Sunday, July 31, 2011

Clarification: email and RSS subscriptions

Hi gang, just wanted to offer a clarifying note on the Finance Trends blog subscriptions. 

I've received a few email requests recently for our "email subscription" list. At this time, we do not offer a site subscription (or any other material) via email. 

We do show an email icon under the "subscribe to Finance Trends" header in our top right sidebar, but this is simply a contact email link for our readers' convenience. You may, however, subscribe to our blog feed via RSS and follow our real-time updates on Twitter and StockTwits (which I'd encourage all interested readers to do). This should definitely keep you up to date.

 A view of the Finance Trends RSS feed in Google Reader.

I apologize for the misunderstanding on the email link and for any inconvenience this may have caused. Thanks for reading, and we'll see you bright and early next week!

Dark Clouds Over The American Dream.

For over 200 years, America has been the place which draws the best and the brightest from all over the world. It is the place where dreams come true.  

In his definition of the American Dream, James Truslow Adams said in 1931, "life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement" regardless of social class or circumstances of birth. 

Let me quote from Wikipedia: “The idea of the American Dream is rooted in the United States Declaration of Independence which proclaims that "all men are created equal" and that they are "endowed by their Creator with certain inalienable Rights" including "Life, Liberty and the pursuit of Happiness." “

Such noble words!  “Life, Liberty and Happiness”. Is there anything else in life? Yet, we now find that our dreams for a better life, a better future for the next generations are being increasingly threatened.  The middle class, which forms the back bone of the American Society, is being squeezed like never before. Somewhere along the line, the dream has been robbed by the Grinch. The Grinch exists on both sides of the aisle. Today the top 0.01% of the population control over 70% of the wealth.

 The last ten years have been exceptionally bad. We waged wars which were not needed, gave money to the super rich under political patronage, and even when the Oligarchy bought the country down to the ground with its financial frauds, we socialized the losses while privatizing the profits.
Three years after the financial tsunami, not a single person has been punished. Those responsible for the messes are bigger than before. They wrote a 2000 page law which promised much, but delivered little. One year after the Dodd-Frank Act, we still have no consumer protection as promised and only a handful watered down laws have been written so far which are totally ineffective.  We put lipstick on the pig and made it beautiful. Grinch has really robbed our dream.
The giant Ponzi scheme that is being played on us is now reaching its end game. The illusion of prosperity cannot be carried on much more. The growth built up on borrowed money is collapsing like a house of cards. Look at the dark clouds on the horizon.

•           The socialist economies of the Europe has almost but collapsed. The unemployment is Spain is almost 40%.
•           Growth is negative in Italy, Greece, Ireland, Portugal, Spain, UK.
•           Banks in Italy, Spain as well as France are dead men walking. With the slightest weakness in the global financial system, banks in these countries will be denied further liquidity, so necessary to keep them alive.
•           Japan has been in depression for decades now with little sign of any life in the economy and with a debt to GDP ratio of over 200%.
•           GDP growth is now officially 1.3% in the USA and 0.3% in Canada.
•           Much closer to the shore, shipping container traffic is slowing, rather, decreasing alarmingly.
•           The growth in China since 2008 is purely construction driven, with very little domestic consumption growth. This is another Ponzi scheme that is about to collapse soon, bringing the commodity sector down with it.
•           The ports in China, the export powerhouse of the world, are seeing their total numbers falling dramatically.
•           There is no job growth in the USA nor there any real income growth for the last decade. The consumer spending which constitute 70% of the economy is unsustainable when the QE is taken out of the system.
•           The major shock is going to come from the Balance Sheet Contraction at a global level. Here in the USA, just the residential housing sector has lost well over $ seven trillion value from its peak. Add to that useless MBS that the financial institutions hold, trillions of dollars of derivatives based on such valueless properties, and we just sitting on a ticking time bomb.
•           The frauds in the financial sector continue and more than ever, Government is now a part of that fraud, aimed to keep the status-quo going.
•           Since 2008, over $ two trillion has been pumped in the system, to give the wealth effect based on the misguided trickle-down theory. All it has done is to increase the debt to more dangerous level, where the law of diminishing return is now in play. It has merely helped keep the big banks alive yet reducing the market value of assets in their books. If the banks follow the proper accounting principles, and start marking their assets to the market, instead of fantasy, each one of them will be bankrupt. Yet, today they are pillars of our financial system.
•           We have not touched the Geo-political tensions that are smoldering in different parts of the world. Bombing of Iran by Israel is a real possibility. The unrest in MENA region is going on and Syria is about to explode soon. China is having serious tension with its neighbor in the south sea region. In South East Asia, Pakistan is an unstable country with nuclear capability and the fountain head of global terrorism. Pakistan with its proxy Muslim fundamentalist military dictatorship is hell bent on destroying secular democratic India. India and China are having issues with water. Drinking water is going to be a major flash point and potential conflict point in the future.

These  list can go on and on. But there is no way the western civilization can continue to enjoy the lifestyle of the last 40 years. The payback time is here and now.

