Recession Anyone?

My apologies for yesterday’s absence. However I sent out Twitter message late at night that I plan to start shorting from today.  In the morning also I sent out tweets that I will be starting to short today. When I saw the bounce failed at 1360, I thought it may be the right opportunity for a low risk entry. I am glad that it worked out nicely. But it is just the beginning and I think the fireworks will continue for few more weeks. If everything goes as planned, we might see SPX 1200. However, markets never go up or down in one straight line. We already have had 4 red days and hence a green day is due. That will be another opportunity to add to the short positions.  After adding our favourite short positions, we just need to sit patiently till Bernanke shows up with money.

I keep pounding the table that there is no growth. No job growth, no income growth, global economy is slowing down and whether you agree or not, USA is in much worse shape than Europe. You don’t see it because Uncle Ben can print and the size of the economy is huge. Here is a very interesting interview with Laxman Achuthan of ECRI.

This is a great interview and given the short time given, he touched upon many important issues. I request you to listen, view it multiple times.

As pointed by Laxman, in the developed world, Recession leads to deflation. Govt. money printing has not been able to stave off deflation, ever. You may ask Japan, who are now printing for the last 20 years and yet Nikkei is down to 9000 from 38000 and their DEBT:GDP is over 200%. Bernanke fears deflation like plague. So it is very much certain that we will see another massive printing soon. But till that happens, markets will head south.  This time, technical will catch up with fundamental.

I am trying to shut out the noise and not get affected by the movement of 5 minute charts. So far the bigger picture has played out to the T. My earlier call of SPX 1365 +/- few points in the 1^st week of July has been valid so far and I think we saw the top on July 5^th with SPX at 1374. Now let us see how my call of SPX 1200 by end of July plays out.

I want to share with you a US Dollar chart from Chris Kimble

If this plays out, my SPX call may well come true.

The model portfolio has been updated for your reference. I am still holding GLD as I am not sure about the immediate price movement of gold. It has a potential to reach $ 1400/ oz due to deflationary scare, before we see any traction but I have decided to hold on to it for long haul.

Thanks for reading http://bbfinance.blogspot.com/ . Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.

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Doesn't Anyone Do Math Anymore?

While our mind is preoccupied with Europe, nobody seems to remember the mess that USA is in. At least Europe is trying to get its shit together. They have much less debt to GDP compared to US of A. Just look at your backyard swamp and you will see the dragon getting stronger.

 US spend about $ 3.8 Trillion in a year and takes in approx. $ 2.15 trillion in various shapes and forms. That leaves a gaping hole of $ 1.65 trillion a year. 

And the official debt is about $ 16 trillion. In that official debt, we have not, I repeat not, included any unfunded liability for pensions to Government employees, Medicaid and Medicare and Social Security. The estimates of that unfunded liability vary from $ 66 trillion to $ 122.1 Trillion. For e.g. Uncle Sam has promised about $ 700,000 in pension and health benefits to its retired civil servants and so far the only source of that fund is IOU. Now add another $ 17 trillion to that coming from Obamacare. Before we start throwing Millions and Billions and Trillions, do we even know how much they represent? OK. Here we go:

This is one million in $ 100 bill.

And this is 100 million. All crispy $ 100 notes, stacked on a standard pallet.

This is 1 billion. About 10 tons of paper.

And here is the US deficit, $ 16 trillion and changes and not including the unfunded liabilities.

Remember we were talking about that $ 122 trillion deficit sometime back. Here it is in visual cue.

( All the above pictures are from demonocracy.info)

And we are worried about Europe? The total debt of all of Europe is less than 3 trillion dollar.

How much is a trillion anyway?  For an idea, if Jesus Christ spent $ 1 million every day since the day he was born till date, he would still not be able to spend $ 1 trillion. Only politicians can talk about trillion.

So how does America bring its deficit under control. Don’t ask Krugman but some politicians are taking about deficit reduction. Which also means austerity in dirty language. Great news but where can US save money? Let us see where does it spend the money in 1^st place?

This is somewhat old chart but the percentages are more or less same.  Well, by the theory of Teapublicans (Who incidentally are equally to blame along with Obama) America will have to save about half of its expenses for only 16 years ( I am not even touching the unfunded liabilities) while hoping that the income will stay at the same level and there will not be any riot or social unrest. Other option is to increase revenue by raising taxes. But half of America does not pay any tax anyway. So double the rate of tax on the rest who pay? Like France? Good luck folks.

