The Ultimate Bear-market begins

you might think i'm saying it because i panic on the news about Cyprus? but this is not the case. in the 4th quarter (Q) of 2012 i was predicting that a major downward move in stocks and bonds will begin in the 1st Q of 2013. well, the Q is not over yet and i think we have plenty of time for my prediction to come true - almost whole 10 days incl. today. indeed, Cyprus will play a big role in it. but not as big as the troikas...

to save time, i think it would be easier to just post the following video of an economist who matches my assessment entirely. i don't think that Cyprus will agree to the deposit cuts proposed by the troika. it's suicidal! it's equally suicidal for Cyprus AND the EU. here is the video:

for some reason the blogger cannot insert it into the thread. so here's the link - http://www.youtube.com/watch?feature=player_embedded&v=O8n4cPfuyo8

why is it suicidal for the EU? because the EU leaves Cyprus with no option - Cyprus is cornered. if they agree to the deposit cut the big depositors will swallow it but they will also transfer what's left to some other offshore the very same day the banks reopen! they will drain the banking system and leave Cyprus with no money.

if no cuts are made - they will still withdraw their money simply to protect themselves from the very likely possibility of Cypriot banking system collapsing. so it doesn't really matter what EU or Cyprus do at this moment. what matters is in what manner they do it. right now the EU is not keeping its face and they want Cyprus to be dipped in shit as well.

if they cut the deposits they will loose their reputation and nobody will want to return their money to Cyprus ever again. it is very surprising that the EU leaders don't understand it and actually force Cyprus into this bucket of crap. not to mention that if Cyprus cuts - legal processes will follow like an avalanche.

and the EU is going to do then? bail out Cyprus on Greek scale? give them 100 or 200bln euros instead of 10 that is needed now?... when things became really hot in Greece - Merkel flew over there herself to settle things down. she was ready to excuse any austerity measures on the Greek part as long as THEY accept the bail out... what we're seeing with Cyprus is radically different. it is as if she didn't care about the safety of the euro zone anymore. and Cyprus does have the potential to ruin it. because when a bank run starts in one member state - it is easily passed on to the next one! while Cypriot economy is insignificant what are they going to do if a bank run starts in Spain or even our beloved Greece?... it'll be chaotic...

and the likelihood of these events unfolding is very high. i'd say it's pretty much inevitable. and the longer they keep the banks closed - the more likely there's going to be a bank run... the situation shows that the ECB cannot control the situation. and not only control - i don't think they can assess it correctly and measure the risks.

frankly i think this is done against the Russian presence and Russia's potential involvement in Cypriot gas development. the EU wants that gas for itself and Russia is a huge competitor and a huge risk. because Russia will later sell this gas to the EU but a different cost... and i think this is what this mess is all about.

but Cyprus is not the only thing that should concern the investors!

next - the French and German manufacturing PMI and S&P500 technical diagram...

here is the French and German PMI data. look closely:

French manufacturing's been folding for about a year and a half! and it's services index is almost at the levels of 2009 bottom. the unemployment is at 10,6%. only 1% better than that of the Italian. the second largest economy of the EU and the third are clearly in a deep, deep recession, if not a depression.

and what about Germany?

better? maybe. but not great...

and here on those two examples we can see the fatal misconception of the state of the EU. the common currency has one fatal flaw in itself - it limits the power to control monetary policies because each member state has a different economic growth, different inflation levels, different unemployment and most importantly - different laws. so with the example of relatively well doing Germany and for example Spain we see how this inability to control the monetary policies help one survive at the expense of the other. Spain has 25% unemployment rate (and i'm surprised there are no revolts in Spain) and Germany has 5,9% unemployment rate. if interest rates get any lower or if the ECB starts to inject the economy on Bernanke's scale Germany may suffer from high inflation. but without those measures Spain, Greece, Cyprus, Portugal and even France and Italy all suffer from deflation. put together those economies are much bigger than German. though i don't thinks it's a proper comparison. it's one of those examples where the size doesn't matter... what matters is the risk. the risk of banks failure, the risk of public unrest, the risk of the union staying together...

and finally putting the fundamentals aside for a while, lets look at one of the versions of a TA analysis of the S&P500 index:

this was originally posted here - it's in Russian so please read it if you can.

regarding the numbers in the graph. they represent the numbers of the arrows (yellow, blue, green and red)
number 1 (yellow) is the highest probable scenario
number 2 (green) is not probable and idiotic. idiotism can be harmful for health...
number 3 (red) is very much not probably because there is simply not enough time judging by the world situation - it's the middle of July...
number 4 (blue) this idiotism multiplied by idiotism. but from the technical point of view - it's an ideal short!

so to summarize we have a potentially crucial outcome in Cyprus that threatens the existence of the euro as a whole. and i forgot to mention that the Cypriots do not care if they remain in the euro or not!!! in all the time they've been in the euro zone they never even removed the prices in pounds in their stores. find me a single store in Germany that would still display prices in deutsche marks! you won't. more than 65% of Cypriot do not mind leaving the EU and returning to the pound. so the troika is making a big mistake in underestimating the will of the people to keep the euro - they don't care about it and it raises the risk of Cyprus exiting the EU on their own. and that in turn gives the precedent of EU braking...

Cyprus should not be the only concern - Greece, Spain, Italy and even France the 2nd largest economy in the EU suffer from deflation. this is where the attention should be, not Cyprus...

and finally the technical analysis leads to thoughts of a big correction and possibly, multiplied by the fundamental factors stated above, to a new crisis. we can call it the EU crisis but in reality it will unfold into a major world-wide DEMAND CRISIS affecting Asia (and China in particular), Mid East, Europe and naturally - the USA...