The debt drama is just a diversion from the real challenges. I never doubted for a second that America will raise its debt ceiling. Each politician owes his/her position to some special interest groups. Do you ever think GS or JPM would allow the USA to default now? After-all even the most power-full politician in Washington has just one head on shoulder. This drama was just to scare the general population to sell cheap. The next chapter will be euphoria. The Boyzs who control the markets, know that the end is near. They now need to make one last effort to suck as much money out of the ordinary Americans and their retirement funds and savings.

It is a monkey business alright. If SPX can fall 50 points in three days, it can also go up 100 points in six days. Do not be surprised to see the markets making new highs in August. But that will not be the beginning of a new bull market. Rather, it will be the beginning of the end. Hope you have not sold out in this panic. Sell when the market is experiencing an out of the body high and be prepared for the next storm. It is coming. 
Follow me on Twitter ( bbfinanceblog ) to get the up dated real life info which cuts through the smoke and mirror and forward it to your friends.

Saturday, July 30, 2011

A Deal Is Coming

The White House and Congressional leaders will soon announce a deal to raise the US government debt ceiling. Surprise! Surprise! This will be a victory for no one, except politicians. The debt will spiral on and should reach $ 20 trillion within seven or eight years. By 2025 we should soar over $ 30 Trillion. By that time, there will be no fix and we will face the Greece scenario without a European Central Bank handy to delay the inevitable.

So, the politicians will cheer that the system has worked. But, actually, the system, once again, failed. It simply continues the US on the path to ultimate bankruptcy. Without seriously reforming social security and medicare, we will come to a time when there is no way to avoid bankruptcy except dishonoring the social security and medicare promises to folks who are, by then, already dependent upon them. This is the endgame that Obama and the politicians are taking us to.

The rest of the Obama agenda will continue to stifle US economic growth and produce a generation of economic stagnation for the US. Europe will join us. Meanwhile the economic center of gravity of the world will shift to countries who don't have entitlement programs of any consequence -- China, Asia, Russia, etc. These countries, not the Western economies, will be the future economic powerhouses of the world. Perhaps, this was the Obama plan after all.

Friday, July 29, 2011

No Growth Obamanomics

So here we are, puffing along at 1 percent for the first half of 2011 -- the worst economic recovery in modern history. So much for "hope and change."

There are only two real economic issues: 1) freeing up the economy so that it can recover; 2) reforming the entitlements so the country doesn't go bankrupt. Neither of these items are on Obama's agenda.

You wonder why Obama hasn't noticed the utter failure of his economic agenda. By now, you would think he would begin to get a clue. But, it doesn't seem that way. He still seems to think that the economy is someone else's fault. If only we taxed businesses more, they would hire more people, he seems to think. How about more regulation, how about more unionization, how about more lawsuits, how about more demonizing millionaires and billionaires? That ought to bring about a lot of new jobs!

I am still puzzled as to whether Obama is a fool, or simply doesn't care, or does he have a master plan and the results we are seeing are what he intended after all. Obama remains a mystery.

Market Analysis and Outlook, July 29.

We need to re-visit my yesterday’s post to make a sense of what happened today.  Among many other things, I made the following points:

·         I think we are still in a Bull market, although it is coming to an end. 
·         Tomorrow the QE2 GDP will come out and it may miss expectations. Coupled with uncertainty, this may trigger the SPX to dip below 1300 level.

And this is what exactly happened today.

I am not so much worried about the debt drama as the falling GDP, in-spite of the huge Government stimulus that has gone in the economy so far. The growth engine is coming to a stall and smart money knows it. They also know that the situation in Europe is still worse. That is why US T.Bonds are in such high demand even when AAA rating may be in question.  SPX came down hard, touched the 200DMA and bounced and that says a lot.

The market action today is signaling that a bottom is in or will be in soon. See the hammers in the Index.
All selling in the past have bottomed when such candle patterns have emerged.

SPX went down up-to 1282 level and bounced back. Couple of times, even came in green.

And VIX went through the sky again. That is three days in a row VIX has closed beyond BB. The fear factor is now in high 20s and I have written repeatedly in the past that for the selling to complete, fear factor has to be in high 20s. We got that today.

VIX also has a spinning top today. ” After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.”( Stockcharts).

Once again, I think a bottom was in today.                                                                 

But here is the paradox. On one hand a bottom is in and on the other hand the economy is stalling. Will we not sell now? Isn’t it time for another bear market to start?

I have been repeatedly saying that the world is not going to end on 2nd August. Although the US economy is almost at stall speed, it has not yet reversed. So we will muddle through, if there are no other external shocks. Even if the unemployment is at 10%, it is still better than Europe or Japan. The US Banks, in a bad shape as they are, still are in a better shape than their European counterparts.  And there are plenty of cash on the sideline. The market will not go down unless it has soaked all the cash up.

So I expect the stock market to rocket upward as soon as the drama in Congress is resolved. We will be greedy when others are fearful and fearful when others are greedy. It is easy to understand the fear, but difficult to understand and control the greed. In a few weeks, when the market is going up again, we will forget this crisis and MSM will present all the good and beautiful stories. We will think that the good time is not going to end. 

