How Come They Earn Six Figure Salary?

All the Wall St. Economists had been predicting the job gain of 100k, 150K and some even 175K for the Nonfarm Payroll data of June 2011. But the actual number came at a paltry 18k. And we are yet to get one good explanation from these Economists as to why they were so off the mark. No-body came forward and said: “we goofed up”. None said sorry for misleading you. But then what do you expect of Economists. They could not, for the love of their life, tell that in 2008 the whole world was going to be in a recession and they cannot tell even now that we are about to repeat it. Some of the Noble winning economists , many of them write columns in NYT or other news papers, still think we should borrow more and spend more.  Why not a single economist has been fired from their job yet, beats me. How come they earn six figure salary?

Anyway, the economists are not the problem, the problem lies with our collective greed and hypocrisy.

Let me quote from Ayn Rand, Atlus Shruged :

 “When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see that money is flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed.”

Just think if that applies to your society, your country. Whether you are in USA, Greece, India, China, Spain, Italy or some other part of the world. If you think that the above quote applies in that society where you live, you may be certain that decay has set in. So it does not matter anymore that politicians lie, bankers commit fraud, and economists and Wall St. traders earn six figure salary and the food stamp participation go through the roof. 

US Stock Markets Outlook For 8th July 2011.

Last night I said we might see a higher high and so it was today.  But pullback is just around the corner, may be as early as next Monday, 11^th July. If you remember what has happened between May and July, you will realize that this market is not really going anywhere. It is just going round in circle between bid and offer and as I keep saying, all these are a part of forming the top. The last week’s rally had come on absolutely thin volume, when retail participation has been almost non-existence and now everyone is worried that s/he will miss the rally. But we shall be mad to chase the rally now because markets have moved back from over sold to overbought.

If you are adventurous and nimble, you might want dip your toe in the shark infested water around 18^th – 20^th July for the long trade. Till that time, the best position is to remain in cash or if you were lucky enough to ride this bull rally, you may want to take profit now and keep your gunpowder dry for the next opportunity.

As for the Non Farm Payroll tomorrow, the pattern so far has been open high close low or open low close high.  Either way, profit taking is warranted.

Who Ruined Greece?

The chart above says everything that we need to know. If you have any doubt in your mind that Greece will default, remember more debt is not a solution for debt.

Here is a very nice article from Spiegel Der. It clearly explains how the country has been ruined by three generations of ruling elite. Worth a read.

http://www.spiegel.de/international/europe/0,1518,772176,00.html

Momentum Chasing Is Not Investment.

Last night I wrote that we are more likely to see a move upward and sure enough we did. But the anomalies of “Risk On” trade continues. The Euro sold off after the ECB rate hike, which I expected, Gold and Silver did not rally but the stock markets jumped off the gate as if someone has put fire at its back.

As Phil Davis said in his morning newsletter:

“Things are neither fixed or broken in minutes – or days for that matter.  Just because the markets CAN move up or down 5% in a week, doesn’t mean that they should and it certainly doesn’t mean the VALUE of the stocks has moved up or down 5%.  Do they companies suddenly make 5% more or less profits than the week before?  Do the companies make 5% more or less sales?  No – it’s all conjecture and extrapolation taken to a manic-depressive extreme driven by a 24-hour news cycle that needs to pump the greed and fear machine to keep you watching and reading and most of all – TRADING – because panicking you in and out of positions on a daily basis is making the brokers record profits and a return to buy and hold by investors would wreck their business model.”

Nothing really changed from June to warrant this irrational exuberance and all these are a process of forming the top. As Phil says, 95% of this market is manipulation and 5% is valuation. And S&P is way overvalued. With this constant churning, the manipulators are trying to make people forget the coming credit collapse or the looming contagion is Europe. Today’s comedy show special came from Europe when the ECB President Mr. Trichet announced that ECB will suspend the rating requirement for Portugal Bonds. Does anyone believe them anymore?

In short term, stock markets can and possibly will go up till end of August but I am advising my clients to be in cash right now because it is too risky to short the market before end of August and suicidal to go long at this point. We do not want to be momentum chasing lemmings following the pied piper over the cliff.   

US Stock Market Outlook For 7th July 2011.

Something interesting happened today.  Normally Euro and SPX go in step, as both are part of “ Risk On” trade. However today we saw that correlation broken. While Euro started selling off overnight and was lower for the day, SPX on the other hand ended the day higher. When we see such anomalies we better be careful. Also let us remember that tomorrow the pompous clown of ECB will declare the interest rate. Everyone and their mothers are expecting a rise in rates by at least 25 basis points. How that is going to help the PIIGS is anybody’s guess.

Coming back to the US markets, we might see higher high tomorrow because today SPX had a head fake to the downside for a while, so the real move will be on the opposite side. But with sentiments extremely bullish, and all indicators on the overbought territory, the high may not go far.

My advice is to play on the side of caution and not take the long trade for now and wait for a correction for  better entry. 

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.