Unwinding Of The Yen Carry Trade Is Underway
Friday, 27. June 2008, 23:58:16
Introduction
The daily chart of EUR/JPY, FXE:FXY, the barometer of the yen carry trade, shows that the yen carry trade is unwinding. The weekly chart of FXE:FXY shows that the yen carry trade has topped out.
The Yen rises
The ActionForex.com provides the Currency Heat Map and relates: "Now, readers can see as shown in the third row that the Japanese Yen is having tremendous strengths, trading above prior bar's high against all currencies shown".
"In the second row, cell color is Dark red in the first, third and fifth cell and Red in the fourth cell. It means, EUR/USD, EUR/JPY and EUR/CHF are trading below prior bar's low. EUR/GBP is lower than prior bar's close even though it's above prior bar's low. Obviously, Euro is weak among the majors in the respective time frame".
"Also, according to first row, which has the second, fourth, sixth cell in Dark Blue, fifth and seventh cell in Blue. It means USD/EUR, USD/GBP, USD/CAD are trading above prior bar's high. USD/CHF and USD/AUD is trading above prior bar's close though limited below prior bar's high. Obviously, Dollar is having some strength except against the Japanese Yen."
Lukanyo Mnyanda of Bloomberg reports that the Japanese Yen rises as stock market losses boost risk aversion and relates that: "The yen rebounded from a record low against the euro and rose versus the dollar as a decline in stock markets around the world reduced demand for higher- yielding assets funded in Japan".
"The yen also erased a weekly decline against the euro after European Central Bank council member Miguel Angel Fernandez Ordonez said an interest-rate increase next month ``is not certain'' and the European Commission reported a drop in confidence among European executives and consumers this month. The Swiss franc headed for weekly gains against the dollar and euro. The U.K.'s pound dropped after the economy grew less than previously estimated in the first quarter".
``We're finally seeing some catch-up in terms of the rising risk aversion in other markets feeding into currencies,'' said Adam Cole, global head of currency strategy in London at Royal Bank of Canada, the nation's largest lender. ``That's leading to strengthening in the safe-haven currencies and the yen has been the main beneficiary so far.''
"The MSCI World Index of stocks dropped for a second day, losing 0.4 percent, while Europe's Dow Jones Stoxx 600 Index lost 0.7 percent. The Dow Jones Industrial Average plunged more than 3 percent yesterday amid concern rising oil prices and credit-market writedowns will curb company profits."
``The market is positioned for a series of rate increases and the ECB is trying to talk down expectations further along the curve,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. ``The euro will come under pressure as rate expectations are adjusted.'' The euro may fall to $1.5285 in two weeks, Stannard said.
"An index measuring sentiment in the euro area fell to 94.9, the lowest since May 2005, from 97.6 the previous month, the European Commission in Brussels said today. Economists forecast it would fall to 96.5 from an initially reported 97.1, based on the median of 16 estimates in a Bloomberg News survey. "
Risk aversion rises
Crown Forex writes stating that bearish Dollar sentiment calls for risk aversion and relates: "The effect in the market is still locked and the sentiment of a weak dollar dominates the movement of currencies. Even with the release of inflationary and confidence data from the initiator of all problems, the US, trading remains of low volume as the trend continues sideways. Credit woes have yet to disappear resulting in diminishing the risk appetites of investors as they flee from the currency and stock markets after reporting losses to enter commodity markets pushing prices of crude to pass the $142 per barrel level."
"As for the Yen being the star in the forex market, risk aversion and investors risk appetite was able to help the yen gain against majors in the markets as investors were unwinding their carry trades taking the USD/JPY pair down to the 106.20s as the dollar continues to lose ground. Against the Euro, the yen gained from a record low at 169.45 to continue dragging the pair down to the current support level at 167.12 while the GBP/JPY is currently at 211.10s"
Risk aversion to rise significantly as corporate profits turn down
Li Yanping of Bloomberg reports that: "Chinese industrial companies' profits grew at half the pace of a year earlier on record oil and coal prices, increasing the likelihood that economic growth will continue to slow. Combined net income rose 20.9% to 1.09 trillion yuan ($160bn) through May ... That was less than the 42.1% gain in the first five months of last year."
Action Forex believes EUR/JPY still has more to run
ActionForex presents a bullish opinion on the EUR/JPY and relates in yesterday's report that: "The Dollar recovers against majors today as markets stabilized from the post FOMC sell off yesterday. While the accompanying statement did sound concerned on inflation, with one voter, Fisher, voted for a hike, dollar bulls were clearly note satisfied with the lack of urgency for hike shown in the minutes. Indeed, odds for a Sep hike as implied by interest rate futures were sharply down from over 90% to below 40% after the announcement. While dollar remains generally weak and edged lower against Euro and Aussie, note that it's still in range against Swissy, Sterling and the yen. The greenback is still lacking a clear direction."
"Nevertheless, the focus seems to be on the Japanese yen now, with EUR/JPY finally taking out all time high of 168.93 to 169.46 and is set to take on 170 psychological resistance. GBP/JPY is also pressing key medium term resistance of 213.48. Markets are still focusing on the possibility of widening rate gap, in particular between ECB and BoJ."
My response is that the the EUR/JPY 168.93 to 169.46 was an all time high.
Action Forex provides these helpful pivot points: 167.37 167.43 167.51 167.57 167.65 167.71 167.79 which show in the FXE:FXY chart as the filled black candlestick; once this level is broken, the EUR/JPY will go on a "real tear lower".
The weekly chart of FXE:FXY shows tremendous volume with people buying and selling; and also a desperation last use of the Bank of Japan lending window. The chart also shows rising price on falling volume which is very bearish.
Benny Nardino in article Euro-Yen, EUR/JPY - Setup For 18-Year High believes that the EUR/JPY has more to go as well.
His chart does show some bullish factors, but it shows the lollipop as well.
Crude oil rises higher; stocks settle unchanged; the "liquidity tide of history" as seen in the yen carry trade has turned lower
Crude oil, $WTIC, stands at an all time high of $139.31. Adam Button writing in CEP News relates that "Questions over Fed credibility are pushing commodity prices higher," wrote Sacha Tihanyi, associate currency strategist at Scotia Capital.
Thank God, finally "the truth outs", somehow that remark escaped the "media truth suppression squad": Since September, 2007, the US central bank has cut its Fed Funds interest rate seven times and has provided the TAF, PDCF, and TSLF facilities, this has debased the US currency, and inflated the price commodities, oil, and gold.
On May 1, 2008, institutional investors traded out of bank, KBE, and investment banker, KCE, stocks and invested in commodity indexed ETFs, such as RJI, and oil, USO, and gold, GLD, and commodity mutual funds such as PCRDX. This is what I term "financial ebola" which can be seen in the chart of the high dividend payers, PEY, where massive hemorrhaging can be seen. It also caused Congress to convene a full blown investigation.
'Financial ebola' is the result of risk aversion to mortgage debt as can be seen in Kevin's article 2008 Mortgage Finance Index Update
The overall stock market, VTI, shows a doji candlestick and unchanged value.
The BRICs, EEB, shows a hollow red candlestick and unchanged value.
