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Yen Falls Dramatically To Its 50 Day Moving Average On Bank Of Japan Intervention

|Includes:CU, EUFN, EWA, EWD, EWP, FEZ, FXA, FXE, FXS, CurrencyShares Japanese Yen Trust ETF (FXY), GLD, JYN, UCO, UUP, XSD, YCL

Financial Market Report for September 15, 2010

The Nikkei 225, ^N225, for the last ninety days, has had a strong deflationary wave structure falling from 10,238 on June 21, 2010 to today’s 9,510 today.

When using Yahoo Finance charting, and overlaying, the Semiconductors, XSD, and US Banking, KBE, the wave structures are similar to the Nikkei 225, that is, deflationary.

The Nikkei 225 is like semiconductors, something that has seen its prime and is quickly passing away. And the Nikkei 225, is ailing, like the US banks, the epitome of failed social experimentation. Although Japan has had a strong currency, its stock market, the Nikkei 225, has been leading the way down in a deflationary global economic collapse. A rising Yen has been decimating export driven Japan.

Investment has been flowing out of Japan down as is seen in the chart of ^N225, DNH, EWU, VTI, and EWD     

The Yen, FXY, had been rising from 105.44 on April 26, 2010; to yesterday’s September 14, 2010 high of 119.13, to trade today lower today, September 15, 2010 at 115.71 on Bank of Japan Intervention.

One reason for the strong ongoing rise of the Yen, is that it has been a cheap source of funding for carry trade investing, with many able to obtain 0.25% interest and below loans; and another reason for its rise is that some used it as a means of protecting their short positions, that is they called it higher, to keep the “short pressure” on the markets as a high yen is not conducive for going long the markets.

The Yen, FXY, has been “the juice” for going long a number of carry trade safe-haven investments, such as US Treasuries, up until September 1, 2010. Other destinations have been Tin, JJT, Food Commodities, FUD, the Brazil Small Caps, BRF (which are the opposite of the US Small Caps, the Russell 2000, IWM, which are encumbered, by poorly performing US Financials), the Frontier Emerging Market, FRN, Hong Kong, EWH, and the Emerging Market Small Cap Dividend, DGS, These have been the destination of investment capital ever since the EU Finance and State Leaders convened the Eurozone May 2010 Summit and announced European Economic Governance, seigniorage aid for Greece, and called for a Monetary Union with seigniorage authority to issue eurobonds. When the global economic downturn comes, which is likely to be very soon, perhaps tomorrow September 16, 2010, the United States will be the first to experience the downturn, as well as the swiftness of the downturn, leaving countries like Peru, EPU, to be last, to experience the severity of debt deflation. America is going to ground zero for hardship, dislocation and austerity.

Those owning Forex accounts and long yen carry trades, such as the AUD/JPY, seen in the chart of FXA:FXY, scored big. They checked their accounts to find they had literally blossomed as the Yen, FXY, was called lower. Those long had a windfall. I ask what would you do at this time? I know what I would do, I would take profits and go short AUD/JPY, which would create downward pressure on Australian shares, EWA, and  Copper Miners, CU. The capital inflow was greater in the AUDJPY than the EURJPY, so therefore, I expect the downward pressure on the Australian Shares to be greater than on the European Shares.

Likewise investors in the EUR/JPY, seen in the chart of the FXE:FXY, experienced a bonanza. I believe this places downward pressure on the European shares, FEZ, as well as country shares like Spain, EWP, and the European Financials, EUFN.  The same can be said of FXS:FXY, producing downward pressure on Sweden, EWD.

In many ways the US Dollar, $USD, is simply the 8 ball on the billiard table; its value is the sum of investors trading in other currencies.    

September 14, 2010, is peak Japanese Yen, FXY; just as August 31, was peak credit, that is peak bond, BND, value.   

Today’s fall of the Yen, FXY, to 50 day moving average to 115.60, gave a 2.4% boost up in the Nikkei 225.

Today’s rise in the Nikkei 225, ^N225, on a higher Yen, FXY, brings it into alignment with the World Shares, ACWI, and the S&P, SPY, “setting it” with the others for completion of an Elliott Wave 2 up, and “loading it into a Wave 3-of-3-of-3 down”.  Click on chart of ACWI to enlarge.

Today’s fall of the Yen marks a pivotal point in yen carry trade investing; it’s continuing fall will underwrite a deflationary bias in investing long stocks; just as a flattening 30-10 US Government Bond Yield Curve will be a deflationary bias in investing long bonds. Yesterday, September 14, 2010 was peak investment liquidity.

The “approximate”, and I do emphasize approximate, Elliott Wave count on the ^N225 is:
Elliott 3 Down commenced April 7, 2010: 11,292
Elliott 3 of 3 Down commenced June 21, 2010, 10,238
Elliott 3 of 3 of 3 Down is ready to commence September 15, 2010, 9,501.