That is when we will turn bears, not today. 

Life imitating The Simpsons: trillion dollar coin edition

Thought surely this #trilliondollarcoin thing was a joke, but no. Life imitating The Simpsons, again: $$Fri Jul 29 19:09:51 via web

Update: For more on this see Credit Writedown's post on the #trilliondollarcoin meme.

Robert Samuelson Has It Right

Robert Samuelson's article in this morning's New York Times is right on target. Samuelson zeroes in on our fiscal problem and lays it at the feet of our subsidies for the elderly. Yes, subsidies. The idea that social security and medicare represent a safety net does not accord with the facts, as Samuelson notes. The elderly are by no means as poor as the White House would have you believe. Transferring money from working Americans to retired Americans is often a "reverse Robin Hood" exercise. Folks with less income and few assets are often subsidizing the upper incomes. As Samuelson notes more than 25 percent of the over 65 population have assets that exceed $ 250,000, which is a lost more than the asset base of the folks subsidizing them.

It is time we disabused ourselves of the notion that social security and medicare are helping poor people. Poor people die earlier than rich people. Folks that live into their 80s and 90s are disproportionately well off compared to the general population. We should stop transferring money from young married couples with children to their parents whose asset base is often far more than the future will provide for that married couple. This is robbing Peter to pay Paul's, often wealthy, grandmother. We should stop doing this.

Helping the truly needy is worthy and we should do that. Transferring money from working folks to folks that often have plenty of assets of their own is unfair and destructive.

Thursday, July 28, 2011

Endless Drama.

As far as drama goes, it cannot be any better. Nail biting, thrilling, turn at every hour. You name it we have it. Dems are blaming the Reps and vice versa. Who is to blame on this debt drama? Who bought Americans to the sacrificing alter? Look at the following chart.

You have the debts as a percentage of GDP by the Presidents of both colours. You decide which party is to be blamed more. I am in neither party. However, it seems to me that when Bush II got to drive the car, the ratio was below 60% and when he handed it over, it was well over 80%. Hmmm. Interesting to say the least.

Who is winning the debt debate? After all, this is all about the next year election and winning the hearts and minds of the voters. Again, I do not carry any favour from any party and I am sure things will remain the same whichever party wins next Presidency. But from what I read and hear, I do not think Reps have conquered too many hearts of the independents. As everyone knows, independents are the key to the White-house.

The current president was elected on Democratic Party ticket, but he has turned out to be George Bush II.  All his policies have been directed at maintaining the status quo and giving more freebies to the super rich and big business as well as to Wall St. To his credit, he is a great reader from teleprompter and says the right words for the poor people.   

But I know who are not winning. The average Americans are not winning. And Chinese must be worried sick that all their hard-earned money may soon be worthless. I wrote few days back that American can never repay its debt and it is a sucker’s game. I never expected that it will be proved right so soon.

In any event, the economy is going down and what will trigger a black swan event is not known. I feel that Spain and Italy will implode soon and that will trigger the dominoes to fall.

I still think, they will get past this debt debate in the last possible minute.  Some readers have asked why I am not more bearish at such uncertain time. Reason being, there is not much uncertainty about the outcome.  Chances are 99% that the limit will be raised. The credit rating is another matter altogether. The uncertainty is about time.

I think we are still in a Bull market, although it is coming to an end.  The following picture explains the bull market.

If you see the DOW, it has so far made higher lows and higher highs and is well above the 200 DMA.

I have underlined the lows in the chart. I expect it to make one last high before the turn.  The resolution of debt ceiling drama may be the trigger for that. So I was not ready to go short at this point. The market is fuelled by, amongst other things, liquidity. And there are enough liquidity in the market right now.  See the Mutual Fund Cash/Asset ratio.

It is still bullish.

From 2010, we have heard so many times that the sky is falling. Double dip panic, Greek panic, Japan Earthquake panic, China panic, Muni panic. At each state, they have scared us to sell cheap only to buy  back at higher level. They would shout boo and we would jump.  But the point is, from Feb.2011 we are moving in 5% band and we have not broken that band in any direction yet.

Today, the McClellan Oscillator is deeply oversold.

VIX has crossed BB twice in a row.

Yesterday VIX jumped 35% over it’s previous close. As far as panics go that was huge.

The market may go down one more day before finally bouncing back hard. Tomorrow the QE2 GDP will come out and it may miss expectations. Coupled with uncertainty, this may trigger the SPX to dip below 1300 level. But as soon as we have a resolution of this drama, we should have a huge relief rally. There is a 1% chance that things get blown away by the collective death wish and then we have that black swan event now.  But the odds for that is less.

God bless America.

It's Downgrade Time

The US is on course for a ratings agency downgrade from AAA to AA. This has nothing whatever to do with the debt limit extension debate. The only mild relevance to the debt limit debate is the missed opportunity to use the debt ceiling discussion to begin to take steps to reign in the entitlements.

