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Bonds Soar And Gold Rises As Stocks Fall On Sell Off Of Bank And Basic Material Shares


I … Mortgage, banking and basic material shares fell, taking the stock market lower today August 24, 2010

The ProShares 200% inverse of Mexico, SMK, broke out today as the Mexico Peso, FXM, fell strongly lower for a second day in a row; and the ProShares 200% inverse of the Nasdaq Biotechnology shares, BIS, broke out today as well; establishing them as working bear market ETFs along with the Russell 2000, SJH, and Europe, EPV.  Four leading Proshares 200% bear market ETFs include the Russell 2000, Europe, Mexico, and Nasdaq BioTechnology …  SJH,  EPV,  SMK, BIS

Developed market currencies, DBV, fell more than emerging market currencies, CEW.

World stocks, VT, -1.5% … US Stocks, VTI, -1.4%  … European Stocks, FEZ, -1.8% … Asian Stocks, DNH, -2.0% … Russell 2000, IWM, -1.1% … The Brics, BIK, -1.5% … The chart of VT, VTI, FEZ, DNH, IWM, EWW, BIK shows today’s losses.

Ireland, EIRL  -4.1%. LFT Alphaville reports that the 10 year German/Irish bond-yield spread was headed back towards the May record before the setup of the EFSF. The article links this to the announcement that Anglo Irish Bank could be about to transfer a second tranche of loans to NAMA at a discount of some 60 per cent. It said this was hardly reassuring considering that central bank governor Patrick Honohan had already said last week that it could now cost the taxpayer up to €25bn to support the beleaguered Irish lender. The debt has affected other peripheral European markets, but in the case of Greece, 10 years are still some 150bp below the peak levels. Chart of Ireland, EIRL and Europe, FEZ, shows an increasing sell off of Ireland shares. After today’s stock market action, S&P cut the government’s long-term sovereign credit rating to “AA-” from “AA”, the Assoicated Press reports.

Vietnam, VNM -3.0%. The country has ongoing currency issues and it is reflected in its stock market. Bloomberg reports Vietnam Equities Tumble, Entering Bear Market, as Monetary Policy Tightens. Vietnam stocks tumbled, entering a so-called bear market, on concern the government may add measures to plug the nation’s deficit after devaluing the dong last week. The Ho Chi Minh City Stock Exchange’s VN Index slumped 3 percent to 434.42 at the 11 a.m. local-time close, the worst performer today among 93 benchmark indexes tracked by Bloomberg, extending its decline from this year’s high on May 6 to more than 20 percent, which analysts define as a bear market

Mortgage Finance, KME, -3.8%; these ETF moves in jumps and starts; it fell fitfully below support of a head and shoulders pattern that goes the chart goes back weekly to July 2009. Stock market participants know that the end of profiting from securitizing mortgages is done and over. The 3.8% fall in mortgage finance today heralds the likelihood to a soon coming liquidity evaporation and liquidity crisis, where the banks will no longer be participating in securing mortgages, but rather foreclosing and leasing of properties. Bloomberg reports U.S. Existing Home Sales in Record Plunge: Sales of existing houses plunged by a record 27 percent in July as the effects of a government tax credit waned, showing a lack of jobs threatens to undermine the U.S. economic recovery. Business Insider chart shows that the Homebuyer Tax Credit Created A Huge Distortion Click on chart of KME Weekly to enlarge.

Banks, KBE, fell 2.1% . Today’s fall in banks were the spark that induced Emerging Market Financials, EMFN, to fall heavily, bringing its chart pattern into alignment with European Financials, EUFN 1.7%.

Solar, TAN, -3.6% Solar stocks had a rally and are fast returning to their position as being stock market loss leader.

Copper producers, COPX, -3.5% Fell on an unwinding Euro yen and Austria yen carry trade as well as a fall of commodities, DBB, falling from a head and shoulders pattern of support at 20 to today’s 19.35. 

Metal Manufacturing, XME, -3.1% Metal manufacturing stocks move manically once carry traders make their move; today’s and yesterday’s fall are simply a “domino  fall” from action called out 8-19, and 8-20 as the” 3 of 3 down wave” in currency carry trade unwinding commenced. Changes like we see today, whether they be up or down, define carry trade investing and currency carry trades at work.

Steel, SLX, -2.9%

Mexico, EWW, -2.5% Fell today from a hard fall in the Mexico Peso, FXM, yesterday.

Australia, EWA, -2.3% Today’s fall represents strong AUDJPY unwinding and the 2.6% fall of copper producer BHP

Sweden, EWD, -2.7% Today’s fall reflects a fall in the Swedish Krona, FXS

Spain, EWP -1.8% Spain is starting to monetize its sovereign debt as the Telegraph reports Spain Uses Social Security Fund to Prop Up the Bond Market. Based upon continual reading of European New, I believe that Spain has been consistently resistant to any austerity measures and now it is paying the price by having to resort using monies that belongs to retirees to generate liquidity for its banking and governmental needs.   

