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I am not an investment professional. I do not engage in stock or currency trading. I am a blogger and investor who believes the failure of credit has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation.
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  • Stocks Soar On Carry Trade Reversal ... Currency Traders Take Flight From The US Dollar 0 comments
    Jun 10, 2010 8:09 PM | about stocks: GLD, AGG, IEF, TLT, ZROZ, TMV, FXY, UUP, FXA, FXE, BZF, FXM, CEW, INR, FXRU, FXC, FXS, FXB, FXF, SZR

    The currency traders went long the world currencies for a number of reasons, one to take profits, another to call a top in the US Dollar and a third to contradict Goldman Sachs, who as Tyler Durden related yesterday Goldman Formally Lowers EURUSD Target From $1.35 To $1.15; Time To Go Long? An inquiring mind states, have you seen that when Goldman gives advice, the market moves contrary. 

    The result was a terrific stock rally in foreign large value, energy Asian, and European shares; a US Dollar sell off, a slight sell off in US Treasuries and Gold. However, it should be noted that the charts of the best performers show a rise to resistance and not a breakout.

    With the downturn in the US Dollar, the standard-bearer of international currency and trade, we are entering into an age of competitive currency devaluations, and greater volatility in stock, bond and sovereign debt trading and values; click on chart of the US Dollar, $USD.

        

    Sweden, EWD, shares rose 6% on a Swedish Krona carry trade: FXS:FXY

    Asia stocks, DNH, rose 5% on a Australian Dollar carry trade: FXA:FXY.

    European shares, FEZ, rose 5% on a Euro carry trade: FXE:FXY.

    Austrian shares, EWO, rose 5% on a Euro carry trade: FXE:FXY

    South African shares, EWA, rose 5% on a South African Rand carry trade: SCR:FXY

    Brazilian Shares, EWZ, rose 4% on a Real carry trade: BZF:FXY

    Russia shares, RSX, rose 4% on a Ruble carry trade: XRU:FXY

    United Kingdom, EWU, shares 4% rose on a British Pound Sterling carry trade: FXB:FXY

    Mexico shares, EWW, rose 3.5 % on a Peso carry trade: FXM:FXY

    Emerging market shares, EEM, rose 3.5% on an emerging currency carry trade: CEW:FXY

    Norway shares, GXE, rose 3%, — there is no currency ETF for Norway’s currency.

    India shares, INP, rose 3% on a Rupe carry trade: INR:FXY 

    Canadian shares, EWC, rose 3% on a Candian dollar carry trade: FXC:FXY 

    Switzerland shares, EWL, rose 3%on a Swiss Franc carry trade: FXF:FXY

    Currency chart of  FXA, FXE, BZF, FXM, CEW, INR, XRU, FXC, FXS, FXB, FXF, SCR shows comparative currency loses since April 24, 2010 relative to the US Dollar Bull ETF, UUP. 

    Foreign large value shares, IDV rose 5%.

    Japanese small companies, JSC, were carried 2% higher on the day as carry trades rose globally.

    China, FXI, rose 2.5%. 

    Base metals, DBB, and oil, USO, rose on the day as carry trades rose globally.

    Energy production shares, XLE, and energy service shares, OIH, rose 5% and 7%; British Petroleum rose 12%. BP credit-default swaps widen to junk territory, reports Steve Goldstein of MarketWatch.

    Metal manufacturing shares, XME, and steel, SLX, both rose 5%.

    Semiconductors, SMH, rose 3.5%

    Real Estate, IYR, rose 4%. 

    Industrials, XLI, rose 4%.

    Financials, EUFN, IXG, RWW, KBE rose 6%, 4%, 2%, and 4%.

    The small cap value shares, RZV, and the Russell 2000, IWM, rose 4% and 3.5%. 

    The US Dollar Bull ETF, UUP, fell for the third straight day; the US Dollar, $USD, closed at $87.11.

    US Treasuries, IEF, TLT, and ZROZ fell; the Direxion 3X Bear of US Treasuries, TMV, rose. With a falling US Dollar, $USD, it is highly likely that US Government Bonds have topped out. The chart of IEF, shows a dark cloud cover candlestick and a parabolic turn lower today; click on the bearish looking chart to enlarge.   

    The interest rate on the Ten Year US Government Note, ^TNX, and the 30 Year US Government Bond, ^TXY, appear to have bottomed out.

    US Treasuries in the futures market, $USB, have turned parabolically lower; Treasuries in the futures market is calling US Government debt lower.

    Gold, GLD, fell slightly; the chart of the HUI precious metals, GDX, appear to have hit resistance.  

    Silver, SLV, rose to resistance near $18; chart activity shows it to be an industrial metal and not an investment metal. 

    Despite today’s rise of stocks globally, VT, a death cross has appeared in the chart of stocks relative to debt, VT:AGG, suggesting that today’s currency trade rally cannot be sustained. The only ones who will benefit, and are benefiting from today’s rally will be the currency traders; they always move the stock market; they and those who are invested in credit default swaps as these move sovereign debt and banking stocks; click on the chart of VT:AGG to see the death cross and the fall of stocks on April 14, 2010

          

    Aggregate debt, AGG, has turned lower signaling that debt deflation has now not only come to stocks, but to credit as well; click on chart of AGG to enlarge.

    Given the fall of Aggregate Debt, AGG, Debt Deflation is confirmed. Debt deflation is the contraction and crisis that follows credit expansion.  One of the most famous quotations of Austrian economist Ludwig von Mises is that “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.” 

    John Hara provides the details of debt deflation in article Into The Abyss: The Cycle Of Debt Deflation posted in Gold Speculator as well as posted in 24HGold; and as he does, he describes the entrance into Kondratievv Winter

    Today is only a green-shoot rally, in a bear market entrance into Kondratievv Winter, that began April 24, 2010 when an Elliott 3 of 3 Wave Down commenced; the 3 waves are known for their broad and sweeping power; they produce wealth on the way up and destroy wealth on the way down.

    And a wave of imports has been coming out of China. While good for China, not so good for the US. It’s Revalue Renminbi or Dogs Unleashed, according to JP Morgan Chase Analyst Patterson; China must begin revaluing its currency higher growl Senate watchdogs as Trade Deficit Widens To Highest In Year reports Courtney Schlisserman of Bloomberg. I can assure you that a trade war with sanctions and tariffs on imports is on the way. China does not take kindly to being told what to do; it will retaliate as it has done before when sanctioned with duties on steel imports. It has the capability to stop buying US Treasuries and will do so; which will cause a liquidity evaporation from the bond markets, causing a run on money market accounts and bond mutual funds across the board from corporate funds to municipal funds.   

    Corey Rosenbloom does well putting today's rally into perspective as he writes Bulls Willing to Do Anything to Avoid Falling into Market Abyss

    While one could be invested in the gold ETF, GLD, I personally am invested in gold coins.



    Disclosure: I am invested in gold coins.
    Stocks: GLD, AGG, IEF, TLT, ZROZ, TMV, FXY, UUP, FXA, FXE, BZF, FXM, CEW, INR, FXRU, FXC, FXS, FXB, FXF, SZR
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