Monday, June 27, 2011

Analysis of the stock market rally of 28th June.

Today the markets rallied and closed solidly in green. However I have few concern regarding the coming uptrend so eagerly awaited by the bullish small speculators.


  • The VXO is in 20s. All past major corrections have ended with VXO in the range of 28+.
  • If  we look at the weekly chart of SPX and put a 75 simple moving average, we shall see that from 2004, all corrections have ended near or below 75 SMA on a weekly chart. By that reckoning, we still have a fair way to go.
  • The money flow was very negative.The Block Traders sold in the strength in the last hour. If past is any indicator, normally the next day is a huge gap down day.
  • The CBOE market data shows that the retail investors have turned bullish.
So I am not holding my breath for a stock rally yet.

I think what I think.


A new week. But the old Greek drama continues. The market has been selling off for eight weeks now. So where do we stand. I am thinking that:
      ·         Although S&P 500 has sold off 7.5% from the June 1st, the fear factor is not high enough to call a bottom. In that logic, I am thinking that we shall see continuation of the sales.
  •        It is possible that we shall see a breach of the 200DMA and then the panic factor comes in play. 
  •    It is possible that by Wednesday, 29th June 2011, we shall see a huge sell off coinciding with the Greek vote. 
  • Because of the uncertainty regarding the Greece situation, the Euro has been selling off. Along with Euro other risk assets like Gold , Silver, Oil etc are also soft.
  • All these commodities along with the stock markets will possibly reach bottom by Wednesday when the market will realize that the Greek vote is inconsequential.
  • We would possibly see a summer rally, in opposite thinking of end of Fed induced liquidity, when retail investors might think of leaving the market.

So I am thinking and  I am marking Wednesday, 29th June as the date of reckoning.

But if the VXO does not reach high 20s by then, I would still think that the sell is not over yet. In short term stock markets are ruled by greed and fear. As of now, there is very little fear. the retail investors have turned bullish as evident from the put/call ratio.Unless we see fear and panic, there is no point going long. So if 29th June gets pushed to 5th July, so be it. I would rather wait.

Sunday, June 26, 2011

Who needs a crash diet?



When you see this picture, you can figure out that it is a picture from Greek Parliament.
Who do you think needs an austerity measure?  To me the answer is obvious. The rich and powerful of Greece, the fat cats, who have sucked the country dry, needs to be put on a strict diet of olive and water for the rest of their life.

Saturday, June 25, 2011

Paying money to lose money in Stock Market


Losing money in stock market is a no brainer. After all these days it looks more like a giant casino and you don’t even have to leave home to gamble. It is rigged and the house always wins. But the dumbest way to lose is to follow the market gurus like Charles Nenner, Prechter of Elliot Wave, and many other forecasters of their ilk.

Before you say that I have no idea about what I am saying, I want to say loud and clear that yes I do have the idea.  Because I have been dumb enough to learn it 1st hand.

When you are new in the game of investment, you want to try out everything and find out what works. I was no exception. In-spite of having a professional degree in Finance & Accounting, in-spite of working at the highest level of corporate management, there is still that desire to be on the correct side of the market without efforts . It is the same reason people go to faith healers who tell them that cancer can be cured with their magic touch or villagers go to fortune tellers and palmist who then predict the future and give them the way out.  I suppose I was na├»ve and stupid to put my belief on these people instead of doing more rational and analytical thinking and research. At some level professional education is no match to the primal insecurity of human being which has created a class of people called god-man.

Let me share my own experience so that those who are reading this, be forewarned.

Prechter of Elliot wave is a very good salesman. He prays on the fear of the people and is always predicting a doom. Now a broken clock is also right twice a day. Because the memory of 2008 crash is so fresh in the minds of the people, people are fearful of another looming disaster and the economic news has not made things easy either. The whole of 2009 and 2010 Prechter and his company went on to predict a crash, month after month, he went on TV predicting Dow at 1000 and all sorts of doomsday scenarios. And every month, the goal posts would be moved. In between there were few corrections in the stock market and he got further boost from those corrections.

Stock markets corrections are a natural phenomenon and are necessary. But he would come and say “I told you so” and a big one is coming. People like me, who invested on the short side of the market, based on his advice, lost money head over heels. We missed out on the great Bull Run and it did not do us any good. Prechter‘s favorite saying was that he called the 2008 bottom correctly and predicted the start of the new bull market. Again, it was one of those fluke things, when lots of people were calling the bottom, like they are doing now. No way Elliot Wave did predict the bottom or call out the new bull market. Because the Elliot wave theory is basically charting the history after the events have taken place. There are many interpretations of the so called wave, major, minor, still born, unborn and every one of the wave experts have their own theory. The internet is flooded with them. The long and short of it, after losing money by following this gentleman, I quit and went for another clairvoyant.
  
And there was Charles Nenner, the cycle forecaster. His reputation ran ahead of him. Ex-Goldman Sachs and the man who had called the top sometimes in the past. I should have known better.  It is alleged that GS and other primary dealers have 1st hand knowledge of the market movement and possibly a hotline or two with Fed. Otherwise how come they have only one losing trading day in the entire quarter and sometime they never have a losing trading day in the whole quarter at all. It defies the law of probability and the chances of that happening to you and me are one in a billion. That someone has access to that hotline and made a correct call in the past is no wonder. May be he was set up by them to make that call. Who knows?

 But then when I started reading Nenner, I found that it is an exercise in double talk and confusion. For e.g. “The cycle bottoms next week but it can come earlier”, what do you make of such statement? Once again, the blame is put on the reader because of the wrong interpretation. Personally I have never made money following Nenner; in fact I lost money whenever I acted upon his advice. My bad luck! Nenner’s newsletter is like the astrology columns in the news papers. Vague, general and applies to some people at some time but is never accurate.

I challenge both these gentlemen to publish their short term market call (things that will happen in the next 15 days), in clear, unambiguous language and we shall monitor their call for a year. I am ready to stand corrected but till they take up this challenge, I will be a skeptic.

Today, after many years of trial and error, I have found that we can also make the market call, as well, if not better than Nenner or Prechter. Now I study many things like sentiments, demography, money flow in the market, many other technical indicators and try to think like a criminal to beat the criminals in their own game. And I think I am successful. I am winning consistently and if you read my blog, you will see that I am getting good at calling the turns.

Tons of free stuff is available on the net, so we don’t need to pay money to lose money.

Standard Chartered Bank report indicates that "Gold Top" is coming.


No, they did not say that in their report. In fact the report of Standard Chartered Bank is just the opposite. They are calling for US$ 5000/oz gold very soon. And the arguments are same that has been used over and over again during the last 10 years of gold Bull Run.

