Currency Traders Drive World’s Currencies Higher And Dollar Lower To Claim Sovereignty Over Currencies …. Stocks, Bonds And Commodities All Rise Higher On Today’s Lower Dollar

Financial market report for October 25, 2010

I .. Currency traders took the Australian Dollar, FXA, 0.97% higher, the New Zealand Dollar, BNZ, 0.80% higher, the Canadian Dollar, FXC, 0.66% higher, the Swedish Krona, FXS, 0.77 higher,  the South African Rand, SZR, 0.42% higher, the Indian Rupe, ICN, 0.64% higher, and the Yen, FXY, 0.73% higher, causing the US Dollar, $USD, to fall 0.42% lower, making the statement that they and not the G-20 are sovereign over the world’s currencies.  The USD/JPY traded lower as is seen in its inverse ETF, JYN, rising.

Tthe Australian Dollar, FXA rose 0.97% to close at 99.27.

The Yen, FXY rose to close at 122.47.

World Currencies, DBV, rose 0.13%. And developing market currencies, CEW, rose 0.56%. 

The Euro, FXE, rose only slightly, to close at 139.19. It still abides in its broadening top pattern, suggesting a fall lower is coming soon.  Spain, EWP, fell lower. European Shares, VGK, rose to close at 51.41

The Euro Yen carry trade, that is the EUR/JPY, seen in the chart of FXE:FXY, closed lower as the Yen moved awesomely higher today, signaling a likely end to investing long in carry trades. 

The US Dollar, $USD, closed lower at 77.14.  

The US Dollar, may rise Tuesday, October 26, 2010, now that the currency traders have established their sovereignty over the world’s central bankers. The currency traders may recommence their work as currency vigilantes and bond vigilantes that began when they called world currencies, DBV, lower October 7, 2010 and October 15, 2010; and when they called the interest rate on the 30 Year US Government Bond, $TYX, higher on October 7, 2010 causing Total Bonds, BND, and the 10-20 Year US Government Bonds, TLT, to turn down. The currency traders turned the world currencies down, again, on October 15, 2010, turning World Government Bonds, BWX, lower, from which they have not fully recovered.  The chart of BWX communicates that peak sovereign wealth has been achieved.

The chart of Developed Market Currencies Relative To Emerging Currencies … DBV:CEW  Weekly, suggests that peak currency wealth has been achieved.

II … The World Stocks, ACWI, rose to 45,06 forming a massive dark cloud harami candlestick, suggesting an end to the 20 week-long rally that began June 7, 2010 with the announcement of the EFSF monetary authority. Today’s close of ACWI at 45.06 is below the October 14, 2010 high of 45.13. It may be that peak stock wealth came in on October 14, 2010. 

The down turn in world currencies, DBV, and emerging market currencies, CEW,  reflects the currency traders effecting debt deflation on world stocks due to Ben Bernanke’s US Federal Reserve Death Star with its power to monetize debt, approaching.  

The S&P, SPY, rose to 118.70.

The emerging market small cap dividends, DGS,  rose to 52.90 on today’s higher emerging market currencies. Their rise to a new high, comes as they have value, in that they pay a dividend, and are not impared by developed nation sovereign debt, and are thus at greater distance than the world stocks, ACWI, that is from the deleterious effect of debt monetization, as is seen in the chart of DGS:ACWI.

The emerging markets, EEM, rose to 46.53.

China, FXI, closed higher at 46.22.

Australia Small Caps, KROO, rose to, 28.39; these exemplify the success of the small cap shares that has come with the execution of the US Dollar. 

The Morningstar Mid Cap Growth, JKH,  rose  more than the  Morningstar, Mid Cap Value, JKL.

The Small Cap Pure Growth, RZG,  rose more than the Small Cap Pure Value, RZV,

The S&P Mid Cap Growth, RFG, rose more than the S&P Mid Cap Value, RFV,

Nasdaq Banks, QABA, Banks, KBE, manifested bearish engulfing and fell lower. Bank of America, BAC, fell sharply lower.

The metal manufacturing shares, XME, Copper mining, COPX, oil service shares, OIH, Steel, SLX, South Korea Small Cap, SKOR, Canada Small Cap, CNDA, Australia, EWA, Australia Small Caps, KROO, Small Cap Consumer Discretionary, XLYS, Small Cap Pure Value, RZV, New Zealand, ENZL, Mexico, EWW, Sweden, EWD, Russell 2000, IWM, Asia Pacific Excluding Japan High Yielding Equity, DNH, Gaming, BJK, Poland, EPOL, Austria, EWO, Emerging Europe, ESR, Semiconductors, SMH, Solar, TAN,  Nasdaq Internet, PNQI, Nuclear Engineering and Development, NLR, Homebuilding, ITB, Airlines, FAA, Emerging Markets, EEM, India, INP, India Earnings, EPI, Retail, XRT, Nanotechnology, PXN, Dow Internet, FDN, rose.

