"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

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Wednesday, August 3, 2011

Japanese Monetary Authorities finally show up

It was inevitable that the fellows from the Land of the Rising Sun would make an appearance after what has been taking place in the yen over the past month. Once it began approaching the former level at which coordinated intervention took place back in March of this year, the Bank of Japan and Ministry of Finance began hearing from Japanese industry leaders whose export markets were taking a hit. The strength in the Yen was choking off export business and the crescendo of complaints had recently reached deafening levels.

You wil recall that when the earthquake/tsuanmi struck Japan, a massive unwind of the Yen carry trade began as risk aversion escalated. In addition, there was anticipation of widespread repatriation of overseas Yen investments by Japanese citizens and businesses, especially insurance companies, to deal with the aftermath of that tragedy. The result was a surge in the value of the Yen, especially against the Dollar which resulted in a rare coordinated intervention effort by the Bank of Japan, European Central Bank and Fed all which sold the Yen and bought the Dollar in an attempt to stem its rise. They did exactly that with the yen plummeting 10% in value against the Dollar in about two week's time.

However, the currency bottomed out and had begun a slow climb higher retracing more than half of its losses about a month after the bottom was formed. While Japanese monetary authorities were taking notice, they were content to watch it meander sideways. Not until its surge that began in July did they show any signs of concern. Apparently the move past the former coordinated intervention effort was enough to get them to intervene once again.

This time they have gone it alone (ECB and FEd officials were of course notified) so it remains to be seen how effective this latest round of war between the BOJ and the speculators is going to play out.

Suffice it to say, it is this intervention which is responsible for the strength in the Dollar this evening as it had just had the props knocked back out from underneath it during the day session Wednesday once rumors of additional Federal Reserve monetary stimulus began circulating through the markets. While the Dollar is up sharply against the Yen, note what has happened as a result of this Yen intervention to the price of gold in terms of the Yen - it has soared to a another record high. It seems as if we cannot get enough monetary authorities trying to deliberately debase their currencies can we?


  1. Thanks Danno,

    I was just commenting to my dad, that this is long, long overdue. I believe that Gold Stocks are "Oversold" and "undervalued". I believe they(US & Canadian Miners) may just become the US Treasury and Mint combined!!!!!!!!!!! Buy Mortimer, buy!!!!!

  2. thanks as ever Dan for your continued input.

    Here in London we are clearing up after another night of rioting. To be sure 98% of it is opportunistic with looters well aware that police are overstretched and thus out to make a quick buck. You can give any no. of reasons for it but at its heart is inner city malaise. This is what the US states can expect coming down the pipe.

    To my mind Gold is currently reflecting safe haven scramble hence silver and PM mining shares lagging noticeably behind. I would not go anywhere near PM shares right now as their downside potential, as oversold as they already are, is still there in spades. It will be obvious to me once they put in a solid, true and sustained rally and that will be once the 3rd phase of this PM bull kicks in. In the meantime so what if you miss the initial 10-20% of the start of the leg up. The upside will be so large that it will not matter.

    My advice for now is stay in gold bullion and enjoy the ride. The volatility is awesome from a scalping point of view when you know there is no open resistance above the POG! Just watch the leverage and manage stops.


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