Loss leaders for the day were
Solar, KWT, 3%,
Industrials, XLI, 3%,
Vice, PUF, 3%,
Semiconductors, XSD, 2%
Consumer discretionary, XLY, 2%
India, INP, 2%
AIG Insurance, AIG, 13% as Mike Mish Sheldon relates AIG Absorbs $5 Billion Securities Lending Loss
MBIA, MBI, lost 25% as Jesse relates MBIA is on the edge of a cliff. Some type of a 'systemic risk' event is going to be the outcome of the MBIA's fall: a mortgage backed securities or a municipal bond market freeze up or an investment banker meltdown or a credit default swap embroglio or a commercial lending gridlock or money market funds failing to honor their traditional NAVs.
William Selway and Martin Z. Braun of Bloomberg write that: "The municipal bond market may be hit by a new round of turmoil from Wall Street's credit crisis. Yields on floating-rate, tax-exempt debt insured by MBIA Inc. and Ambac Financial Corp. soared as high as 9% last week as investors dumped the securities after the companies' credit ratings were cut by Moody's ... The spiraling debt costs are reminiscent of those that followed the collapse of the auction rate securities market in February."
Jesse reports a significant deterioration in Alt-A mortgage debt performance: the conclusion here is that that a number of banks are going to be going under soon.
Mike Mish Sheldon relates more writedowns on account of Alt-A liar loans are coming: "More people will be walking away from their homes in California and Florida. Approximately 75-80% of those in liar loans only make the minimum payment. Negative amortization increases every month in those loans. On top of that, home prices are falling rapidly. Add the two together and anyone who put down even as much as 20% is now hugely underwater.
At some point escalation clauses will kick in. Escalation clauses vary by contract, but typically vary between 110% of the loan to 125% of the loan. Those clauses should be kicking in now, in mass, based on price depreciation alone.
Have they in practice? Think again. It would be the kiss of death for either WaMu, WM, or Wachovia, WB, to start enforcing those clauses, homeowners would immediately default. Instead, both banks pretend they are well capitalized when it is increasing apparent they are likely insolvent. I fail to see how either of those banks survive."
The liquidity factor, the yen carry trade, EUR/JPY, FXE:FXY, has turned lower: the result being an extinguishment of traditional wealth is underway as this spigot of fiat wealth and it's twin, lower Federal Reserve interest rates and the perceived benefit TAF, TSLF, and PDCF have been turned off.
Statistics evidence the extinguishment of traditional wealth that has come with the expiration of Fed liquidity and unwinding of the yen carry trade liquidity:
Fiat wealth consisting of stocks is down: The Dow, DIA, is down 14.5%, the S&P500, SPY, is down 12.9%, Russell 2000, IWM, is down 8.9%, the Nasdaq, QQQQ, is down 14.5%, the investment bankers, KCE, is down 28.2%, and Banks, KBE, are down 33%.
This contrasts with commodities which are up: Gold, GLD, is up 11%, Commodities, RJI, is up 29%, and agricultural commodities, DBA, is up 26%.
Patricia Kuo of Bloomberg reports that: "Corporate bond sales in dollars, euros and yen by Asian companies have plunged 60% this year, as rising inflation and slowing economic growth douse credit demand and push up borrowing cost."
Stewart Bailey and Dale Crofts of Bloomberg report that: "ArcelorMittal Chief Executive Officer Lakshmi Mittal said the world may be facing its first steel shortage in decades because of accelerating demand and a lack of investment ... 'There is short supply; all steel companies are running at full capacity,' he said ... 'We're facing for the first time in decades a potential shortage of steel.' Steel prices have surged as emerging markets including India and China build more bridges and houses and their increasingly affluent populations buy more cars and appliances ... Hot-rolled steel sheet... climbed to an average $1,020 a ton in the U.S. in May from $850 in April ... Prices have gained 76% since January and are about 86% higher than a year ago." This shortage comes when the steel producers, SLX, fell from its May 16, 2008 high of 112.28 when the Fed TAF, TSLF and PDCF rally ended, and then when it fell again on June 19, 2008 from 107.47 when the minutes of the Bank of Japan announced that inflation is an investment risk factor. The steel sector, SLX, is trading at its 50 day moving average of 104.
Sumit Sharma of Bloomberg reports that: "India's five-year property boom is coming to an end as the supply of housing increases, borrowing costs rise and a stock market rout erodes buying power, according to executives at two mortgage lenders. Prices across India may drop as much as 15% in the coming months, said Keki Mistry, vice chairman of Housing Development Finance Corp., India's largest provider of home loans. Gagan Banga, chief executive of Indiabulls Financial Services Ltd., said prices may fall as much as 20%."
Disinvestment has been high in the industrials; they have sold off more than the yen carry trade favored BRICS in the last month.
Google Finance shows that the industrials, XLI, have sold off 11% in the last month which compares to 10% for the BRICs, EEB.
Two of the reasons why the Dow, DIA, $INDU, has been selling off so hard is due to 'demand destruction' where industrial producers are unable to pass on inflated basic material costs; and the other is 'weightings' feautured in 'Deconstructing the Dow'. The Dow is weighted with General Motors, GM. "If you're not familiar with GM, it's a health care benefits management firm that sells cars for a loss as a side venture", Eddy Elfenbein relates. But its more like, the company can't compete with Japan and its Forex Reserves which gives lower interest rate loans on autos; and which pays off politicians to build plants here which are in non union states. And it is weighted with General Electric, GE, which has lots of debt; and JP Morgan which is a steady looser.
123Trader has excellent coverage of the Dow's fall since the expiration of the TAF, TSLF, and PDCF rally on May 19, 2008 in his article Stock Market update -Jun 29th.
The Proshares ETF, DXD, which is 200% of the Dow Jones Industrial Average, has risen parabolically since the TAF, TSLF, and PDCF rally ended May 19, 2008.
Charts of the energy service stocks relate that it's the end of the age of natural resource stock investing
Energy service ETF, OIH weekly, manifests a doji; and OIH daily manifests a doji in the middle of a pennant: this says sell me short.
Energy service mutual fund, RYVIX weekly, manifests a lollipop hanging man candlestick: this says sell out immediately and take profits.
Disinvestment to accelerate
Ashraf Laidi writing in Safehaven.com article provides a chart of the S&P, SPY, and relates further downside as a bear cross, that is, its 50 week moving average has crossed below its 100 week moving average; he anticipates an additional 30% before the end of the year, if the Fed does not revert to fresh rate cuts; and reminds that the Fed's special loan facilities are aimed at the financial system and not the faltering economy.
The turning lower of EUR/JPY, FXE:FXY, and stock sell off of yesterday, documents that the yen carry trade has unwound -- this is an epic investment sea change ---- a watershed in the history of investing -- the yen carry trade has unwound so significantly that it will never be used again, that is can never be used again, for the massive ongoing type of stock investing it has been used for.
The yen carry trade is in a death spiral with stock wealth, especially the BRICS, and especially China, FXI, and India, INP.
However, the yen carry trade will be available for investing or speculating or inflating, the price of gold and oil higher, with the verbage, depending upon one's perspective!
The yen carry trade recently flourished of late, in the CRB, $CRB, and indexed commodity ETFs, RJI, and mutual funds, PCRDX; the latter has grown 50% in just the last 18 months, as commodity prices inflated higher. These, having largely oil components, are why they have risen so much.
The Be-Deviled: Financialized Iceland and the PIGS, Portugal, Italy, Greece and Spain
Tasneem Brogger of Bloomberg reports that: "Iceland's inflation rate rose to 12.7% in June, more than five times the central bank's target, after a slump in the krona sent import prices surging, maintaining pressure on the central bank to raise interest rates. Inflation accelerated from 12.3% the month before."