The Russell 2000, IWM, rose 0.60%. The 300% Russell 2000, TNA, rose 1.78%. The chart of the Russell 2000, IWM, compared to the banks, upon which these small caps depend for financing, IWM:KBE, shows how greatly overextended they are, that is how much they have been run up by traders in comparison to their underlying source of financing. When the economic downturn comes, the Unites States, and its small and thinly capitalized companies will be ground zero for suffering.

New York Composite, NYC, rose 0.76%

III … Total Bonds, BND, rose, 0.06%; the chart of total bonds suggests that peak bond wealth was achieved on October 7, 2010; this as the bond vigilantes called the interest rate higher on the US 30 Year Government Bond, $TYX, out of concern that Ben Bernanke’s QE II constitutes monetization of sovereign debt. Ben Bernanke’s QE 2 makes the “money good” assets, no longer good! 

International Corporate Bond, IBND, rose 0.60%

World Government Bonds, BWX, rose 04.3%

The US Government Zeroes, ZROZ rose 0.94%

The 10-20 Year US Government Bonds, TLT rose 0.29%

Mortgage Backed bonds, MBB, closed lower at 109.79.

The 2 Year Bonds, SHY, may to be maxed out at 84.48. 

Junk Bonds, JNK, rose, 0.30%, signaling that investment liquidity is still “on”; perhaps the questioning harami in the chart of Junk bonds means that Peak Investment investment liquidity has been achieved.

IV.   … Gold, GLD, and Commodities, DBC, Base Metals, DBB, rose, with Lead, LD, soaring, and Tin, JJT, and Agricultural Commodities, RJA, Timber, CUT, rising strongly.

West Texas Intermediate Crude, $WTIC, that is Oil, USO, UCO, although being in plentiful supply, rose higher on abundant financial liquidity.

V. … Today, October 25, 2010, may indeed be a tipping point from the age of prosperity to the age of austerity and debt servitude. 

Milton Friedman introduced the principles of “free to choose” and “free to be”, which underly the floating currency regime upon which today’s world economy is built.  

Through yen carry trade investing with practically zero percent interest, currency traders have gone alternatively long a number of currencies and short the yen to leverage up awesome stock and bond wealth. But now the high value of the Yen, FXY, at 122.47, serves as an impediment to this laddering up, that is leveraging up of wealth.

Investors have ridden a steepening 30:10 US Sovereign Debt curve, $TYX:$TNX, from 1.00 in 2001 to 1.53 today, and have seen great wealth come by investing in US Sovereign Debt, with the US Ten to Twenty Year Notes, TLT, rising from 60 in 2001 to 101 today. Others have ridden on the US Sovereign Debt Yield Curve to invest in longer maturity corporate bonds, BLV, which has risen from 60 to 84 from 2009 to today. Yes its been the US Sovereign Debt that has supported both government bond investors and US corporate bond holders alike. I expect the yield curve to steepen even more as the bond vigilantes and currency vigilantes call the US 30 Year Interest Rate, $TYX, much higher in regard to the Interest Rate on the US Ten Year Note, $TNX. This will be very destructive to those invested in bonds, especially the longer out bonds, such as ZROZ and TLT.

Daniel Krugerof Bloomberg reports: “Expectations for rising consumer prices have increased faster in the U.S. than any other bond market this month as central bankers made the case for monetary easing through additional asset purchases. Yields on 30-year Treasuries climbed as much as half a percentage point since September to 2.61 percentage points more than similar maturity inflation-indexed debt, the widest gap since May and an indication for anticipated gains in consumer prices.”

The Wizard In The Bank, I think this is something akin to The Cat In The Hat, is going to print money to supposedly prevent a deflationary collapse of the 1.0 Trillion mortgage-backed securities, MBB, held at the Federal Reserve, and the Trillions more held by the too-big-to-fail banks, RWW, and the mortgage GSEs, Freddie Mac and Fannie Mae, and there are lots too at PIMCO probably.   

I believe that it has been Mr. Bernanke’s plan all along to have a paper money printing QE 2, as mortgage back bonds, MBB, have increased in value from 92 to 109 from November 2008 to present; and because the distressed securities mutual fund, FAGIX, which is composed of investments like those traded out under QE 1 for US Treasuries, has increased twelve percent in the last year.  

I am convinced that many central bankers are enamored with the concept of a ZIRP and actually negative interest rates. Such things plus government deficit spending, stimulate an investment demand for gold.

Some investors have chosen to invest in the junior gold mining shares, GDXJ, to great benefit. But once can see from the down arrow marked on the chart, that it peaked out on October 15, at 35.65; this is when world currencies, DBV, topped out and when world government, BWX, topped out. Mining shares generally turn down with debt, which can be seen in the chart of the HUI Precious Metal Mining Shares, $HUI, relative to the 30 Year US Government bond, $USB, $HUI:$USB. Also gold mining shares have started to detach from the price of gold as is seen in the chart of GDXJ:GLD: its much better now to invest in the real thing.       