Before, we go over their argument for $5000/oz gold, let me clarify few things. I have deep suspicion about any recommendation from the big banks which comes out for the benefit of their clients and other investing population. Remember Goldman and other similar banks? It is alleged that (If I don’t use the A word, I might hear from their Lawyers), they packaged all the shitty deals and crappie products into AAA products and unloaded on their unsuspecting clients.  Didn’t Senator Carl Levin say the same thing in his report that Goldman Sachs Group Inc. (GS) “clearly misled their clients and misled the Congress,”? Yes, of course GS has refuted what Senator has said but Justice Dept. may be considering taking action based on that report. In light of that, if I continue to have deep suspicion on the recommendation of these Big Banks, may be that is healthy skepticism after all. Normally, when they say buy, I sell and when they sell, I buy. So far it has served me and my clients well.

So when Stan. Chart Bank comes out with a report based on old hashed reasoning; my conspiracy theory antenna goes up and starts giving alarm signal. May be the top is near, 3 months at the most.
Let us look at their reasoning:
We believe that these factors – limited gold production, buying by central banks and increasing demand from India and China – can potentially drive the gold price to US$5,000/oz, as highlighted in our commodity team’s earlier report." 
Now, Indians have been purchasing gold for ages infinite. How come, pray, gold went into a bear market for over 20 years? Let us look at the long term chart of gold.

As you can see for yourself gold reached the top in the year 1980 with a parabolic move, and then came crashing down. From 1980 till 2001, for 20 long years, gold was in a bear market. Investors, who listened to the same logic in 1980 and purchased gold at the top had to wait 20 years to see any traction in price. In the mean time gold reached near $ 200/oz.  On an inflation adjusted basis, if gold has to match its peak price reached in 1980, it should be over $2500/oz now. So even at today’s price, Investors of Gold in 1980 have actually lost money.

Were not the Indians buying gold for those 20 years? Did the production of gold increased during those years and have now fallen dramatically? Were not there any war or inflation scare during those periods?  And regarding the purchase by central banks, the 2nd largest holder of gold is not any central bank but the GLD fund. Central banks buy gold along with other foreign currencies and it is always within a certain percentage of their total holding. In the year 2010, as per Wikipedia, (http://en.wikipedia.org/wiki/Gold_reserve ) China had only 1.7% of their reserve in gold. It is the developed world, North America and Europe, who have the largest gold reserve as a percentage of their forex reserve.  And we shall not see any dramatic change in the holding percentages anytime soon. So the logic given by Stan. Chart does not sound very convincing.
Standard Charted Bank knows all these and yet they come out with a report based on fairy tale.  Let us see when the gold price started rising.

We see the rise in gold prices from the year 2001. Do you remember what happened during that time? The Tech. Bubble burst. Allan Greenspan, in his infinite wisdom, started flooding the market with liquidity. Most of the liquidity went to create another bubble, i.e. Housing bubble, but some part of that money flowed in commodity sector, not because of increase of demand from India and China, but because of the speculators had a free run. By the way, biggest commodity desk and speculative section is usually found in the confines of the big banks. In the year 2008, when the housing bubble burst, helicopter Ben, started throwing more money, more liquidity in the market. The Stock market and commodity became the next bubble. Actually Ben wanted just to inflate the share market, to create a wealth effect, but he has no control where the money ends up. So Oil went up from $35 to over $ 100 and gold and silver went for a parabolic rise. Don’t we hear the same logic about oil? Production is limited. India and China consuming more and more oil etc, when we all know that $40 out of every barrel price is for the speculators.

Let us look at the US Dollar index:

This is a 30 year monthly chart.  In March 2008, UD$ index reached its lowest level of 71. And gold reached $ 1000 for the 1st time. Thereafter when the dollar index jumped up, gold fell. If gold is to reach $ 5000 in the foreseeable future, the dollar index has to fall to the level of below 20. Can you imagine such a situation? If that was to happen, US dollar would have lost its world reserve status, there would be riot on the streets of USA, Gas would be $ 20 per gallon, and food prices would be beyond the reach of common people.
If and when gold reaches $ 5000/oz, we are better off buying guns and ammunition and fill up the basement with dry foods. Because then there will be civil war folks. Then we will not need gold.
Standard Chartered Bank knows that as well. They know that such a situation is not likely to happen. Still they come out with such a report. Only reason I can think of is that, they want to unload their gold position.
gold do well before the crisis not during the crisis. If there is a credit event, another recession, war , balance sheet contraction or whatever the theory the gold bugs are propagating, gold is sure to go down along with other asset class.

Personally, I think, Gold will reach a temporary bottom by end of June 2011, and then it will go up for another two, max three months and reach a top price of $1650/oz. That is when I would want to get out of gold.   

Friday, June 24, 2011

Are we there yet!


For days I have been writing that the sell off is not over yet because the fear factor is not high enough.

The stock market is ruled by greed and fear. Unless we see high fear, verging panic, we cannot call a bottom. How many investors purchased the 200 DMA? It seems quite a lot. It goes to prove that one should not buy based on TA, however TA is very useful while selling. All the TA indicators have been screaming oversold, buy and what not and yet the fear factor was absent.
This is the only chart one need to know. The Eur/Usd.


Remember that the stock markets are price driven not news driven. News follow the price. The 24/7 financial TV and channels have to report something to stay alive and seem relevant. So they spin any news according to the price action of that day and time. If the prices are moving higher, they paint the news rosy and if it is going down, the sound bites are gloomy. But no matter whatever the MSM ( Main Stream media) say, it is almost always irrelevant and on the borderline of being false news. One should see the latest of Jon Stewart on Fox news.

Moreover, we always find that the big movers and shakers (some hot shot hedge fund manager or bond king ) comes and gives their opinion regarding the future of the market. Or Gsucks give advice to its clients which are made public. 9 out of 10 times, we can be sure that they have an agenda. They want to sell high and buy low and they will say the exact opposite of what they are actually doing. A healthy distrust of these people or recommendations are essential for survival in the jungle of the stock markets.

A case of point was the last hour rally in the stock markets yesterday,23rd June 2011. Basically the market rallied on headline and without reading or understanding the full context. As if Greece has really been fixed! Like some one yelling fire and people rushing out in panic. In this case it was greed. The retail investors wanted to catch some early windfall and the news barons, who are billionaires, added some more to their wealth. Today morning all that gain was given up.

I still think we need to sell some more, go down below the 200DMA and have a panic situation. Only then we can call a bottom. But in this manipulated market, one can never be sure. 

Thursday, June 23, 2011

How they cook a lobster.


The Asians (Thailand, Korea) do it the conventional way. They throw the thing in hot boiling water.

In Latin America, they hammer it over the head and then cook it anyway they like it.

In Europe, they put Greece in a pot of cold water and then slowly turn up the heat!

Talk about the humane way of doing things without cruelty.

