold relative to TJ Max, GLD:TJX, is even more of the same.
Stock Charts Are Bearish Not Bullish
SPY Ascending wedge to resistance at 131.
UWM The triple top in the 200% of the Russell 2000, IWM, is called just that: "a triple top warning" which is sound warning of an imminent fall. The Russell 2000s rise compared to the other indices in the current rally comes from its interplay with the financial sector. The Russell 2000 shares get goosed more than the others by how well or poorly the financials are doing. This goosing by the financial sector is seen in the chart of the Russell 2000 value relative to the Russell 2000 growth, IWN:IWO, where through the Financial and Dollar Rally, the IWN shares have risen backet up sharply.
The chart of UVT:UKK, relates the same thing.
In July of 2007 the Russell 200 really started to sell off quite sharply, now as seen in their ratio to the Dow shares, IWM:DIA, they have been recapitalized again for more severe falling, just like a little over a year ago.
DDM Has risen to resistance in an ascending wedge.
VTI The overall stock market having reached really strong resistance will now be turning lower.
XBI This south sea bubble at the end of the age of fiat wealth had started to fall, but has been held up by the dollar rally.
Charts Show Bubbles Glaore At The End Of The Age Of Fiat Wealth
PLE,RNT, URBN, URBN Weekly, MCD, PNRA, TRLG, INTC, AZO, BLK, BBBB, AFAM, STRA, WCN, OHI, MOVE, DELL, VNO, SPG, RWR, HCN, BXP, XHB, RIMM, JOE, PSP, RCL, CCL,
We Are Witnessing Death By Yen
The yen, FXY, has been the "unseen fulcrum of wealth" as it is used in the most powerful of currency pairs.
The Yen is now dying.
Nevertheless, it is still the underlying factor in generating wealth to those going short.
Just as it was used to bubble wealth up; now it is being used to deflate all fiat wealth
The yen once levered up, now it will lever down.
The yen was one four currencies that took gold higher; the others were the Euro, the Austalian Dollar and the Cansdian Dollar.
Now gold is going to have to go it alone, and will go it alone as it rises to be the world's defacto currency and store house of wealth.
The chart of gold relative to the Yen, GLD:FXY, shows a number of things: it shows that gold in terms of yen has become more affordable; and it shows that gold has fallen to a level of the first of the year. It looks like GLD:FXY is going to go down even some more; but when GLD:FXY rises from its May 1, 2008 value of 0.88, or perhaps 0.80 then one can say the investment demand for gold has been established.
The Transportation Sector, IYT, Has Soared On Dropping Oil Prices
JBHT, GWR,
Gold, BRICS, And The Commodity Shares Fall Lower As Currency Traders Sell The EUR/JPY
Today's 0.8% fall in EUR/JPY, FXE;FXY, documents that an Elliott Wave Three Wave Down is strongly unwinding the yen carry trade.
The chart of EEV shows how the TAF rally failed on May 19, 2008 and then how on June 23, 2008 as news of the Bank Of Japan meeting in May heralded inflation, the carry traders sold out of the BRICS, EEB, and now that the Elliott Wave 3 has gotten underway, it has started going up yet again. This chart shows very dramatically the rise of risk aversion and yen carry traders taking profit to repay their loans. Just as the sell off of oil caused a destruction of natural resource investing, so now the unwinding of the yen carry trade is causing a destruction of investing in the emerging nations.
The chart of the metal manufacturing shares, XME, shows the strength of the unwinding of the yen carry trade: stocks were devastated back to the level of last January.
The monthly chart of DRR and FXP compared to XME, EEB, shows the reward that came through investing 200% short, as the currencies, especially the Euro, started to sell off. This chart also shows how currency traders have ruled the day; they not stock traders are the movers and shakers of investment. And the shaking is just beginning; you can say a real shake down is coming; that is why I suggest gold and the ETFs FXP and SKF. Of note, Chartist Jack Chan has given his buy signal on FXP.
The rise of the Yen on June 23, 2008 that came with the pay back of yen cary loans, and then the fall of currencies that came with Peak Currencies on July 25, 2008, has sent the Japanese stocks, EWJ, lower, rewarding those invested in EWV. Soon those who are invested in the other Proshares 200% inverse or bear market ETFs will be rewarded as well.