The HUI Precious Metal mining shares have been one of the investment success stories of the age as is seen in the chart of the HUI rising from 38 in October 2000 to 507 today.

Another success story has been the energy service shares, OIH.

At one time Exxon Mobil, XOM, was a stellar stock market performer; but today it closed lower at 66.20.

It was also the Czar of Credit Liquidity, Alan Greenspan, who opened wide the flood gates of investment liquidity, which enabled people to buy homes, and to obtain HELOC loans, which spurred mortgage equity withdrawal, and conspicuous consumption and spending on Botox injections form Allergan, AGN, vanity trips to the suntan hut, flights of fancy to Thailand, cruise ship vacations to Sitka Alaska, and home improvement from from purchases at Home Depot, HD

And liquidity has been flowing quite well of late, as seen in the chart of Tiffany & CO, TIF.

Perhaps, tomorrow, october 26, 2010,  S&P Mid Term Futures Volatility,VXZ,  and Volatility, VXX, and  turn up, and Inverse Volatility, XXV, will turn down. 

Now the Piper must be paid. The part of the World’s Sovereign Debt, BWX, as well as all the mortgage-backed securities, MBB, that the currency traders cannot run down through deflation, must be and will be applied to every man, woman and child, on planet earth.

Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is from page 572 of Human Action: “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”

Elaine Meinel Supkis of Culture of Life News relates debt deflation this way: “If Bernanke piles up several trillion US dollars and then lights a blowtorch to it, he will get a classic Bonfire of the Vanities.  For the Goddess of Zero is Ice but the Goddess of Inflation is Fire.  Zero/depression preserves money even as it destroys asset monetary values while Inflation/devaluation of currency leads to a TEMPORARY rise in asset values but a destruction of the currency and this, in turn, destroys not just people’s savings or the value of their homes in real terms but destroys EVERYTHING.

That is, depression is an unhappy time indeed but you come out of it with your money intact and thus, a capitalist base for future expansion whereas if you debase the currency, you end up…with NOTHING.  All capital is destroyed and thus, no true economic expansion occurs.  Note the words I highlight in this article: falling values/increased faster/anticipated gains/exclude food and fuel/rein in inflation: all of these are key Cave of Wealth and Death terms of the darkest, most hideous sort.

We are going to chop off our arms and legs in a vain attempt at escaping from the free trade trap.  Instead of protecting specific elements of our culture and economy, we are going to use our currency to do ALL the heavy lifting which means, the ONLY way we can fix this mess is to destroy the dollar so utterly and totally, no one will trade with us!”

Global Debt Deflation commenced on April 26, 2010, when the value shares failed to outperform the growth shares.

It was on April 26, 2010, the currency traders went long the yen and short the global currencies found in this FINVIZ Screener of FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, BZF, XRU, FXY causing the US Dollar to rise; as can be seen in this chart from April 26, 2010 to June 7, 2010. This as the EU Finance Ministers Announced European Economic Governance And Called For A Monetary Union With Seigniorage Authority To Issue Eurobonds

On June 7, 2010, the US Dollar, $USD, turned down, as the Euro, FXE, rallied on news of the call for the EFSF Monetary Authority to be established, it has been approved by the necessary member states, but as of yet has not issued any Eurobonds. The up and coming debt deflation is going to severely crimp the Seigniorage of Governments world-wide. I envision the day when regional governments will form out of Leaders Framework Agreements such as the Security And Prosperity Partnership, the SPP, and a Financial Regulator will arise to oversee banking, lending, credit, investment, and housing: I call this person The Seignior.   

And now at the current time the small cap value shares, RZV, compared to the small cap growth shares, RZG, RZV:RZG, have turned down for two days, suggesting that another bout of currency deflation is hat hand. I believe that a debt deflationary bear market is at hand and I suggest investing in gold bullion, $GOLD which last traded at $1,340.

VI … Suggested Reading

EconomicPolicy Journal Cato: Bernanke Is Not Printing Money Fast Enough (The Cato Iinstitute got hijacked by some privateers)

EconomicPolicy Journal Indications Bank of America Mortgage Documents Are A Wreck

Vincente Fernando BusinessInsider See How Four Asian Cities Monopolized Global Trade In 15 Short Years


One Response to “Currency Traders Drive World’s Currencies Higher And Dollar Lower To Claim Sovereignty Over Currencies …. Stocks, Bonds And Commodities All Rise Higher On Today’s Lower Dollar”

  1. dokemion Says:

    Global equity markets have been bullish in recent weeks supported by expectations that the Fed will restart its QE program and buy more US Treasuries. The Bank of Japan too, recently cut rates to zero and announced a Bond purchase program which is seen as a prelude to full blown QE.

    In the US, deflation is feared but not yet a fact, whereas in Japan it has dogged the economy for years. In the UK CPI has been above target for months, yet the Bank of England appears to be moving towards a new tranche of QE.

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