Saturday 21 April 2012

Longer Term View.

I would like to share one chart from Stock Trader’s Almanac which they have put out in their free report.

This chart makes the distinction of a Presidential Year cycle. Because all incumbent Presidents try to pump the market and the current one is no exception.  They all need money from Wall St and TBTF Banks for their campaign.

This chart became available only yesterday. But I have been writing the same thing for past so many days and months.

The only thing that is important to the market; How much money is out there and where that money wants to go.  To all the Uber economorons  out there who are predicting imminent doom of fiat money, sorry guys, I have some bad news for you. You will have to wait.

Did you read the latest efforts of global re-flation? IMF has just increased its war chest by $ 440 billions and most of the money is coming from the developing countries.

This is specially aimed for Spain and Italy. Why do you think the central banks will stop here? What prevents them to write another cheque to themselves again. Isn’t that they are doing for so many months?

There is a time for everything, even for serious corrections. If you look at the monthly chart of SPX

We are in a range for over 15 years now and are about to complete the upper side of the range before any serious correction can happen.  Let ZH scream and shout about Spain and break up of Euro, nothing much is going to happen till the end of 2012. For now it’s all noise and fear mongering is a very good business model.

However, that does not mean I am suggesting that we should go long now. On the contrary, I think we have a short term opportunity for a fishing expedition when a short and violent correction takes place. I expect that correction, between 5-10% should start by next week, after Apple results. I plan to write a short note on Apple tomorrow. I think end of such correction will be a buying opportunity, not now. For now, we can either sit on cash or try the short side, but do not expect any major correction.

I wish you a very enjoyable weekend. Thank you for reading . Please forward it to your friends and invite them to join me in twitter. ( @BBFinanceblog).


  1. I agree on most of things you say, but, could you please comment on this long term SPX chart:

    Your 15 years channel looks differently from another POV. I really won't care if SPX goes to 2000, if I can't buy half an ounce of gold for it.


    1. This chart is misleading in the sense that it has been created by someone who wants to sell gold. Gold started its bull run from 2002. If you extend this chart another 10 years and look at the 30 year chart for gold, you will see what I mean. The easy money has been made in gold. We have already seen the high at $ 1950. The max it can go up is $ 2500 and then the bear market for gold starts again.
      I would consider gold as another asset class and keep some part of my investment in gold.
      People have been speculating about death of US$ for many years and it is not going to happen any time soon.
      I expect the whole investment world will get a shock and awe starting 2013.

    2. Well, I didn't say that now is the right time to buy gold nor having 100% gold portfolio. I was just pointing out a trend that still has to be reversed.

      I don't really understand what would "the death of US$" be?

      My problem with US$ are negative real interest rates. I'm not afraid of a collapse, but I don't like losing purchasing power in orderly manner either, especially not in a long term.

    3. My apologies. I have not been able to articulate my answer. What I wanted to say is, this kind of correlation has no meaning. For e.g , we can draw a correlation between SPX and Apple and conclude that SPX is losing value vis-a-vis Apple. Each assets class has its role to play in investment.The trend will revert to mean after the bull run is over.
      The funny thing about US $ is that because of so many factors, when a worldwide deflation takes place, it will be the only store of value. All of a sudden we will see that US $ has the most purchasing power.
      It is a question of when not if.

  2. do you think aapl earnings will be good or bad?

    1. I really have no idea but Apple is due for a bounce along with the market. That should be the time to sell into.

  3. Correlation to gold is not arbitrarily chosen, gold is a thing that preserves value (preserves purchasing power) over long run.

    For example, oil priced in gold over last 50 years:

    I can't store my lifetime consumption of oil in my home yard, but I can use gold as a proxy to achieve that. Of course, not by buying gold at a single point in time, in which there is a chance that it's temporarily overpriced (as it might be now).

    I agree that US$ is to rise dramatically at some point, but that can't last, IMO. US debt (and deficit) just can't possibly be repaid with strong dollars, so they will print and devalue as needed. Dollar strength is to be a short term trading play, possibly bigger play than in 2008, but, IMHO, it won't be a good long term position.

    Excuse me for long, time consuming comments. :)

    1. You are most welcome with your comments. After all, this is a forum for exchange of ideas.

  4. SPY Versus SPX