Jordan Shilton of WSWS.org reportsthat: "Kaupthing, Iceland’s biggest bank intends to begin keeping its accounts in euros. The bank stated in a recent report, “The main problem of Icelandic banks is a lack of a lender of last resort since the Central Bank of Iceland can only print Icelandic krónur, whereas the Icelandic banks’ liquidity needs are in foreign currency.
The (recent) intervention of the Scandinavian banks confirms that a collapse in Iceland would result in broader economic consequences for the region and the international capitalist system.
Iceland’s external debt has reached $97 billion, according to Paul Rawkins of Fitch ratings, an amount five times the size of its economy. This precarious situation led one analyst to comment that Iceland could become an “offshore Northern Rock”, in reference to the British bank which had to be bailed out by the intervention of the Brown government. It is the possibility of such an eventuality which has driven the Scandinavian central banks to take such drastic action."
Ben Sills of Bloomberg reports that: "Spanish inflation accelerated to the fastest pace on record in June as oil and food prices surged. Consumer prices rose 5.1% from a year ago after increasing 4.7% in May."
EUR/JPY turns lower
The EUR/JPY: The U.S. dollar was down 0.68 to 106.13 against the yen.
Treasuries rise
The US Treasuries, TLT, rose parabolically higher to 92.32 as a better-than-expected report on U.S. core inflation further dampened speculation the Federal Reserve will raise rates later this year.
The financials turn lower
Financial stocks, IYF, fell 1.4% lower.
Banks, KBE, fell 1.3% lower, and investment bankers, KCE, fell 1.5% lower.
MBIA, MBI, fell 5.0% lower.
Currency report and analysis for this week
On the upside
Swiss franc, FXS, 2.6%,
South African rand 1.8%,
Danish krone 1.8%,
Euro, FXE, 1.8%,
Norwegian krone 1.7%,
Yen, FXY, 1.0%,
British pound, FXB, 1.0%
Aussie, FXA, 0.8% (its at an all time high)
Loonie, FXC, 0.7%.
On the downside
South Korean won, 0.3%,
Chilean peso 3.8%,
Colombian peso 9.1%,
Zimbabwean dollar 22.1%.
Ashraf Laidi writing in Safehaven.com article relates: "The strength of the Swiss franc is underlined by the currency's dual benefiting from reduced risk appetite and its high correlation with the euro. Specifically, Switzerland's current account surplus of more than 14% of GDP is the main rationale of the currency's safe haven status. Unlike the Japanese yen, which has been hit by slowing US growth and rising oil import costs, the Swiss economy is less exposed to the US."
And he adds: "The Aussie continues to gain from rising prices of wheat, copper and gold as long as inflationary expectations remain robust, which continue to justify the RBA's 7.25% interest rate. Unlike in past bouts of falling risk appetite when the Aussie would drop rapidly across the board including the USD, today the currency remains close to its record highs against the dollar and the pound. This maintains our bullishness with the pair, eyeing interim resistance at 0.9635, followed by the 24-year high of 0.9665. Unlike the NZD, whose high 8.25% rate is seen hampering the already faltering NZ economy, AUD remains underpinned by surging commodity receipts and robust demand from China and rest of Asia/Pacific. Recall in our 2008 FX Preview, we anticipated AUDUSD to have 70% chance of hitting parity in H2 2008. The path remains alive and well. We also continue to favor AUD vs GBP, NZD and CAD."
However, Mark Whistler sees a possible reversal looming for the Aussie, FXA, and the Euro, FXE.
Jamie Chisholm, Financial Times reports that "For John Hardy at Saxo Bank, the infatuation of central banks with inflation risks will damage global growth, benefiting the franc and the yen as investors from those countries repatriate funds to escape falling markets.
"The Swissie may also garner support from homeowners in eastern and central Europe. Having financed their mortgages in francs, these retail carry traders will face the prospect of house price deflation spreading from the US and UK and their domestic currencies falling, forcing them to buy francs to hedge exchange-rate risk.
"But other factors may reduce the franc's attractiveness.
"The Swiss National Bank last week kept interest rates on hold at 2.75% and analysts are divided on the next move. True, producer price inflation is close to a 20-year high, but gross domestic product grew by just 0.3% in the first quarter so another cut in interest rates may be required.
"Yet perhaps the biggest drag could come from investors' concerns about the Swiss financial sector, which accounts for 13% of national output. Indeed, the total assets of UBS and Credit Suisse are about seven times Swiss GDP. "Safe havens are not always what they're cracked up to be."
Gold trades inversely of the US Dollar: gold is going up as the dollar is going down
The Federal Reserve announced what was tantamount to a weak dollar policy and the yen rose and gold soared.
Reports and charts are bearish for the dollar
Bill King relates that "Ben's choice is to watch conditions worsen and have the dollar collapse or to save the dollar and watch conditions worsen. It's conceivable that a dollar collapse would produce even worse conditions than hiking rates and restricting credit to save the dollar. It seems like a relatively simple choice, especially when one considers the calamity that could develop with a dollar collapse."
DailyFX writes that the US Dollar is at a disadvantage as risk aversion returns to the markets.
All of these bloggers charts are bearish the dollar:
Kevin's Dollar Chart
Norton's Dollar Chart
Jesse's Dollar Chart
TraderZ Chart with TraderZ Daily Chart showing target of 70.70 and 69.50.
Reports and charts are bullish for gold
On Thursday June 26, 2008, gold surged in what was the largest one day move since 1985: Kevin's chart shows gold exploding higher out of a pennant to close at $917 as announcement of the Federal Reserves' FOMC minutes were seen as a weak dollar policy.
The same type of thing happened in December: it was on December 11th, that Ben Bernanke cut the central bank lending rate by 0.75%, and two weeks later, the yen and the euro rose popping gold out of a pennant triangle trading pattern. This is readily seen in the Moise Levi, MenFinancial article Gold daily analysis article, and Gold ETF GLD Chart dated June 28, 2008.
Cryptogon provides the gold weekly chart and relate: Forget the fireworks on the 4th of July. The European Central Bank action on the 3rd will be much more interesting. By the looks of this chart, gold investors are betting on an ECB rate hike.
Gold, $GOLD, rose today to $927; and the US Dollar, $USD, fell to $72.29.
F Lim provides a complimentary gold charting service Goldbriefing on Stockcharts.com.
Given that gold trades inversely of the US Dollar, and a what looks like a terrific fall is coming to the dollar, a 'crack up boom' is at hand for gold.
What if, just what if, all of those who are selling out of their yen carry trade positions, go long gold and short their positions, or what if they use the 0.5% interest loan capability to go long gold, how far up might gold go? Well, I thing it would go to the moon.
I encourage one to take a look at the CRB Commodity Index Chart and the Goldman Sachs Commodity Index chart in Doug Noland's PrudentBear Safehaven.com article Just The Facts, and reflect, that as the yen-carry-traders, sell out of their stock positions, they very well might go long gold: if they do, then the chart of gold will look like these CRB charts -- awesomely and terrifically higher.
Most of the increase in the CRB has come via the rise in the price of oil. According to research organization GoldInvestments writing in Safehaven.com, in the last five years oil has increased 382%, and gold 166%.
I believe that in the very near future the dynamics will change: I believe an investment demand for gold will stimulate gold to rise faster than oil, which can be followed in ongoing Yahoo Finance chart of gold, GLD, relative to the oil, USO, which shows that for June 25, 26, and 27, gold rose more percentage wise than oil.
