Monday 31 October 2011

Halloween Scares - Greek Referendum.

In my last post I mentioned that risks are high and we will see a correction soon. Sure enough we got one. The market killed the bears and when the MOMO lemmings joined the bulls, they got killed as well. I think the corrections will continue for a while before we reach a tradable bottom.

Confusion should be the other name for Europe. Here we have an empty box full of magic money. The magic number of Euro 1 Trillion is a figure made out of imagination and half truths. Europeans never had that money to start with and it was just a figment of imagination of the EU politicians. Why otherwise travel to China and beg for money if they have it? The Italian bond rate continues to soar higher and that itself undermines all the efforts to stop the contagion. The pink elephant is well and truly in the room. There was nothing in the EU plan from last week that would make investing in European sovereign or European Banks attractive for investors. If 50% hair-cut was voluntary, can you imagine what the coming 90% hair-cut will be? The hair-saloon is now open - who is the next customer? This not going to end well for Greece or for Europe. And now G-Pap has come up with the bright idea of referendum for the freshly proposed bail-out package! Talk about brinkmanship!

Closer to home, MF Global has now gone bust and have taken customer’s money along with it.  Millions of dollars have gone missing. Will anyone go to jail for what appears to be a clear case of fraud. Will anyone be held responsible for this mess or they will reward the person in charge with a golden handshake of $12-13 millions? Judging by what has happened since the sub-prime crisis of 2008, where nobody has been held responsible for the massive losses and collapse of the financial system, chances of anyone going to jail this time around appears to be remote. But for the next few days at least it is all “Risk-Off”. At this point, S&P futures are down about 25 handles and European markets are down almost 4%. Euro has given up most of the gains from last Friday.  With the lack of clarity in Europe and absence of clear information with MF Global, there is bound to be some panic in the market place.

The prudent course of action is not to take any action at all at this point of time.  Too many factors are in play and it seems that no one is in complete control of the events.  Even precious metals are down and if gold closes below $1700, it will see more selling pressure. That is why I am still waiting for a better entry point for gold. So far as Us bonds are concerned, I do not think selling pressure is over yet and again, I have advised not to take any position yet.

We shall review the position by the end of the week and I expect the corrections to get over by then. If not, we can kiss the year-end rally good bye.
Till then, keep all your fire power dry.

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