On Borrowed Time.

Now that Greece has been saved, one would expect the bond rates to come back to normal level  which a normal saved country should pay to borrow. Right? How come the 2 year rate today is 28.3%, back at almost the same level, before it was saved.

How about the other unsaved countries in Europe then.

·         Portugal  @ 13% +

·         Ireland @ 12.5%

·         Spain @ 5.6%+

·         Italy @ 5.1%+

There is not enough money in the world to save all these countries.

And then, who saves USA.  With $14 Trillion in current debt and may be $100 Trillion in unfunded liabilities, there is no way US of A is ever going to pay its debt. Neither do they plan to. The option left is either hyper inflation or war. But more on that later.

The European Banks are leveraged over 30 times and if they were to adjust the value of their securities in their books to the market value, all of them would be bankrupt by now. At least most of them would be. It is only the” extend and pretend” and “make up as you go”, that has allowed this giant ponzi scheme to continue and buy some more time.

With their endless bailouts, the governments in Europe and USA are just buying time and hoping for a miracle. No wonder I see the money making opportunity on the short side.

With the high unemployment and stretched finances, the so called advanced economies (including Japan) have painted themselves in a corner. After the initial shock of 2008, there was an opportunity to clean up the global banking system and clear out all bad debts. But the ruling elite along with the Banksters choose not to take the bitter medicine. Result is that the world financial system is facing another “Lehman Moment” and now the countries do not have much ammunition left. The end of debt super cycle is truly here.

The concept of “BRIC” is either a wishful thinking or a shrewd marketing propaganda by the investment bankers to milk the gullible investors. None of the countries in BRIC is in a position to lift the world economy by its own. Brazil is facing an acute credit problem. Russia is totally dependent of the export of its natural resources, China bubble is about to burst. With their complete reliance on export, if the Europe and USA is facing a recession and there is no one to buy the cheap crap, how on earth China can grow, is anybody’s guess. India is a bit player in the global market. Only consolation is that India is not export dependent and so, after this bubble has burst and dust has settled, India will emerge least affected, much like the last recession and will go to become the dominant world player.

Does it mean that the world is going to end tomorrow?  Certainly not. Will the stock market crash day after. Not at all. In fact, I am looking for the stock market to go up till end of August, 2011.   In fact I am looking for an opportunity to go long for a short time only as a trading opportunity. We know that the market is rigged, but so long we can play on the right side of the rigging, we don’t mind, do we? Last week’s window dressing rally has taken away the low risk entry point and now we have to wait for another sell off to join the ride.

The powers that be, which control the stock markets, which seldom have a losing trading day, will never take the market up or down in one straight line. The SPX is moving in a range of 1250 to 1350 from May onward. This is all part of topping process. I expect the market to go down one more time, before it finally pops up to 1450 range (SPX), and then tank substantially. So that FED and US Govt. comes out with some more billions of dollars in QE3. 

The Fireworks Are About To Start.

The stock markets and the general economy are supposed to be correlated but in reality they are not. More so in present day environment where Government / external forces distort the market s. So while in the long run, we all know where the market is headed, in the short run trading becomes an obstacle as well as opportunity. However to make money in this market, one has to be more lucky than smart. Let us take for e.g the monster rally of last week. Apart from being oversold, and of course EOM as well as EOQ window dressing, there was no other reason for the rally. We all were waiting for the correction to get over and get long for the summer rally. But what has happened is a completely anomalous SPX rally and again the sentiment is on the other side.

My thinking is that the SPX moves in a wider range of 700 to 1450. What is happening now is simply a topping process. The risk reward calculations do not support going long for now as an investment. But if one is day trading, one can take advantage of the volatility and take position for a short term. At the end of the day, it is all noise, masking the big picture.

Looking at today’s price action and the price action for the last week, I get the feeling that what the market is going to do next is like a 4^Th of July firework. Like a shooting rocket, the market will shoot high and then come down where it started. That would fulfill the requirement of the VOX reaching high 20s. From Technical Analysis point of view, today SPX body was completely out of the BB and VXO is the oversold level which normally triggers sell off.  After that, it would be a buying opportunity till end of August when the topping process will be complete.

The market rather the people who control the market (same people who never have a losing trading day) try to inflict maximum pain on maximum people. 1st they have broken the back of all bears and now sucking in money that are in the sideline and late coming bulls. Next it will be the turn of the bulls for slaughter, till a top is formed.

Till that time, be safe out there. 

A Theater In Absurdity.