One would think that the colour of the skin of the lobster has everything got to do with the way of cooking.
When the economic crisis hit Asia in the 80s, these countries did not get pampered with all the Keynesian stimulus stuff, they did not get endless bounty of love to prop up their banks or any such sop. But ahh, there you have it. The banks in Asia did not owe money to the Banks in France. So the benevolent Europeans had nothing to lose if these countries went under. The currencies of the Asian tigers collapsed, businesses closed down and there were untold human miseries all around. Where was the humanitarian concern of IMF at that time? In fact IMF forced these Asian countries to do a cleansing without any social safety net at all. Why then the double standard now when their own European countries are facing the default.That's called new age of colonialism.

In fact if Greece were to default, it would not be the end of the world. Like the Asian countries, Greeks would get up, dust up and fix their economy in a way to become competitive once again. Greeks gave the world democracy but unfortunately today that is a society in decay. Tax avoidance is rampant, in fact at the highest level in Europe, the rich and powerful are in collusion with their political class and have already sent their money out of Greece. It is the bottom 90% who are being asked to join the belt tightening program. But they have got used to the easy life for last so many years and they will not accept anything less. In fact, instead of being thankful to the Germans for the good money that the Germans have thrown after bad money, they are now calling them Nazis. The ungrateful b******s. Not my word. The German press is saying it. The Greek society is blaming everyone else for their plight except themselves.
   
Anyway, the Lobster got to get cooked. The world will not end. At the most, the hierocracy and double standard of the Europeans will get cleansed along with some ill gotten wealth of the bankers. The growth will resume only after the mess has been cleared off.

Monday, June 20, 2011

It is still " Sell the Rally".


Today was a double POMO day. Approx. US$ 10 Billion was pumped in the market but all S&P 500 has to show is only a rise of less than 7 handles. Not impressive at all.  One more thing to look for, S&P up for 3 days in a row but volume down 2 days in a row.  This is called price volume negative divergence and is normally a short sell set up.

I am not buying in the rally yet  for two reasons.  For one, I expect a lower low than the March low and second, the fear factor (VOX) has not yet reached the high 20s where we can see some panic. In fact at 3 pm, the put call ratio was .88. Means there are more calls than puts and people have reached the conclusion that the bottom is in.

I keep talking of the fear factor because stock market is ruled by greed and fear. Not by news, not by economics. In the past with SPX pullback of 10% or so, the VOX was on an average in the range of 28 +. By that reckoning, we have still some more way to go.

Stock market corrections are like quick sand. They advance two steps lower and rebound one step back, so that the fear factor does not build up too quickly. These countertrend rallies keep everyone interested and invested till such time the capital is gone.

Buying stocks in the face of fear and selling it in the face of greed is the only way to make money in stock market. I am not convinced that I am seeing that fear yet.

Sunday, June 19, 2011

I love " Love Stories"!


I love this story which came out just 2hours ago.
A German compromise plan to resolve a dispute with the European Central Bank over the Greek rescue that was reported by Der Spiegel magazine is no longer on the table, a government source said Sunday………. But a German official, who spoke on condition of anonymity, said that while "several options" were being debated to involve private creditors in an Athens rescue, the reported proposal was "no longer on the agenda".
The source added that the initial plan had differed from the reported proposal in "key aspects".
German officials say they seek a plan with as few "unwanted side effects" as possible. ”.

So already the “Non-Default” event of last Friday and the perfect family reunion photo-op of Mom and Pop shaking hands has been washed down the drain. Anyway the Bond Market has already called the bluff and the brief EUR rally might come to an end sooner than expected.

 I have a feeling, those who are looking for a rally on Monday, 20th June, might be in for some disappointment.

 I love this cartoon and could not resist copying it here. Courtesy Philstockworld.com

Whom they are trying to fool?


The pompous jacka*s duo Trichet and Sarkozy keep telling everyone who care to listen that there will be no haircut in Greek bailout. Everything will be voluntary and a Greek default is out of the question. They passionately defend everything that is European and throw hissy fit if anyone dares to say the inevitable.
One starts to wonder is it pure stupidity that these men cannot see the obvious? Or is there something else.
For an answer, let us look at the following chart.

Now we know!

The fact is, Trichet is a Frenchman and along with Sarkozy,  all he wants, is to keep the French banks out of the harm’s way, as long as possible. They know that they are just buying time and in the mean time, take money out of Germans and other still solvent European countries. They are doing the bidding of their masters after all.

Good to have such lap dogs!

In search of a bottom!


The stock markets have been selling off for the last 6 weeks and have barely had a green close this week.
Lots of people including many subscription based newsletters have been advising their readers to look at the long side of the trade again.
Some are saying the VIX has gone out of the BB and come back and that’s a sure sign of market rally. Some are looking at the high put/call ratio. Many are looking at chart patterns and technical Analysis to find the coming trend.

In my long association with the Stock Market, I have come to few conclusions and I base my trades on that. I do not believe that TA gives you any clue of the future. It just represents history.  I would be better off reading tea leaves. I also do not do day trading. Because I think it is like sitting on a rocking chair. It keeps you occupied but doesn’t take you anywhere. Moreover, when you are always looking at one minute or five minute charts, you tend to miss the big moves.

For a longer range trade I still depend on old fashioned fundamental analysis. But for trading purpose, I would rather look at market psychology. The stock markets represent the animal instinct and primal gambling nature of human being. Did you ever notice that there are more men than women in the field of speculation? That’s because men take more risks. Women make better investment decision although we men think we know better!

Stock markets are governed by greed and fear. And the pendulum swings between the two extremes. My measure of fear factor in the US Stock Markets is still VOX. Not VIX. VOX measures at the money options where as VIX measures out of the money options. VOX measures only the top 100 S&P companies which are more liquid and highly traded. In all similar selloffs / corrections where S&P has corrected between 5% to 10%, bottom has come when VOX has reached the level of 30%. Today it is still in the range of early 20s, which shows that while some fear is still there, panic has not yet set in.

And unless we see the panic, we would not see the bottom of this correction.
That is my humble view but market knows best and I can be very well wrong if we start a rally on Monday. After all it’s a double POMO day.
For me, I would still sell the bounce.

Friday, June 17, 2011

Bond Market has called the bluff of Europe.


This morning we work up with the wonderful news that Greece has been saved. Mom and Pop have made up and have given a nice photo-op. The “non default, default”  event was conjured up by the Politicians of Europe in the style of Prof. Dumbledore.  For a brief few hours we were transported to Hogwarts, the mystical and magical land. And then, poof! The magic went out of the window. The Bond Market called the bluff, lie and farce of the European politicians.
Let’s start with Greece.
Two year yield was near 30%. Not a sign of confidence, eh?

May be Ireland was doing better?
But last we saw, it was over 11%


We would probably have better luck with Portugal.
But no such luck, the rate was nearing 11%.

How about Spain?

Hmmmm, getting near 6%. What the bond market is seeing that we are missing?

