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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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  • Ireland's People Must Bear The Entire Burden Of Banking, Mortgage And Sovereign Debt 0 comments
    Oct 7, 2010 11:08 PM | about stocks: FXE, FXY, FXA, CEW, DBV, UUP, SLV, GLD, GDXJ, GDX, EZJ, EWJ, XXV, VXX, AA, EIRL, JNK, UCO, DBB, LD, JJT, CU, OIH, BHP, SIVR, AEM, ASA, BVN, GFI, GOLD, GSS, NGD, ACWI, IPD, DOO, UNG, SHY, TLT, IEF, ZROZ, UBT, TMF, VGK, EWW, EWC, EWZ, UBR, EWA, INP, INDL, FRN, EEM, RZV, RZG
    I .... Banking, Mortgage and Sovereign Debt can be neither expunged nor repudiated. It must be, and will be applied to a nation’s and even a region’s people, through austerity measures announced by Government officials. The debt will be applied to every man, woman, and child living in Ireland; and in as much as Ireland is part of the Eurozone, and shares a common economic governance, and a common currency, its fellows in that greater union, will eventually share currency debasement and the austerity that comes through that as well. Both Ireland and those in the Eurozone share a common destiny--debt servitude.

    Ambrose Evans-Pritchard of The Telegraph reports Ireland should honour its debts, says Irish business federation chief Danny McCoy.

    “Ireland's business federation has joined foreign creditors in warning that a default by Dublin on the junior debt of Anglo Irish Bank and other lenders guaranteed during the crisis would be a breach of faith”

    "The country makes a living taking capital from people and looking after it, and you don't want to get a reputation for carrying out partial defaults," he told The Daily Telegraph.

    “Ireland's financial services industry is around 9.8pc of GDP, with big players such as Merrill and Citigroup operating from Dublin's 'Canary Dwarf'. But foreign investment is also the lifeblood of the country's manufacturing industry, led by computers and pharmaceuticals.

    IBEC's comments come amid mounting pressure on the Irish government to rethink its plans for a "haircut" on the subordinated debt of Anglo Irish and Irish Nationwide Building Society (INBS).
    Millhouse, the asset management group of Roman Abramovich, is the latest foreign fund to express fury, warning that Ireland faces possible legal action and a "huge reputation loss" if it imposes a haircut on creditors. The fund said it had been "misled and deceived" by the Irish government, though this class of debt was quietly dropped when the guarantee was extended last month.

    The exact shape of any "burden-sharing" is still unclear. Brian Lenihan, finance minister, has said the junior bondholders should make a "significant contribution toward meeting the costs" of the state bailout.

    These investors took extra risk to enjoy extra yield, and cannot expected shield when the bank collapses. The debt of senior bondholders is considered sacrosanct.

    Mr Lenihan has to walk a fine line: talk of debt restructuring for Anglo and INBS conflicts with his other message that Ireland is recovering from the crisis and still enjoys reserves of economic wealth.

    Yet like finance ministers across the West, he also has to secure political support for austerity measures. This is increasingly hard to do without forcing bondholders to share at least some of the pain.”


    II ... Some currency traders took the Yen higher, but others threw in the towel on the Euro and other currencies ....
    A global currency crisis commenced today, October 7, 2010, as the Yen rose to above 120 and the Euro fell to $138.60.

    Daniel Gross relates that Ireland is Europe’s Biggest Basket Case; this as the chart of Ireland EIRL shows a 3% pop higher on 10-7-2010 as the Euro, FXE, rose in early morning trading; but sold off during the day to 138.62 manifesting a lollipop hanging man candlestick suggesting a reversal of the past rally is at hand.

    Chart of Ireland, EIRL



    Chart of the Euro, FXE



    The chart of the EUR/JPY, as seen in FXE:FXY, manifested the bearish lollipop as well, trading down to 114.60, as the Yen, FXY rose 0.70% to 120.09, which is far, far, far above the level at which the Bank of Japan intervened on September 15, 2010 by selling Yen, in an attempt to stop the rise of its currency.

    Chart of FXE:FXY

    Chart of the Yen, FXY


    Yen carry trade has continually provided carry trade investing has meant continually rising Junk Bond, JNK, prices. The risk on acceptance of junk may have ended today.

    And a continually rising Euro, FXE, has both revived and sustained Semiconductors, Intel, INTC, SMH, USD, SOXL.  