Anyone who made money in the last weeks rump job in US Stock Markets, were more lucky than smart.

There never is or was any reason for the stocks to join the 100 meter sprint apart from the urge for bonus of the Banksters and very necessary window dressing for EOM and EOQ. Listen to the following interview from ECRI head Lakshman Achuthan. ECRI is saying that all leading indicators are decisively turning  down.

http://insider.thomsonreuters.com/link.html?cn=uidTWEMEA&cid=232167&shareToken=MzpiZGZmOGVmYi05Yjk2LTRhNTMtODE2OS1jMDBkMTI0YTZhMDU%3D&start=0&end=310

Talking heads of the News media are saying that the markets went up because the Greece issue was resolved. Really? Which way?

I get the feeling the Greeks have got the Europe by you know what. They are milking Europe dry so that the Greeks can continue to spend money which they don’t have and retire when they are 53. Imagine a German worker working till s/he is well past 60 and pay money for the Greek bailout, so that the unionized Greek worker can enjoy life shortly after puberty.

The Greek drama is a theater in absurdity. Greeks know that they will default. Other Europeans know that they will default, And everyone is trying for the best seat in the theater , Greeks to get the best deal and some more money, Other EU Nations to prepare their Banks for the aftershock.

I read an interesting article in BBC recently. The Greek demonstrators will throw stones at riot police in their parliament square, Police will throw tear gas to demonstrators and after some time when they are tired, they (both the demonstrators and police) would go to some side lane cafes and have a well earned coffee break.  Sitting next to each other, laughing and chatting about life.  And the Greek politicians will tell the EU, you can see the social tension, so cut us some slack. How long before other European nations find out that they are hostages  of the Greeks. Just like the Americans are the hostages of Pakistan.  US know that Pakistan is the epicenter of terrorism, and yet they are force to give billions of dollars to Pakistan to fight terror. It would seem that the biggest export item and revenue earner of Pakistan is state sponsored terrorism and the biggest export item and revenue earner of Greece is the threat of contagion.   

Otherwise how on earth Greece has not sold one single state enterprise in the last 18 months to reduce the budget deficit. And talking about budget deficit, Greece has already missed its June budget target, even before they get a dime out of the 12 billion promised by EU. It is one lie after another and difficult to understand which moron is lying more. What is not difficult to understand that things are not going to end well.

Some Loud Thinking On 4th. Of July.

Price action defines news and not the other way around. All the talking heads in the 24 hour television have to say something to fill the time and hence they spin the news good or bad based on the price action in the market. If one has to take an investment decision based on these talking heads, one is doomed forever.

In this constant noise we almost always lose the music. And the music is the continuous sound of the wave on the shore of civilization. Events like the waves come rushing in, make noise and brake up. Then they recede and a new wave / event start. In a way, the history of civilization is very similar. For thousands of years there have been dynasties, kings, civilizations which have ruled supreme in their time. In their time, they have considered themselves as indestructible and forever.  How is the present time any different?

Every civilization flourishes when the income of the state exceeds its expenditure. In a way it is very similar to the household. Then comes a time when the expenditure exceeds what the state can support and the rulers try to find some new methods to carry on. In the time of Roman Empire, the Romans started with debasement of their currency and it reached a point when their currency was useless. Today we see the same drama being played all over the world.

The main culprits in this end game are the Central Bankers of the world with the exception of Germany and Holland in Europe and Singapore in Asia. Fed in USA is not the only one who has created the monster deficit. Japan is the dead man walking with debt over 200% of its GDP. We all know the situation in Greece, Ireland, Portugal, Spain and Italy.  With Trillions of dollars of debt and many times more unfunded liability which are off the book, balance sheet, there is no way this situation can ever be corrected. There comes a time when the debt explodes like a supernova and all the excess is purged of the system. It is time of extreme pain for those countries. The 1^st sufferers are the bottom 90% of the population who has to struggle to make ends meet and at some point the social unrest sweeps over the ruling elite. We see it happening before our eyes as it happened in Tunisia, Egypt and other Arab countries and yet we think it will not touch us. We see the Greeks hurling Molotov cocktails and we wonder how long before the 40% unemployed youths in Spain will do the same.

With food stamp at record high in USA and social benefits soaring in other countries, the ruling class is engaged in providing “Bread and Circus” to its population. Two trillions of dollars of Fed intervention has done nothing to solve the structural problem and the next storm will be worse than that of 2008. Watch this YouTube video of David Stockman :  http://www.youtube.com/watch?v=GHLjoAI2-iQ  and make your own judgment.