But nothing to worry. Core Europe is fine.
Really?  Let’s look at Italy.

But if it is so fine, how come the rate there is near 5%.

The pompous fool of Trichet and Sarkozy is giving media show and gaining some more time for the Banks of their country, France. I don’t think they really care about Greece or united Europe or Euro, I think they are concerned with their jombi banks which are definitely going to go bust along with Greece. By the way, banks in France will be affected more badly than the banks in Germany when the time comes.
I also think, Merkel agreed to go along with Sarkozy for now because Germany have set September as their date of reckoning and the banks in Germany need some more time to withstand the catastrophic effect of the Greece default.
But the Bond Market and the Stock Markets called their bluff. The S&P 500, which went up 10 handles in the morning with the news of the “Non Default”, gave up almost all its gain for the day and at some point, was on the verge of going negative. Only some last minute monkey job saved the day for option expiry. The investing community knows a default when they see one.
I hate to say, “I told you so”, but I did tell you in the morning don’t believe this rally. It was running on empty.

A Stock Market rally is coming today.


So Greece has been saved while we were sleeping!
Germany and France apparently agrees on the common ground and there will now be another bailout package of $ 150 billion. No haircut for senior / private investors. And so the S&P futures are already up 12.5 points one hour before the open. A rally is coming today. Isn’t that a perfect world!
I have already said in my blog that we should expect the Stock Markets to go up on Thursday and Friday. How did I know? Did I have a dream or vision? No, but I am getting a feeling of the pattern of the manipulation in my head.
But I said that the low is not in yet and don’t believe in any bull$hit rally. There was not enough panic in the market for the market to go up. There was no gut wrenching despair and talk of share market crash. Everybody was expecting a bounce and bounce we are getting. Now everyone cannot be correct at the same time. To quote from one of my favorurite blogger Rohan from Australia:                                                                   ” if everyone has the same opinion, and has entered into the same trade in anticipation of that opinion playing out, then no-one is left to ‘buy’ or ‘sell’ to deliver the outcome that is the expected by the consensus opinion.”.
I think the stock markets will go up substantially today, not because the problems of the world have been kicked down for few months, but because the manipulators have to kill maximum number of puts and calls and so they have to pop the market today. Today might be a perfect opportunity to close all the longs and go on the short side of the market. 
I am expecting a lower low in the coming week.

Thursday, June 16, 2011

Till “Debt” do us part.


The Stock markets in USA, reached their bottom only two years ago.  It was June 2009 when S&P 500 reached a low of 666, Dow reached a low of 6470. Two years hence S&P reached a high of 1370, Dow reached a high of 13870. They doubled!
So the factors which caused the stock markets to collapse in the 1st place have all been sorted out, correct? Otherwise how come such a parabolic gravity defying moves?  But then we are shocked to see that unemployment is still above 9%. We are shocked. Even after spending over US $ 2 trillion, what we have to show for? Only the wealth effect in the stock market and commodity speculation. Sad but true. So what is driving the stock markets? For answer let us look at the following picture.

It is the huge amount of leverage built up on margin , helped by QE1 and QE2 , that has encouraged the investors, speculators and yield hungry pension funds to pile on to the long side based on the mantra  “ don’t fight the Fed”.  Margin levels are almost at the same level where they were in 2008.
But debt on debt does not help growth of GDP. If you have read the excellent book, “This time is different” by Reinhart & Rogoff, you know that after the debt has reached a certain percentage of GDP, it actually reduces growth and leads to default. Reinhart & Rogoff have given numerous examples from the last 700 years of various countries, where Countries have defaulted because they took on excessive debt. And we see that happening in Greece, Ireland, and Portugal and in so many other places. Japan has become a country in perpetual deflation for the last 3 decades and most likely the same situation awaits us here. The similarities between USA and Japan are too much to ignore, but that is a discussion topic for another day.
When the going was good, Greenspan was giving away free money and creating another bubble, all these banks and speculators have borrowed and invested, rather speculated on various assets, whose value today is less than half of what it was initially. Thus there is debt destruction or balance sheet contraction. Even the two trillion US Dollar that helicopter Ben has pumped in the system in the last 2 years, have not been able to increase the money  supply in the system because the banks are busy repairing their balance sheet to the extent they can. They are now holding approx. US Dollar 1.5 trillion in their cash reserve and hoping that when the sushi hits the fan now, they would be able to survive.
The problem facing us is not inflation, in spite of the money pumping because everywhere the value is getting destroyed, be it home equity for the individuals or loan portfolio of the banks. The powers that be have tried to fight this with more debt and it is failing. And they know that they are facing the demons of deflation.
Now we go back to the chart at the top. When deflation finally hits the shore, when the contagion from Europe catches up with USA and the dominos fall, the margins will be called 1st and this time there will not be anyone to re-inflate it again. According to Russell Napier, the S&P 500 will reach 400 at the end of the true bear market. If such a situation should arise, all the castles of sands will be washed out to sea because:  the final bear market stage "is caused by distress selling of sound securities, regardless of their value, by those who must find cash market for at least a portion of their assets."

Low is not in yet.


I have mentioned in my morning post that today would most like be a green day. So it was. And I expect a big jump tomorrow and possibly on next Monday as well. But do not read much into these counter trend rallies because the next week may not be pretty. The low is not in yet.

Profit from the "End Game".


Yesterday, one of the protesters in Greece was carrying a placard with a sign that their Prime Minister, George Papandreou was "Goldman Sach’s employee of the month". Now that’s a good insult. If the Greeks can get it, understand it that they have been screwed tight by the Banksters, why can’t the Americans, Irish and people in similar situation?
I have mentioned before, that it is a question of when not if Greece will default. Nobody can survive with 160% debt to GDP, when the economy is shrinking and you don’t have the control of money in your own hand. One way to default would have been to devalue the old Greek currency, but that option is not available today.
Today the question is, is the end is now or will they be able to kick down the can for some more time. Knowing the politicians, they will try to kick the can to infinity and the effort is on in earnest.

Reuters, reports, Germany now "wants the deadline for a second Greek rescue package to be pushed back to September, reflecting the problems Europe is having hammering out the details, EU and banking sources said on Thursday."
One EU source told Reuters that German Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble favored a delay.

"The argument goes: We don't know what to do, let's buy more time," the source said, adding that Berlin had its customary backing from the likes of the Netherlands, Finland and Slovakia.

A high level German banking source also told Reuters Berlin was targeting September as the point at which all the problems could be solved
.

