Friday 4 November 2011

Markets On Steroids.

Yesterday the Euro and the stock markets went up because?
Depending on what we are smoking, the answer could be:
·         ECB reduced rate, or
·         No referendum in Greece, or
·         Possible absence of Government in Greece, or
·         MOMO chasing lemmings forgot the MF Global fiasco and major Euro bank stress, or
·         HFTs forgot about the fact that Europe is in recession, USA is in stall speed and China is slowing, or
·         Uncle Ben promised more free money, or
·         G20 leaders may agree to run the printing press at high speed, non-stop and may even mandate IMF to do the printing, or
·         Nothing was solved in Euroland compared to day before, or
·         Bad news is good news, or most importantly,
·         The primary dealer banks need to do window dressing of their balance sheet and convince the sheeples that all is well.

Take your pick but it does not matter.  Santa clause rally is upon us. From now till the year end, we may see a multi-week rally in stock markets. I have written many months back that when the 1st day of the year and the 1st month of the year in the 3rd year of Presidential cycle is positive, 90% chance that the year will end in positive territory. 

There is absolutely nothing in the market to be happy about. It is just a casino on steroid. Europe’s debt is spiraling out of control and bond yields in Italy are going up. The bad moon is rising and the oceans are swelling to dangerous levels. No levy or dike can stop the tsunami coming in. It is not a question of if; it is a question of when.

I do not think that it is the right time to be in equities. The similarities with 2008 are too much to ignore. The entire global banking system is carrying trillions of dollars of un-hedged sovereign debt and other assets which are severely impaired. Just like MF Global, these sovereign debts are sitting in the books of the banks as risk free assets, leveraged to the teeth. But the stock markets will rise from here because the central banks are injecting liquidity or changing the rules of game. So how do we take advantage of that? They want us to be in equities and other risk assets. Then one day the floor will be removed from under our feet and we would be left dangling, holding worthless papers. From here till year end, window dressing will be on full swing. All the talking heads in MSM will sing that everything has been fixed.

I want to join the party but on different terms.  When the SPX reaches 1350, I would rather take that opportunity to short the market. But for now, I am declining the invitation to go long equities. I would rather go long gold just to be on the safe side. Waiting for a good entry price next week.

Today is a NFP day. The last 5 NFP days have been red. Will it be different this time? The normal pattern is either open high end low or open low end high.

By the way, do you know that the food stamp usage is at record high! Per the latest available record 45.3 mil people used the program. 45,000,000 people are a hell lot of people. And they say we are out of recession?

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