Wednesday 6 July 2011

On Borrowed Time.

Now that Greece has been saved, one would expect the bond rates to come back to normal level  which a normal saved country should pay to borrow. Right? How come the 2 year rate today is 28.3%, back at almost the same level, before it was saved.

How about the other unsaved countries in Europe then.

·         Portugal  @ 13% +
·         Ireland @ 12.5%
·         Spain @ 5.6%+
·         Italy @ 5.1%+

There is not enough money in the world to save all these countries.

And then, who saves USA.  With $14 Trillion in current debt and may be $100 Trillion in unfunded liabilities, there is no way US of A is ever going to pay its debt. Neither do they plan to. The option left is either hyper inflation or war. But more on that later.

The European Banks are leveraged over 30 times and if they were to adjust the value of their securities in their books to the market value, all of them would be bankrupt by now. At least most of them would be. It is only the” extend and pretend” and “make up as you go”, that has allowed this giant ponzi scheme to continue and buy some more time.

With their endless bailouts, the governments in Europe and USA are just buying time and hoping for a miracle. No wonder I see the money making opportunity on the short side.

With the high unemployment and stretched finances, the so called advanced economies (including Japan) have painted themselves in a corner. After the initial shock of 2008, there was an opportunity to clean up the global banking system and clear out all bad debts. But the ruling elite along with the Banksters choose not to take the bitter medicine. Result is that the world financial system is facing another “Lehman Moment” and now the countries do not have much ammunition left. The end of debt super cycle is truly here.

The concept of “BRIC” is either a wishful thinking or a shrewd marketing propaganda by the investment bankers to milk the gullible investors. None of the countries in BRIC is in a position to lift the world economy by its own. Brazil is facing an acute credit problem. Russia is totally dependent of the export of its natural resources, China bubble is about to burst. With their complete reliance on export, if the Europe and USA is facing a recession and there is no one to buy the cheap crap, how on earth China can grow, is anybody’s guess. India is a bit player in the global market. Only consolation is that India is not export dependent and so, after this bubble has burst and dust has settled, India will emerge least affected, much like the last recession and will go to become the dominant world player.

Does it mean that the world is going to end tomorrow?  Certainly not. Will the stock market crash day after. Not at all. In fact, I am looking for the stock market to go up till end of August, 2011.   In fact I am looking for an opportunity to go long for a short time only as a trading opportunity. We know that the market is rigged, but so long we can play on the right side of the rigging, we don’t mind, do we? Last week’s window dressing rally has taken away the low risk entry point and now we have to wait for another sell off to join the ride.

The powers that be, which control the stock markets, which seldom have a losing trading day, will never take the market up or down in one straight line. The SPX is moving in a range of 1250 to 1350 from May onward. This is all part of topping process. I expect the market to go down one more time, before it finally pops up to 1450 range (SPX), and then tank substantially. So that FED and US Govt. comes out with some more billions of dollars in QE3. 

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