The growth in GDP if any is completely fueled by borrowing. It has reached a point when more debt is not resulting in any increase of GDP. Is this the beginning of a bear market? I am not sure. What I am sure is that we are reaching the end of the debt super cycle. It is going to be a time of tremendous pain as well as opportunities.

I am not trying to be pessimistic. Nor I am a perm bear.  In Hindu religion, there is Lord Shiva, the “ God of Destruction.”  Those people realized and accepted the need for destruction.  When things decay, they need to be destroyed so that new life comes out of the ash. That is law of nature. If we preserve the decay by “extend and pretend”, we only delay the inevitable and increase the pain.

I am very hopeful for the future because the future of our children cannot be bad. Amidst all the greedy and self serving Banksters and Politicians, there will come some courageous people who will change the course of history. I remain the eternal optimist. 

So, What Changed?

Last week the Us Stock Markets were on a tear, gaining almost 5% for the week. All the bears were wiped out and there is now talk of a new bull run.

But I am scratching my head to figure out the reason for such exuberance.

OK, Greece is fixed for a while, but we shall visit there again, I promise.  The European Banks have just purchased little bit of time. By itself, Europe is not worried that Greece will go bankrupt; because they know that it will happen soon. They are worried of the contagion effect with Portugal, Ireland and Spain.  And Italy is not looking too good either.

Has the  US Economy become strong over one week? Is the better than expected PMI caused the stock markets to get up and run? Unlikely, because most of the gain in the PMI was from inventory restocking which is bad for the future. The US Economy is going along at a stall speed of 2% growth in GDP and with the biggest debtor nation on earth not showing much life, how long before a QE3 will be needed is anyone’s question.

So what gives? Apart from end of the month and end of the quarter manipulations, I have no answer.

Have we reached the bottom of the correction that started in June? I doubt it. May be it is a good shorting opportunity, because going long based on hope and manipulation is not a good idea. We shall know very soon.

Analysis of the stock market rally of 28th June.

Today the markets rallied and closed solidly in green. However I have few concern regarding the coming uptrend so eagerly awaited by the bullish small speculators.

• The VXO is in 20s. All past major corrections have ended with VXO in the range of 28+.
• If  we look at the weekly chart of SPX and put a 75 simple moving average, we shall see that from 2004, all corrections have ended near or below 75 SMA on a weekly chart. By that reckoning, we still have a fair way to go.
• The money flow was very negative.The Block Traders sold in the strength in the last hour. If past is any indicator, normally the next day is a huge gap down day.
• The CBOE market data shows that the retail investors have turned bullish.

So I am not holding my breath for a stock rally yet.

I think what I think.

A new week. But the old Greek drama continues. The market has been selling off for eight weeks now. So where do we stand. I am thinking that:

      ·         Although S&P 500 has sold off 7.5% from the June 1^st, the fear factor is not high enough to call a bottom. In that logic, I am thinking that we shall see continuation of the sales.

•        It is possible that we shall see a breach of the 200DMA and then the panic factor comes in play. 
•    It is possible that by Wednesday, 29^th June 2011, we shall see a huge sell off coinciding with the Greek vote. 
• Because of the uncertainty regarding the Greece situation, the Euro has been selling off. Along with Euro other risk assets like Gold , Silver, Oil etc are also soft.
• All these commodities along with the stock markets will possibly reach bottom by Wednesday when the market will realize that the Greek vote is inconsequential.
• We would possibly see a summer rally, in opposite thinking of end of Fed induced liquidity, when retail investors might think of leaving the market.

So I am thinking and  I am marking Wednesday, 29^th June as the date of reckoning.

But if the VXO does not reach high 20s by then, I would still think that the sell is not over yet. In short term stock markets are ruled by greed and fear. As of now, there is very little fear. the retail investors have turned bullish as evident from the put/call ratio.Unless we see fear and panic, there is no point going long. So if 29th June gets pushed to 5th July, so be it. I would rather wait.

Who needs a crash diet?

When you see this picture, you can figure out that it is a picture from Greek Parliament.

Who do you think needs an austerity measure?  To me the answer is obvious. The rich and powerful of Greece, the fat cats, who have sucked the country dry, needs to be put on a strict diet of olive and water for the rest of their life.