The euro reached 1.4080 by 8.30 AM but is now rallying back above 1.4141. The US Dollar index which was above 76 in early morning has now come down to 75.74. All these are happening in the last one hour, indicating that the end has been pushed down for some other day. Reading between the German official statements, they are saying that their Banks will be ready to absorb the shock of the Greek Default by September. I think Germans are now ready for the default eventuality, they always were and being methodical and systematic people as they are, they have now fixed a date and time for the inevitable.
Meanwhile, jobless claim has come out and it is below expectation. Something to spin around for a higher stock price in the US Markets. Yesterday was a major distribution day (NYSE down Volume: NYSE up Volume >= 9) and the day after a major distribution day is usually a green day. Unless something happens that is beyond the control of the manipulators. And going by the Option Pain results, they will try to push the markets up today and tomorrow.
But the selling is not over yet and will not be over till next week at the earliest. They want to create panic and are almost there. Yesterday Barron’s screamed about “Bull Run” being over. Times had an article about weak economy. NY Times ran something similar. So one last time they want to buy cheap and by September will sell it back high. If we can ignore the talking heads of the televisions and MSM, if we can do just the opposite of the recommendations of the likes of Cramer, we should be OK. It is not difficult to see through their broader plan; the immediate timing may vary a bit. In the end, we might be able to profit from that end game.
Amen.

Wednesday, June 15, 2011

A Good Shake


I have been watching the live streaming and reading news all day about the 3rd general strike in Greece. Now it is 4 pm my time and it is night out there in Athens. Thousands of people, estimated to be around 40000+ , have blocked the Greek Parliament. Police have fired teargas towards the crowd who are slowly becoming unruly.
We are seeing it in a country which is supposed to be part of the developed world, not a third world country. The anger of the population is so immense that one can almost touch it. The same anger is growing in the youth of Spain, people in Ireland are getting restive. And I wonder, whether we shall see that kind of anger in USA.
Iceland was smart. They gave the middle finger to the European bankers and now they are on the path to recovery. Everywhere else in the developed world, the bankers have passed on all the losses to the population and now it is the bottom 90% who are asked to sacrifice, the social safety net programs are being dismantled or reduced, Public utilities are being sold off to private entities and the politicians are trying to reduce the tax rate on the rich. This is not "Democracy", this is "Oligarchy". And this is also the recipe for disaster. Social unrest will definitely follow in a big way and the capital market will be destroyed. Democracy and capitalism as we know today will not be the same. But that is another day.
As we talk, S&P 500 is sitting just above the 200 DMA. Last time it was below 200 DMA was in Sept 2010. Today S&P 500 fell over 22 points or 1.73%. All the gains of yesterday were given back and some more. This is exactly what I said yesterday, that do not believe in this bull$hit rally.  Where it will go from here, nobody can say. But we can make an educated guess, based on so many other parameters, some fundamental, some technical and some based on the observation of the market manipulation.
I think the market will close green tomorrow as they will try to kill as many puts as possible. Because CBOE equity only put call ratio now reflect more put buying by the retail investors. The short term average of the ratio now stand at 0.76 (from 0.64 last week), which is highest since last summer’s correction.
However the week after Triple witching week is usually bad. Dow has declined 19 of the past 21 years in the week after.  I therefore do not think that a low has been set in. While VIX has touched the top of the Bollinger band, it has not yet jumped through it. I think, sometime in the next 10 days, there will be one night when the Futures, as well as the entire world is in deep red, and if you are long, (purchased the f**king dip) you will find it very hard to sleep and market keeps selling off until you feel pain in the stomach, don’t hit the sell button yet because most likely the bottom is in then.  
From the top of 1370, we should expect a 10% selloff as a normal correction and therefore we have to close well below the March low. I would think the range is somewhere between 1230 to 1240 when we can call a bottom. By then gold, silver, oil and every other risk trade would have got a good shake out. 

And I plan to go long thereafter.  

Tuesday, June 14, 2011

Risk is on for this Week.


As I have been saying here, the HFT Bots and Big Bank Algos will take SPY in the range of $ 130 - $ 132 by this Friday 17th June, 2011, the “Risk” trade is on today. It is in perfect sync. with Euro. See the chart below:

The Euro is on the right hand side and S&P 500 is on the left hand. S&P is the red line and Euro are the candle sticks
The futures were up 15 handles before the ordinary investors could participate in the rally. That is how they game the system people. Now the lemmings will follow the pied piper and pile on to the long side. If you remember, nothing, absolutely nothing in the economic indicators changed between yesterday and today, except the bull shit economic report from China. Even that was in line with expectation.
However the selling is not yet over and once the option expiration is behind us, we shall again see renewed selling and a lower low will be visited so that all the stop loss points for the bulls are taken out. The idea is to inflict the maximum pain to maximum people.
The market will rally one last time in summer and I shall keep you informed about a good entry point soon.
So do not give much thought to the rally, one way or other. As a trader, we can take short term profits in up move or down move. But as a long term investor, we better keep our  cash ready to pile on the short side by fall.

Sunday, June 12, 2011

Economy and Stock Market.


Is stock market an indicator of the economy or is it a rear view mirror?
There is no clear answer to that. I would think that in an ideal world, where Governments and central Banks do not continually try to influence the stock markets, where manipulation is within a certain limit, stock markets can be regarded as an indicator of the economic health of the country. But not so in today’s situation.
Today the biggest creditor nation of the world is trying to hold on to the proverbial straw to stay afloat. The situation has come to such that the US Government is actively monetizing its debt, although it is illegal in its constitution. They do it in a not so subtle manner. 1st one arm of the Government sells the Tbonds to the primary dealers and then another arm of the same Government buys them back. The primary dealers who are the powerful banks and the .01% of the population who virtually control the Government, make money in the process.  By the end of June 2011, Fed will hold 16% of the US debt vs. 12% for the Chinese.
The two trillion dollars injected in the system since 2008, have done nothing to kick start the US economy except re-flating the US Stock market and jacking up the price of the commodity. Only the top 10% of the US population own any stocks. (Congratulation to you for being in that top 10%, otherwise you would not have read this blog). The bottom 90% are squeezed dry every day. They are paying more for their food and gas and their purchasing power has gone down as wages have not gone up, dollar has gone down and  today the use of food stamps are at the record high and increasing. Where is the growth they talk about?
Between the top 10%, there is another sub division. The top 0.05% and then the next 9.95%. The objective of the uber top is to take the last drop of money from the rest and leave them in semi slavery. May be that’s what capitalism is all about. That’s how human history was for all these years before western civilization invented democracy about few hundred years back where lofty ideals like equality and fairness were talked about and cherished.
If stock market were to follow the economy , S&P 500 would have been below 500 level. There is huge disconnect between the real economy and the stock market. The classic example is the Oil prices. We know that consumers cannot afford $100 a barrel oil and such high price leads to demand destruction, as consumers, those bottom 90%, live pay check to pay check, have to adjust their spending pattern and cut down on other expenses just to get by. That leads to slower growth. But the manipulators don’t really care. The oil price today is not a factor of demand and supply but of speculation. There is not enough storage in the world to hold all the oil in the oil contracts.
Today the stock market is all smoke and mirror. Very soon that smoke and mirror will crush and it will catch down the real economy.
In the mean time, S&P 500, which is having a sell off of some kind, will now rebound before the option expiration. I think the March 2011 lows will be broken in a dramatic gap down in the morning of Monday or Tuesday to take out all the bull stop loss points. Then there will be sharp turn / reversal to finish the Triple Witching week at 1300 plus level. Just when bulls get some hope, I expect the market to back test the lows again. That is the nature of the beast. It will back test the lows before a bottom is in. if you believe my theory about the top 0.05%, who manipulate and control the market, they will inflict the maximum pain on the rest 9.95%. I also expect a sustained rally in summer because everyone is expecting a crash.
But as I said before, at some point, the smoke and mirror come crashing down and in this case the stock market will catch down with the real economy. I am betting that September 2011 will be that time when the end game starts.

