Saturday, July 14, 2012

The Week Ahead.

Europe had bit of rest last week. There was not much noise about Spain or Greece. That is funny because Greece is on the verge of getting booted out.
Time is really running out for Greece.

How about Spain. We have not heard about it for few days. Remember all those Spanish Banks who borrowed money from ECB at 1%? Pray what they did with that money? They mostly bought Spanish bonds at 4% coupon rate. Now those same bonds are 7%. So the Spanish Banks are under water within 6 months, they are more in debt and their collateral is less in value and they will be required to submit more collateral to ECB. But they do not have any more assets in their vault except some dead rats.

Lets see what the country of Bunga Bunga Berlusconi is doing. Its debt to GDP is already over 120% and it cannot print any money unlike USA. Its 10 yr rate is around 6% which is way more than any future growth prospect of Italy. 

I do not want to get started with USA any more because it is a train wreck in slow motion.

It is a case when nobody does math anymore. But the MSM is owned and controlled by rich billionaires and business groups who create panic when they need to buy cheap and create euphoria when they need to sell high. So it is no wonder that while the markets are being pumped up higher, there is absolute news blanket. This is going to culminate in SPX 1375 range?

I think we are coming close to an important correction. It has already started. Sell signals have been given. But lets for a moment forget about the technical indicators and step back to think as to who runs the market. Major part of the trading, between 30% to 50% is done through dark Pool, network of private exchanges, which are not revealed to public.

The TBTF banks that run these dark pools are flat broke and they are fudging their books from 2008. Because inside their assets all they have are messed up toxic sludge. They have to , they must get free money from the Fed at 0% and recycle it back to the Fed to get 4%. That is the ultimate ponzi scheme of America. If only they can do it many years, they can survive and continue to draw high salaries and bonus.  That is why we see Sharks and Whales running a hedge fund which generates 30% of their reported profit. Unfortunately. now they will have to close their hedge fund. Even then they lie about the pricing of their CDS and nobody knows what price they are considering to mark it and book profit. These TBTF banks need QE every year just to survive.  QE does not help the economy, QE help the TBTF banks. It is that simple. Obama needs QE to get re-elected so that assets prices gets inflated, 401K looks better and voters mood is right. But they cannot get QE if the stock market is near its high.  And VIX is at its low level since 2007.
Whenever VIX has reached this level, it has lead to a correction. Right now it is at 16.74. May be we will have to wait till it reaches below 16 or even 15. But not beyond that.

I do not see SPX going much higher in 2012. But we have to respect the Presidential Election Cycle and it is highly unlikely that the market will roll over before the election. If we put everything together, it surely points to a mini panic coming soon. At least my cycle says so. If you are an investor, you are well advised to remain in cash and after this correction is through, we will get another buy and hold opportunity.

That’s all for this sunny Saturday.  Thanks for reading . Join me in Twitter (@BBFinanceblog) if you like to share my comments and market actions.