Tuesday, July 31, 2012

Crunch Time.

A quick post is in order. Tomorrow is the day the BTFD crowed has been waiting for. Tomorrow is the day when Ben and co. will save the world like Mario saved Europe. But I think it is still early days for QE in USA but who can say for sure. The danger for the bears will come not from Bernanke, but from the other side of the pond. Like it did in last December. Mario started LTRO and most of us under estimated the liquidity effect it could have on the US stock market. If ECB converts that ESF or “whateverthatshitthingsis” as bank which could then guarantee and convert 1 trillion euro to 7 trillion euro , just by magic. It will not solve anything but will definitely buy time.

More I think about it, more I am convinced that the Fed will open a swap line to ECB or do some other shenanigan and provide them liquidity indirectly and ask ECB to ease instead of staring direct bond buying program.  That will be politically correct as well.

It is really risky to be a bear at this time and yet I do not have the courage to BTFD yet. I still think a major correction is due but ECB has been able to buy good deal of time just by talking. Either way, we are in a range and unless I see a break of the range with conviction, it is not good to let our conviction dictate the trade or investment. Return of capital is more important than return on capital. At least that is what I think. If we must take a trade because we are bored, that would be the dumbest thing to do. Also let us not forget that this is the Presidential Election year cycle.

Bottom line, although I am tempted to short, I am holding on. I may miss an opportunity by being cautious, but I do not mind missing that opportunity just to have surety. Because if the market falls, we can be sure of QE and the subsequent up. That will be easy money.

So trade accordingly. I would advice not to front run. It is better to give up some points at the beginning of a move just to avoid whipsaw and mental agony.

I am out of market action till 8th of August and by that time lots of issues would be clear. I think one more push up is still due before a major correction. I am looking at AUD to top out around 1.07.

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