Quantum Pranx


War has broken out and your savings are at stake

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by Graham Summers
Phoenix Capital Research
Posted originally September 30, 2010

THE FIRST AND MOST IMMEDIATE ITEM WE NEED TO NOTE IS THE BANK OF JAPAN’S (BoJ) CURRENCY INTERVENTION. Prior to this, all currency interventions were generally indirect (the Fed’s QE program) or not generally promoted (the Swiss banks numerous attempts to buy Euros and suppress the Franc). In contrast, the BoJ’s move was not only sudden, it was promoted.

Japan’s government sold yen, pushing the dollar up sharply. “It was Japan’s first foreign exchange market intervention in more than six years,” Finance Minister Yoshihiko Noda said. “The ministry would take decisive steps, including intervention if needed. The intervention was aimed at curbing excessive fluctuations in the foreign exchange market.”

Moreover, Japan stated it would:
1) Intervene more in the future if needed
2) Use the funds from the intervention to provide liquidity to the stock markets

The move, while hinted at previously, was a bit “out of left field” (the BoJ had not intervened since 2004). The Japanese Yen is one of the primary carry trade currencies to borrow in (the US Dollar being the other). So Japan’s move was largely seen to be “pro-risk” resulting in the Nikkei spiking. However, it marks a major turning point in the financial crisis. Going forward, the key issue for the financial markets will be currency interventions. Japan’s move can, in a sense, be seen as an open declaration of war between the BoJ, the Federal Reserve, and other Central Bankers.

Indeed, we can’t leave the European Central Banks out of this. Indeed, the most noted currency intervention prior came from the Swiss Nation Bank which bought Euros by the billions in an attempt to keep the Swiss France/ Euro trade low. And Germany and other European countries want the Euro low to boost their exports.

In plain terms, the currency war has officially begun. Since Japan’s announcement, numerous other countries have begun intervening in the currency markets including Brazil, Colombia, Peru, Russia, South Korea, Serbia, Romania, and Thailand.

In plain terms, WWIII is already being staged in the currency markets. Predicting exactly how this will all play out is impossible, but the clear result is that market volatility will be increasing and we are absolutely guaranteed heading for a Crash.

Consider that the currency markets trade over $4 trillion in market volume per day. To put that number in perspective, the entire world stock market is about $36 trillion in market capitalization. The currency markets trade this amount every week and a half. Moreover, the currency markets permit greater leverage. You average currency trader can leverage a position by 50:1 or even 100:1 at some brokerages.

Thus when you talk about the currency markets, you are talking about the largest market in the world also maintaining the highest leverage levels in the world. And world central banks are now openly intervening in these markets spending hundreds of billions of dollars to devalue their respective currencies. This is an absolute disaster waiting to happen. But it’s a disaster that has one clear beneficiary: GOLD. Indeed, the precious metal has been on an absolute tear in the last few months, rising to an all-time high in US Dollars.

However, I wish to note that the spike in Gold was largely relative to the US Dollar.

Priced in Euros and Japanese Yen, Gold has considerable room to run before hitting new all-time highs. Gold priced in Euros:

Gold priced in Yen:

Keep your eyes on the last two charts. A break-out to new highs would confirm that a full-scale flight from paper money was under way. At that point it’s GAME SET MATCH for the world’s central bankers tactics as the investing world will have finally woken up and realized the one currency that can’t be devalued.


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