Saturday, June 11, 2011

US Banks sitting on another ticking bomb.


There are many reasons for the US Economy is in a mess. Undue risk taking by the US Banks and over-leveraging by the “Too big to Fail” Banks must be counted as a major reason. But the whining of the Banks never stops and the story of greed and unnecessary risk taking goes on.
Frank- Dodd bill did nothing to solve the last crisis and prevent the coming one. The derivatives are the MAD of the world and the switch of destruction is in the hands of few power drunk greedy souls. One of the major component of all the outstanding derivatives in the books of the Banks are the “ Credit Default Swaps”. The Bank of International Settlement s has presented a 146 page report on these credit default swaps with lots of data and charts. http://bis.org/publ/qtrpdf/r_qa1106.pdf
Economist Kash Mansori has done an excellent job of analyzing this BIS report and you can read his report at  http://streetlightblog.blogspot.com/2011/06/betting-on-pigs.html .  
From Kash’ s blog :
“It seems that approximately 30% of total potential exposures to debt from the PIGs are covered by default insurance (see the figures in red). Put another way, if one of the PIGs defaults, creditors who actually hold bonds from that country will absorb about 70% of the losses, while agents (primarily banks and insurance companies) that sold insurance against the possibility of default will have to cover the remaining 30%. That's not a trivial amount.
There is “striking differences between how European and US creditors would be hit in the case of default by one of the PIGs. If Greece were to default, for example, approximately 94% of the direct losses would fall on European creditors, and only 5% would fall on US creditors. However, US banks and insurance companies would have to make about 56% of the default insurance payouts triggered by such an event, while European agents would make only 43% of those payouts.
“Finally, it's worth noting that once you account for the substantial payouts that US agents will have to make to European creditors in the case of a default by one of the PIGs, financial institutions in the US have roughly as much to lose from default as those in France and Germany. (See the figures in blue in the table above.) The apparent eagerness of US banks and insurance companies to sell default insurance to European creditors means that they will now have to substantially share in the pain inflicted by a PIG default.

The implications of the above observation are ominous. The European Banks, who are filled up to their gill with the toxic bonds and loans of the PIGs, know that it is a question of when, not if these countries will go broke. May be this September, 2011, may be another year. So the European Banks are systematically buying insurance to cover these ripe to explode stinks even when the price of the insurance is getting higher everyday. Basically, the Europeans are betting that a debt default will happen sooner rather than later.
Now who are selling them these insurances? Our very own US Banks. Just like AIG, they are looking to collect the upfront insurance payment and putting their head in the sand and hoping that the default will never happen. Talk about greed and risk taking!
When, not if, Greece defaults, these US banks will have to pay substantial amounts to their European counterparts and once again US Taxpayers will be called upon to bail out these too big to fail Banks. Lehman Brothers episode was just a trailer for the real show that is coming up soon.

Friday, June 10, 2011

Mid-Sell Bounce not happing yet

I was expecting a minor up move till 1320-1330 in S&P, which would have given another good entry opportunity for taking a short position. But so far it is not happening yet. Next week is Option Expiration and thereafter I expect the whole month of June to be in a down trend.
I think the major down move has taken place and the downside is limited. May be up to 2220 in Nasdaq Sept. futures. Question is should we dip the toe in the water now.
I plan to go long around beginning of July for a possible summer rally. 

Thursday, June 9, 2011

Is a Tech. bubble out there or simple Ponzi schemes ?


Here and there we find mention of some possible tech bubble. LinkedIn IPO is mentioned. Facebook valuation is sighted. Groupon impending IPO is talked about. So we checked the tech index and we searched a lot for the bubble. But we could not see any bubbling valuation in the tech sector. Otherwise, Google would have been over $1000 by now. With its Android it is creating new values in the mobile sector; Apple would have been over $ 500 with its cloud entry and other plans.
Instead what we see is localized Ponzi scheme and greed of making a killing in little known tech names which are yet to prove their profitability. This method has been tried and tested and perfected on some well know MOMO stocks like PCLN or NFLX, where market movers  have relentlessly push the prices and have created a hype in the market about tech companies with little value. In the next downturn which is possibly few months away, retail investors would be holding these fancy tech shares which will not be worth the price of the paper on which they are printed. I may be wrong and I hope I am wrong but fears linger.
Let’s start with LinkedIn. This is basically an employment portal. There are other employment portals which are more profitable than LinkedIn. Only reason they have generated such hype over their share price is because it was a low float IPO. Less than 10% of the shares were offered in the market and if you want to short sell the share of LinkedIn, you will not be able to borrow it anywhere. We would love to purchase puts on LinkedIn but for the reason that the spreads are ridicules. For the share price to maintain at this level, the company will have to perform like a superman. Already from euphoric high of $100, it has reached $ 72 and we would not be surprised to see it trading below its offer price.
Groupon is another example of greed and manipulation. What Groupon does is to get local merchants to try selling at a loss just to get new customers. The revenue Groupon shows in its books are not its revenue anyway because it remits half of the proceeds to the traders after the deal is closed. We had an encounter with Groupon last year. We had a website selling gifts etc and were contacted by Groupon to provide coupons. The margins were thin, in the range of 25% on an average. We calculated that any sell generated through Groupon is actually a loss making proposition. And we decided not to go ahead with Groupon.
The same is true for every trader. Unless they have 200% margin on cost, it is well neigh impossible to make money by selling through Groupon. The traders, who try them, lose money and find that there is no customer loyalty for the new customers that have come in the 1st place. Most traders cannot remain profitable and yet offer discount over 10%. So Groupon has to find new suckers (new traders willing to commit financial suicide) every day.  However, you cannot fool everybody for all the time and very soon traders will realize the folly of Groupon.
Apart from the faulty business model, Groupon management is withdrawing huge amounts of cash (refer http://www.businessinsider.com/groupon-ipo-insider-selling-2011-6) and creating a class B shares whereby they keep control of the company.
The biggest Ponzi around is that of Facebook. Facebook raised $ 500 from Goldman Sacs so we can imagine who will do the front running of creating all the hype and unloading their initial investment at a huge profit. Facebook has an estimated revenue valuation of $2 Billion but so has Groupon. Pray then why Facebook should have a valuation of $200 billion. The 500 million users are not generating any profit yet and knowing how the social networking ecosystem changes so quickly, who can guarantee that Facebook will be relevant 10 years down the line. Sure they would be able to sell their shares at an astronomical price, if they bring their IPO in the next two months time when investors, big and small is hungry for yield and are willing to take risk.
But once the economic cycle turns down, GDP numbers start printing zero or negative, all risk will be off.