The weekly chart of EUR/JPY, FXE:FXY, shows that Kondratieff Winter has been unleashed upon mankind. Note the black lollipop hanging man candlestick in June. I thought that this was the end to the yen carry trade; but no. If one looks at the daily chart, this shows as a dark cloud cover candlestick that was over-run by short sell covering.
The first week in June, in the weekly chart, was Elliot Wave 3 of 5 Up; then came Wave 4 of 5 Down; and then an Elliott Wave 5 of 5 black harami doji candlestick in July.
Then a massive bearish engulfing candlestick which started an Elliott Wave 3 of 3 Down destruction of wealth in the emerging nations, EEM, and in the BRICS, EEB, as risk aversion grew to inflation, reduced growth potential, and to the National Bank of Australia, NBA, announcement that it was writing of 55% of its conduit loans in the US real estate market.
As mentioned above, Ms. Supkis relates "desire to create more debt is the number one wish of the central bankers of the G7 consortium"; this debt comes through the Federal Reserve facilities such as TAF, the lowering of interest rates by central bankers globally, and by the Bank of Japan Lending at 0.5% interest.
Yet the TAF rally has stalled out with the financial sector, IFY, having hit resistance.
And the carry traders are buying yen, from time to time, as they did today, as they force EUR/JPY down. This is not what the G7 consortium wants; so like I say: they are, despite everything, including interest rates, such as the marketplace interest rate on the 30 Year US Treasury, $TYX, moving higher, "going to go to zero".
The weekly chart of IYF shows 75 to be strong resistance; note the rising price on falling volume; all I can say is lookout below.
The "Great Deflation" Is Now Well Underway
From a wealth management and investing perspective, the dual well springs of liquidity have run dry: the EUR/JPY has fallen lower, and the TAF facilities are now failing to drive the market higher.
Gold, $GOLD, is part of that great deflation. It fell to $823 today.
It could easily fall lower to $800.
As the Great Deflation picks up speed, an investment demand for gold, which will at least stabilize it in relation to other forms of wealth.
I believe that $800 gold is an "Elliott Wave 3 Mid Resting Point" which will take gold back to $1,000 and likely even well beyond.
Wealth Preservation In Light Of Systemic Risks And Seasonal USD/JPY And EUR/JPY Downturns
Despite the potential for gold to fall lower; I recommend a buy on gold, not only due the investment demand for it, but one should buy gold to preserve wealth from the coming financial apocalypse that will arive without warning.
I publish the 'Resourceful Bear Systemic Risk Index'; and it has risen in the last week to 95%, indicating that a systemic risk event producing a global financial break down is imminent.
In such an event one may not have full and immediate access to one's investments and be able to buy gold at that time. I suggest that now, despite the Great Deflation in all wealth, even gold, that one buy it at the current time.
The chart of the gold ETF, GLD, shows a fall to $825; strong support is at $800.
The chart of gold relative to stocks, GLD:VTI, relates that gold is priced reasonably.
The chart of gold relative to world currencies, GLD:DBV, relates much the same thing.
I suggest that one be diversified with gold at BullionVault.com and GoldMoney.com and that one have a trust account with investment in these three following ETFs and ETNs
200% gold ... DGP
200% inverse of the financial sector ... SKF
200% inverse of the China ... FXP
Both FXP and EWV have been doing well since the end of the TAF rally on May 19, 2008; but FXP will outperform as there are more yen carry trade dollars stored up in the chinese stock market than in the Japanese stock market.
World War III Is Coming As Kondratieff Winter Sets In
In the 'EUUS' section of my blog, I have documented with extensive references, that a trans-Atlantic Europe and US government has formed. Its opponents are Russia, China. All are equally bearish.
World War III is coming soon as conflicts in Georgia have flared up.
Georgia is a conduit country for the Baku-Tbilisi-Ceyhan pipeline, the BTC pipeline, of which both the US and Israel have a political and economic interest.
But more significantly an armada of historic size is on the way to the Persian Gulf as part of the EU US western world government effort to confront Iran over its nuclear ambitions.
Elaine Meinel Supkis remarks in the referenced article: "Remember: the central bankers are NOT there to protect currency values. They exist to pay for wars and to enable markets to defy the bears. This means no 'creative destruction.' Indeed, the very things that have to be protected are the military/industrial portions of the markets. To do this, the reality of debt must be denied. Denial means lying about inflation, artificially killing commodity surges and preventing investors from pulling out of various equity markets. Even confiscating gold and other valuables, if necessary."