Paying money to lose money in Stock Market

Losing money in stock market is a no brainer. After all these days it looks more like a giant casino and you don’t even have to leave home to gamble. It is rigged and the house always wins. But the dumbest way to lose is to follow the market gurus like Charles Nenner, Prechter of Elliot Wave, and many other forecasters of their ilk.

Before you say that I have no idea about what I am saying, I want to say loud and clear that yes I do have the idea.  Because I have been dumb enough to learn it 1^st hand.

When you are new in the game of investment, you want to try out everything and find out what works. I was no exception. In-spite of having a professional degree in Finance & Accounting, in-spite of working at the highest level of corporate management, there is still that desire to be on the correct side of the market without efforts . It is the same reason people go to faith healers who tell them that cancer can be cured with their magic touch or villagers go to fortune tellers and palmist who then predict the future and give them the way out.  I suppose I was naïve and stupid to put my belief on these people instead of doing more rational and analytical thinking and research. At some level professional education is no match to the primal insecurity of human being which has created a class of people called god-man.

Let me share my own experience so that those who are reading this, be forewarned.

Prechter of Elliot wave is a very good salesman. He prays on the fear of the people and is always predicting a doom. Now a broken clock is also right twice a day. Because the memory of 2008 crash is so fresh in the minds of the people, people are fearful of another looming disaster and the economic news has not made things easy either. The whole of 2009 and 2010 Prechter and his company went on to predict a crash, month after month, he went on TV predicting Dow at 1000 and all sorts of doomsday scenarios. And every month, the goal posts would be moved. In between there were few corrections in the stock market and he got further boost from those corrections.

Stock markets corrections are a natural phenomenon and are necessary. But he would come and say “I told you so” and a big one is coming. People like me, who invested on the short side of the market, based on his advice, lost money head over heels. We missed out on the great Bull Run and it did not do us any good. Prechter‘s favorite saying was that he called the 2008 bottom correctly and predicted the start of the new bull market. Again, it was one of those fluke things, when lots of people were calling the bottom, like they are doing now. No way Elliot Wave did predict the bottom or call out the new bull market. Because the Elliot wave theory is basically charting the history after the events have taken place. There are many interpretations of the so called wave, major, minor, still born, unborn and every one of the wave experts have their own theory. The internet is flooded with them. The long and short of it, after losing money by following this gentleman, I quit and went for another clairvoyant.

  

And there was Charles Nenner, the cycle forecaster. His reputation ran ahead of him. Ex-Goldman Sachs and the man who had called the top sometimes in the past. I should have known better.  It is alleged that GS and other primary dealers have 1^st hand knowledge of the market movement and possibly a hotline or two with Fed. Otherwise how come they have only one losing trading day in the entire quarter and sometime they never have a losing trading day in the whole quarter at all. It defies the law of probability and the chances of that happening to you and me are one in a billion. That someone has access to that hotline and made a correct call in the past is no wonder. May be he was set up by them to make that call. Who knows?

 But then when I started reading Nenner, I found that it is an exercise in double talk and confusion. For e.g. “The cycle bottoms next week but it can come earlier”, what do you make of such statement? Once again, the blame is put on the reader because of the wrong interpretation. Personally I have never made money following Nenner; in fact I lost money whenever I acted upon his advice. My bad luck! Nenner’s newsletter is like the astrology columns in the news papers. Vague, general and applies to some people at some time but is never accurate.

I challenge both these gentlemen to publish their short term market call (things that will happen in the next 15 days), in clear, unambiguous language and we shall monitor their call for a year. I am ready to stand corrected but till they take up this challenge, I will be a skeptic.

Today, after many years of trial and error, I have found that we can also make the market call, as well, if not better than Nenner or Prechter. Now I study many things like sentiments, demography, money flow in the market, many other technical indicators and try to think like a criminal to beat the criminals in their own game. And I think I am successful. I am winning consistently and if you read my blog, you will see that I am getting good at calling the turns.

Tons of free stuff is available on the net, so we don’t need to pay money to lose money.

Standard Chartered Bank report indicates that "Gold Top" is coming.

No, they did not say that in their report. In fact the report of Standard Chartered Bank is just the opposite. They are calling for US$ 5000/oz gold very soon. And the arguments are same that has been used over and over again during the last 10 years of gold Bull Run.