Research organization GoldInvestments relates: "Barclays joins RBC in a severe warning and RBC and the Russians diversify into gold.
We appear to be about to embark in a period of increasing turbulence and instability in financial markets which will result in higher gold prices due to its safe haven characteristics. Now Barclays have joined Royal Bank of Scotland in issuing a severe investment warning.
Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the U.S. Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".
Tim Bond, the bank's chief equity strategist said that we are now in 'a nasty environment.... There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth".
Gold is primarily an asset of wealth preservation, and large institutions are coming to realise this again".
These sentiments were echoed by Jim Cramer in New York Magazine said that "In 25 years on Wall Street, I have never seen things this bad. We've had some tough times: the 1987 stock market crash, the collapse of the once-all-powerful Drexel Burnham Lambert, the immolation of Long Term Capital, the post-9/11 calamity, and the dot-com implosion. Every one of these events rocked the Street, causing pay cuts and layoffs and creating a sense of doom. But this time is different; it's doom itself."
Oil could be topping out
The chart of oil, USO daily, shows a weak doji, this could be a "shooting star candlestick of sorts".
And the chart of oil, USO, weekly shows a doji, a lollipop hanging man candlestick, and a harami, all on rising price on falling volume which suggests a topping out.
Gold stocks are exercising their last leg up
The Yahoo Finance ongoing chart of gold, GLD, relative to the HUI Indexed precious metal mining stock ETF, GDX, shows that the gold stocks blasted 5% and 6% higher on Thursday and Friday of this week compared, to gold's, 4% and 1%.
Gold stocks traditionally have leveraged themselves over gold, but this changed on March 13, 2008 when GDX fell from 56.05; this leveraging can be seen in the ongoing Stockcharts.com chart of GDX:GLD when the GDX:GLD fell from 0.57, largely due to an expiration of the TAF, TSLF and PDCF rally.
But this weeks 11% blast higher for the gold stocks indicates their activation by some of the yen-carry traders.
Trading service Recognia shows Barrick Gold Corp, ABX, rising up from a bullish double bottom; one can actually see the awesome three black crow fall in this linchpin HUI Indexed mining shares stock, which is why I do not ever recommend that one trade gold mining stocks.
18-Mar-08 49.34
19-Mar-08 45.03
20-Mar-08 41.79
The Stockcharts.com chart of Barrick Gold, ABX, shows that it was saved from falling off the edge of a massive head and shoulders pattern; it could easily rise from its $45 to $47.5.
Employment and consumer confidence plummet
Paul Kasriel of Northern Trust relates: "Earlier this month, the Buffalo Fed branch and the Philly Fed reported that manufacturing activity had deteriorated in their regions. Today the Richmond Fed corroborated the message from its regional brethren with a report showing that its composite manufacturing survey index dropped to minus 12 in June from minus 3 in May.
"At the same time that Richmond was reporting, the Conference Board released its June consumer confidence, or lack thereof, report. Wow! Gasoline at 4 bucks a gallon really knocks the wind out of consumers' sails, to mix metaphors. The chart shows that the June reading on the present-conditions component of consumer confidence dropped to its lowest level since September 2003. ... the expectations component of consumer confidence fell in June to its lowest level in the history of the series
The 'Age of financial disinvestment and instability' and the 'Age of State Corporate Rule' have commenced
The above facts and reports show that a higher oil price has unwound the yen carry trade; it will soon pick up velocity, and really start to unwind causing massive deflation in stock wealth globally.
Volatility, $VIX, was only down a tiny amount today; look for it to pick up next week: it will cry out more concerns of alarm and fear which began May 19, 2008 with the end of the TAF, TSLF, and PDCF rally, and which intensified June 16, when the minutes of the Bank of Japan were released that related that inflation is an investment risk concern.
The age of 'investment prosperity' is over, its as good as it is ever going to get; it is not going to get better: traditional wealth is turning down.
The age of 'financial disinvestment and instability', and the age of 'state corporate rule' is rising, as related in yesterday news: things just got worse for the poor, elderly and the people of Iraq and Iran.
Charles Babbington of the Associated Press reports that Congress passed the Iraq war spending bill, and that the Senate narrowly failed to approve a House-passed bill to cancel a scheduled cut in payments to doctors who treat Medicare patients. This means, we have given the President all the funding he wants for a war in Iraq, and for one on Iran too if conditions warrant; and that doctors will not be taking on new Medicaid and Medicare patients.
The "misery result" of this Congressional action is that the elderly and poor who develop a new health problem, and need to see a new doctor, or who move to a new city, will not be seen by the doctor -- the physician's office doors are now closed to new Medicare and Medicaid patients, thus we have an application of the Liquidation Thesis which holds that government services and payments are going to be liquidated, that is done away with.
The western governmental powers are poised to take security actions against global security threats as authorized by the Declaration of EU US 2008: US military chief Admiral Michael Mullen is expected in Israel this week, amid speculation of a possible aerial strike aimed at Tehran’s nuclear weapons program. “Obviously, when Chairman Mullen speaks with the Israelis, they will no doubt discuss the threat posed by Iran,” said Pentagon spokesman Geoff Morrell on June 25th. “The US is committed to resolving the nuclear threat posed by Iran through diplomacy and international sanctions, while at the same time holding out the option of a military strike, if necessary,” he warned.
Toby Harnden in Telegraph.co.uk article relates that Israel 'will attack Iran' before new US president sworn in, John Bolton predicts
Societies are becoming more pyramidal
Vicki Schmelzer of MarketNews International reports that: "Merrill Lynch's annual World Wealth Report... noted that global High Net Worth Individual wealth totalled $40.7 trillion in 2007, up 9.4% from 2006. To be considered a HNWI individual, you must have at least $1 million in financial assets. There were 10.1 million such individuals in 2007, an increase of 6.0% over the prior year ... 'HNWI population gains were higher in the Middle East, Eastern Europe, and Latin America, expanding by 15.6%, 14.3% and 12.2% respectively,' Merrill said. The largest regional gains were seen in Latin America and the Middle East, where HNWI wealth grew by 20.4% and 17.5% respectively."
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How Badly Did The Fed Blow It? Phil's Stock World provides the Real Fed Funds (EFF-CPI) vs Gold Chart which shows that the effect of the Federal Reserve of easing central bank rates, and providing facilities of TAF, TSLF, and PDCF has been to devalue the dollar and inflate a speculative bubble in oil and gold, that has taken what few spare dollars consumers had left, and literally burned them, as fuel costs have jumped over 100% since Bernanke began cutting rates last year, and has driven a similar increase in food prices in a failed attempt to bail-out of the banks and investment bankers.
Slip Slidin' Away by Macro Man
Market Update by Foong ... Great charts of the Dow, $INDU, DIA; the S&P, $SPX, SPY; and the Nasdaq-100, $NDX, QTEC.
Market Snapshot by Chris Perruna ... Great charts of the Nasdaq Composite, $compq, and West Texas Intermediate Crude, $WTIC.
Keywords
debasement of the currency; debase the currency; debase the value of the US Dollar, debasement of the US Dollar.
The daily chart of EUR/JPY, FXE:FXY, the barometer of the yen carry trade, shows that the yen carry trade is unwinding. The weekly chart of FXE:FXY shows that the yen carry trade has topped out.
