Despair means - obvious (15.11.12)

originally posted on FF

well, maybe some of you remember my thread "ultimate bull market" where i promised to write about the bear market when the time comes... well, here it is...

it is sad that the bull market did not see my forecasted tops, such as S&P500 = 1600-1650, for example... there is still a chance but it is very small probability that it will happen, i'd say 10% or less. so, this is what i think is going to happen:

1) Greece. Greece will get it's new bailout, but it's not going to have a very lasting effect. i doubt it will have an effect at all, actually. the trend it clear - the more austerity Greece takes on, the higher the unemployment. over 25% (1/4 of the country!) is the end of the game. bailouts (money) will not help. money don't create jobs. jobs are created via labor demand which is created via product demand. if there is no labor demand it is pretty much obvious that there is no product demand either... that's where the danger is and there is nothing we can do about it...

2) Spain. well, pretty much the same picture. 2 major differences - Spain is yet to ask for a bailout and when they do it will boost markets for a little while. but 25% unemployment and regional political instability (some regions in Spain wish to part and are subject to revolts!) makes Spain a very dangerous EU member... Spanish bond yields are climbing to 6% and once they've passed this number i think Spain will ask for a bailout. it all depends what other news will dominate. so far i'm seeing worsening statistics. when they were positive (like that 7,8% (or 7,9%?) unemployment in US) the markets were beaten down by extremely heavy manipulations through direct monetary involvement and mass media. now those stats are becoming much weaker primarily in other than USA counties. US is continuing to show some stability (i don't want to call it "improvement")...

3) euro vs usd. there is a currency war going on, only the blind cannot see it. the goal is to bring the dollar down as much as possible. but it's Obama who screwed it up when he (absolutely directly!) manipulated the oil price on the 17th of September 2012! absolute direct manipulation by the president of the USA! if you call a statement about releasing the oil reserve anything else but price manipulation - i'd like to hear it. after this very moment the markets sank. and there is a reason - much lesser trust. QE3 is another failure. frankly i find QEs a one huge fraud. that money was stolen! it is not in the economy, it is somewhere rotating the banking system! no loans - the money is simply going to the stock market... thus the bull run of 2009-2012... but you look at the housing charts, at wages, at disposable income, at unemployment and you'll see - not much progress! even the unemployment is likely just the sign of migration! people migrate back to Latin America, Mexico, Canada, you name it... 

4) Germany. i should say the EU, but Germans dominate. Germany is getting weaker and will eventually (rather soon) see it's GDP at 0,0. that will force Germans to push the ECB to cut IR. and that will force the euro down and dollar up! how will the FED react? it can't... expand the QE3? possible. but we're having the debt ceiling issue and the fiscal cliff dead ahead! there cannot be increases in QE3. there can be Twist2 (or is it 3 already?) but will it help? of course not...

5) the US. why won't it help? because of the demand. the dollar is meant to be down for two reasons - inflation and exports. and while it is not hard to inflate (or even hyperinflate) it is going to be impossible to export! because your buyers are broke, they don't have any money. what are you gonna do if there is no demand?! and who's your primary client? - the EU! the same EU that is pretty much in a coma state... the dollar has no other way to go but higher... and that'll have all imaginable consequences - exports drop, less demand, more firing, more unemployment, and even lesser demand, more mortgage walks, falling prices, more layoffs, more businesses going under... you get the picture - massive deflation.

6) and here comes the fiscal cliff... this is what it is FISCAL CLIFF ...in short - it's unavoidable. short term bullish sign would be postponing the cliff. trying to come to a consensus and especially trying to touch the taxes - is suicidal... if investors get the hint that taxes will be raised even 1% they will immediately draw the money from the stocks for sole purpose of paying less income taxes, and that alone will crash the market! not raising taxes should make the middle class very angry because the rich should pay more taxes, it's common sense... if the rich get another slack the middle won't be happy because they understand that it is bad for the budget... it is very likely that they will cut military spendings to the point of no or minor damage to the industry and at the same time enough of a showoff. i'd say not more than 50bln, and only temporarily because there is a war coming...

7) Iran (and the whole region for that matter)... there will be a war, i'm sure of it. and it's not a healthy war! it is sick actually. US' external policies are always just vomitingly sick! with the new war the US will not be able to cut military spendings much and for too long. actually cutting them is no better than continuing them! because it's the question of a lot of jobs. tens of thousands... the military machine in the US is so huge they could have taken over Mars if somebody was living there. it's dis-proportionally huge to its means... and cutting it even a little bit will result in a certain kickback. so obviously cutting big and for long isn't an option... if you can't cut it you have to come up with an excuse for it. how? with a war... there is no alternative...

8) China. when the freefall process starts it will ultimately drag China into it. and China is a huge producer. a small drop in demand will result in big drop in Chinese exports. a bigger drop in demand will crash the Chinese industries (ultimately crashing Australian markets to the floor!...). the Chinese have some maneuverability - there is a lot they can do, but just like with the US the question is - what can they do if there is no demand? EU is a major buyer. no EU - who's gonna buy?.. and the island dispute with Japan doesn't help neither side...

9) Japan. pretty much the same issue of demand. worse - the Japanese have no maneuverability! IR at 00, QEs continue... there isn't much the Japanese can do though they do manage to remain humane towards their fellow citizens during harsh times... 


However - it is very likely that we will see the last bull run before this happens. and it'll be based on the following:

Greece and Spain each getting bailed out in the coming 2-3 weeks. Fiscal cliff is likely to be postponed, though it is hard to predict how far out. the debt ceiling issue is due february so they might either postpone it till then or have a much longer delay. they may also make some cuts, probably in military spendings. i think something like 50bln will do - it's enough to say "look, we're doing something!" and it's not enough to damage the industry... talks about raising taxes is an absolute no-no! raising taxes is a very bad idea right now and i think Obama was placed (not elected) for the reason of cooperating with the rich in this (even if you heard him say otherwise in his campaign... talk is cheap and Obama makes no decisions what so ever. especially in politics...). by the way the debt ceiling is not a big issue either! but it is likely that markets will start to shrink right before it. reason - what's the option? - default or raise the ceiling. of course they will raise it. say to 20trl... that will consequently result in an immediate USA downgrade from the S&P, Moodies, and so on... i don't think it is the point of collapse though. i believe the spark must come from the most troubled, and the most troubled is Europe. but it can also come from Asian countries, for example Australia or Japan. ...it's not easy, as you may imagine, to pinpoint the location and timing, but the location doesn't matter so much. it won't be States that's for sure. the States will actually perform well. look at today's (core) retail sales for example. down, right? remember Sandy? it's simply a temporary delay. next time it comes out it will probably be much, much better. and what's for timing - i give it maximum 6 months before markets die. meaning not AFTER 6 months - meaning sometime DURING the next 6 month... most likely by the end of 1st Q 2013...

i had this thought coming to me today. simple really... - "despair means - obvious" (thus the title)))  thanks for reading.