But, alas, no one was interested in reigning in the entitlements. So, the downgrade is now inevitable. Look for the downgrade to take place in a friendlier environment. It won't happen this week or next. But, it will certainly take place before year end.

The problem is that no one in Congress votes on entitlement spending. Entitlement spending is part of the "mandated" budget items. The spending on entitlements has no limit other than population growth I suppose. There are no funds available in the future to fund the entitlements, so selling treasury bonds is the only way to fund the entitlements until no one will buy our bonds anymore. That day is probably coming within the next five years.

Cutting discretionary spending (or cutting nothing, as in the Reid bill) doesn't really matter in the long run. It is not Iraq, Afghanistan, Bush Tax Cuts, the Stimulus, or anything else. It is entitlement spending. That's it, nothing more. Eliminating spending on all other items does not matter in the least. Raising taxes simply takes a sledgehammer to the economy and commits the US to generations of economic stagnation. Only cuts in entitlement spending matter and no such cuts were ever considered in the recent debate. (It is true the Obama folks claim that they were willing to consider entitlement cuts, but they never really mentioned anything specific and simply saying you are for it is the not the same as putting forth specifics).

We are seven are eight years away from the numbers that apply to Greece today. That's where we are. In eight years, any plan to avoid defaulting on our debt will involve cutting payments to social security recipients and medicare recipients who are already retired. If you want to avoid doing this kind of draconian cuts in the future to recipients, you must move the age of eligibility of these programs out right now. Move social security and medicare eligibility to age 70. Anything short of that won't work and will involve cutting payments to oldfolks when they no longer have choices and are no longer working. That's where we are headed.

Which Way Thursday?

Phil Davis of PhilStockWorld has an excellent article out this morning, as always.

In his unimitable style, Phil points out to the McClellan Oscillator, which is also one of my favourite technical indicator.

Phil shows that the Boyzs have been manipulating the market on a regular basis every month. They panic us to sell stocks to that they can buy cheap and then pump it up so that they can sell high. Isn’t it the same argument I have been making all along? This is happening like clockwork quarter after quarter.

Apart from various TA, which I am sure are great for trading, market is always ruled by greed and fear. Greed builds up slowly and price increase leads to more price increase. Fear acts all of a sudden. Imagine you are alone in a room, reading a thriller and engrossed in it. Now imagine your partner entering the room silently and screams the hell out of you. What will you do? You will be startled, panicked and throw the book and jump out of the chair. After a minute or so, everything is cool and OK.

Today’s situation is similar. The Boyzs are trying to panic us.They have panicked us. And we are looking for information wherever we can find them.  What is a regular housekeeping matter has been turned in a power grab by the Republican Party and they will pay heavily for this. We deserve the politicians we elect and the misery they bring along with them.

I have been in this situation before and only thing I can tell is what I would do. Just close eyes and stop thinking. If the market goes up big time, I will sell. If the market goes down more, I will buy.

I do not think the world is going to end on 2nd August, I think it is one month down the line.

Wednesday, July 27, 2011

Back the Boehner Plan

Nothing good will come of this. The Boehner plan is not a good plan. It is not even close to a good plan. Unless the entitlements are tackled, there can be no real progress on the debt problem.

Nevertheless, it is now going to be either the Boehner plan or the Reid plan (which is basically to do nothing at all). So, it is time to get behind the Boehner plan, which is only slightly better than nothing at all.

At least the adoption of the Boehner plan (as modified by the Senate) will be a stinging defeat for our big spending President, and that alone is worth something.

Roller Coaster Wednesday.

Today‘s market action was a warning shot to Congress.

It was a great day for day-traders and bears alike. SPX fell 2% and it was a sea of red. Today bears are rejoicing and bulls are fearful but just a few days ago it was just the opposite and we were talking of SPX 1370 +. So is it the beginning of the bear market? I doubt it. On 1st of June also the market fell 30 points. Once again let me invoke the bigger picture. But sure there are more churning ahead.

1st the Bull side of the story.

·         See the SPX daily chart.  

All the churning is in-between those two lines. And there is lots of money still waiting in the sideline. As I noted yesterday, in fact lots of money is coming in from Europe and other parts of the world, who still consider USA to be a safer place and they don’t believe that USA will default.

·         Today was a major distribution day. The next day is usually green.  The VXO (old VIX) actually touched the upper limit of the BB and went through it. Most likely it will also churn in the two bands that I have drawn.

·         The 10 year yield still did not break 3% line.

·         Gold fell.

·         And Seasonality induced rally is right around the corner.

Even Bloomberg says Banks don’t see any panic.  In fact S&P itself does not believe that US will default.
Reuters says: “Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling U.S. default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning broad congressional approval on their own.”

And now the bear side.

·         One concern I have is that the SPX broke below the 50 DMA.

·          $NASI gave sell signal.

·         One of the best TA is Cobra and he also thinks that lower low ahead. You can visit Cobra’s web site at . It is treasure trove.

