Falling Currency Values Will Offset And Turn Down Strong Growth In China Australia And Emerging Asia …. A bear market in both equities and bonds commenced October 15, 2010 and was confirmed October 27, 2010 by a sell off of the Emerging Market Currencies

A pre-market financial report, that is, a financial market report before the stock and bond markets open on October 29, 2010. (This article was updated at the end of the day with charts) 

Some imply that strong growth in China, Australia and emerging Asia will continue. Chuck Butler of The Daily Reckoning, for example on October 28, 2010 reports that growth continues in China, Australia and emerging Asia: “You might recall that the September MPS in New Zealand was the thing that got me all lathered up about another rate hike… So, something is keeping Bollard from hiking rates, and I think I know what it is… In fact, I think Bollard took a swipe at the US/FOMC and their plans for QE… Let’s listen in, and see if you hear what I hear… “Downside risks to the outlook for global growth continue, with high public and private debt inhibiting recovery in many developed economies. Moreover, it is unclear how further policy support would impact on the outlook for growth in our Western trading partners. Offsetting this weakness, strong growth continues in China, Australia and emerging Asia.”

FXstreet.com reports from Cordoba on Nasdaq New Service on 10/28/2010 at 10:26 PM in article  EUR/JPY Breaks Below 112.00 Amid Risk Aversion that the Yen crosses are sinking quickly this Friday in Asia as risk aversion spreads across the board after mixed data coming from several indicators from Japan, Australia and the UK. EUR/JPY in particular, has dropped around 90 pips within the last 3 hours and continues to head south. So far EUR/JPY has set a fresh 7-day low at 111.95. At time of writing the pair is trading at the 112.00 area, 0.74% below its opening price. From a technical perspective, the 4 CAST analyst team commented, “Break here will expose 111.58 low to retest and see scope for further extension lower. Only swing over the 113.19/30 highs and trend line resistance needed to turn focus higher

I say, if the lower EURJPY, and the other lower yen crosses, hold through the New York Stock Market opening on 10-29-2010 … then the World Stocks, ACWI, European Shares, VGK, emerging market shares, EEM, Emerging Markets Small Cap Dividends, DGS, China small caps, HAO, Australian Small caps, KROO, … will all trade lower in the morning of 10-29-2010 … And the US Dollar, $USD,  UUP, will trade higher, and the Emerging Marktss, EEM, the World shares, ACWI, the Euro, FXE, the major worlds currencies, DBV, and the emerging market currencies, CEW, will trade lower, with this being seen of the chart of EEM, ACWI, CEW, DBV, and FXE.

Chart of the emerging market currencies, CEW.

Falling yen crosses will be the factor turning junk bonds, JNK, lower.

One can follow ongoing price changes in the EUR/JPY on Yahoo Finance.

It is undeniable that a bear market stock market commenced October 15, 2010 as World Shares, ACWI, peaked October 15, 2010 at 45.13.  A sell off of the Emerging Market currencies, CEW,  commenced a bear market October 15, 2010, and was confirmed October 27, 2010, when the Emerging Currencies, CEW, fell to 22.94. All due to the Interest Rate on the US 30 Year Bond, $TYX, started to rise to 4.0%  

The US Dollar, $USD,  closed lower at 77.31 yesterday, that is October 28, 2010, as the Yahoo Currency Center and this Finviz Screener of  SZR, XRU, FXA, BZF, FXS, BNZ, FXE, FXF, FXB,  FXC, CEW, FXY, FXM, and ICN, show the world’s currencies and emerging market currencies and traded higher.

 The USD/JPY  closed at  81.01 on October 28, 2010; its inverse ETF, JYN, traded unchanged.  

The point here is that falling yen carry trades will preemptnegate, overwhelm and destroy growth anywhere, whether the growth be in China, Australia, or Emerging Asia. 

Falling yen crosses come from two factors.

First, risk aversion to sovereign debt issues in Europe, such as the inability of nations like Portugal, Ireland, Greece, Spain, and France to accept austerity measures and every country, but especially Ireland and Iceland, seeking to make bondholders share in band bond and mortgage bond, default. A bear market commenced in World Government Bonds, BWX, on October 15, 2010 as they peaked at 62.04 and was confirmed October 27, 2010 when they fell to 60.38. The risk of sovereign debt default in Europe, is one of factors  that has turned World Government Bonds, BWX lower.

