Saturday, July 9, 2011

Brainwash Me, Please!

Common sense is not very common. Otherwise how on earth we fail to see the danger signs flashing all around us.

Actually, I was trying to be optimistic and believe in the coming Bull Run in the stock markets but I am having problem with the following:

1.       Greece most certainly will default; it’s a question of when not if.

2.       Other European countries like, Spain, Portugal and Italy , not to mention Ireland are all looking like the next in domino line to fall.

3.       US growth rate is at stall speed, possibly at below 2%.

4.       The US debt is THE REAL PROBLEM. No way in hell, US will be able to pay it back, now or ever.

5.       What can US do in such situation? Print and devalue, causing high inflation. That will drive the rate of interest very high and US would fall more in recession. With interest rate near zero, US now is paying over $400 billion in interest, even a slight increase of interest will put spanner in the wheel.

6.       If on the other hand, the debt cycle burst, and all the inflated assets the banks are holding in their book, come unglued, there will be a balance sheet contraction and deep recession. Any cost cutting measure will only increase the problem. In either scenario, I do not see much to be cheerful about and a shadow of recession refuses to lift.

7.        Inflation in the developing world, (China and India) are very high and these countries are raising interest rates throughout 2011. They are not done yet and growth in these countries will definitely be affected because they are trying to reduce the growth and generate a soft landing.

8.       The last week’s rally was too perfect to be true and was a parabolic move. These kinds of rallies remind me that a top is nearby. We have seen such rallies many times in history, from South Sea Bubble to Tulip Bubble, to housing bubble. The more parabolic a rise, more dramatic the fall.

9.       Corporate earning is round the corner and the game of goosing the market with lower projection 1st is on. But the growth in profit is most likely to be the lowest since 2008. What will drive the Bull Run then?

10.   Social inequality is at the highest level in USA, the top 20% controls over 85% of the wealth of the country. If 70% of the US Economy is dependent on consumer spending and 80% of the population does not see any  income growth, where the growth of GDP will come from?

11.   Unemployment is not reducing anytime soon. USA will need to create over 200,000 jobs every month for the next 60 months, to reach the level of unemployment of 2008. Nobody expects that to happen.

12.   The average duration of unemployment is at its highest in USA.

13.   The employment / population ratio is at its lowest since 1983.

Can someone please give me some reasons to be cheerful and buy the Bull Run. I know that the a small correction is due anytime and the US Stock Markets will resume their upward journey from end of July 2011 as a part of grand manipulation and most likely form a top by end of August 2011. I want to participate in the Bull Run as a trade but I am not getting sufficient courage. Please brainwash me to do otherwise!