Nasdaq Biotechnology, IBB, -1.8%; the age of profiting from research in  life science and technology is done and over.

Thailand, THD -1.1% Thailand finally fell lower today. It began to rise February 5, 2010 as investors took flight from Europe, FEZ’; and then later soared on Euro Yen carry trade investing that came with the European Financials Stress Tests, and then it went on further with the US Treasury Bond rally …. Chart of THD, FEZ and the Euro Yen Carry Trade as seen in DRR and URR    

Mexico, EWW, -2.2%; its currency, the Mexico Peso fell heavily yesterday, and then again some today.  

One of the most powerful recent examples of carry trade investing is in silver mining company, Silver Wheaton, SLW, whose share price has started to fall now that on 8-19, 8-20, 8-23 and 8-24, the EUR/JPY carry trade and the AUD/JPY carry trade have been unwinding …. Chart of Silver, SLV, compared to Silver Wheaton, SLW …. Silver rose 2.1% today, and Silver Wheaton, SLW, fell 1.0% … Gold rose 0.5% and gold mining stocks, GDX, fell 1.2% …. The chart of gold and silver for the last month, GLD and SLV, shows that gold has risen 4% and silver has broken even. Many see silver as an investment metal, the poor man’s gold.

In summary, today’s fall in stocks came by a fall in bank and mortgage shares on the report of a dramatic fall in home sales; and a fall in basic material shares on unwinding carry trades, particularly the euro yen carry trade.

Today’s fall in stocks is definitely the nail in the coffin for investing long in stocks …. they are zombie investment vehicles.

 Today’s rise in gold establishes it as a sovereign currency. Wealth is best preserved by investing in gold.  

II … Bonds expanded further in their bubble today

One can review bond performance with the two 300% inverse debt ETFs TMV and TYO, Mortgage Bonds, GSUAX, Emerging Market Bonds, EMB, US Government Bonds, TLT, The US 10 Year Note, IEF, Corporate Bonds, LQD, Municipal Bonds, MUB, California Municipal Bonds, CMF and Junk Bonds, JNK.   

One can view the Yahoo Finance chart of debt, BND, IEF, LQD, EMB, MUB, CMF, JNK and TLT or the Finviz Screener of Debt or the Google Finance chart of BND, IEF, LQD, EMB, MUB, JNK and TLT, or the MSN Finance Chart of BND, IEF, LQD, EMB, MUB, JNK and TLT to view daily bond trading activity.

Today’s rise in the US 30 Year Bond, TLT, caused the Direxion 300% inverse ETF, TMV, to plumb to a new low; and total bonds, BND, to pop higher.  

The yield curve, $TYX:$TNX, strengthen some.

It’s an opportune time to go short those bonds which are the most removed from the US 30 Year Government Bond: Junk Bonds, JNK,  emerging market bonds, EMB,  and California Bonds, CMF

III … Gold rose

Gold, GLD, rose today; as did silver, SLV which rose to resistance.

The junior gold mining shares, GDXJ, fell lower, further disconnecting from the price of gold as can be seen in the chart of GDXJ relative to gold … GDXJ:GLD

The Junior gold mining shares, GDXJ, hit resistance at 30. Their fall lower reflects the Elliott Wave 3 of 3 down that came to stocks on August 19 and 20, 2010. Note the fall through the apex of a broadening top pattern on August 20, 2010 at 29, to close today at 28.60 on August 24, 2010.

IV … Unwinding carry trade investing has commenced an Elliott Wave 3 of 3 down in stock value and an entrance into Kondratieff Winter. 

Unwinding carry trade in the major currencies, beginning August 10, 2010 and running through today August 24, 2010, such as the EUR/JPY and AUD/JPY, has caused major disinvestment from the European shares, FEZ, the Australian shares, EWA, the copper mining shares, COPX, as is seen in the chart of FEZ, EWA, COPX, IWN, and VT; this accompanies debt deflation in bank share, KBE, which has induced a sell off of the small capitalized US companies, the Russell 2000 value shares, IWN.   

The chart of BHP Billiton, BHP, reflects the power of the Australian dollar carry trade. Significant deleveraging of BHP has commenced as is seen in its chart which shows an unbroken descending wedge.

The chart of FXA:FXY daily shows a fractal break lower today.

The chart of FXA:FXY weekly shows three black crows

The chart of FXA:FXY monthly shows an Elliott Wave 3 of 3 down wave, commencing in the AUDJPY. These are the most sweeping and powerful of all economic waves as they build wealth on the way up and destroy wealth on the way down. This wave will within a matter of months totally destroy the banking, housing, business and mining wealth of Australia. Wealth can only be preserved by investing in gold, $GOLD; this being confirmed by a rising yield curve, $TYX:$TNX, which has been driving the price of gold up from roughly $625 to $1250 from September 2007 to present.  

