Tuesday, September 18, 2012

Backing and Filling.

Today it was all about backing and filling, like I said yesterday. In the morning I Tweeted that it is not the time to short yet. And the market was not in a hurry to go anywhere. I think we are going to see green close tomorrow and a test of SPX 1470 by Friday.

Only exciting thing was the selloff of Nat. Gas which lost over 3% and Crude closed below $ 96. But again, no sell signal yet.

The interesting development going forward is going to be how Spain goes with the begging bowl to ECB. Remember how they removed Bunga Berlusconi? The Italian bond yield spiked up and the greatest womanizer of Italy was forced to step down despite having a majority in parliament.  Now the same routine will be played on Rajoy.  Spanish bond yield have started to flirt with 7% and the much promised unlimited yet sterilized bond buying program of ECB is not anywhere near. The markets are going to test the resolve of the ECB and the European politicians very soon.

Let me quote from Peter Tchir:
I am growing more concerned that Europe is slipping back into crisis mode.  We have had a window where the ECB stepped up, Germany backed down, and there is enough “wiggle room” to get something done.  Spain needs to ask and they need to ask soon, because all Europe has is “wiggle room”.  There is not true deep support for the ECB’s new policy.  Heck, the IMF has admitted how difficult it is to structure programs for EU nations.  The German court upheld ESM, but will other countries raise their own challenges?  Will disgruntled Germans (and those in other countries) find alternative ways to try and block plans for more widespread ECB intervention?
I don’t know the answers to those questions, but it would be foolish to think that someone isn’t working on those plans of attack.  Draghi is desperately trying to get pregnant.  He knows there is no such thing as being “a little pregnant” and once the OMT is turned on for Spain, and then Italy, there will be almost no turning back.  Either the programs will work right away – doubtful, or every 6 months or so, Europe will be faced with the alternative of taking losses on existing programs and stopping them, or upping the ante – likely.  So the likely scenario is every so often (3 to 9 months), Europe will face the same old decision, admit you were wrong, take losses, and move on to proper restructuring, or paper it over and pretend it will get better (which eventually it may).  We all know what Europe will decide.  Politicians and Central Bankers don’t lose money, not if they can help it.  So Draghi needs to get on that slippery slope of aggressive buying before he gets stopped out.

 That scenario very much plays along with the expected sell off in the equities by the last week of September, early October and eventually, the mess in Europe, Fiscal Cliff in America and geopolitical volcano in Middle East will all come together to create the perfect storm in 2013-2014.

I feel bad that the best days of investing are behind us all. The period from 1985 till 2000 was golden when SPX travelled from less than 200 to 1500 in 15 years without any hiccups. And we are still struggling to go near 1500 after another 12 years. More likely we will see SPX below 500 again because of the stupid policies of the central bankers and politicians. It is no fun investing in a bear market.  Just ask Japan and I am afraid, so is Bernanke that USA is becoming another Japan. To avoid that deflation he is ready to embrace inflation but when you ride a tiger, you cannot get down without getting killed. Ben knows that as well but he hopes it will not be his problem as his term will expire soon. He has already shown his hand and there is no other trick up his sleeve.

But I am just wasting time with all these silly talks. It’s all markets fault. There is nothing happening and please don’t do anything silly out of boredom. Two good opportunities are around the corner and we just have to be patient. You know my favourite quote” Forget about the fear of missing out”.

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