So now you have both the view to take decision. If you remember my earlier posts, my original plan was to "sell the news". That is, be market neutral on 1st of August after the deal is announced at the last moment.
I am consistent with the theme that all these are part of forming the top and we shall be seeing the mother of all shorts soon. So far the Cassandras have cried fear, panic and despair from May and yet the market is a tight range. Can the good times go on forever? Sure they cannot but they can last longer than most people think. Perma bears like Rosenberg have called out for double dip recession and immediate collapse of US $ and stock markets so many times that I have lost count. I have also lost money listening to them. Bear markets never start on televised real-time bad news.

 I see the whole thing a good trading opportunity and absolutely bad for investors. So once again, be very nimble. I am still holding to my longs and watching. As I said yesterday, I do not mind being wrong because nobody can be right all the time, but I would hate to be wrong for a long time.

Be safe out there.

The Phony Crisis

President Obama and his Democratic allies are shrieking daily that the world is going to come an end if the debt ceiling isn't raised. Why aren't the financial markets singing the same tune? The stock market and, more tellingly, the treasury markets are showing no signs of concern. During the two to three weeks of intense negotiations and the failure of negotiations, the markets have done mostly nothing. The stock market, on balance, is up and the treasury market is pretty much flat. So, where is the panic in financial markets?

Last Saturday, Treasury Secretary Tim Geithner was seen on Fox News hoping against hope that markets would collapse Sunday night if no debt deal was reached. So. No debt deal was reached and the markets yawned. The President, Tim Geithner, Ben Bernanke and the Democratic Congressional leadership are all praying (in the open and before microphones) all day and night that financial markets will show some concern for the phony crisis that they have created. Interestingly, the markets are not accommodating the crisis mongers.

The truth is that none of the plans put forth will have any serious impact on the trajectory of US debt and the markets know that and have known that for some time. Even if no deal is ever reached, there is no reason for financial markets to panic. What's the big deal? There is plenty of tax revenue to pay the interest on the debt, the social security trust fund permits social security payments without raising the debt limit at all, and the government itself has several trillion dollars of treasury holdings in its own hands.

As for the rating agencies, they are already way behind the curve. US debt should have been downgraded long ago. It deserves a downgrade and it will get it no matter what happens in the political arena. The markets have already factored that in. Markets aren't stupid, even if politicians are.

The truth is that August 2nd is largely irrelevant. That's why the markets are yawning.

It is true if Democratic politicians continue to cry wolf, the markets may eventually sag just out of boredom. But, panic? It's not in the cards regardless of the outcome of the current phony crisis.

Tuesday, July 26, 2011

Afraid Of The Debtmageddon?

I borrowed the word from Lee Adler.

Right now it is easy to be afraid and difficult to be objective.  So let’s review the market actions in that light.

SPX came down about 5 points today. Big deal! If there is going to be Debtmageddon , there should be mad selling. What the smart money is doing? Why are they not selling out yet? Once again, let us look at things with objectivity.

Below is the SPX daily chart.

We are above than where we were one month back.

Shouldn’t there be a sell-off of Bonds, pushing the yields higher?  After all, the AAA ratings are about to go. Look at TNX, the 10 year bond yield indicator.

Nope. The yield is still below 3% whereas the 10 year average is 4 %.

I am not a big fan of TA. I think when you torture the data for long; you can make it confess anything. So for each bull case in TA, there is a bear case, all from the same chart. However, let us look at the following hourly chart.

It looks like we have kind of a bottom or base.

For me more important is the money flow and I will borrow a chart from Lea Adler of The Wall Street Examiner. This is one indicator I follow amongst many other.

As you can see,  cumulative net money flow is still positive and well above the SPX.  Lee’s chart is “based upon the theory that as cash moves between money market funds and the banking system, there's a relationship between that movement and the movement of stock prices. As you can see, it has correlated well with stock prices over the past couple of years.

In his latest email newsletter Lee writes as follows:
“It seemed that virtually every market observer expected that event to have a bearish impact. My expectation was that it would not be felt until mid July due to technical factors having to do with the Treasury supply settlement schedule. But over the past month, the indicator shown above began to surge, boosting support for the market just as the Fed was ready to step away.

Hysterical media pundits have been loudly proclaiming that the sky is falling as a result of the approaching US Debtmageddon. The markets, however, are revealing them as the know nothing clowns that they are. In fact, the opposite of their dire predictions has been occurring, with both stocks and bonds remaining resilient. The Treasury market is even rallying today after the uber depressing N'Obama Boner show last night. You gotta laugh.

The chart above makes clear the reason for this market resiliency. Money has been flooding into the US banking system over the past month. The source is apparently capital flight out of the Eurozone. While I don't track the data at the source of those flows, we know from anecdotal reports that there's been capital flight out of parts of Europe. Other US banking system indicators suggest that this is the source of the surge of cash into US bank accounts. The cash account balances of  US based foreign banks have been surging in recent weeks. So have their trading accounts. Deposits in domestically chartered banks have also surged, but their trading accounts have not. It would appear that that the resiliency in the US equity market has been driven by foreign private buying. The Fed's data shows that foreign central banks have not been a factor. This is coming from the private sector”

For some reason private capital all over the world considers US to be safer than Europe and I suppose they know more than I do. But this is one reason I have not gone short yet.
But I am not blindly long and I may switch sides all of a sudden inter-day and shout “let’s get out”. Follow me on Twitter to get my latest calls.