The Yen rises
The ActionForex.com provides the Currency Heat Map and relates: "Now, readers can see as shown in the third row that the Japanese Yen is having tremendous strengths, trading above prior bar's high against all currencies shown".
"In the second row, cell color is Dark red in the first, third and fifth cell and Red in the fourth cell. It means, EUR/USD, EUR/JPY and EUR/CHF are trading below prior bar's low. EUR/GBP is lower than prior bar's close even though it's above prior bar's low. Obviously, Euro is weak among the majors in the respective time frame".
"Also, according to first row, which has the second, fourth, sixth cell in Dark Blue, fifth and seventh cell in Blue. It means USD/EUR, USD/GBP, USD/CAD are trading above prior bar's high. USD/CHF and USD/AUD is trading above prior bar's close though limited below prior bar's high. Obviously, Dollar is having some strength except against the Japanese Yen."
Lukanyo Mnyanda of Bloomberg reports that the Japanese Yen rises as stock market losses boost risk aversion and relates that: "The yen rebounded from a record low against the euro and rose versus the dollar as a decline in stock markets around the world reduced demand for higher- yielding assets funded in Japan".
"The yen also erased a weekly decline against the euro after European Central Bank council member Miguel Angel Fernandez Ordonez said an interest-rate increase next month ``is not certain'' and the European Commission reported a drop in confidence among European executives and consumers this month. The Swiss franc headed for weekly gains against the dollar and euro. The U.K.'s pound dropped after the economy grew less than previously estimated in the first quarter".
``We're finally seeing some catch-up in terms of the rising risk aversion in other markets feeding into currencies,'' said Adam Cole, global head of currency strategy in London at Royal Bank of Canada, the nation's largest lender. ``That's leading to strengthening in the safe-haven currencies and the yen has been the main beneficiary so far.''
"The MSCI World Index of stocks dropped for a second day, losing 0.4 percent, while Europe's Dow Jones Stoxx 600 Index lost 0.7 percent. The Dow Jones Industrial Average plunged more than 3 percent yesterday amid concern rising oil prices and credit-market writedowns will curb company profits."
``The market is positioned for a series of rate increases and the ECB is trying to talk down expectations further along the curve,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. ``The euro will come under pressure as rate expectations are adjusted.'' The euro may fall to $1.5285 in two weeks, Stannard said.
"An index measuring sentiment in the euro area fell to 94.9, the lowest since May 2005, from 97.6 the previous month, the European Commission in Brussels said today. Economists forecast it would fall to 96.5 from an initially reported 97.1, based on the median of 16 estimates in a Bloomberg News survey. "
Risk aversion rises
Crown Forex writes stating that bearish Dollar sentiment calls for risk aversion and relates: "The effect in the market is still locked and the sentiment of a weak dollar dominates the movement of currencies. Even with the release of inflationary and confidence data from the initiator of all problems, the US, trading remains of low volume as the trend continues sideways. Credit woes have yet to disappear resulting in diminishing the risk appetites of investors as they flee from the currency and stock markets after reporting losses to enter commodity markets pushing prices of crude to pass the $142 per barrel level."
"As for the Yen being the star in the forex market, risk aversion and investors risk appetite was able to help the yen gain against majors in the markets as investors were unwinding their carry trades taking the USD/JPY pair down to the 106.20s as the dollar continues to lose ground. Against the Euro, the yen gained from a record low at 169.45 to continue dragging the pair down to the current support level at 167.12 while the GBP/JPY is currently at 211.10s"
Risk aversion to rise significantly as corporate profits turn down
Li Yanping of Bloomberg reports that: "Chinese industrial companies' profits grew at half the pace of a year earlier on record oil and coal prices, increasing the likelihood that economic growth will continue to slow. Combined net income rose 20.9% to 1.09 trillion yuan ($160bn) through May ... That was less than the 42.1% gain in the first five months of last year."
Action Forex believes EUR/JPY still has more to run
ActionForex presents a bullish opinion on the EUR/JPY and relates in yesterday's report that: "The Dollar recovers against majors today as markets stabilized from the post FOMC sell off yesterday. While the accompanying statement did sound concerned on inflation, with one voter, Fisher, voted for a hike, dollar bulls were clearly note satisfied with the lack of urgency for hike shown in the minutes. Indeed, odds for a Sep hike as implied by interest rate futures were sharply down from over 90% to below 40% after the announcement. While dollar remains generally weak and edged lower against Euro and Aussie, note that it's still in range against Swissy, Sterling and the yen. The greenback is still lacking a clear direction."
"Nevertheless, the focus seems to be on the Japanese yen now, with EUR/JPY finally taking out all time high of 168.93 to 169.46 and is set to take on 170 psychological resistance. GBP/JPY is also pressing key medium term resistance of 213.48. Markets are still focusing on the possibility of widening rate gap, in particular between ECB and BoJ."
My response is that the the EUR/JPY 168.93 to 169.46 was an all time high.
Action Forex provides these helpful pivot points: 167.37 167.43 167.51 167.57 167.65 167.71 167.79 which show in the FXE:FXY chart as the filled black candlestick; once this level is broken, the EUR/JPY will go on a "real tear lower".
The weekly chart of FXE:FXY shows tremendous volume with people buying and selling; and also a desperation last use of the Bank of Japan lending window. The chart also shows rising price on falling volume which is very bearish.
Benny Nardino in article Euro-Yen, EUR/JPY - Setup For 18-Year High believes that the EUR/JPY has more to go as well.
His chart does show some bullish factors, but it shows the lollipop as well.
Crude oil rises higher; stocks settle unchanged; the "liquidity tide of history" as seen in the yen carry trade has turned lower
Crude oil, $WTIC, stands at an all time high of $139.31. Adam Button writing in CEP News relates that "Questions over Fed credibility are pushing commodity prices higher," wrote Sacha Tihanyi, associate currency strategist at Scotia Capital.
Thank God, finally "the truth outs", somehow that remark escaped the "media truth suppression squad": Since September, 2007, the US central bank has cut its Fed Funds interest rate seven times and has provided the TAF, PDCF, and TSLF facilities, this has debased the US currency, and inflated the price commodities, oil, and gold.
On May 1, 2008, institutional investors traded out of bank, KBE, and investment banker, KCE, stocks and invested in commodity indexed ETFs, such as RJI, and oil, USO, and gold, GLD, and commodity mutual funds such as PCRDX. This is what I term "financial ebola" which can be seen in the chart of the high dividend payers, PEY, where massive hemorrhaging can be seen. It also caused Congress to convene a full blown investigation.
'Financial ebola' is the result of risk aversion to mortgage debt as can be seen in Kevin's article 2008 Mortgage Finance Index Update
The overall stock market, VTI, shows a doji candlestick and unchanged value.
The BRICs, EEB, shows a hollow red candlestick and unchanged value.
Loss leaders for the day were
Solar, KWT, 3%,
Industrials, XLI, 3%,
Vice, PUF, 3%,
Semiconductors, XSD, 2%
Consumer discretionary, XLY, 2%
India, INP, 2%
AIG Insurance, AIG, 13% as Mike Mish Sheldon relates AIG Absorbs $5 Billion Securities Lending Loss
MBIA, MBI, lost 25% as Jesse relates MBIA is on the edge of a cliff. Some type of a 'systemic risk' event is going to be the outcome of the MBIA's fall: a mortgage backed securities or a municipal bond market freeze up or an investment banker meltdown or a credit default swap embroglio or a commercial lending gridlock or money market funds failing to honor their traditional NAVs.