The Elliott Wave 3s are the most sweeping and dramatic of all waves. They are the ones that build wealth on the way up and destroy wealth on the way down. The coming down wave will for all practical purposes utterly and completely destroy fiat wealth. The only wealth that will abide is gold and perhaps silver. These are sovereign wealth. Yesterday’s rise in gold, $GOLD, and today’s fall in the Yen, FXY, knocks the Yen, out of competition with gold as the sovereign currency: gold is now the sovereign global currency and means of preserving wealth.

The fall of the Yen was most likely “coming”. Mike Mish Shedlock in article Currency Intervention Madness relates: “It has been proven time and time again that currency intervention does not work” …. Assuming Japan was going to have a “line of defense”, one near the 1995 is a spot (at 123) where there would be technical resistance anyway. If the Yen does drop in a sustained way, it will not be because of the intervention, but rather because the Yen had outrun fundamentals and was simply ready to drop”.

The fall of the Yen “had to be dramatic”; that is simply, “the way currency waves work”. A strong down was needed to boost the Nikkei 225, ^N225 up, resetting it for an Elliott Wave 3-of-3-of-3 to do its work. “This is the natural way of Elliott Waves”: there has to be a strong 2 up, as evidenced today September 15, 2010, so that the 3-of-3-of-3 down, can be the awesome thing that it is.  

All stock markets now have been reset for their 3-of-3-of-3 downs.  Get ready for investment, economic, and cultural “shock and awe”. Social hardship and chaos  is coming.  

The fall of the Yen, FXY, commenced competitive currency deflation that is part of global debt deflation.

The coming 3-of-3-of-3 downs in stock markets, will be intense debt deflation.

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.”

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 as is seen in this MSN Finance chart 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.

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.

Today’s fall of the Yen, FXY, commenced competitive currency deflation, that is part of global debt deflation. The fall of the Yen today has turned off the only remaining spigot of investment liquidity; the other spigot of investment liquidity was the US Federal Reserve’s QE which ended for all practical purposes on March 31, 2010.

September 15, 2010 is a pivotal day in investment history. Not only have the spigots of investment funding been turned off. But now, carry trade activity will now be operating in reverse to deleverage: the carry trades will be like black holes sucking in and destroying capital.

Now with the fall of the Yen, the Global Elliott Wave 3-of-3-of-3 Down Wave can get underway to destroy wealth world wide: serious downdrafts will be coming to all financial and bond markets globally.

I personally am invested in gold bullion, $GOLD. But, I do provide a listing of ETFs and Stocks to sell short for a debt deflationary bear market; one suggestion is now to go short JYN. I agree with Tyler Durden Zero Hedge article Goldman Joins BofA In Calling For Sub-79 USDJPY Over Next 6 Months Despite Intervention who wrote: “The near-term risks are still skewed towards marginal additional $/JPY strength. A test of historic record lows below 79 appears possible, in particular if option related activity has the potential to accelerate a down move, as we have seen in the past. But in reality we are likely quite close to the bottom of $/JPY.  Fundamental support for further Yen appreciation is fading as valuation starts to hurt trade flows, and rates differentials approach the lower bound. In this environment, the chances of “big splash” interventions eventually succeeding are quite high.Our forecasts remain 85 and 83 in 3 and 6 months, although we think a temporary move to marginal new lows is possible. Over a 12-month horizon, we maintain our “GSDEER reminder” and forecast $/JPY at 90.” Based upon those remarks, I recommend that one go short JYN as it will be falling from today’s value of 69. Mr Durden has additional thoughts on the USDJPY in article Banker Catfight: It’s On! … One may want to consider going short JYN:

One may want to consider going short YCL

The Yahoo Finance chart of the USD/JPY shows a big explosion up today from 83 to 85.5.

ForexBegin.Net relates: “Price level is testing 38.2% retracement, with further resistance at 86.30 and 89.00 area”.

Tyler Durden in Zero Hedge article FASB Proposes Semi-MTM Requirement, American Banker Association Goes All “Mutual Assured Destruction”:  “The FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market. However, while not going all the way and demanding that everything on the balance sheet flowed through the income statement’s bottom line, the FASB has decided to give banks the leeway of accounting for MTM adjustment in the bottom bottom line” ….. “The American Bankers Association released a statement that said the accounting change would present “significant problems, not only for banks, but also the general economy. If implemented, the proposal would greatly undermine the availability of credit by making it difficult to make many long-term loans, the value of which, even if performing perfectly, would likely be reduced on the day a loan is made.”  This new proposal is at odds with the previous FASB 157 announcement which entitled banks to mark assets at manager’s best estimate rather than mark them to market. So get ready for some real engagement between the FASB and the ABA.

There is a glut of oil coming to market. One may want to consider going short  ProShares Ultra DJ-AIG Crude Oil, UCO

Please be aware that I am not a licensed investment professional; I am a blogger who perceives an investment demand for gold  

Disclosure: I am invested in gold bullion