Once again, make no mistake; these are all part of forming the top. But we do not want to short when the market is still going up. That is not smart. I talked about 27th July before and we are almost there. For me the most crucial dates  are between 27th of July to 5th of  August. And I willl be watching the market activities closely to see if my calls are still valid. You see, I do not mind bring wrong, but I do not want to be wrong for a long time.

If you like what you are reading, please forward it to your friends.

Fear Mongering Tuesday.

Last night I read an interesting theory.

If the debt ceiling is not raised, then bonds get downgraded. People sell bonds and move the money to equity. If the debt fiasco is sorted out, then we have a rally in any case because of higher asset allocation in shares. It seems stocks and bonds are going to move in tandem. 
Not sure I buy into this theory.

However, one thing I am sure, USA cannot afford higher interest rate on its bonds. So the moment 10 year rate crossing 4%, we can be sure of a market crash. So that people panic and go back to bonds. In any case, we are getting closer to a major crash when the rich Banksters will shout QE 3.

For now, month end asset allocation is coming up. I think 27th July to 2nd of August will be quite interesting period of the stock market.

Market is assuming that the real showdown is next year and so it is not yet that much worried about the debt ceiling issue. Assuming the worst, in the short run, where will all the money go? In stocks or bonds of other countries?  Not a chance by long shot. Perhaps the yields will go up, but then life continues. At least in the short run.

From Bloomberg : The U.S. government can avoid a default for at least a month after the Aug. 2 deadline to lift the debt ceiling set by the Treasury Department, said John Silvia, chief economist at Wells Fargo Securities LLC.
“The Federal Reserve and the Treasury can work together to generate enough cash probably for the next two or three months to avoid any kind of automatic default on the Treasury debt,”

Greater-than-forecast tax revenue might give the Treasury until Aug. 10 before it runs out of cash, Barclays Capital said in a report last week.
So you see, August 2, is just a self imposed deadline by the politicians for the game.
More from Bloomberg: “It’s very unlikely that we’re going to default,” Silvia said. The Treasury already has “cash flow that’s available” to last two weeks after Aug. 2, before resorting to any special measures.
Even if the two parties fail to reach an agreement to raise the debt ceiling in time, officials will still be able to stave off a default for at least a month, Silvia said. Bond investors have realized they will probably still get paid in the event the impasse goes past the deadline.”

Michael Feroli, chief U.S. economist for JPMorgan Chase & Co., said a Fed contingency plan could allow banks and other financial institutions to temporarily lend their Treasury securities to the Fed in exchange for cash. Such a move would be aimed at easing any credit strains caused by a default, he said.
“In general, I think they’d want to temporarily substitute the Fed’s credit in place of the Treasury’s credit,” Feroli said.

The long and short of it, what you hear is not the complete truth. There are many shades of gray which we don’t see or know. But the people with serious money have already thought about it. If they have not panicked yet, why would you? I am not saying that you do not have serious money, but I am sure your investment advisor has already told you what I am telling here.

As I keep telling people, this is not an investor’s market. We have to be nimble to get out at a short notice. Things can turn ugly very quickly. But bear markets are not televised in real-time. Therefore I am still long and will remain long for a while more.

I wrote last night, I do not expect much of fireworks today. Perhaps from tomorrow onward. In the mean time just sit tight and let the fear pushers do their daily job. The US $ is down and Euro is up. Can I say, I told you so!

If you are enjoying this commentary, please send this link around to your friends. Also, I am in Twitter, you can follow my updates and calls in real time.

Be safe out there.

The Poorest Among Us

Obama is forever excoriating "the rich" and claiming that he represents the average American and the "poorest among us." Really? Is that why Warren Buffett and Bill Gates and George Soros are so supportive of Obama?

The brunt of the current recession is being borne, not by Buffett, Gates and Soros, but by the "poorest among us." If you look at the data on unemployment, the unemployed are concentrated among those with the lowest education levels and concentrated among minorities. The rich and comfortable are doing fine under the Obama regime. That's why so many of the "comfortable left" support Obama and his administration.

Obama and Pelosi will never have to look for a job. Neither has spent a day in the private sector hoofing it. They fly in charter aircraft and government financed airplanes far above the common folk. It is easy to pontificate from that elevated position.

"Let them eat cake" is an expression that never grows old. Obama and his compatriots think that the slogan "tax the rich" has meaning. It doesn't. That's why Buffett, Gates and Soros are all for taxing the rich. They know that they won't pay the increased tax rates. They can hide their income, as all three have always done by their own (arrogant) admission.

The real victims of Obama are average Americans stuck reporting their income on w-2's. They are the real target of the Obama crowd. If you work for a living you are in trouble. If you don't work for a living you are in even more trouble.