    Currency traders may be unwilling to take the Euro higher. If so, there is likely to be a rise in the US Dollar, $USD, traded by UUP, and a fall in value of base metals, DBB, Lead, LD, Tin, JJT, oil, UCO, energy service companies, OIH, copper miners, CU, basic material stocks, such as BHP Billiton, BHP, silver, SLV, silver mining stocks, SIVR, gold, GLD, the junior gold mining stocks, GDXJ, the HUI precious metal mining stocks, ^HUI, traded by GDX, and the gold mining stocks that have risen sharply recently, AEM ASA  … BVN GFI GOLD GSS NGD; these being seen  in Yahoo Finance Chart of AEM, GFI, ASA, BVN, GOLD, GSS, and NGD. The ^HUI closed down 3.0% from yesterday’s 530.84 to 514.79 as the gold ETF, GLD, closed down 1.0% to close at 130.37.   

    The chart of the HUI Precious Metal Stocks, GDX, relative to Gold, GLD,  ... GDX:GLD ... shows that the gold mining stocks disconnected from the price of gold on September 24, 2010 and again today. And the chart of the HUI Precious Metal Stocks relative to US Treasuries ... $HUI:$USB ... suggests that the gold mining stocks are going to turn lower with US Government Debt as they have in the past at significant market turns.   

    The chart of the Junior Gold Mining Shares, GDXJ, relative to gold, GLD, GDXJ: GLD, suggests that the leverage that gold mining stocks has provided over physical gold is done and over.

    Today’s rise in the Yen, may mean an end to the rally that has come not only with the rise of the Euro, but also with the Bank of Japan announcement of a Zero Interest Rate Policy, ZIRP, and purchasing of Japanese Bonds as well as J-ETFs, which has caused Japanese shares, EWJ, and EZJ, as well as the Nikkei 225, ^N225, to rise out of the doldrums of ongoing deflation.


    Today’s rise in the Yen, may mark, not only an end to the rise in the Euro, FXE, but also other major currencies, DBV, such as the Mexico Peso, FXM, and the Canadian Dollar, FXC, the Brazilian Real, BZF, all of which today are trading down. The downturn in currencies has caused a sell in the corresponding regional and country ETFs: Europe, VGK, Mexico, EWW, Canada, EWC, and Brazil, EWZ, UBR are all trading lower.   



    Of note, today, the Swedish Krona, FXS, the Australian Dollar, FXA, the Indian Rupe, ICN, are trading up; but the first two show filled black candlesticks, and the latter a hammer, suggesting a completion in their rise. Sweden, EWD, Australia, EWA, and India, INP, INDL, are all trading lower.

    The Australian Dollar, FXA, manifested the lollipop today. The monthly chart of the Australian Dollar shows it has been the currency traders destination for carry trade investment, having risen from 60 to 98 since early 2009.  The days of an ever higher Aussie, may have come to an end today.




    The emerging market currencies, CEW, are trading down. Frontier markets, FRN, and emerging markets, EEM, are trading down. One can follow currencies through a Finviz Screener

    The lollipop hanging man candlestick in the chart of the Developed Market Currencies Relative To Emerging Currencies ... DBV:CEW Daily .... suggests that the October 6, 2010 strong rise in the Euro and other currencies, will not be continued.



    There were those who used their risk capital in driving the Yen, FXY, up today ... The chart of the emerging market currencies, CEW, relative to the Yen, FXY,  ... CEW:FXY ... suggests that the rise in the Yen today has upset the status quo of continually rising currencies and that emerging market currencies will now be going down.  

    The lollipop hanging man candlestick in the chart of the Small Cap Pure Value Shares Relative To The Small Cap Pure Growth shares  ... RZV:RZG ... suggests that  competitive currency deflation, that is  currency devaluation, is about to commence.