Yield curve, $TNX:$TYX monthly … the chart of the steepening yield curve is one of the most dramatic investment charts of all time.

In addition to  buying the Yen, FXY, currency traders bought the Swiss Franc, FXF, which rose 1.1% to preserve the profitability of various carry trades such as the FXF:FXA, that is the Swiss Franc – Australian Dollar, carry trade. The Australian dollar, FXA, fell 0.8% today; it was the best seller of the day.

At the onset of the European sovereign debt crisis, the currency traders, borrowed funds from the Bank of Japan and its proxy banks at 0.10% interest to go long the Swiss Franc, FXF, and short the Euro, FXE. As one can see from the chart of FXF:FXE, they strategy continues to pay off.

The people of Switzerland do not live in a sovereign nation as the currency traders have conducted a bloodless coup and nullified their national sovereignty. Libertarians perceive themselves to be “sovereign individuals”; but the charts conclusively say otherwise. The neo-liberal economic policies brought forth by Milton Friedman for floating currencies have been one of many forces of globalization, which have seized sovereignty and made the currency traders sovereign, who effect seigniorage through carry trade investing.     

The Third Elliott Wave, both the one up and the one down, is political and social in addition to being economic.   Patrick O’Connor in article Australian Election Delivers First Hung Parliament In 70 Years relates that Saturday’s Australian federal election has produced a hung parliament, the first since 1940, triggering an enormous crisis for the Australian ruling elite and presaging heightened political and social instability. Such was the extent of popular disaffection with the entire electoral process that neither the Labor Party nor the Liberal-National coalition was able to win a majority. Instead, the next government will be determined by a series of backroom manoeuvres and horse-trading by the leaders of both major parties with a handful of independent parliamentarians.

Out of political and economic crisis, I believe that in Australia and other countries or regions, a credit seignior, meaning a top dog banker who takes a cut, will arise to manage banking, credit and lending; with the bulk of credit being extended for the security needs of the country or region. State corporatism will be the governing force.

I also believe a sovereign leader will arise both in Australia and in regions such as the ASEAN trading group of countries, Europe and the North American continent  to rule politically. Global governance will arise through the announcement of framework agreement to provide security and prosperity. 

Eventually a global seignior, that is a banker will arise to be in charge of lending, credit world-wide, to fulfill the call of Timothy Geither for universal regulation of banking globally.  

V … The twin spigots of investment liquidity are been turned off … A bond bubble has formed; when it pops there will be a liquidity evaporation and then a liquidity crisis.

A ) … The spigot of investment liquidity coming from the euro yen carry trade was turned down on April 5, 2010 in response to the European sovereign debt crisis, as the currency traders sold the EUR/JPY, taking the Euro, FXE, lower to 134.48. A sell off of world stocks, VT, followed on April 16, 2010 when they fell to 45.23. Investors took flight to the 10 Year US Treasury Note, IEF, on April 27, 2010, when its value rose to 89.49. They also took flight to emerging market countries like Thailand, THD.

There was a stock market rally from June 10 to August 9, as investors good expected good results from the European Financial Institutions Stress Tests and Earnings Reports.. 

Then the currency traders sold the Euro Yen carry trade again on August 9, 2010 taking the Euro lower to 131.83. And Calculated Risk reports that the European Sovereign Debt Spreads began to rise on August 9, 2010.

World stocks, VT, fell August 10, 2010, to 43.27.

And most recently the currency traders sold the Euro Yen carry trade again on August 18, taking the Euro lower to 128.14.

World stocks, VT, peaked on August 18 at 42.28, with a fall lower on August 19 to 41.63. 

Today August 24, the chart of the EURJPY shows a trade at 105.823 according to The currency traders have sold this carry trade with the Yen, FXY, rising to 117.63, and the Euro, FXE, rising to 126.28, sending world stocks, VT, lower again to 40.56  

B) … The spigot of investment liquidity coming from Quantitative Easing was turned off on June 28, 2010 as EconomicCrisisWatch reports that peak quantitative easing (QE) was $2.071 trillion after the week ending June 23, 2010.

C) … When the bond bubble bursts, in US Government Bonds, TLT, and Total Bonds, BND, there will be a liquidity evaporation and a liquidity crisis, that is why I am invested in gold bullion: I will have liquid wealth.

VI … For those interested in short selling …. I provide the yenguy’s
16 ETFs to sell short and 10 ETFs to buy long for a debt deflationary bear market where I feature many of the ETFs listed in this report. 

Now is an opportune time to sell Ford Motor Credit Co, FCZ, and Financial Preferred, PGF and Tin, JJT, short  

Disclosure: I am invested in gold bullion