The ¥en

•  +10% against the U.S. Dollar in one year (+30% in 3yrs)
• +20% against the Euro in one year
• +23% against the British pound in one year
• +10% against the Swiss franc in one month

USD/JPY +10% against the U.S. Dollar in one year (+30% in 3yrs)

EUR/JPY +20% against the Euro in one year

Hedge funds invested more than $5.5 billion dollar in the yen with a long position.

Even the central banks are investing in the Japanese currency!
Some years ago central banks were trying to reduce their exposure to the ¥en, but today they changed their strategy...

In the first three months of the year China invested $6 billion in Japanese government bonds, leaving at the same time the US bonds. In May this investment reached $7.9 billion!

But Japan has:
- a sovereign debt of 200% of the GDP
- a budget deficit of 10%
- low interest rates near 0.1%...

So why this ¥en euphoria?

Japan's economy still better than the US and Europe economy.
Japan will take advatage of its geographical situation in the Asian zone and its economy will benefit from China and India economic growth.

The Japanese ¥en is a safe-haven currency.
When the level of volatility is very high, and US T-bonds interest rates decrease, the ¥en demand increase. Traders close their carry trade positions, pay back yen-denominated loans by selling stocks and other instruments and converting their USD and other currencies back into JPY (the JPY pairs get hit hard because of all the yen buying).

So the yen benefit from the Europe sovereign debt crisis and from the fear of W scenarios.

We all know that the U.S. needs international investors to finance their economy (gov bonds buyers).
If China doesn't invest anymore the dollar will fall and interest rates will skyrocket.
But Japan doesn't have this problem and can finance its economy with the households and firms savings (domestic savings).

With a strong economic growth rate due to commodities exports the Australian dollar (AUD) and the Canadian dollar (CAD) can be serious competitors to the ¥en. However the ¥en has a competitive advantage, it's with the US dollar the most liquid market in the world.

From my point of view the ¥en should continue to increase.
It's not sure that the BoJ (central Bank of Japan) will succeed to regulate the yen (negative impact, export...).

And finally, except the dollar, there is no real alternative to the investors but the yen.

USD/JPY can soon break the 85 support and open a downtrend to the next support 80.

Correlation between CRB Index and Shangai Composite Index

We can notice that there is a high correlation between the evolution of the Chinese equity market and the commodity market.

Of course you would say that it's logic; 
a low economic growth rate = ↓ in China's commodity imports = ↓ commos prices


Let's see these two charts:

CRB Index

*The Thomson Reuters/Jefferies CRB Index is a commodity index made up of 19 commodities as quoted on the NYMEX, CBOT, LME, CME and COMEX exchanges.
                                     
 Shangai Stock Exchange Composite Index 

 

Now let's superimpose them:

So the evolution of the Shangai Composite Index can tell us what the CRB Index will do in the next months.

There is a positive correlation of 72%! and even 80% with crude oil.

One good example:
The Chinese equity index was one of the first index to go down at the end of 2007, and it was then followed by the commodity index at the beginning of summer 2008 well before Lehman Brothers bankruptcy and other equity indexes.

Even if the last trend of the Shangai Composite Index are not highly correlated to the CRB Index, knowing that China is the world's biggest importer/consumer of all major commodity categories, I advise you to follow this Index in order to change you portfolio strategy.

Another useful tool is the relationship between CRB Index and the Dow Jones Industrial Average Index, but that's another story...

Four indicators to follow the market trend and its volatility

Four Indicators:


- Gold
- U.S. T-bonds
- The VIX Index
- U.S. Dollar Index (USDX)

When these four indicators are all together in a up trend, you know that the market is getting dangerous!


Gold:

The gold price per troy ounce went from $37 in 1970 to $1,183 in 2010 (July 19th) so an increase of 3,097%!


Since the last ten years we are in a bullish trend.
Gold should reach the $1,350/oz before the end of 2010 and $1425/oz in 2011 (Goldman Sachs).

As we all know gold is a good hedge against any economic, political, social or currency-based crises (national debt, inflation,weak U.S. dollar, war…).

U.S. T-bonds:


When the interest rates decrease the iShares Barclays Capital U.S. 20+ Year Treasury Bond index increase (The fund generally invests 95% of assets in U.S. government).

In each Financial Crisis investors protect themselves by investing in U.S. T-bonds.
Why? because it's the largest treasury bond market and the most liquid in the world, and investors trust the U.S. government which remain the world's superpower. 

The VIX Index:


The VIX Index is the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. It is not backed by anything and positions held are merely a prediction of a future. A high value corresponds to a more volatile market and therefore more costly which can be used to defray risk from this volatility by selling options.


Often referred to as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period. When the VIX Index goes up investors buy options to hedge their portfolios against a bear market (High VIX Index = Bear Market).

And these last days we can see that the VIX Index restart to goes up... 

 U.S. Dollar Index:

The U.S. Dollar Index (USDX) is an index which measures the value of the United States dollar relative to a basket of foreign currencies (the majority of its most significant trading partners). (Euro (EUR), 57.6% weight, Japanese yen (JPY), 13.6% ,Pound sterling (GBP), 11.9%,Canadian dollar (CAD), 9.1%, Swedish krona (SEK), 4.2%  and, Swiss franc (CHF) 3.6%.)

Each time that the Euro zone equity markets are in red, the U.S. dollar goes up.
Why? because investors repatriate their capital (by selling their assets in euro, pounds, and yen and by rebuying assets in U.S. dollar like the T-bonds).