Lockheed Martin, LMT, topped out at $113, having run up $100 when the 'Oil Sell Off-Dollar Rally' began.
China Doesn't Want 'Hot Money' Flows
Andrew Wood and Peter Garnham report that China introduces new forex controls.
Ms Supkis comments appropriately: "The flow of funds across the planet continue to change. The G7 want the status quo. So does China. But China also is under attack from Japan. So China is taking whatever measures possible to control money flows so they don't end up being duped like the US. They watch us very closely. NOT to imitate us! Not even slightly. They view us correctly as a model to AVOID. We are the very thing they fear becoming. They work very hard at this, too. The US misunderstands the Chinese methodology in all this. We think, because they talk very earnestly and long with US economists and leaders, that they admire us and need our advice.
This is pure hubris. They don't want our advice, they want to know how stupid we are and how we can't analyze significant information. Our pitfalls greatly concern the Chinese. We know that the Chinese public can't wait to imitate the US public. China, on the other hand, must control this urge".
Irredeemable Debt Will Eventually Cause Terrific Inflation Globally
Ms Supkis continues with more: "As I pointed out in the past, when a system is 100% in debt, even 0% loans can't be paid off if the principal is too high. There is a limit! If money is made too easy to gain, we get inflation. Many nations have terrible inflation."
Yes places like Vietnam, Pakistan and India are cases in point. Vietnam got its inflation via western capitalists coming in to set up factories. And Pakistan has terrific inflation which finally overheated the local stock market, causing its stock market to literally collapse. And India, just the other day announced that it was raising the Central Bank interest rate again to try to put out the flames of inflation that have come from 0.5% interest rate investors having bid the Bombay Stock Exchange, $BSE, up to over 20,000, as well as buying local real estate. Of late, India shares, INP, has been trading up with the dollar in a contrary move to other emerging markets.
The Yen Carry Trade Is The Biggest Investment Story That "Has Never Been Told"
Elaine Meinel Supkis is the lone investment saint who has taken the time over the years to continuously explain the yen carry trade which has built up tremendous Forex Reserves in both Japan and China as related in this financial cartoon.
Richard, the Resourceful Bear says: "The unwinding of the yen carry trade, and the fall of the US dollar, will now be an investment killer ... gold will be an investment thriller."
The Purpose Of Modern Capitalist Banking Systems Is To Create Increasing Debt And Not Increasing Wealth
Richard Benson in Safehaven.com article How Much Will Government Bailouts Actually Cost the American Taxpayer? provides the true cost of the current bailouts relating that: "The financial institution bailouts and the government taxpayer bailouts are looking more like socialism every day. I suspect that when we look back at this time in history four years from now, and marvel at the great increase in government ownership and socialism imbedded in the economy, we will have the Bush Administration to thank for sending us down the road to economic serfdom".
Gullible Investors Buy At Market Tops And Sell At Market Bottoms
As Jan Allen has written: "O gullible investor, who has bewitched you that you should not embrace the truth?"
Are you a gullible investor? That is, one led by greed and poor advice.
Are you going off the investment cliff, as Alf Field relates, Into The Abyss.
I hope you are an ongoing reader my cliff notes, that warn that the Great Deflation in stock, bond, and currencies has begun, and that one can only preserve wealth through investing in gold, and a limited amount of short selling.
My advice is completely contrary to that of Lynn T, who in Safehaven.com article Hop On For The Ride related just yesterday: "A Long Term Investor Buy Signal Alert was issued July 23, 2008; Current Weighting Suggestion: 3/3 in Bullish Leverage".
Keywords
indiainflation, vietnaminflation, irredeemabledebtcausesinlfation, irredeemabledebtinflation, dollarrally
Article Update Details
This article was updated on August 14, 2008 with
1) the incususion of the FXStreet.com August 14, 2008 chart of the USD/JPY showing the Bear Cross in the USD/JPY on August 11, 2008.
2) the 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown -- it shows the USD JPY is a "failed investment instrument".