The rich have nothing to fear from this president. He can't reach them. What Obama can do is use class warfare rhetoric to try to confuse and divide the American public. The real issue is that this is a failed presidency with a disastrous set of economic policies. The US is drowning in lost jobs and debt. No amount of presidential obfuscation can hide the real facts.

The great tragedy is that the "poorest among us" are the real victims of this administration. That's why Buffett, Gates and Soros are happy campers cheerleading this buffoonery on.

Monday, July 25, 2011

Same Old Tune

Nothing new in Obama's world. It's still about rich folks paying their fair share (regardless of the impact on employment). This is a silly joke. Raising tax rates does not raise revenue; eliminating deductions does not raise tax revenue. Obama is interested in only one thing: redistribution of wealth. Raising taxes won't get that done either, because it won't really increase revenues from the wealthy.

Boehner is trying to do the right thing. He gets it. But, even Boehner doesn't appreciate the seriousness of the US's predicament. Even the Boehner plan will lead to an ultimate US default. Obama would just speed up the timetable for default.

A "no" vote is still the right vote on the debt limit increase.

Is This A Great Country Or What?!

The partisan politics is destroying America. This is a nation divided and a dream comes true for the Oligarchy who now effectively owns this beautiful country. The two party system of democracy is the worst curse that even the enemies of America could have wished for it. This two party system is sucking the life blood out of the American democracy.

I present you with two cartoons just to show my love for both the parties..

Coming back to debt ceiling debate, I suppose what goes back, comes back. Here is something from our dear leader:
“The fact that we’re here today to debate raising America’s debt limit is a sign — is a sign of leadership failure. Leadership means the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America’s debt limit.”~ Senator Barack Obama, 2006

Has anything changed in the last five years Mr. President? Yet, we want the debt ceiling to be raised and it will be raised in two days time, despite the game of chicken that is being played by both sides. Raising the debt ceiling will do nothing to solve the mess that we find ourselves in, but at least it will kick the can down for a month or two.

The good news for the evening is that both the parties have presented plans for raising the debt ceiling. The bad news is that both are non-starters.  You cannot wake up a person who is not sleeping. And the President is going to whine more on national TV. Man, does he love his teleprompter! This game will continue for some more time untill one side blinks. But blink one side will for sure. Republicans know that if they blow up this debate, they will effectively hand over the congress and next Presidential   election to the Democrats on a platter. They are daring Obama to pull the trigger and we have to wait and see if he can.
From MSNBC: With their revised plan, House Republicans backed off an earlier insistence on $6 trillion in spending cuts to raise the debt limit.
And Obama jettisoned his longstanding call for increased government revenues as part of any deficit reduction plan.

So you see the mating dance of the tarantulas continue. (Picture courtesy : macromike)

But where does it leave you and me and the giant casino which we all love to hate. We would be better off remembering that we are just small pawns and insignificant bits in the giant scheme of things of the big boys, who rule the casino. From a technical perspective, not much damage was done. I was looking for a drop of 10-15 points in SPX. The market did drop 15 points but clawed back half of that. In my morning post I wrote “The market in all possibilities will start lower and may slowly work its way up. The world is not coming to an end, yet.

Sure enough, markets followed the script and SPX ended the day with a loss of 7 points.  At some point NDX even went positive, before closing in red. I went long along the way. The market is still on buy signal.

Most likely tomorrow will be another boring day and I do not expect any fireworks tomorrow.  As usual, Zero Hedge is having a good time predicting the impending doom of America, all newspapers and talking heads are full of horror stories.  But the market is calling Washington’s bluff. From CNN Money: "I think fundamentally, the market is telling us it doesn't believe we're truly going to default. Somehow, some way there will be a decision," said Jack Ablin, chief investment officer with Harris Private Bank in Chicago.

Is there a guarantee that the issue will be resolved in the next few days? No, there is no guarantee of anything in life. There may be a collective death wish among the politicians that we don’t know about. If so, we will have the curtains called before time. I would be watching the market behavior keenly for the next few days for any possible signs of reversal of course. 

But for today, let me finish with an internet humor. (Hat tip to marketsniper of
Senior health care solution--according to Maxine  
Senior Health Care Solution 
So you're a senior citizen and the government says no health care for you, what do you do? 
Our plan gives anyone 65 years or older a gun and 4 bullets. You are allowed to shoot 2 senators and 2 representatives. Of Course, this means you will be sent to prison where you will get 3 meals a day, a roof over your head, and all the health care you need! New teeth, no problem. Need glasses, great. New hip, knees, kidney, lungs, heart? All covered. 
And who will be paying for all of this? The same government that just told you that you are too old for health care. Plus, because you are a prisoner, you don't have to pay any income taxes anymore. 

By the way folks, do you recall my post on Euro where I said Euro will go to 1.50+ ( ).
Euro just broke 1.44

You are the "Big Corporations"

When Obama speaks of the "Big Corporations," he is talking about the average American. The average American owns the big corporations through their pension funds, mutual funds, and through the foundations and endowments that they support. There isn't some rich corporation guy out there to go after. If you tax Exxon, then the average American's stock holdings suffer and the average American's future pension payments will be less.

