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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 currency deflation has created an investment demand for gold, and that gold bullion is the sole means of wealth preservation. The chart of gold, $GOLD, reveals that with... More
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  • Gold Rises As The Euro Yen Carry Trade Unwinds And As Fed Announces Limited Purchase Of Mortgage Bonds To Bolster The Economy 0 comments
    Aug 10, 2010 8:36 PM | about stocks: GDXJ, GLD, VT, SPY, CEW, DBV, IEF, UUP, FXE, FXY, AMJ, SJH, EUFN, EMFN, EWP, RZV, USD, SMH, IWM, JJN, USO, UNG, DBB, TAN
    Gold rose today August 10, 2010 on an unwinding of the Euro Yen and other Yen based carry trades which sent currencies, stocks and commodities lower as concerns grow over sovereign debt and limited capability of the US Federal Reserve to deal with current economic challenges.
    I … Stocks recovered from their early morning losses on August 10, 2010 after the Fed announces it will use proceeds of mortgage bonds to buy government debt on a small-scale.
    Stocks, VT, recovered some from their early morning sell off as Jeannine Aversa, of the Associated press reports that the Federal Reserve took a small step Tuesday August 10, 2010 to bolster the economy. Wrapping up a one-day meeting, the Fed said it will use the proceeds from its investments in mortgage bonds to buy government debt on a small-scale. That could help nudge down long-term rates on mortgages and corporate debt, but won’t likely have a dramatic impact on stimulating growth, economists say.
    Sovereign Debt Swaps Rise to Two-Week High on Recession Concern. Credit-default swaps on European governments from Spain to Germany rose to the highest level in two weeks amid concern the U.S. Federal Reserve may signal the world’s biggest economy is in need of support. The Markit iTraxx SovX Western Europe Index of swaps on 15 nations climbed 1 basis point to 123.5 basis points, the highest since July 26, according to data provider CMA. Contracts on Spanish government debt climbed 6 basis points to 201.5 basis points, while swaps on Germany rose 2 to 42.3. The Markit iTraxx Crossover Index of credit-default swaps linked to 50 companies with mostly high-yield credit ratings climbed 9 basis points to 479, according to JPMorgan Chase & Co. The Markit iTraxx Europe Index of 125 companies with investment-grade ratings increased 2 basis points to 105. The costs of hedging against losses on bank debt also rose with the Markit iTraxx Financial Index of 25 banks and insurers climbing 4 basis points to 121.5 basis points.
    California City With $800,000 Manager Gets Junk Rating. Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut five steps to junk by Standard & Poor’s on concerns about the city’s ability to refinance or pay debt due Nov. 1. S&P lowered Bell’s general obligation and pension bond ratings to BB, two levels below investment grade, from A-, and put it on a watch list for potential further downgrade.
    Frenzy in Energy Partnerships. Lured by hefty yields, investors are pouring billions of dollars into a small corner of the stock market—energy-focused master limited partnerships—which has seen a huge rally of 15% this year. And that makes some people nervous. MLPs are mostly companies that own and operate pipelines, primarily for natural gas and oil. Benefiting from the tremendous expansion of energy infrastructure in the U.S., MLPs essentially collect rent from energy producers who use their facilities. Over the past decade, the Alerian MLP index, AMZ.X, the main benchmark for the group, is up about 11% a year. That is a handsome payoff compared with the Standard & Poor’s 500-stock index, which is down 2.6% a year. Their major appeal is payouts to investors these days averaging around 7% a year at a time when bond yields are at all-time lows. MLPs are expected to increase those distributions by another five percentage points or so a year.
    Summoned back from summer break, the House pushed through an emergency $26 billion jobs bill that Democrats said would save 300,000 teachers, police and others from election-year layoffs; the bill was immediately signed by President Obama.
    Democrats now the House Underdogs as contract to control the House after the 2010 Election rises to 61.1%