Elaine Meinel Supkis shares these thoughts in article All Hail The Stumbling Status Quo! shares: "As the world races to reimpose the old status quo... commodities are being artificially suppressed, money is being encouraged to flow back into stocks and assets. And the desire to create more debt is the number one wish of the central bankers of the G7 consortium. Time to review the last year yet some more and to see if the US can resume being the consumer society despite not manufacturing anything except arms for World War III."
Commodities, particularly gold, is indeed being suppressed by currency traders going long the USD/JPY and short the EUR/JPY, which is driving the dollar and consumer and financial stocks up, and is causing disinvestment from metal manufacturing and gold stocks, and disinvestment from long favored interest differential stock investment in the emerging markets such as Brazil.
Currency traders are trading in relation to the central banker's "apparent move to zero percent central bank interest rate ".
Currency traders have abandoned expectations that the G-7 central banks, especially the European Central Bank, ECB, will raise interest rates to burn out inflation; and are positioned short the Euro believing that the ECB will lower rates to stimulate growth.
The United States is certainly on the way to create more debt as a $700 Billion dollar spending deficit looms. And this is likely to bubble higher as projected revenues fail to materialize and as investment managers globally, disinvest from US Treasuries, continuing a run on US government bonds, as can be seen in the zero coupon mutual bond fund BTTRX falling lower through a 'broadening top pattern' today to 55.89. The island reversal in the chart came on March 18, 2008 as the bond marketplace called interest rates higher in response to the Federal Reserve providing facilities of TAF, TSLF, and PDCF; and the recent black gravestone doji is in response to Ben Bernanke moving to rescue the mortgage GSSs by providing liquidity and capitalization, which has not worked as Freddie Mac and Fannie Mae fell 6% lower today.
The financial and bank rescue rally, began July 14, 2008 as the yen carry traders sold oil to take profits; and went long the financial sector.
The bank rally, which is really a debt support rally, is likely over as the daily chart of the financial sector, IYF, shows a triple top alert, and the weekly chart shows rising price on falling volume -- a bearish indication of an impending fall.
This rally has come at the benefit of yen carry traders; and they are going to be quick to sell, most likely by Thursday on the CPI interest rate report, or definitely on Friday of this week to take profit both on their financial stock investment and profit on the USD/JPY, as seasonally both the USD/JPY and the EUR/JPY fall lower in August.
A topping out of the USD/JPY, a continually falling EUR/JPY, the onset of World War III, and more importantly, multiple systemic risk event potentialities, suggests the wisdom of investing in gold.
Today Is Likely Peak Dollar ... And A Top To The Dollar Driven Stock Rally
The chart of the US Dollar, $USD, shows a pop to $76.25, which may turn out to be an abandoned baby candlestick, as currency traders take profit and go short their positions in USD/JPY, the consumer stocks, and the financial stocks. Here is the pop seen in the weekly $USD chart.
Yes a down turn in the US dollar is at hand, as Jesse in article Long Term Gold and US Dollar Charts shows this chart of DX Dollar hitting the upper side of it's downward channel.
The US Stocks Rise As USD/JPY Holds Steady In Front of Thursday's CPI Report
The US stocks rose today as the USD/JPY held steady.
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 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown -- it shows the USD JPY is a "failed investment instrument".
Consumer stocks, of all types, have benefited from the Dollar Rally. The pull of the dollar has been the strongest on the consumer electronic stocks, as is seen in CPWR, which rose from the apex of an 'braodening top pattern' at 9.5 to 11.84 near its all time high before the reatil stocks started to sell off in the first sub pime scare in July of 2007.
Here is the weekly chart of consumer services leader H&R Block, HRB, rising to an all time high on falling volume. One has to ask is a taxpaying service stock worth this much; that is does it really have this much economic value? Well no, it has investment value, it gets moved up on 0.5% Bank of Japan lending so it can be sold for a huge profit.
The chart of the consumer stocks compared to the commodity stocks, XLY:XME shows how the fall in oil prices made US consumer stocks the focal point of interest rate differential investing, as dollars fled out of traditional yen carry trade investments.
The chart of the gold relative to the consumer stocks, GLD:XLY, suggest that the downturn in gold stocks is at hand; and that monies will be flowing back into true wealth.
The chart of gold relative to Staples, GLD:SPLS shows how far Staples, SPLS, has run up in the dollar driven consumer stock rally. The chart of SPLS shows the strength of the current rally. Soon, Staples is going to be sold by the yen carry traders to take profit.
