Monday 28 November 2011

Mexican Standoff

I have been travelling again and hence the long absence from the blog.

Nothing really has changed from my last post. While the Euro-politicians are lurching from one crisis to another and the "Doomsday Sayers" like Zerohedge are salivating like the “Pavlovian dogs”, the market is playing in a range. It is a traders market and not a place for regular folks or investors.

In a market which is up today, down tomorrow, nothing saves our money. Not even inverse ETS.  The emphasis now is “Return of Capital not Return on Capital.”

It appears to me that the society as a whole has become kind of bi-polar. While the smart money is preparing for the coming tsunami, the ordinary folks are busy shopping. While on one hand we hear of high unemployment rates, both here in USA and in Europe, on the other hand, "Black Friday" sales are up over 6% and is a record braking number. People are using lethal force and are willing to inflict physical damage on others to buy sh*t from wall mart! I see the same shopping frenzy in Amsterdam or in other European cities. And here we are chattering about the imminent death of Euro. What gives?

I have no idea but I do not like what I see. I am neither long nor short. I went out of Gold and I am still waiting for it to bottom down. The huge up today is just a bounce and those of you who are still long, may want to use this opportunity to get out of equity. The bounce was expected because the market had become way oversold and McClellan Oscillator went below -100. This is kind of extreme and it is bound to correct itself.

But I do not think it is the beginning of a new bull phase or there is any substantial upside. I think we would be lucky enough if we can close the year above 1275. May be we will, just about, so that the year as a whole is in positive territory?

My reading of the global macro situation tells me that we are witnessing a train wreck in slow motion. The debt super cycle is about to end and the massive deleveraging is upon us. It will be playing out for many years to come. But the political powers are not going to let it happen without a fight. So while my emotions tell me that we should be short, logic tells me that bear markets do not start with advance notice. In fact bear markets starts at the height of euphoria and we definitely do not have that.

Will there be a QE3? I think there will be but the timing is an issue. Obama will probably use QE3 to get the maximum out of it for his re-election. If that is so, then the right time would be around June 2012. Till that time the TBTF Banks will do everything to scare the retail investors and make sure they are able to get the best out of it.

Where does that leave us, ordinary folks? I think a good buying opportunity for gold will have to wait till mid-Jan, 2012 but even that will be a short rally. But I am not inclined to go short in a big way either. So the “Mexican Standoff” continues.

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