Well, if that is not possible, what is the other option? Simple actually. Continue to create money out of nothing till you cannot. It is like playing monopoly games by the kids. With fake money and fake assets. Only this time it is being played by the Governments instead of the kids. With the Fed monetizing the debt, (back door, wink wink!) they have been able to bring the interest rate down to an absurd level. But it is starting to hurt in other places. The pension funds who have some money for the retired folks, ( ordinary folks like teachers or policemen etc) are being forced to look for yield in most risky places. Even social security is getting hurt. And what happens when those who are buying into the Ponzi scheme realize that they are being milked dry and refuse to take part any longer. Just like in Europe? Well, you suddenly have a high rate of interest and inflation. The bond market is crushed and along with that the equities.

We are in a secular bear market. The end of the bear market will come when PE is below 10. Right now it is about 22. We have a fair bit to go. It does not mean that the bust is coming tomorrow but time is running out and there are really no alternatives. If you know or have any idea how they will solve this mess, please share it with us. I do not like to sound like a dooms- dayer. I still think there will be a QE soon to lift the asset prices but have we not had 2 official and many un-official QEs in between? What have we achieved? We are still below the highs of 2007. May be we will see SPX 1500 by November with the help of QE, but it will not lead to full employment or wage growth. It is just another bubble.

My math skill is limited and I am unable to add up to reasonable viable outcome. So please help with your inputs.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. May be your friends can help with an answer.

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Why Waiting Is Worth It.

Everyday I talk of manipulation by TBTF banks and dealers. Most don't believe me but read it non the less. You might want to have a 3rd party validation of the rotten heart of finance here.
http://www.economist.com/node/21558281

Yesterday I wrote that we have to be careful of various shenanigans of the manipulators and as we no longer operate in a free market, we have to be careful while shorting. If you have seen the price movement in the last few hours you know what I am talking about. You will also understand why I am not yet short. Yes, we are in the time zone and price zone but we do not have a confirmation of the intermediate term top yet. What if it is a bear trap?  

I am more cautious before jumping in to short the market when some very powerful men in the universe do not want the market to fall. I do not mind giving up the initial 20 points if that helps to get a confirmation and helps me to avoid whipsaw. One thing that is troubling me today is action of VIX. It closed the day with a -2.17% down, even with SPX down almost a full percent. As if the big boyz are not really worried now and they are just working out the extreme overbought level of NYMO. The selling was orderly and there was no panic or unusual volume. It is too good to be true.  So I have decided to wait for few more days to see which way the wind blows.

We will have a bounce from here. That is almost guaranteed. In fact it has already started. It is where that bounce fails, that will tell us if we can short with confidence. I do not want to take up a position today only to cover it tomorrow. And my downside target is 1200-1230. So I have lots of points in sight and I am in no hurry. Once again, it is not necessary to trade just because we are bored or ZH said the world will end tomorrow. Or emotions got better of us and we are afraid that we will miss the opportunity.

In the morning when the market plunged, I am sure many of you cursed me for waiting and wasting time. But I would rather err on the side of caution. There will be many more trading opportunities, but if we lose our capital, we will not be able to catch those opportunities. That is my trading / investment method and I want you to understand where I am coming from. If I am not sure, I will not take a trade. Nobody can win all the time, but at least let me try to reduce the risks.

Coming back to the market, I think we will see two things. To start with, they will kill the bears 1^st, so that when the time to short comes, there will not be anybody else left except the BOYZ.  This objective will be achieved in the next few days and along with that there will be technical confirmation of buy signal to bring in momentum chasing lemmings. Those folks will get killed next. In the process SPX may well test 1380 or higher soon. The reversal from 1264 of June 4 can be considered a wave 4 and will end in 3 push up where the 3rd push may or may not make a new high.  That will be my cue. It is all coming to an end and those who are patient, will win.

 Thanks for bearing with me and reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it. Hope it rains over the weekend. It is too hot here for doing anything. Your place better be good. Have fun folks.

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Cake Is Still Baking.

The cake is still getting baked. Or at least not ready to cut yet. May be some decorations are due. Which may well happen tomorrow? So far in the week, we have reached 1375 twice and we need to see 1380 tested soon. Tomorrow is NFP day. The ADP report has been better than expected. So will the NFP report will also be better than expectation? If that happens, then the hope of QE is dashed again and only a market panic can induce the required milk of kindness from Bernanke. So kind of crucial day tomorrow when bad news will be good news.