The chart of gold relative to TJ Max, GLD:TJX, is even more of the same.
Stock Charts Are Bearish Not Bullish
SPY Ascending wedge to resistance at 131.
UWM The triple top in the 200% of the Russell 2000, IWM, is called just that: "a triple top warning" which is sound warning of an imminent fall. The Russell 2000s rise compared to the other indices in the current rally comes from its interplay with the financial sector. The Russell 2000 shares get goosed more than the others by how well or poorly the financials are doing. This goosing by the financial sector is seen in the chart of the Russell 2000 value relative to the Russell 2000 growth, IWN:IWO, where through the Financial and Dollar Rally, the IWN shares have risen backet up sharply.
The chart of UVT:UKK, relates the same thing.
In July of 2007 the Russell 200 really started to sell off quite sharply, now as seen in their ratio to the Dow shares, IWM:DIA, they have been recapitalized again for more severe falling, just like a little over a year ago.
DDM Has risen to resistance in an ascending wedge.
VTI The overall stock market having reached really strong resistance will now be turning lower.
XBI This south sea bubble at the end of the age of fiat wealth had started to fall, but has been held up by the dollar rally.
Charts Show Bubbles Glaore At The End Of The Age Of Fiat Wealth
PLE,RNT, URBN, URBN Weekly, MCD, PNRA, TRLG, INTC, AZO, BLK, BBBB, AFAM, STRA, WCN, OHI, MOVE, DELL, VNO, SPG, RWR, HCN, BXP, XHB, RIMM, JOE, PSP, RCL, CCL,
We Are Witnessing Death By Yen
The yen, FXY, has been the "unseen fulcrum of wealth" as it is used in the most powerful of currency pairs.
The Yen is now dying.
Nevertheless, it is still the underlying factor in generating wealth to those going short.
Just as it was used to bubble wealth up; now it is being used to deflate all fiat wealth
The yen once levered up, now it will lever down.
The yen was one four currencies that took gold higher; the others were the Euro, the Austalian Dollar and the Cansdian Dollar.
Now gold is going to have to go it alone, and will go it alone as it rises to be the world's defacto currency and store house of wealth.
The chart of gold relative to the Yen, GLD:FXY, shows a number of things: it shows that gold in terms of yen has become more affordable; and it shows that gold has fallen to a level of the first of the year. It looks like GLD:FXY is going to go down even some more; but when GLD:FXY rises from its May 1, 2008 value of 0.88, or perhaps 0.80 then one can say the investment demand for gold has been established.
The Transportation Sector, IYT, Has Soared On Dropping Oil Prices
JBHT, GWR,
Gold, BRICS, And The Commodity Shares Fall Lower As Currency Traders Sell The EUR/JPY
Today's 0.8% fall in EUR/JPY, FXE;FXY, documents that an Elliott Wave Three Wave Down is strongly unwinding the yen carry trade.
The chart of EEV shows how the TAF rally failed on May 19, 2008 and then how on June 23, 2008 as news of the Bank Of Japan meeting in May heralded inflation, the carry traders sold out of the BRICS, EEB, and now that the Elliott Wave 3 has gotten underway, it has started going up yet again. This chart shows very dramatically the rise of risk aversion and yen carry traders taking profit to repay their loans. Just as the sell off of oil caused a destruction of natural resource investing, so now the unwinding of the yen carry trade is causing a destruction of investing in the emerging nations.
The chart of the metal manufacturing shares, XME, shows the strength of the unwinding of the yen carry trade: stocks were devastated back to the level of last January.
The monthly chart of DRR and FXP compared to XME, EEB, shows the reward that came through investing 200% short, as the currencies, especially the Euro, started to sell off. This chart also shows how currency traders have ruled the day; they not stock traders are the movers and shakers of investment. And the shaking is just beginning; you can say a real shake down is coming; that is why I suggest gold and the ETFs FXP and SKF. Of note, Chartist Jack Chan has given his buy signal on FXP.
The rise of the Yen on June 23, 2008 that came with the pay back of yen cary loans, and then the fall of currencies that came with Peak Currencies on July 25, 2008, has sent the Japanese stocks, EWJ, lower, rewarding those invested in EWV. Soon those who are invested in the other Proshares 200% inverse or bear market ETFs will be rewarded as well.