So, what Obama should say is "Let's go after the Big Corporations, so that the average American can retire on less money." The facts are that taxing large corporations is a tax that is almost totally borne by folks who buy their products and own their shares -- that's middle America.

So, if you want Americans to retire with a significantly lower standard of living, then, by all means, tax the heck out of the corporations that they own.

Voting "No" May Prevent Default

Default on the treasury debt is less likely if the debt limit extension is not approved. After all, less than $ 10 trillion of the ($ 14.3) national debt is made up of outstanding treasury securities (bills, notes and bonds). Something like $ 2.5 trillion is the social security trust fund (a figment of everyone's imagination) and another $ 2 trillion is held by various government agencies.

Default is virtually impossible if the debt ceiling extension is voted down, since the debt service requires relatively small amounts of money and social security can be completely funded (through the so-called trust fund) without increasing the national debt by a single penny. So where is the default?

Default is almost certain to occur within a few years, if the debt ceiling limit is increased. Within eight years we will be staring at nearly $ 30 trillion in debt with a GDP still in the teens (of trillions). Then, there will be no hope. Too many folks will be on social security and medicare and medicaid and only by cutting benefits to these folks will a $ 30 trillion problem get resolved.

I am assuming no tax increases. If taxes are increased, then overall revenues will decline (as will GDP) and the deficits and national debt will be much, much higher (because of tax progressivity).

The main concern for the rating agencies is not whether or not a deal gets done, regardless of what the deal is. Instead their concern is whether or not the deal will focus on reigning in the entitlements. Nothing proposed by either party will do that. That leaves the rating agencies with no choice but to proceed with a downgrade. Only if the debt limit is not raised is there a serious chance of avoiding a downgrade.

So, Obama tonight can talk all he wants about rich folks and their boats and planes, but this discussion is completely irrelevant. If you confiscated the wealth of every single person with income over $ 250,000, you still could not solve our fiscal problem.

The US has no savings: the public dissaves and the government dissaves. Their is no future for an economy with no savings. To finance investment, we run massive trade deficits and fiscal deficits. But, it won't work anymore.

The combination of large government deficits (federal and state) and absence of saving means eventual economic collapse. There isn't any way out unless someone has the courage to say no to a debt limit increase. In Obama's words, "if not now, when?"

At the end of the day, someone, somewhere in America has to save. With the entitlements discouraging private saving and guaranteeing that the government cannot save either, the future is pretty bleak.

The most charitable interpretation of Obama's position is that he just doesn't understand what is going on. There are less charitable interpretations.

Debt Ceiling Monday.

The market action of today or tomorrow is inconsequential in the grand scheme of things.  In the short run, momentum chasing blind maniacs are hitting the buttons. They are not guided by economic logic. The logic of trading is now with the HFTs and ALGO traders which no one understands.

Overnight ES Futures touched a low of 1322 showing a loss of almost 20 points at one stage. It is now at 1332 having pared its loss by half.  The European exchanges started the day in big negative territory, but have since climbed their way up and are almost in positive territory.

So relax guys; this is a classic case of fear and greed paying out in the marketplace. From May onward the stock markets are selling off and on, yet the VIX never went past 24. So where is the panic? The big boys were selling premium in an orderly fashion all through the sell-off. Now they are creating panic in a different way. The media (MSM as well as blogosphere) is full of imminent doom and demise of the USA. Bear market does not come on bad news. Rather, bear market starts on good news, on euphoria. When nobody expects the sale to start, it does.

Primal sentiments, greed and fear govern the stock market. Nobody understands it better than those who buy low and sell high. Those who buy in the face of fear make money. But before that we have to understand if we are in a bear market or is it just a correction. I have shown these charts before and nothing has changed since then. We are going to see a minor correction on the face of hype and I think it is a buying opportunity.

The SPX is in a rising channel.

The DOW has formed a megaphone and would likely hit 14000 1st before 5000.

Nasdaq and other indexes have formed a bullish engulfing pattern on the weekly chart.

I wrote that I would be looking for a 10-15 point correction in SPX and we might get that today. In the short term, for the next month or so, the markets will push higher and as has been the trend so far, markets will jump a lot in one day on very thin volume.  So for me, dips are a buy.

This looks like a typical bear trap. Go up two steps and then come down one step. Keep the bears interested in the game. Generate more shorts and then take them out in one big move. As I have said before, I will not be shorting the market now; I would rather try to get in. As I am not a day trader and my time frame is longer, I am ready to take the heat for a few days before the market goes in my direction.

The market in all possibilities will start lower and may slowly work its way up. The world is not coming to an end, yet.

I posted the above before the market open.  At the opening SPX dived down to 1330 level and has been clawing back since then. NDX is already in positive territory.
Although half the day is still to come and many things may happen in the next 3/4 hours, markets are following the script, so far.
I have taken three trades on the long side. Just wanted to say, I walk the walk.