And, secondly, currency vigilantes and bond vigilantes calling the interest rate on the 30 Year US Government Bond, $TYX,  to 4.0% on October 14, 2010, and the interest rate on the US Ten Year Note $TNX, higher.

Here in the US, we have the US Federal Reserve, Bank of America, BAC, Banks, KBE, the Nasdaq Community Banks, QABA, and the Mortgage GSEs, Freddie Mac and Fannie Mae, acting as a lending cartel trying in every way possible to maintain the value of mortgage back securities, MBB, and not seeking for bondholders to share in any mortgage bond default. A primary example is the Fed coming out with QE 2, which has driven mortgage-backed bonds, MBB, and distressed securities, FAGIX, up in value. 

Chart of MBB

Chart of FAGIX

Expectation of QE II, basically from early June 2010, when the EFSF monetary authority was announced, has driven the 10 to 20 Year Government Bonds, TLT, higher. But on October 7, and October 15, 2010, the currency vigilantes and bond vigilantes called the interest rate on the US Government Debt, $TYX, higher, resulting in the destruction of value in TLT, as they believe that the Fed’s purchases of debt monetizes sovereign debt; these peaked October 6, 2010 at 105.56 and October 13, 2010 at 103.05 and fell on October 27, 2010 to 99.22.

I believe that the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX, will be going higher from 1.425, on risk aversion to US sovereign debt.

A rising 30:10 yield curve from this point out, as well as rising interest on the 30 Year US Government Bond, $TYX, will destroy all bond wealth, BND, whether it be World Government Debt, BWX, the Zeroes, ZROS, the longer out Corporate Bonds, BLV, and global corporate bonds, PICB.

Research shows that falling yen crosses, and a falling 30 Year Bond in the futures market, $USB,  turns the HUI precious metal stocks, ^HUI, lower, as is seen in the chart $HUI:$USB.

And detaches the precious metal stocks, GDX, them from the price of gold, GLD, as is communicated in the chart of GDX:GLD

Thus destroying the wealth of those who are invested in gold stocks, GDX, the junior gold mining stocks, GDXJ, and in precious metal mining funds, TGLDX

Historical records show that investing in gold bullion, $GOLD, protects ones wealth from monetization of debt by central banks, and is a much better investment than gold stocks, GDX, when the longer out interest rates rise.

My final remark here is that the fall of the small cap pure value shares, RZV, relative to the small cap pure growth shares, RZG, RZV:RZG, since both October 15, 2010 and October 27, 2010, communicates that a bear market is underway, as the major currencies, DBV, and as the emerging market currencies, CEW, have fallen lower since October 15, 2010, when the Interest Rate on the 30 Year US Government Bond, $TYX, first rose strongly higher to 4.0% 

For emphasis, I state, the evidence, is clear, cogent and convincing that a bear market has been underway since October 15, 2010 with confirmation coming in on October 27, 2010.

Dear Blog Reader, I hope you understand two things, First, the spigot of investment liquidity coming from the EUR/JPY is being turned off and in fact acting in reverse. Second, the spigot of liquidity coming from US Government Debt expansion is being turned off and in fact acting in reverse.


3 Responses to “Falling Currency Values Will Offset And Turn Down Strong Growth In China Australia And Emerging Asia …. A bear market in both equities and bonds commenced October 15, 2010 and was confirmed October 27, 2010 by a sell off of the Emerging Market Currencies”

  1. Jason_70 Says:

    One word for your regular updates. You are just simply out of this world. The precision and detail in your articles are just astounding.

    Thank you for keeping us informed with your invaluable thoughts and analysis.

    Have a good weekend.


  2. Gerard Pereira Says:

    What about the strong Australian currency at present? Do you forsee a fall yet? Anywhere close to the June 2010 fall?

    • theyenguy Says:

      The Australian Dollar, FXA, is a most strong currency. In answer to your questions, I do not know. I expect a fall in the US Dollar, as monetization of debt eventually leads to currency destruction and debasement.

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