The weekly chart of EUR/JPY, FXE:FXY, shows that Kondratieff Winter has been unleashed upon mankind. Note the black lollipop hanging man candlestick in June. I thought that this was the end to the yen carry trade; but no. If one looks at the daily chart, this shows as a dark cloud cover candlestick that was over-run by short sell covering.
The first week in June, in the weekly chart, was Elliot Wave 3 of 5 Up; then came Wave 4 of 5 Down; and then an Elliott Wave 5 of 5 black harami doji candlestick in July.
Then a massive bearish engulfing candlestick which started an Elliott Wave 3 of 3 Down destruction of wealth in the emerging nations, EEM, and in the BRICS, EEB, as risk aversion grew to inflation, reduced growth potential, and to the National Bank of Australia, NBA, announcement that it was writing of 55% of its conduit loans in the US real estate market.
As mentioned above, Ms. Supkis relates "desire to create more debt is the number one wish of the central bankers of the G7 consortium"; this debt comes through the Federal Reserve facilities such as TAF, the lowering of interest rates by central bankers globally, and by the Bank of Japan Lending at 0.5% interest.
Yet the TAF rally has stalled out with the financial sector, IFY, having hit resistance.
And the carry traders are buying yen, from time to time, as they did today, as they force EUR/JPY down. This is not what the G7 consortium wants; so like I say: they are, despite everything, including interest rates, such as the marketplace interest rate on the 30 Year US Treasury, $TYX, moving higher, "going to go to zero".
The weekly chart of IYF shows 75 to be strong resistance; note the rising price on falling volume; all I can say is lookout below.
The "Great Deflation" Is Now Well Underway
From a wealth management and investing perspective, the dual well springs of liquidity have run dry: the EUR/JPY has fallen lower, and the TAF facilities are now failing to drive the market higher.
Gold, $GOLD, is part of that great deflation. It fell to $823 today.
It could easily fall lower to $800.
As the Great Deflation picks up speed, an investment demand for gold, which will at least stabilize it in relation to other forms of wealth.
I believe that $800 gold is an "Elliott Wave 3 Mid Resting Point" which will take gold back to $1,000 and likely even well beyond.
Wealth Preservation In Light Of Systemic Risks And Seasonal USD/JPY And EUR/JPY Downturns
Despite the potential for gold to fall lower; I recommend a buy on gold, not only due the investment demand for it, but one should buy gold to preserve wealth from the coming financial apocalypse that will arive without warning.
I publish the 'Resourceful Bear Systemic Risk Index'; and it has risen in the last week to 95%, indicating that a systemic risk event producing a global financial break down is imminent.
In such an event one may not have full and immediate access to one's investments and be able to buy gold at that time. I suggest that now, despite the Great Deflation in all wealth, even gold, that one buy it at the current time.
The chart of the gold ETF, GLD, shows a fall to $825; strong support is at $800.
The chart of gold relative to stocks, GLD:VTI, relates that gold is priced reasonably.
The chart of gold relative to world currencies, GLD:DBV, relates much the same thing.
I suggest that one be diversified with gold at BullionVault.com and GoldMoney.com and that one have a trust account with investment in these three following ETFs and ETNs
200% gold ... DGP
200% inverse of the financial sector ... SKF
200% inverse of the China ... FXP
Both FXP and EWV have been doing well since the end of the TAF rally on May 19, 2008; but FXP will outperform as there are more yen carry trade dollars stored up in the chinese stock market than in the Japanese stock market.
World War III Is Coming As Kondratieff Winter Sets In
In the 'EUUS' section of my blog, I have documented with extensive references, that a trans-Atlantic Europe and US government has formed. Its opponents are Russia, China. All are equally bearish.
World War III is coming soon as conflicts in Georgia have flared up.
Georgia is a conduit country for the Baku-Tbilisi-Ceyhan pipeline, the BTC pipeline, of which both the US and Israel have a political and economic interest.
But more significantly an armada of historic size is on the way to the Persian Gulf as part of the EU US western world government effort to confront Iran over its nuclear ambitions.