Before, we go over their argument for $5000/oz gold, let me clarify few things. I have deep suspicion about any recommendation from the big banks which comes out for the benefit of their clients and other investing population. Remember Goldman and other similar banks? It is alleged that (If I don’t use the A word, I might hear from their Lawyers), they packaged all the shitty deals and crappie products into AAA products and unloaded on their unsuspecting clients.  Didn’t Senator Carl Levin say the same thing in his report that Goldman Sachs Group Inc. (GS) “clearly misled their clients and misled the Congress,”? Yes, of course GS has refuted what Senator has said but Justice Dept. may be considering taking action based on that report. In light of that, if I continue to have deep suspicion on the recommendation of these Big Banks, may be that is healthy skepticism after all. Normally, when they say buy, I sell and when they sell, I buy. So far it has served me and my clients well.

So when Stan. Chart Bank comes out with a report based on old hashed reasoning; my conspiracy theory antenna goes up and starts giving alarm signal. May be the top is near, 3 months at the most.

Let us look at their reasoning:

We believe that these factors – limited gold production, buying by central banks and increasing demand from India and China – can potentially drive the gold price to US$5,000/oz, as highlighted in our commodity team’s earlier report." 

Now, Indians have been purchasing gold for ages infinite. How come, pray, gold went into a bear market for over 20 years? Let us look at the long term chart of gold.

As you can see for yourself gold reached the top in the year 1980 with a parabolic move, and then came crashing down. From 1980 till 2001, for 20 long years, gold was in a bear market. Investors, who listened to the same logic in 1980 and purchased gold at the top had to wait 20 years to see any traction in price. In the mean time gold reached near $ 200/oz.  On an inflation adjusted basis, if gold has to match its peak price reached in 1980, it should be over $2500/oz now. So even at today’s price, Investors of Gold in 1980 have actually lost money.

Were not the Indians buying gold for those 20 years? Did the production of gold increased during those years and have now fallen dramatically? Were not there any war or inflation scare during those periods?  And regarding the purchase by central banks, the 2^nd largest holder of gold is not any central bank but the GLD fund. Central banks buy gold along with other foreign currencies and it is always within a certain percentage of their total holding. In the year 2010, as per Wikipedia, (http://en.wikipedia.org/wiki/Gold_reserve ) China had only 1.7% of their reserve in gold. It is the developed world, North America and Europe, who have the largest gold reserve as a percentage of their forex reserve.  And we shall not see any dramatic change in the holding percentages anytime soon. So the logic given by Stan. Chart does not sound very convincing.

Standard Charted Bank knows all these and yet they come out with a report based on fairy tale.  Let us see when the gold price started rising.

We see the rise in gold prices from the year 2001. Do you remember what happened during that time? The Tech. Bubble burst. Allan Greenspan, in his infinite wisdom, started flooding the market with liquidity. Most of the liquidity went to create another bubble, i.e. Housing bubble, but some part of that money flowed in commodity sector, not because of increase of demand from India and China, but because of the speculators had a free run. By the way, biggest commodity desk and speculative section is usually found in the confines of the big banks. In the year 2008, when the housing bubble burst, helicopter Ben, started throwing more money, more liquidity in the market. The Stock market and commodity became the next bubble. Actually Ben wanted just to inflate the share market, to create a wealth effect, but he has no control where the money ends up. So Oil went up from $35 to over $ 100 and gold and silver went for a parabolic rise. Don’t we hear the same logic about oil? Production is limited. India and China consuming more and more oil etc, when we all know that $40 out of every barrel price is for the speculators.

Let us look at the US Dollar index:

This is a 30 year monthly chart.  In March 2008, UD$ index reached its lowest level of 71. And gold reached $ 1000 for the 1^st time. Thereafter when the dollar index jumped up, gold fell. If gold is to reach $ 5000 in the foreseeable future, the dollar index has to fall to the level of below 20. Can you imagine such a situation? If that was to happen, US dollar would have lost its world reserve status, there would be riot on the streets of USA, Gas would be $ 20 per gallon, and food prices would be beyond the reach of common people.

If and when gold reaches $ 5000/oz, we are better off buying guns and ammunition and fill up the basement with dry foods. Because then there will be civil war folks. Then we will not need gold.

Standard Chartered Bank knows that as well. They know that such a situation is not likely to happen. Still they come out with such a report. Only reason I can think of is that, they want to unload their gold position.

gold do well before the crisis not during the crisis. If there is a credit event, another recession, war , balance sheet contraction or whatever the theory the gold bugs are propagating, gold is sure to go down along with other asset class.

Personally, I think, Gold will reach a temporary bottom by end of June 2011, and then it will go up for another two, max three months and reach a top price of $1650/oz. That is when I would want to get out of gold.