William Selway and Martin Z. Braun of Bloomberg write that: "The municipal bond market may be hit by a new round of turmoil from Wall Street's credit crisis. Yields on floating-rate, tax-exempt debt insured by MBIA Inc. and Ambac Financial Corp. soared as high as 9% last week as investors dumped the securities after the companies' credit ratings were cut by Moody's ... The spiraling debt costs are reminiscent of those that followed the collapse of the auction rate securities market in February."
Jesse reports a significant deterioration in Alt-A mortgage debt performance: the conclusion here is that that a number of banks are going to be going under soon.
Mike Mish Sheldon relates more writedowns on account of Alt-A liar loans are coming: "More people will be walking away from their homes in California and Florida. Approximately 75-80% of those in liar loans only make the minimum payment. Negative amortization increases every month in those loans. On top of that, home prices are falling rapidly. Add the two together and anyone who put down even as much as 20% is now hugely underwater.
At some point escalation clauses will kick in. Escalation clauses vary by contract, but typically vary between 110% of the loan to 125% of the loan. Those clauses should be kicking in now, in mass, based on price depreciation alone.
Have they in practice? Think again. It would be the kiss of death for either WaMu, WM, or Wachovia, WB, to start enforcing those clauses, homeowners would immediately default. Instead, both banks pretend they are well capitalized when it is increasing apparent they are likely insolvent. I fail to see how either of those banks survive."
The liquidity factor, the yen carry trade, EUR/JPY, FXE:FXY, has turned lower: the result being an extinguishment of traditional wealth is underway as this spigot of fiat wealth and it's twin, lower Federal Reserve interest rates and the perceived benefit TAF, TSLF, and PDCF have been turned off.
Statistics evidence the extinguishment of traditional wealth that has come with the expiration of Fed liquidity and unwinding of the yen carry trade liquidity:
Fiat wealth consisting of stocks is down: The Dow, DIA, is down 14.5%, the S&P500, SPY, is down 12.9%, Russell 2000, IWM, is down 8.9%, the Nasdaq, QQQQ, is down 14.5%, the investment bankers, KCE, is down 28.2%, and Banks, KBE, are down 33%.
This contrasts with commodities which are up: Gold, GLD, is up 11%, Commodities, RJI, is up 29%, and agricultural commodities, DBA, is up 26%.
Patricia Kuo of Bloomberg reports that: "Corporate bond sales in dollars, euros and yen by Asian companies have plunged 60% this year, as rising inflation and slowing economic growth douse credit demand and push up borrowing cost."
Stewart Bailey and Dale Crofts of Bloomberg report that: "ArcelorMittal Chief Executive Officer Lakshmi Mittal said the world may be facing its first steel shortage in decades because of accelerating demand and a lack of investment ... 'There is short supply; all steel companies are running at full capacity,' he said ... 'We're facing for the first time in decades a potential shortage of steel.' Steel prices have surged as emerging markets including India and China build more bridges and houses and their increasingly affluent populations buy more cars and appliances ... Hot-rolled steel sheet... climbed to an average $1,020 a ton in the U.S. in May from $850 in April ... Prices have gained 76% since January and are about 86% higher than a year ago." This shortage comes when the steel producers, SLX, fell from its May 16, 2008 high of 112.28 when the Fed TAF, TSLF and PDCF rally ended, and then when it fell again on June 19, 2008 from 107.47 when the minutes of the Bank of Japan announced that inflation is an investment risk factor. The steel sector, SLX, is trading at its 50 day moving average of 104.
Sumit Sharma of Bloomberg reports that: "India's five-year property boom is coming to an end as the supply of housing increases, borrowing costs rise and a stock market rout erodes buying power, according to executives at two mortgage lenders. Prices across India may drop as much as 15% in the coming months, said Keki Mistry, vice chairman of Housing Development Finance Corp., India's largest provider of home loans. Gagan Banga, chief executive of Indiabulls Financial Services Ltd., said prices may fall as much as 20%."
Disinvestment has been high in the industrials; they have sold off more than the yen carry trade favored BRICS in the last month.
Google Finance shows that the industrials, XLI, have sold off 11% in the last month which compares to 10% for the BRICs, EEB.
Two of the reasons why the Dow, DIA, $INDU, has been selling off so hard is due to 'demand destruction' where industrial producers are unable to pass on inflated basic material costs; and the other is 'weightings' feautured in 'Deconstructing the Dow'. The Dow is weighted with General Motors, GM. "If you're not familiar with GM, it's a health care benefits management firm that sells cars for a loss as a side venture", Eddy Elfenbein relates. But its more like, the company can't compete with Japan and its Forex Reserves which gives lower interest rate loans on autos; and which pays off politicians to build plants here which are in non union states. And it is weighted with General Electric, GE, which has lots of debt; and JP Morgan which is a steady looser.
123Trader has excellent coverage of the Dow's fall since the expiration of the TAF, TSLF, and PDCF rally on May 19, 2008 in his article Stock Market update -Jun 29th.
The Proshares ETF, DXD, which is 200% of the Dow Jones Industrial Average, has risen parabolically since the TAF, TSLF, and PDCF rally ended May 19, 2008.
Charts of the energy service stocks relate that it's the end of the age of natural resource stock investing
Energy service ETF, OIH weekly, manifests a doji; and OIH daily manifests a doji in the middle of a pennant: this says sell me short.
Energy service mutual fund, RYVIX weekly, manifests a lollipop hanging man candlestick: this says sell out immediately and take profits.
Disinvestment to accelerate
Ashraf Laidi writing in Safehaven.com article provides a chart of the S&P, SPY, and relates further downside as a bear cross, that is, its 50 week moving average has crossed below its 100 week moving average; he anticipates an additional 30% before the end of the year, if the Fed does not revert to fresh rate cuts; and reminds that the Fed's special loan facilities are aimed at the financial system and not the faltering economy.
The turning lower of EUR/JPY, FXE:FXY, and stock sell off of yesterday, documents that the yen carry trade has unwound -- this is an epic investment sea change ---- a watershed in the history of investing -- the yen carry trade has unwound so significantly that it will never be used again, that is can never be used again, for the massive ongoing type of stock investing it has been used for.
The yen carry trade is in a death spiral with stock wealth, especially the BRICS, and especially China, FXI, and India, INP.
However, the yen carry trade will be available for investing or speculating or inflating, the price of gold and oil higher, with the verbage, depending upon one's perspective!
The yen carry trade recently flourished of late, in the CRB, $CRB, and indexed commodity ETFs, RJI, and mutual funds, PCRDX; the latter has grown 50% in just the last 18 months, as commodity prices inflated higher. These, having largely oil components, are why they have risen so much.
The Be-Deviled: Financialized Iceland and the PIGS, Portugal, Italy, Greece and Spain
Tasneem Brogger of Bloomberg reports that: "Iceland's inflation rate rose to 12.7% in June, more than five times the central bank's target, after a slump in the krona sent import prices surging, maintaining pressure on the central bank to raise interest rates. Inflation accelerated from 12.3% the month before."
Jordan Shilton of WSWS.org reportsthat: "Kaupthing, Iceland’s biggest bank intends to begin keeping its accounts in euros. The bank stated in a recent report, “The main problem of Icelandic banks is a lack of a lender of last resort since the Central Bank of Iceland can only print Icelandic krónur, whereas the Icelandic banks’ liquidity needs are in foreign currency.
