The last two weeks have witnessed painful sea-changes in paper markets and stellar moves in the gold markets. However, it was August 4th that may go down in market infamy - as it riveted the public's attention! Consider the draconian moves on that day:

• DOW plummeted 300 points
  
  
• Gold soared nearly 5 Bucks
  
  
• Highest trading volume registered in the NYSE history - 814 million shares
  
  
• Asian markets were down across the board
  
  

Testament that something very fundamental is occurring is the fact that ALL THESE DRAMATIC changes happened in A Single Day!!!!!!

It appears a secular change in all markets is inescapably materializing.

Source of the Sea-Change

It is our opinion the root source of the sea-change crystallizing in many parts of the world started about one year ago in the Far-East -- where stock markets, currencies and economies have been devastated -- with still no respite in sight.

The once fabled Pacific Rim of Asian Tigers has been transmogrified into the Asian Contagion - which slowly and inexorably is sucking the rest of the globe into the plunging maelstrom.

Asian Markets

Currencies and stock markets declines during the last 12 months overtly demonstrate the severe gravity of the destruction wrought in Far-Eastern countries. Although some have recovered modestly from their lows, the tables below clearly show how bad the situation is today -- with indications it may become a lot worse before it gets any better. The percent moves are the changes since the start of the Asian Crisis.

In approximately a year's time the average loss in Southeast Asian currencies was 38.8% versus the US dollar. The Japanese Yen and Honk Kong Dollar were purposely left out of the table because the Central Bank of each country has been exercising significant support of these currencies. The goal of the Bank of Japan and the Bank of China are futilely trying to avert total financial collapse of their banking systems.

Not IF, but WHEN either the Honk Kong Dollar or the Japanese Yen finally craters, the other currency must necessarily be devalued immediately to protect its export industries.

Although it is difficult to predict accurately which will be the first to succumb to market forces, this analyst believes the Chinese Yuan (renminbi) will be the first to throw in the towel. Interestingly, Beijing currency black markets concur with this view.

The stock market losses in local currency are indeed grim, but on a US dollar basis they are depressing. The average stock market loss during the last 12 months in local currencies was -46% - ranging from a low of 16.3% (Taiwan) to -70.4% (Malaysia). However, compounding the exchange rate loss into the equation the average drop was a whopping -61.2% -- although Indonesia lost nearly -89%. Dramatically sad indeed.

Asian stock market devastation may be seen in Intra-Day charts at the following website. If you CLICK on the text to the left of the Charts, you will be able to view the 12-month price trend of all Asian market indices. http://www.gold-eagle.com/asian_corner/asian_id_charts.html

Hong Kong Woes Weigh On Asia

Worries about the Hong Kong Dollar and Chinese Yuan dominated Asian currency trading last Friday, pushing discouraging developments in Japan to the background.

The Hong Kong dollar was still under the gun - with the six-month forward rate bid at 2.650 against 2.300 late last week.

Dealers said four U.S. investment houses, joined by some smaller funds, were aggressively shorting the Hong Kong dollar and sold several billions of U.S. dollars worth in recent days.

They said the scale of the attack was comparable to that of October 1997, when the overnight rate hit 300 percent as the Hong Kong Monetary Authority (HKMA) defended the local dollar peg. The HKMA is the island's equivalent of a central bank.

While the HKMA was frantically defending its currency, speculators raided the Hong Kong stock market - resulting in the Hang Seng plummeting 3.25% on Friday (8/7).

Falling Yen Increases Possibility of Yuan Devaluation -- Most Likely Spells Depression for Asia

China has said the Yuan, fixed at around 8.3 to the US dollar, will remain firm. But economists say sharp falls in the Yen and the currencies of China's regional trade competitors (i.e. Southeast Asian countries) are exerting strong pressure on Beijing for a devaluation.

The falling Yen has prompted renewed fears of a Chinese devaluation, but analysts said the weak Yen poses a much more immediate and far-reaching threat to the region.

If the dollar/yen breaches 150, it threatens Asia with a second financial shock that will hurt China badly, said Dong Tao, economist at Credit Suisse First Boston.

"The real risk is that the Asian economies collapse again," he said.

Breaking news recently helped push the dollar's black-market exchange rates in China above 9.0 Yuan last Friday, compared with the official rate of 8.28 Yuan, increasing devaluation pressures. That's ALREADY an effective "devaluation" of nearly 9%.

Some Asian experts suggested that a gradual depreciation of between 10 and 20 percent was possible, starting at the beginning of next year. However, this analyst does NOT believe the Yuan and Yen can continue to sustain much more selling pressure on their currencies before they capitulate.

It is the considered opinion of internationally recognized Asian economic expert, John Kutyn, "…that China will devalue the Yuan is a mathematical certainty. The problem is that this will force many of China's trading partners to also devalue, which will offset the benefit of the devaluation. This will lead to an increased flight to the U.S. dollar -- which will help maintain the illusion of the asset bubble."

Mr. Kutyn further asserts, "The upshot of Asian currency devaluations will eventually be the destruction of the American economy…" as the Domino Effect ripples in tidal waves to western shores.

The American investor will begin to see his retirement nest-egg slowly melt away as Wall Street stocks cascade to lower and lower levels. He will be gripped in fear until the decision is made to stop the rapidly mounting losses - and will be motivated to take traditional refuge in cash and gold investments.

We've had the 'Folly' Now the 'Frenzy' Soon the 'Fear'