Reuters headline screams that “ Three Central Banks take action in sign of alarm”. There was small 50 Bil. pounds of QE program from BOE. The market shrugged. ECB cut rate below 1 and as there were no mention of LTRO 2, market was disappointed. Euro sold off. PBOC reduced its lending rate. But the commodity sector did not budge.  So next time the Fed brings out QE, it better be huge, or it is not going to matter. It is called the law of diminishing return.

Many of you are itching to short. May be you are already short but I would still urge caution. The technical indicators have not rolled over yet. When it does, we will have a long way to go. So why not wait for confirmation.  Let the beast exhaust itself so that we do not have much fighting to do. I think it will get over soon. So patience is requested.  If tomorrow we see 1380 being tested and S&P fails to hold on to it, maybe we can start to dip our toes to test the water. In case I do, I will send twitter.  So please join me in twitter to get the real time market action. (@BBFinanceblog). In any case, the higher the market goes from here in the next few days, more safe I would feel shorting it. There is no rush.

One thing I would like to stress is, let us not invest or trade with a bias. If they are going to flood the system with freshly minted money and Obama is keen to keep his job at any cost, why should we not join the party? However till they bring in the money, we have a chance to short. But we do not know what all shenanigans TPTB will play and what other tricks they have under their sleeves. So shorting is always a risky proposition under the present situation. It is not a free market and fundamentals have been suppressed.  Therefore, even if we know that things are bad and unsustainable, we should not trade or invest with our belief. Conviction is good, but profit is better.

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.

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While You Are Enjoying The Fireworks....

Just some quick thoughts about the coming days:

• With NYMO very high, we may see a pullback tomorrow.
• However the up momentum is still strong and will likely test 1380 in the next few trading days.
• It is possible to treat this up move as wave 4.
• While my target for upside is around 1380, it is not something written in stone and can easily over shoot to 1400 +/-. 
• Do not be in a hurry to short yet, you are not going to miss the opportunity.
• My target for downside is 1200-1230 by end of July.
• Market is the final authority of its direction. We just anticipate the turns but never fight it,

Let us now enjoy the barbecue and beer.

 

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Happy 4th of July, America.

Wish all my American friends a very happy 4th of July.
Everything is going on as scheduled. Nothing new to add for today. I hope to have something interesting to say tomorrow.

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Cake Is Getting Baked.

Well, nothing new to write anyway. Its baking time and we have to be patient. While SPX and Nasdaq eked out small green, DOW was in red. McClellan Oscillator in the mean time is trading the danger zone.

But that does not mean that prices cannot go any higher. It is half day trading for tomorrow and closed tomorrow.  So we will have to wait and see where it all reaches by Friday. I hope it goes up and reaches the level of 1380 in SPX which will be a safer place to take any position. In fact lots of things have to line up before we can shoot. I would love to see SPX at 1380, Gold at $ 1650 and Crude at $ 87 by coming Friday.

I am little disappointed with the price action of Gold but with US$ higher for the day, what else can we expect. Crude was also marginally lower. As I have said before, I plan to get out of the GLD in the coming bounce, the final of which I would expect in the next few trading days.

The earning season starts in full swing from next week and it may not be pretty picture coming out. There is no growth story anywhere and borrowing and spending does not mean growth, whatever Hollande may say. If history is any guide, France has always been terrible with money management and unlike their Northern neighbor, the Germans; they refuse to learn from their past mistake. And every time they say “This time is Different”. No wonder France have had sovereign default (9) Nine times in history VS. (3) Three of Germany. Even those three defaults came because of the world wars, in which Germany lost. If I have to put my money somewhere in the World I would chose Canada and Germany. Switzerland or Singapore is too small to withstand global economic shock.  Or even buy income bearing real estate, which will generate income and most likely get back to the original valuation in 5 years time. Everything else will result in loss of capital.

Coming back to short term market movement, Crude is another possible short candidate when it reaches around $ 86.50 or $ 87 level. Chris Kimble has this nice chart to share.

Last but not the least, few days back when GS recommended taking a short position, I wrote that we may be due for a bounce. Today GS closed its short position after hitting 1365. So now it may be safe to short. And it nicely lines up with my earlier call of 1365 by the 1^st week of July and a potential top. Is it a coincidence? Possible but more likely, we are getting the manipulation pattern right. Just to be on the safe side, I would like to see 1380 please. Please ?

Thanks for reading http://bbfinance.blogspot.com/. Please join me in Twitter (@BBFinanceblog) and do re-tweet, post it on wall and share with your friends and circle if you like it.

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