Thursday 14 June 2012

BullS**t Ad Infinitum

Before we get serious, let us laugh out loud seeing the sheer stupidity all around and how the market is moving like drunken sailor with a bottle in hand. My apologies to the drunk sailor for inappropriate comparison. 

On Monday the market was down, on Tuesday the market was up, on Wednesday the market was down, today the market was up and any takers for tomorrow? If I have to guess, I would write: trend is down tomorrow. However, in my defense, I did write yesterday that if Euro holds 1.2550 levels, we will see green day.  Not that I know any better. Sometimes we just get lucky. I think I wrote sometimes back, better be lucky than smart!

But you have to give credit to the Boyz. The rumour was brilliant and like true pavlovian dogs  the market spiked up. As Josh Brown says :” Central bank rumors are like big boobs - some are real and some are fake, but most guys are happy to play either way.”  I feel bad for the guys who were short in the morning and I still maintain that there are lots of bad shorts out there who are trapped. Folks who are short from 1284 level. And it also demonstrates that the market believes in coming QE and is waiting to jump on the bandwagon. It is not a question of whether it will come; it is, when it will come.  And is the selling / correction over?  Again, my feeling is, not yet but we are getting close.

Today’s rumour fueled tape fudging was strictly for the day traders. If you are a normal human being, looking to safeguard your assets and investment, you should totally ignore it. It’s fake, fake and fake.

We are still in that triangle which I showed yesterday. I did not do anything new to it apart from today’s market action and that is all the TA you need to know.

There are few takes from all these nonsense:
·         They will again try to solve the problems of the world with more debt and liquidity because that is the only thing they know.
·         At some point deflation will give way to inflation and the monetization of debt will start in earnest. Already the Fed is buying the Treasury Notes it sold just hours back. It happened today and yesterday and they are not even trying to hide it anymore.
·         With inflation come higher interest rates. The bond trade is about to turn upside down.  Trillions are invested in bonds, much more than in equity. And the pain will be felt many times over.
·         They are desperate to maintain the status quo and losing the game. They know it and are scared. Already there is talk of capital control in Europe. Worse things will follow.

Pay particular attention to what is happening to US bonds. Europe does not really matter. I think we will see the high of TLT by June 22nd.  If I had any investment in bonds or bond funds, I would get out in any new bond rally.  For now, just avoid the temptation to chase the momentum like plague. I keep repeating, we are not going to miss anything worthwhile and the only rule of the game: Do not lose capital. I am not touching anything in the market with a 20 ft bargepole till end of next week.

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  1. I have some questions concerning rates moving meaningfully higher.
    1. Can FED continue to monetize debt in an increasing rate environment? I think the answer is no
    2. Do higher rates make the USD stronger?
    3. What do higer rates do for gold?

    1. To Answer:
      1. What stops the Fed to monetize debt even when interest is going up. They will try more under something like operation twist and it will lead to more M2 in circulation and lead to more inflation.Only problem is it is illegal under US constitution. But who cares.
      2. No, US Dollar will likely lose the reserve currency status, but it will not happen overnight. Foreigners will lose faith in US dollar. But US can never pay back the debt it has unless it inflates.
      3. Gold will possibly go up to a certain limit.
      4. There is not going to be any safe haven.

  2. Hi, I agree with you on the bursting bond bubble. When I read this article (, I figured it was time to get out of US treasuries.

    Anyway, why the 22 June date for the TLT top?

    1. That is based on my cycle analysis. Also FOMC is on June 20 which I think will not deliver QE. So equities sell off and bonds rise for the rest of the week.

  3. Thank you BB for your daily posts and for sharing your critical thoughts. Always a pleasure to read!

  4. BB, everyday i will say thanks god for me to reading your meaningful sharing. Have a great day!

    If we are getting close to finish selling, what top level do you expect?

    1. Thanks.On an intermediate level, we may see huge swings for a while. We are getting close to the bottom but better not take chances with capital. By Mid-July things will become more clear.

  5. ",That is based on my cycle analysis. Also FOMC is on June 20 which I think will not deliver QE. So equities sell off and bonds rise for the rest of the week.

    so till June 22nd u say that the most probab;e path for stocks i to the downside....

    the other day u were talking about a major bottom coming since the MSM are creating u think an upmove will start from 25th June onwards....the presidential election chart from BESPOKE that u put up some days back shows July average is up starting from 1st

    1. I am not a day trader and daily swings do not matter to me.And yet, have I not called the daily moves absolutely correctly?
      What I have said everyday, do not short the market and do not go long now.I did not say major bottom, I said a trade-able bottom. Please pay full attention and not read with any confirmation bias.When I think a bottom is here, I will go long. I even take short term positions but I always write that it is not for investors.
      Past patterns are just a toy to play with. Sometimes they play out sometimes they dont. Its like asking a palm reader to predict your future. Do you really plan your entire life based on what the astrologer has predicted?
      Stay nimble and trade safe.

  6. Your anticipation of the market movements is eerily accurate!
    If you are even 90% on target for the upcoming months, things
    will really get interesting, from money making point of view.
    No offence but its like reading Paul the Octopus predictions!

    1. At least Paul the Octopus was more famous than I am.

  7. Thanks for the heads on bonds. Most of my 401K is invested in bond funds since April. I think it's time move it out to a cash fund. If the market follows the presidential cycle, then the peak for bonds is right about now.