And we can see that now investors are leaving the Euro zone and the yen by reinvesting in U.S. dollar assets, the USDX Index:

To sum up, if you follow these four indicators you will be able to estimate the market trend and its volatility.

Right now the thermometer is going up, you have to be careful, if you have invested in equities or commodities review your stop market orders. 
And I think that today it can be a good strategy to invest a part of your portfolio in gold...

Follow the market when the fever will go down, many investment opportunities will show up.

Trader: The Documentary

Like John Paulson, Paul Tudor Jones has been also amassing long precious-metals positions this last months for Tudor Investment Corporation, his multi-billion dollar hedge fund.

But one of Jones' earliest and major successes was predicting Black Monday in 1987, tripling his money during the event due to large short positions using methods similar to market forecaster Robert Prechter: the Elliott wave theory.

The 1987 PBS Film on Paul Tudor Jones entitled 'Trader: The Documentary', this video has been extremely hard to find and those possessing a precious copy guard it with their life and/or sell it on eBay for hundreds if not thousands of dollars.

This hedge fund manager is notorious for predicting and profiting from the stock market crash in 1987. The video takes you inside Tudor Investment Corp back when they were only 22 employees large and managing around $130 million. Today, obviously, they are much, much bigger.

Here's the description of the film written on the back of the VHS tape box:

“Is financial trading an art, science, profession or out-and-out gamble? If you're interested in money and you want to know what it's really like on Wall Street, this is the video you, your family, your colleagues and your friends should own. Filmed before Wall Street's October 1987 crash, TRADER is a riviting one hour documentary of a fascinating man, Paul Tudor Jones II. It delivers a rarely seen view of futures trading and explains the workings of this frantic, highly charged marketplace. It gives viewers an inside look at his estate in Virginia, skiing in Gstaad, his New York apartment. It also examines Jones' prediction that America is nearing the end of a 200-year bull market. If he's right – and he almost always is – this country and the world are about to experience economic changes of unprecedented proportions.”

Paul Tudor Jones' Hedge Fund Tudor Investment Corp: 13F Filing Q1 2009:
Top 10 Holdings (by % of portfolio)

1. Select Sector Financials (XLF) Calls: 13.63% of portfolio
2. Select Sector Financials (XLF): 11.25% of portfolio
3. Semiconductor Holdrs (SMH): 10.3% of portfolio
4. Progenics Pharmaceuticals (PGNX): 5% of portfolio
5. Select Sector Healthcare (XLV): 4.6% of portfolio
6. iShares China (FXI): 3.2% of portfolio
7. Taleo Corp (TLEO): 2.76% of portfolio
8. Select Sector Energy (XLE): 2.1% of portfolio
9. Switch & Data (SDXC): 1.4% of portfolio
10. Select Sector Consumer Discretionary (XLY): 0.87% of portfolio

Sovereign Debt projected for 2011

Source:  OECD, Dundee Wealth Economics

The monetary turmoil in Western Europe and some early signs of inflation create the right conditions for gold to continue its run. Credit woes in Europe on the back of concerns about the finances of Portugal, Ireland, Greece, Spain, and Italy had a negative impact on the euro and the British pound both depreciated against the US dollar over the quarter (Q1 2010). 

 

Sovereign debt is a key driver of the current economic jitters. 

 

This figure shows next year's sovereign debt estimates for the G-7 and other key global economies - the U.S. debt in 2011 would be about equal to GDP ($15 trillion), while the debt loads carried by Japan, Italy and Greece would exceed GDP.

The USA will try to print more dollars in order to increase the inflation and thus to decrease its debt as they did in 1933 (when prices move faster than interest rates the debt weight decrease. Some economist of the democratic party calculated that if inflation in the U.S. increase from 2% to 8% it will lower the debt by 21%.).

So this is the right time to invest in gold, as we know that gold is a good inflation and a weak dollar hedge.

“The masses in the developed world are just now waking up to how their personal wealth can be affected by the future inflation spawned by the trillions of dollars and euros created to finance economic rescue plans - the potential implications for gold are profound. Here's one way to look at currency destruction -- 10 years ago this week (17/05/2010), $1,000 bought nearly four ounces of gold, and today $1,000 won't even get you a single ounce. Gold is money, so when you look at the gold-dollar exchange rate, the dollar's value has fallen by a startling 78 percent just in the past decade.”   

Frank Holmes, CEO U.S. Global Investors

“Investment demand for gold - and investment demand for commodities generally - is in early days. This is only just starting to develop… One of the things that I see when I travel around North America is that more and more people are starting to question: What is currency debasement? How does it work?"

Martin Murenbeeld, head economist at Dundee Wealth Economics 

"Gold still represents the ultimate form of payment in the world."   

Alan Greenspan, Testimony before US House Banking Committee May 1999.                                                                      

“With the exception only of the period of the gold standard, practically all governments of history have used their exclusive power to issue money to defraud and plunder the people.” Friedrich August von Hayek (Economist)

 

"The Federal Reserve (Banks) are one of the most corrupt institutions the world has ever seen. There is not a man within the sound of my voice who does not know that this Nation is run by the International Bankers." 

 Louis McFadden (Banker and Republican member of the U.S. House of Representatives)

 

"A great industrial Nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the Nation and all our activities are in the hands of a few men. [...]”  

 Woodrow Wilson   (ex U.S. president) NWO