    Santos takes office as Colombia’s president as neighboring Chile’s and Peru’s stock markets show recent dramatic gains that have come from carry trade investing as seen chart of EPU and ECH.
    II … Stock deflation commenced today, August 10, 2010, providing gains to short sellers.
    In my list of 20 ETFs to sell short and 6 ETFs to buy long for a debt deflationary bear market, I suggest that one sell short Ultra Semiconductors — USD; it fell heavily today, producing a 5.7% gain to short sellers. I also suggest that one sell short JP Morgan Alerian MLP, it fell, producing a 1.0% gain to short sellers. And, I also suggest that one buy long, Ultrashort Russell 2000 — SJH, it rose today, producing a  1.9% gain to those invested long. Volatility, VXX, rose 1% today.
    World stocks, VT, fell 0.7%; Emerging markets, EEM, 1.4%, the Bric 40, 1.6%. The European Financials, EUFN, fell  0.7% and Emerging Market Financials, EMFN, fell 1.4% and Financials, XLF fell 0.7%. Homebuilders XHB, fell 3.%, Solar stocks, TAN, 2.8%, Semiconductors, SMH, 2.4%, and the Russell 2000, IWM, 1.9%, to close below support at both 65 and 66. The chart of SPY shows both a rounded top pattern and the fall to the middle of a broadening top pattern at 112 that goes back for the last seven trading days; stocks usually fall from such patterns.
    III … Gold rose, confirming a breakout on August 6, 2010 on concerns over sovereign debt.
    Gold, GLD rose 0.3%, to close at 117.7.
    IV … Bonds continue to rise – peak debt, that is peak credit, has not arrived as of yet; credit deflation, that is bond deflation, has as of yet not commenced. 
    Aggregate bonds, AGG, rose 0.17% and total bonds, BND, 0.21%. US Ten Year Notes, IEF, rose 0.51%, Corporate bonds, LQD, fell 0.1%, and Emerging market bonds, EMB, rose, 0.1%. One can view the chart of debt, BND, IEF, LQD, EMB, MUB, CMF, JNK and TLT or use the Finviz Screener of Debt
    V … The US Dollar rose as currencies, except the Yen, FXY, fell lower: currency deflation commenced today August 9, 2010.
    The US Dollar, $USD, rose 0.18%, to close at 80.86. Developing currencies, CEW, fell 0.21%, and major currencies, DBV, fell 0.43%. The Euro, FXE, fell 0.33%, and the Yen, FXY, rose 0.62%. The USDJPY closed down 0.1%, at 85.93, but still up from its low on Friday August 6, 2010.
    The dramatic down turn in the EUR/JPY was such that disinvestment from stocks, VT, and commodities, DBC, could not regain their levels from before the Federal Reserve’s policy meeting, especially given reports that showed economic growth slowing in the U.S. and China.
    The chart of FXE:FXY, and the chart of the EUR/JPY shows today’s, August 10, 2010, unwinding of the euro yen carry trade. Yahoo Finance reports that the EURJPY closed down 0.8% at 112.69, commencing debt deflation; with confirmation of such coming from the value shares falling more than the growth shares: the small cap pure value shares, RZV, falling 2.3% and the small cap pure growth, RZG, falling 1.0%.
    Since the EFSF monetary authority financial authority was announced June 10, 2010, Spain, EWP, has increased 25% and the European Financials, EUFN,  24%. The chart of EWP, EUFN, RZG, RZV shows the rally and beginning of downturn. 
    VI. Gold has arisen as the sovereign currency and sole standard of preserving wealth in today’s debt deflationary global economy.

    Oil, USO, fell lower; as did Natural gas, UNG. Tin, JJN, is leading base metals, DBB, lower. One can follow these commodities in this Finviz screener.

    The junior gold mining shares, GDXJ, have fallen with the stocks; these are disconnecting further from the price of gold, a process which began in early May, 2010, as is seen in the chart of GDXJ:GLD. The same is true of the HUI precious metals, GDX, which disconnected from the price of gold at the same time.  Wealth can no longer be preserved by investing in stocks of any kind.

    Gold has arisen as the sovereign currency and sole standard of preserving wealth in a debt deflationary global economy where currencies, commodities, stocks and bonds are all falling lower in value. This can be seen in the chart of gold relative to stocks, GLD:VT and gold relative to major currencies, GLD:DBV and gold relative to emerging market currencies, GLD:CEW, and gold relative to debt, GLD:AGG rising in value since August 1, 2010.    

    Disclosure: I am invested in gold coins
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