My Stock Market Call and Bill Gross of PIMCO


My proprietary market analysis call can be divided into long term (one to three years), Medium Term (2 months to 12 months) and Short Term.( Week to two months).  
The Long Term forecast is rather easy to make. When combined with the demographics, debt and business cycle and mixed with volatile geopolitical situation developing, we are looking at a rather grim picture. The debt deleverage process has started and balance sheets will contract. Social unrest and xenophobia is increasing and will soon take an epic proportion right here in USA as well as in Europe.  I think the stock markets around the world will see their values reduced in half by the year 2015. However market can remain irrational longer than we can remain solvent. So don’t go and short the market today. There will be many rallies between now and the bottom and each one of them is a trading opportunity.
The Medium Term call is the tough one. Let us not delude ourselves with the thought that the markets are free and fair. May be I am wrong but I think the markets are manipulated to the hilt and it is our job to see that we don’t end up as suckers. As they say “Caveat Emptor”. In the medium term, the market is moved more by liquidity than by fundamentals. And that liquidity is now being provided by the central banks of the world. Banks are able to borrow at 0% and invest risk free in the treasury. So all the money that Fed provides to its primary dealers by POMO end up lowering the treasury yield, pushing the stock prices and as an unintended consequence, push up the commodity prices.  We see lots of churning in the medium term. High volatility will be norm. I expect by Sept 2011, the endgame will start and that trend will continue for a long while.
In the Short Term, things get really interesting. Please remember that I am not a day trader or scalper, so I am less interested in the inter-day movement. It seems that the stock markets in USA are reaching a top.  We are seeing a mini sell off in the beginning of June 2011. We hear talks of front running the end of POMO and people getting off the risk trade, which is equity and commodity. But I do not think that the end of the world in here yet. I am not a TA but let me make some simple suggestions about where S&P going to be in the short term and then we shall evaluate these projects as they come to pass.
From the top of 1370 in April 2011, we saw a close of 1279 yesterday (8th June 2011). That is a 91 point or 6.7% drop. We see the channels as 5% or 10% not something in between. So I think the drop is not over yet. By end of June S&P should be near about 1230-1235 range. In the mean time option expiration is next week, 17th June. They have to inflict the maximum pain on the maximum number of people. So they will now want to kill the put buyers and the short sellers. I expect the market to go up from here and show little pop till option expiration. Then the drop begins again till end of June.
Just when everybody and their grandmother is convinced of a crash and the air is heavy with the talks of end of POMO, thereby end of easy liquidity, and have piled on with all sorts of puts and short trade, the market starts to climb again from July onward. The retail trade will be the worst looser, as they will not believe that the market has turned till the S&P has reach or crossed 1400 by August. Then everyone joins the bull bandwagon and the last remaining dollar is put in the stock market.
Beyond August 2011, it becomes the subject of Medium Term projection. In support of my short term project, I have an unlikely witness. Bill Gross of PIMCO. Mr. Gross is one of the smartest fund managers in the world. He thinks that at the end of June, when POMO is closed and QE3 is not immediately announced, the yield in treasury market will go up. The reason treasury yield has come down below 3 is because Fed is monetizing debt and is engaged in a giant Ponzi scheme to keep the interest rate low. Gross thinks the treasury investors are destined "to get cooked like frogs in an increasingly hot pot of water,"
Now here I would like to draw your attention to the correlation between SPX and TNX.( COBE Treasury Yield Index). When TNX goes up, S&P Follows. Sometimes this correlation brakes but that is due to direct intervention of the FED. If as Gross says, the Yield will immediately go up from July, TNX will go up and S&P will follow through to the high. Till such time, the high rate of interest starts biting the growth and it becomes apparent that the 3rd and 4th quarter GDP will be zero or negative. By then it will be September. As far as conspiracy theories go, this one is brilliant as it gives the manipulators the chance to make a fool of everyone else.

Coming of the Lost Decades


In search of never ending growth, the present day politicians have adopted Keynesian economics as their life blood and have distorted it completely.  In order for the illusion of growth to continue, countries have added humongous amount of debt and they continue to do so. The following table illustrates the point.

The left hand column represents debt as a percentage of GDP. Japan stands at over 200% while Canada is the best of the G7 Countries at 34%.
 However the information that each country presents in not uniform. For e.g, USA does not include trillions of dollars of unfunded liabilities of its Social Security, pension, Medicaid etc. If all the unfunded liability is included, the Debt to GDP ratio of USA will push north of 90%. Talk of cleaver accounting!
Debt per se is not bad. Some would argue that debt is even necessary to efficient utilization of capital in the society whereby excess capital is used for productive purpose.  However, through centuries of data and observation, it has been found that when debt is above 90% of the GDP of a country, it becomes a drag on growth. In other word, high debt is in effect a negative factor for growth.
Then we have to consider the rate of interest that is being paid on debt. Japan is able to finance most of its debt internally. Japanese population is willing to finance its Government’s gambling habit at one percent rate of interest. But with the aging demographics, that is changing and the ability of the Japanese population to save and finance is diminishing to a point that in the next five to 10 years time, Japan will be forced to borrow money from the world and would have to pay a much higher rate of interest.
Spain, on the other hand has another problem. While its debt is only 63% of its GDP, most of its debt is tied to its banking sector which is virtually broke. The situation in Spain is similar to Ireland, where banks financed the housing bubble and when the bubble finally broke, they were left holding collateral which are worthless. These zombie banks are surviving because politicians have taken over the bad loans and garbage from the private sector and have put them in the hands of the public. So in effect the general population is now holding the smelly can and is being asked to sacrifice in the name of Austerity.
In USA, while the debt monetization by FED has kept the rate of interest at a very low level, there is only one way the rate of interest can go and that is up. It may not happen tomorrow or next month, but when the Bond Vigilantes wake up and find that US debt level is unsustainable, they will demand their pound of flesh.
All these debts are now deleveraging. Even with the best of efforts of the central banks of the world and bending all rules like “Mark to Fantasy”, even with adding billions of new debt to keep the Ponzi  scheme going, countries are unable to pull the cart any further. Growth is non existence and unemployment is high. In USA, officially the unemployment is 9.1% but unofficially over 15%. In Spain it is over 22% and most of the unemployment is among the young. These are causing social friction not seen or heard even a decade ago. Already constant unrest in Greece is pushing its national production to the negative territory. How long before we see the GDP is negative in USA. Already the last quarter GDP has been revised downward and next quarter GDP is being estimated at 1%. Too much leverage has been put into the system which cannot take leverage anymore and create growth to pay for the debt. Headwinds are strong.
According to Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and a leading expert on financial crises. "If historic norms hold, deleveraging isn't pretty, and it is not a smooth process. We're already four years into this. I don't think the next six years look great."
The bubble economy of USA was fueled by consumers, who used home as ATM. They in turn were deceived by Greenspan and Bernanke into believing the rainbow and unicorn story. The consumers and businesses took too much debt. Total private sector debt was over 280% in 2008. Since then consumers and business have been paying off and reducing their debt but all such reduction is being negated by the Government and public sector.
Today states and municipalities in USA are finding themselves looking at the debt default monster in the face. With reduced revenue, they are scrambling to stay alive. They are looting their rainy day fund, just like Federal Govt. who is drawing from the unfunded pension obligation of their employees to keep the debt issuance going.  With every level of government resorting to sleight of hand to keep the illusion going, this amounts to generational robbery where the next generation will have to pay a heavy price for today’s politicians folly.
The deleveraging process has started and coupled with the demographics shift, we are looking for a long period of depression, may be as soon as the 2nd half of the year 2011.