The (recent) intervention of the Scandinavian banks confirms that a collapse in Iceland would result in broader economic consequences for the region and the international capitalist system.
Iceland’s external debt has reached $97 billion, according to Paul Rawkins of Fitch ratings, an amount five times the size of its economy. This precarious situation led one analyst to comment that Iceland could become an “offshore Northern Rock”, in reference to the British bank which had to be bailed out by the intervention of the Brown government. It is the possibility of such an eventuality which has driven the Scandinavian central banks to take such drastic action."
Ben Sills of Bloomberg reports that: "Spanish inflation accelerated to the fastest pace on record in June as oil and food prices surged. Consumer prices rose 5.1% from a year ago after increasing 4.7% in May."
EUR/JPY turns lower
The EUR/JPY: The U.S. dollar was down 0.68 to 106.13 against the yen.
Treasuries rise
The US Treasuries, TLT, rose parabolically higher to 92.32 as a better-than-expected report on U.S. core inflation further dampened speculation the Federal Reserve will raise rates later this year.
The financials turn lower
Financial stocks, IYF, fell 1.4% lower.
Banks, KBE, fell 1.3% lower, and investment bankers, KCE, fell 1.5% lower.
MBIA, MBI, fell 5.0% lower.
Currency report and analysis for this week
On the upside
Swiss franc, FXS, 2.6%,
South African rand 1.8%,
Danish krone 1.8%,
Euro, FXE, 1.8%,
Norwegian krone 1.7%,
Yen, FXY, 1.0%,
British pound, FXB, 1.0%
Aussie, FXA, 0.8% (its at an all time high)
Loonie, FXC, 0.7%.
On the downside
South Korean won, 0.3%,
Chilean peso 3.8%,
Colombian peso 9.1%,
Zimbabwean dollar 22.1%.
Ashraf Laidi writing in Safehaven.com article relates: "The strength of the Swiss franc is underlined by the currency's dual benefiting from reduced risk appetite and its high correlation with the euro. Specifically, Switzerland's current account surplus of more than 14% of GDP is the main rationale of the currency's safe haven status. Unlike the Japanese yen, which has been hit by slowing US growth and rising oil import costs, the Swiss economy is less exposed to the US."
And he adds: "The Aussie continues to gain from rising prices of wheat, copper and gold as long as inflationary expectations remain robust, which continue to justify the RBA's 7.25% interest rate. Unlike in past bouts of falling risk appetite when the Aussie would drop rapidly across the board including the USD, today the currency remains close to its record highs against the dollar and the pound. This maintains our bullishness with the pair, eyeing interim resistance at 0.9635, followed by the 24-year high of 0.9665. Unlike the NZD, whose high 8.25% rate is seen hampering the already faltering NZ economy, AUD remains underpinned by surging commodity receipts and robust demand from China and rest of Asia/Pacific. Recall in our 2008 FX Preview, we anticipated AUDUSD to have 70% chance of hitting parity in H2 2008. The path remains alive and well. We also continue to favor AUD vs GBP, NZD and CAD."
However, Mark Whistler sees a possible reversal looming for the Aussie, FXA, and the Euro, FXE.
Jamie Chisholm, Financial Times reports that "For John Hardy at Saxo Bank, the infatuation of central banks with inflation risks will damage global growth, benefiting the franc and the yen as investors from those countries repatriate funds to escape falling markets.
"The Swissie may also garner support from homeowners in eastern and central Europe. Having financed their mortgages in francs, these retail carry traders will face the prospect of house price deflation spreading from the US and UK and their domestic currencies falling, forcing them to buy francs to hedge exchange-rate risk.
"But other factors may reduce the franc's attractiveness.
"The Swiss National Bank last week kept interest rates on hold at 2.75% and analysts are divided on the next move. True, producer price inflation is close to a 20-year high, but gross domestic product grew by just 0.3% in the first quarter so another cut in interest rates may be required.
"Yet perhaps the biggest drag could come from investors' concerns about the Swiss financial sector, which accounts for 13% of national output. Indeed, the total assets of UBS and Credit Suisse are about seven times Swiss GDP. "Safe havens are not always what they're cracked up to be."
Gold trades inversely of the US Dollar: gold is going up as the dollar is going down
The Federal Reserve announced what was tantamount to a weak dollar policy and the yen rose and gold soared.
Reports and charts are bearish for the dollar
Bill King relates that "Ben's choice is to watch conditions worsen and have the dollar collapse or to save the dollar and watch conditions worsen. It's conceivable that a dollar collapse would produce even worse conditions than hiking rates and restricting credit to save the dollar. It seems like a relatively simple choice, especially when one considers the calamity that could develop with a dollar collapse."
DailyFX writes that the US Dollar is at a disadvantage as risk aversion returns to the markets.
All of these bloggers charts are bearish the dollar:
Kevin's Dollar Chart
Norton's Dollar Chart
Jesse's Dollar Chart
TraderZ Chart with TraderZ Daily Chart showing target of 70.70 and 69.50.
Reports and charts are bullish for gold
On Thursday June 26, 2008, gold surged in what was the largest one day move since 1985: Kevin's chart shows gold exploding higher out of a pennant to close at $917 as announcement of the Federal Reserves' FOMC minutes were seen as a weak dollar policy.
The same type of thing happened in December: it was on December 11th, that Ben Bernanke cut the central bank lending rate by 0.75%, and two weeks later, the yen and the euro rose popping gold out of a pennant triangle trading pattern. This is readily seen in the Moise Levi, MenFinancial article Gold daily analysis article, and Gold ETF GLD Chart dated June 28, 2008.
Cryptogon provides the gold weekly chart and relate: Forget the fireworks on the 4th of July. The European Central Bank action on the 3rd will be much more interesting. By the looks of this chart, gold investors are betting on an ECB rate hike.
Gold, $GOLD, rose today to $927; and the US Dollar, $USD, fell to $72.29.
F Lim provides a complimentary gold charting service Goldbriefing on Stockcharts.com.
Given that gold trades inversely of the US Dollar, and a what looks like a terrific fall is coming to the dollar, a 'crack up boom' is at hand for gold.
What if, just what if, all of those who are selling out of their yen carry trade positions, go long gold and short their positions, or what if they use the 0.5% interest loan capability to go long gold, how far up might gold go? Well, I thing it would go to the moon.
I encourage one to take a look at the CRB Commodity Index Chart and the Goldman Sachs Commodity Index chart in Doug Noland's PrudentBear Safehaven.com article Just The Facts, and reflect, that as the yen-carry-traders, sell out of their stock positions, they very well might go long gold: if they do, then the chart of gold will look like these CRB charts -- awesomely and terrifically higher.
Most of the increase in the CRB has come via the rise in the price of oil. According to research organization GoldInvestments writing in Safehaven.com, in the last five years oil has increased 382%, and gold 166%.
I believe that in the very near future the dynamics will change: I believe an investment demand for gold will stimulate gold to rise faster than oil, which can be followed in ongoing Yahoo Finance chart of gold, GLD, relative to the oil, USO, which shows that for June 25, 26, and 27, gold rose more percentage wise than oil.
Research organization GoldInvestments relates: "Barclays joins RBC in a severe warning and RBC and the Russians diversify into gold.