Elaine Meinel Supkis remarks in the referenced article: "Remember: the central bankers are NOT there to protect currency values. They exist to pay for wars and to enable markets to defy the bears. This means no 'creative destruction.' Indeed, the very things that have to be protected are the military/industrial portions of the markets. To do this, the reality of debt must be denied. Denial means lying about inflation, artificially killing commodity surges and preventing investors from pulling out of various equity markets. Even confiscating gold and other valuables, if necessary."
Lockheed Martin, LMT, topped out at $113, having run up $100 when the 'Oil Sell Off-Dollar Rally' began.
China Doesn't Want 'Hot Money' Flows
Andrew Wood and Peter Garnham report that China introduces new forex controls.
Ms Supkis comments appropriately: "The flow of funds across the planet continue to change. The G7 want the status quo. So does China. But China also is under attack from Japan. So China is taking whatever measures possible to control money flows so they don't end up being duped like the US. They watch us very closely. NOT to imitate us! Not even slightly. They view us correctly as a model to AVOID. We are the very thing they fear becoming. They work very hard at this, too. The US misunderstands the Chinese methodology in all this. We think, because they talk very earnestly and long with US economists and leaders, that they admire us and need our advice.
This is pure hubris. They don't want our advice, they want to know how stupid we are and how we can't analyze significant information. Our pitfalls greatly concern the Chinese. We know that the Chinese public can't wait to imitate the US public. China, on the other hand, must control this urge".
Irredeemable Debt Will Eventually Cause Terrific Inflation Globally
Ms Supkis continues with more: "As I pointed out in the past, when a system is 100% in debt, even 0% loans can't be paid off if the principal is too high. There is a limit! If money is made too easy to gain, we get inflation. Many nations have terrible inflation."
Yes places like Vietnam, Pakistan and India are cases in point. Vietnam got its inflation via western capitalists coming in to set up factories. And Pakistan has terrific inflation which finally overheated the local stock market, causing its stock market to literally collapse. And India, just the other day announced that it was raising the Central Bank interest rate again to try to put out the flames of inflation that have come from 0.5% interest rate investors having bid the Bombay Stock Exchange, $BSE, up to over 20,000, as well as buying local real estate. Of late, India shares, INP, has been trading up with the dollar in a contrary move to other emerging markets.
The Yen Carry Trade Is The Biggest Investment Story That "Has Never Been Told"
Elaine Meinel Supkis is the lone investment saint who has taken the time over the years to continuously explain the yen carry trade which has built up tremendous Forex Reserves in both Japan and China as related in this financial cartoon.
Richard, the Resourceful Bear says: "The unwinding of the yen carry trade, and the fall of the US dollar, will now be an investment killer ... gold will be an investment thriller."
The Purpose Of Modern Capitalist Banking Systems Is To Create Increasing Debt And Not Increasing Wealth
Richard Benson in Safehaven.com article How Much Will Government Bailouts Actually Cost the American Taxpayer? provides the true cost of the current bailouts relating that: "The financial institution bailouts and the government taxpayer bailouts are looking more like socialism every day. I suspect that when we look back at this time in history four years from now, and marvel at the great increase in government ownership and socialism imbedded in the economy, we will have the Bush Administration to thank for sending us down the road to economic serfdom".
Gullible Investors Buy At Market Tops And Sell At Market Bottoms
As Jan Allen has written: "O gullible investor, who has bewitched you that you should not embrace the truth?"
Are you a gullible investor? That is, one led by greed and poor advice.
Are you going off the investment cliff, as Alf Field relates, Into The Abyss.
I hope you are an ongoing reader my cliff notes, that warn that the Great Deflation in stock, bond, and currencies has begun, and that one can only preserve wealth through investing in gold, and a limited amount of short selling.
My advice is completely contrary to that of Lynn T, who in Safehaven.com article Hop On For The Ride related just yesterday: "A Long Term Investor Buy Signal Alert was issued July 23, 2008; Current Weighting Suggestion: 3/3 in Bullish Leverage".
Keywords
indiainflation, vietnaminflation, irredeemabledebtcausesinlfation, irredeemabledebtinflation, dollarrally
Article Update Details
This article was updated on August 14, 2008 with
1) the incususion of the FXStreet.com August 14, 2008 chart of the USD/JPY showing the Bear Cross in the USD/JPY on August 11, 2008.
2) the 8/12/2008 Greg Michalowski USD JPY Chart shows a complete breakdown -- it shows the USD JPY is a "failed investment instrument".
WIDGETIZE