Tuesday, June 7, 2011

The joke that is Euro


The EU bailout package for Greece, Ireland and Portugal is basically a self-serving mechanism, so that the banks in the creditor nations ( In France & Germany) can get paid back. It has less to do with the wellbeing of the average Greek or Irish citizen and everything to do with the politicians and bankers. This is a classic example when profits are privatized and losses and risks are passed on to the public.
Now there is a grab for the public service utilities in those broke countries. The public utility services like transportation or other basic infrastructures  will be put up for sale and eventually  privatized.  While it is not a bad thing per se, ( there is no free lunch) the cost will now be so high that it will inflict more pain to the general population.  With less or no income and higher cost, the lower 90% of the population is being squeezed dry to the point of social unrest. We see it already happening in Greece and in Spain. This trend will only grow in the months to come till a tipping point is reached.
But will this money grab save the Banks in Germany / France / USA ? I very much doubt it. The crisis is/was  1st created by the politicians who promise and give all sorts of freebies to the public in order to get elected and grab the power. Now the Banks in Europe and their institutions (ECB, IMF, and the EU) are making a bad situation worse. In order to save the Banks which are actually broke and are leveraged 50 times, ECB and EU are taking the bad loans from the hands of the banks and putting it in the hands of the public.

I quote the following from Zerohedge : We estimate that the ECB has exposure to struggling eurozone economies (the so-called PIIGS) of around €444bn – an amount roughly equivalent to the GDP of Finland and Austria combined. Of this, around €190bn is exposure to the Greek state and Greek banks. Should the ECB see the value of its assets fall by just 4.25%, which is no longer a remote risk, its entire capital base would be wiped out."


From Open Europe:
"The ECB’s attempts to paper over the cracks in the eurozone may have temporarily softened the impact of the crisis, but have exacerbated the situation in the long-term. The ECB has dug itself into a hole and now we are seeing that there is no easy way out.”

“Huge risks have been transferred from struggling governments and banks onto the ECB’s books, with taxpayers as the ultimate guarantor. There’s a real risk that these assets will face radical write-downs in future with eurozone governments and banks teetering on the edge of bankruptcy. This amounts to a hidden – and potentially huge – bill to taxpayers to save the euro.”



And here we are wondering how come Euro is at its high vs. USDollar. This is a joke on us and this joke is going to end badly. However, all crises are an opportunity and I see an opportunity to short the Euro and other risk assets by end of August 2011. Technically, Euro can still exceed $1.50 in a short while but I think in a year’s time Euro will be at par or below US Dollar. Not that US Dollar is a paragon of virtue but because Euro at its present state does not have much future.

When the Lords and Barons of Europe (Both new and old types) come back from their summer vacation this August end, they might see their peasants revolting and their castles (banks) are burning down.  We better be ready to roast the marshmallows in that fire. 

A Random Walk


I am trying to be cheerful. Honestly, and then write a nice feel good article. An article about our goldilocks economy, make believe rainbow of never ending growth where unicorns eat the corn out of your hand. But I am finding it difficult to be cheerful.
But it should not be so. I see the futures jumping six handles pre-market and it seems the selling of the last few days might come to a close. Then we might start the never ending upward movement. After all, is that not the objective of our Govt.
But instead of the rainbow or unicorns, I see a great depression coming. It is like watching a train wreck in slow motion. Should we call it depression or great balance sheet contraction? When the bubble goes bust and bust it will, when all the sushi hit the fan, what we shall be left with? What will happen to the millions upon millions of middle class investors and retirees may be many pension funds who have taken on the risk to increase the yield for their members and other hard working lots.
There are so many Black Sawn events on the horizon that we might be tempted to think that swans are black after all. The financial downturn of 2008-2009 was just a snap shot of what is supposed to come. And when the next default hits us, which may be as early as August end 2011, the Governments of the world will have much less ammunition left to do anything. None of the problems which caused the crisis of 2008/2009 has been solved. They have simply been pushed down the road for another day. The too-big-to fail Banks have gone bigger, the assets in their books have further gone down the value, even with the “mark to fantasy” rules because home prices keep falling and the end of the fall is nowhere in site. After couple of Trillions of dollars, all we have to show for are 50,000 jobs in McDonald flipping burgers. Those who are fortunate to have jobs, have seen their wages being stagnant or being asked to do more work for the same while food inflation and gas price increase is taking out their discretionary spending ability.
The situation in Europe is so bad that there are no words to define the situation.  The EU leaders are engaged in the game of brinkmanship and are waiting for a miracle of happen. One day we hear that Greece is being bailed out, next day it is not. The fact is, there is no way out. EU is just buying time for their Banks, same as in USA. No country in the world can pay loan which is 160% of their GDP and when they are in recession, as is the situation with Greece.  More debt cannot be a solution for the debt problem.   The situation is same with Ireland, Portugal and the 800 pound gorilla named Spain. The risk of contagion is real and imminent.  We might see a Banking collapse in Europe by end of summer and things go downhill thereafter.
But hey, if they have been able to kick the can down so far, they might be able to do it for a while longer. The markets are rigged and they ( Big Banks & Central Banks) will continue their best effort to do so, until one day it snaps and the common investors are left holding the empty can.
So while the going is good, do not get fooled by the fairy tale but prepare for the coming depression and bubble collapse. It may not be tomorrow. In fact we might see a good poop up in July/August when they convince everyone that the music will never stop and draw in all the cash that are sitting on the sideline. But come September, at least I shall be on the other side of the fence. You have been warned.