    The 6.6% fall in natural gas, UNG, suggests that a world wide deflationary collapse started today October 7, 2010, to accompany the rise of the Yen, FXY, and the stalling out of the rise in the Euro, FXE, as well as the major currencies, DBV, and the emerging market currencies, CEW.    
    A global currency crisis began today, with the rise of the Yen to 120 and the fall of the Euro to 138.62. I believe that out of the unfolding world wide currency crisis, regional global governance will arise, where a Financial Regulator, that is a Seignior, will arise to manage credit, banking and financing within each region; and eventually a World Leader, assisted by a World Banker, will manage credit worldwide with the help of a Global Central Bank, most likely the Bank of International Settlements, BIS.  Yves Smith provides helpful insights in October 26, 2008 Naked Capitalism article "Currency crisis is gathering storm" which contains the thoughts of Edward Harrison and Ambrose Evans-Pritchard. It is very noteworthy, on a day when Ireland’s debts are being discussed in the media, that with the exception of short term US Government Notes, SHY, and intermediate US Government Notes, IEF, the longer out US Government Bonds, TLT, and the zeroes, ZROZ, are selling off, as world stocks, ACWI, manifesting the lollipop candlestick and trading lower, at the top of an ascending wedge. Yes, risk aversion is manifesting today towards both world stocks and the longer out US Government Debt, TLT, ZROZ, and their leveraged ETFs UBT, and TMF.  The interest rate on the Ten Year US Government Note, $TNX and especially the interest rate on the 30 Year US Government Bond, $TYX, will be going up.   

    The US 30:10 Sovereign Debt yield curve, $TYX:$TNX, manifested a lollipop hanging man candlestick at the top of an ascending wedge at 1.550, whose rise began May 10, 2010, when the Euro, FXE, fell precipitously from 127.51 with the onset of the European Sovereign Debt Crisis. Investors have been seeking rewards, by continually investing from steeping on the long end of the curve.

    Today, with the pause and perhaps downturn of the Euro once again, investors may very well go short the longer out debt, to profit from a flattening yield curve. A flattening yield curve means vastly decreased, well awesomely decreased, government revenues. Government stimulus will not be present to help fund growth.  The “risk on” environment will not continue as the yield curve flattens: the ishares Morningstar Mid Cap Growth ETF, JKH, may very continue to fall lower from here on out.  

    A rising Euro has helped even the metric of global trade and growth, the Baltic Dry Index, $BDI, rise from early June; it may now be turning lower on a lower Euro.

    Debt deflation is coming to stocks. 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.” Value shares such as International Dividends, excluding Financials, DOO, and International Consumer Discretionary, IPD, which have done better than world shares, ACWI, since July 1, 2010, as seen in this chart, are likely to under-perform world shares, that is fall faster than world shares.

    Theyenguy says “the currency traders and the central banks have scorched the investment skies” .... “we are living in a new investment matrix” ... “we ain’t living in Kansas no more” .... “welcome to the investment desert of the real” ... “get ready for some investment shock and awe”. Yes, volatility, VXX, will be rising. And inverse volatility, XXV, will be falling.  

    I believe falling currencies, stocks, and sovereign debt will create an investment demand for gold, GLD, and food commodities, FUD. Personally I am invested in gold bullion. One can follow the “fallers” in by creating a paper portfolio using this Finviz Screener. If you have enjoyed this article then you can follow my ChartList on Stockcharts.com

    III ... In today's news

    Kelly Evans of the Wall Street Journal reports: “Aluminum has joined the metals party. But it likely arrived too late to help Alcoa Inc.'s,
    AA, third-quarter results. The aluminum company's earnings, due Thursday, mark the unofficial start of third-quarter earnings season. While the prior two quarters underscored a strong rebound in U.S. corporate profits, this one is likely to be a more muted affair. Analysts expect earnings for S&P 500 companies will increase about 24% from a year ago, compared with 39% in the second quarter. The frequency and size of upside surprises, a catalyst for the stock market, also are likely to diminish. Alcoa's results are likely to fit that theme. Analysts expect earnings of six cents a share, up from four cents a year ago but below the 12 cents Alcoa earned in the second quarter. The sequential decline stems largely from the 6% drop in average aluminum prices during the period. Citigroup analyst Brian Yu expects that will be a main reason for after-tax operating income for its four main business lines to drop by more than a third to roughly $239 million on a sequential quarterly basis. That performance will be tough for investors to accept. But the recovery in aluminum prices lately should help. Prices, JJA, are up about 18% over the past six weeks and settled.”

    Stern reports that that German Finance Minister Wolfgang Schaeuble has offered his resignation to German Chancellor Angela Merkel, which has so far been rejected. Eurointelligence notes that his possible successor Thomas de Maizière is "known for his eurosceptical views."

    While not a libertarian, I do suggest a reading of The Monetary Breakdown of the West by Murray Rothbard on the LewRockwell website for insights into gold and currencies

    Disclosure: I am invested in gold bullion
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