We appear to be about to embark in a period of increasing turbulence and instability in financial markets which will result in higher gold prices due to its safe haven characteristics. Now Barclays have joined Royal Bank of Scotland in issuing a severe investment warning.
Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the U.S. Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall "below zero".
Tim Bond, the bank's chief equity strategist said that we are now in 'a nasty environment.... There is an inflation shock underway. This is going to be very negative for financial assets. We are going into tortoise mood and are retreating into our shell. Investors will do well if they can preserve their wealth".
Gold is primarily an asset of wealth preservation, and large institutions are coming to realise this again".
These sentiments were echoed by Jim Cramer in New York Magazine said that "In 25 years on Wall Street, I have never seen things this bad. We've had some tough times: the 1987 stock market crash, the collapse of the once-all-powerful Drexel Burnham Lambert, the immolation of Long Term Capital, the post-9/11 calamity, and the dot-com implosion. Every one of these events rocked the Street, causing pay cuts and layoffs and creating a sense of doom. But this time is different; it's doom itself."
Oil could be topping out
The chart of oil, USO daily, shows a weak doji, this could be a "shooting star candlestick of sorts".
And the chart of oil, USO, weekly shows a doji, a lollipop hanging man candlestick, and a harami, all on rising price on falling volume which suggests a topping out.
Gold stocks are exercising their last leg up
The Yahoo Finance ongoing chart of gold, GLD, relative to the HUI Indexed precious metal mining stock ETF, GDX, shows that the gold stocks blasted 5% and 6% higher on Thursday and Friday of this week compared, to gold's, 4% and 1%.
Gold stocks traditionally have leveraged themselves over gold, but this changed on March 13, 2008 when GDX fell from 56.05; this leveraging can be seen in the ongoing Stockcharts.com chart of GDX:GLD when the GDX:GLD fell from 0.57, largely due to an expiration of the TAF, TSLF and PDCF rally.
But this weeks 11% blast higher for the gold stocks indicates their activation by some of the yen-carry traders.
Trading service Recognia shows Barrick Gold Corp, ABX, rising up from a bullish double bottom; one can actually see the awesome three black crow fall in this linchpin HUI Indexed mining shares stock, which is why I do not ever recommend that one trade gold mining stocks.
18-Mar-08 49.34
19-Mar-08 45.03
20-Mar-08 41.79
The Stockcharts.com chart of Barrick Gold, ABX, shows that it was saved from falling off the edge of a massive head and shoulders pattern; it could easily rise from its $45 to $47.5.
Employment and consumer confidence plummet
Paul Kasriel of Northern Trust relates: "Earlier this month, the Buffalo Fed branch and the Philly Fed reported that manufacturing activity had deteriorated in their regions. Today the Richmond Fed corroborated the message from its regional brethren with a report showing that its composite manufacturing survey index dropped to minus 12 in June from minus 3 in May.
"At the same time that Richmond was reporting, the Conference Board released its June consumer confidence, or lack thereof, report. Wow! Gasoline at 4 bucks a gallon really knocks the wind out of consumers' sails, to mix metaphors. The chart shows that the June reading on the present-conditions component of consumer confidence dropped to its lowest level since September 2003. ... the expectations component of consumer confidence fell in June to its lowest level in the history of the series
The 'Age of financial disinvestment and instability' and the 'Age of State Corporate Rule' have commenced
The above facts and reports show that a higher oil price has unwound the yen carry trade; it will soon pick up velocity, and really start to unwind causing massive deflation in stock wealth globally.
Volatility, $VIX, was only down a tiny amount today; look for it to pick up next week: it will cry out more concerns of alarm and fear which began May 19, 2008 with the end of the TAF, TSLF, and PDCF rally, and which intensified June 16, when the minutes of the Bank of Japan were released that related that inflation is an investment risk concern.
The age of 'investment prosperity' is over, its as good as it is ever going to get; it is not going to get better: traditional wealth is turning down.
The age of 'financial disinvestment and instability', and the age of 'state corporate rule' is rising, as related in yesterday news: things just got worse for the poor, elderly and the people of Iraq and Iran.
Charles Babbington of the Associated Press reports that Congress passed the Iraq war spending bill, and that the Senate narrowly failed to approve a House-passed bill to cancel a scheduled cut in payments to doctors who treat Medicare patients. This means, we have given the President all the funding he wants for a war in Iraq, and for one on Iran too if conditions warrant; and that doctors will not be taking on new Medicaid and Medicare patients.
The "misery result" of this Congressional action is that the elderly and poor who develop a new health problem, and need to see a new doctor, or who move to a new city, will not be seen by the doctor -- the physician's office doors are now closed to new Medicare and Medicaid patients, thus we have an application of the Liquidation Thesis which holds that government services and payments are going to be liquidated, that is done away with.
The western governmental powers are poised to take security actions against global security threats as authorized by the Declaration of EU US 2008: US military chief Admiral Michael Mullen is expected in Israel this week, amid speculation of a possible aerial strike aimed at Tehran’s nuclear weapons program. “Obviously, when Chairman Mullen speaks with the Israelis, they will no doubt discuss the threat posed by Iran,” said Pentagon spokesman Geoff Morrell on June 25th. “The US is committed to resolving the nuclear threat posed by Iran through diplomacy and international sanctions, while at the same time holding out the option of a military strike, if necessary,” he warned.
Toby Harnden in Telegraph.co.uk article relates that Israel 'will attack Iran' before new US president sworn in, John Bolton predicts
Societies are becoming more pyramidal
Vicki Schmelzer of MarketNews International reports that: "Merrill Lynch's annual World Wealth Report... noted that global High Net Worth Individual wealth totalled $40.7 trillion in 2007, up 9.4% from 2006. To be considered a HNWI individual, you must have at least $1 million in financial assets. There were 10.1 million such individuals in 2007, an increase of 6.0% over the prior year ... 'HNWI population gains were higher in the Middle East, Eastern Europe, and Latin America, expanding by 15.6%, 14.3% and 12.2% respectively,' Merrill said. The largest regional gains were seen in Latin America and the Middle East, where HNWI wealth grew by 20.4% and 17.5% respectively."
Related Articles
The Federal Reserve's Rescue Has Failed by Ambrose Evans Pretchard
When Central Bankers Clash, Stock Markets can Crash by Gary Dorsch
Yen's Strength Has Been Profoundly Negative For Global Markets by Donald W. Dony FCSI, MFTA
More Signs Of Israeli-US Preparations For Attacking Iran by Peter Symonds
How Badly Did The Fed Blow It? Phil's Stock World provides the Real Fed Funds (EFF-CPI) vs Gold Chart which shows that the effect of the Federal Reserve of easing central bank rates, and providing facilities of TAF, TSLF, and PDCF has been to devalue the dollar and inflate a speculative bubble in oil and gold, that has taken what few spare dollars consumers had left, and literally burned them, as fuel costs have jumped over 100% since Bernanke began cutting rates last year, and has driven a similar increase in food prices in a failed attempt to bail-out of the banks and investment bankers.
Slip Slidin' Away by Macro Man
Market Update by Foong ... Great charts of the Dow, $INDU, DIA; the S&P, $SPX, SPY; and the Nasdaq-100, $NDX, QTEC.
Market Snapshot by Chris Perruna ... Great charts of the Nasdaq Composite, $compq, and West Texas Intermediate Crude, $WTIC.
Keywords
debasement of the currency; debase the currency; debase the value of the US Dollar, debasement of the US Dollar.
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