Monday 24 December 2012

Fiscal Cliffmas

Today was the official starting day of Santa Rally. But the reindeer team is on strike so the rally is delayed until further notice.

Till last year, not many were aware of such a creature as “Santa Rally” but this year the name has become main stream.  Now the retail is sold on the concept of year end rally. While it is premature to say that there will lump of coal in the stockings, things don’t look too rosy either.

After talking with the insiders I get a feeling that the political class wants to get over the cliff. R gang doesn't want to be seen as the party which abandoned no tax hike policy. It is easier for them to come back and reduce the tax on some, after the rates have gone up. Obama is not interested in the negotiation anyway. Neither party has any plan for America except how they will win the next election and how they can play the game of one-up man ship better.  Secretly they are informing the Wall St. that they will take care of it in 2013 with some sort of Band-Aid. That is why we do not see any panic. But the Boyz will most likely create some panic near term before they gun for the top.  The old, tried and tested formula is: Rinse: Wash: Repeat. Why it would be any different this time? If that were to happen, expect some selling from now till 1st week of January. “Santa Rally” may well turn in “Satan Rally”, as I wrote last night.

2013 will also bring in focus the problem facing USA. In many ways things here are more dire than in Europe. With a $ 16 trillion debt, only thing that is keeping the lid on higher interest, is the blatant monetization by the Fed. It is keeping the interest rate low in an artificial manner and I would expect that at some point of time interest rates will start rising. It may not happen tomorrow or in the next month, but it is going to happen earlier than you think. Those of you invested in Bond funds, should think of getting out of it while you still can get out. While deflation is still the primary concern facing the Fed today, cycles show that inflation is going to pick up and that is why commodities are going to do so well in future.

Last night I also wrote that I am seeing some new trend whereby USD and GOLD are moving together in the same direction. It held true today as well when both of these two were up together.   I really don’t know what it means but surely old correlations are breaking down. Today even Bonds were down along with equities. Normally, I correlate Forex with Equities and look at AUD for direction. AUD is down and is likely to test 1.02 levels in the next few weeks. That should ideally take SPX in the range of 1380 level but time is running out. May be we will see some heavy duty stuff after New Year.

Cycles are bottoming in the commodities and we are about to get quite a few buy signals soon. I am not going to front run but wait for confirmation. I will be informing the subscribers about these buy signals on 2nd January.  Click on the “Donate” button on the left hand side just below the “Home” and pay $ 49 if you would like to join the service. In the subject, please write Monthly Subscription and you are all set.

I take this opportunity to thank you for sharing my thoughts and wish you merry Christmas and happy holidays. I wish 2013 will be a very prosperous year for all of us and wish you health and happiness.

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