Global Markets Update - Special Coverage For Indian Bourses - 29th October 2011

So now where do we stand with Nifty that seems to be playing catch up with positive global cues. As indicated earlier, the fall from 5740 to 4720 was too fast and too rapid and a 50% retracement was a very logical target [already achieved] and could possibily do 61.8% retracement [this was also achieved on Friday]. The next resistance levels are at 5378-5408-5440. We ensorse the view that 1 major leg of correction is due taking Nifty to the 4450-4550 region that will mark the end of this correction and the next phase of upside will begin there-after. In terms of time analysis, if we talk in terms of global cues, we should remember that in this entire bear market rally, Nifty topped out in November 2010 whilst FTSE took 3 more months [Feb 2011] and Dow took 6 more months [May 2011]

So on a larger scale, right now the western markets have a higher lead time than emerging economies like India or China. If we take the small cap segment and mid-cap segment, the value erosion has been tremendous. In the largecaps, the IT pack, especially Infosys and TCS have bounced back well [we also need to remember that Infosys topped out in Jan 2011 and TCS a couple of months later]. So this is actually a gift for investors to escape unhurt with minimal losses from the earlier investments and of course those who risked buying some units at the lows would do well to book some profits right now because the slowdown will come and affect the IT pack significantly and they will jump off the cliff they are on right now. The valuations are not at all attractive.

In the metals segment, the consumption of steel will continue to diminish as there is a lot of excessive inventory in the system and the slowdown in the automotive segment will accelerate the falls. Shipping stocks also can be safely avoided right now because the current rise in the Baltic Dry Freight Index [a measure that determines freight prices for moving cargo] is well below 50% of its peak value prior to the Lehman Brothers debacle and this is a seasonal rise; with Christmas shipments around the corner, there are peak season surcharges and a demand-supply imbalance that will get over once the Chinese New Year gets over - that is how the commercial geography of shipping works and all are set for a royal collapse. Moreover, with the slowdown, there is an increasing demand for using scrap and converting it into steel rather than fresh supply - so one may enjoy the short-term bounce [which is anyways more than 30% below the peak prices be it Tata Steel, Ispat or whatever]

Automotive segment is showing strength again due to seasonality and trying to mirror the movements in the global automotive segment but it is just an illusion. There is an increasing demand for used cars all over the mature markets and Indian auto-makers cannot escape the wrath of markets.

Banks led this rally along with RIL for Nifty throughout 2011 and Banks will lead the fall. I do not read too much into deregulation of the savings rate - the quantitative easing from Europe and US will keep inflation at higher levels and to the extent that happens, RBI will continue to raise interest rates [although it has no impact on taming inflation] Pharma segment will continue to reel under pressure with a lot of medicines going off-patent next year and the billion dollar formula pipeline is dry.

So as per our estimates, 4450-4550 visit is due in the short term where we should see aggressive buying. Now for the alternate scenario that is being propelled i.e. 4720-4750 levels that have been re-visitied 3 times now and markets have given a bounceback - is it possible that correction is over for Nifty as we have been reeling under pressure significantly for more than a year now. Our take is simple - cannot be ruled out though fundamentals do not justify this proposition.

Technically, 2 consecutive closes above 5532 will do the trick and then we have to ensure that by the end of December, we hit 5690 on a closing basis for Daily/Weekly/Monthly basis. If these 2 conditions are satisfied, we can safely say that 4720 was the bottom of this correction and now we should be looking up north but I don't assign this a probability of more than 1%

Next week, we need to see how 5032 holds out; the first gap from mahurat trading day to Friday will be closed with a downward price move next week itself IMHO. This then leaves us with the 4880-4750 gap pending but only a close below 4880 will provide confirmation that the gap is on a set path to be filled.

In terms of investments, a lot of mid-caps and small-caps have bottomed out and one can start accumulating in a systematic manner. Some stock ideas were shared last week and for now, do not have much to add to that list. IDFC closer to 95-110 range will be a good buy and so will be JM Financial IMHO with a 12 to 24 month target of doubling the holdings.

Global Markets Update - 29th October 2011

The series of white lies and cold wars [Between Europe and US] via economics continues leaving a lot of people baffled as to what really happened. Before we go to the indices, let us see what has transpired so far with the Euro-Dollar exchange rate impact as all Banks pre-dominantly rely on this and of course the KBW Banking Index for global markets.

The first major fall was from 1.51 to 1.39 and then a 61.8% retracement of the same; next leg of fall from 1.44 levels to 1.31 levels and now a 61.8% retracement [and a similar pattern seen on GBP-USD as well] However, we should remember that it has been a steady climb for the dollar index and the old highs have been long left out. The next stop for Euro will be around 1.2-1.25 levels within the end of this year [it is following a 3 month cycle to the downside from April 2011]

On the surface, the moment the Greek deal announcement came in, all indices and non-Euro currencies started roaring to the upside; Dow had a pending target of 12k anyways and the announcement of the Greek deal accelerated the pending target [which is still well below the high of 12873] made earlier. DAX, FTSE also rallied to 6400 and 5700 levels respectively but still well short of their 2011 highs made earlier this year. Fantastic news for the stock market one would be tempted to think - one really needs to think with a different perspective. A strong index performance would imply that the top notch stocks should be close to the levels they had during the high of this year. The market breadth has been very lack lustre with the bear market rallies of the indices and most of the stocks are no-where close to the 90% of peak value [the indices are at almost 90% of the peak value!], the midcap and smallcap stocks are reeling under a lot of pressure and this holds true for most indices with fiat currencies.

The real problem surrounding the European debt crisis is excessive leverage by the banking system with Credit Default Swaps [that by the way have shown no signs of cooling off despite the 'fantastic European bailout' solution. This means hot money does not believe that the debt will be repaid; [the haircut of 50% is also a compelling evidence why hot money thinks so] 3 months earlier, the majority of the hot money was under the impression that the Fed will introduce the QE3 program whilst Europe won't do so. Most bets in the complex fixed income derivatives market were in line with this line of thought IMHO. In reality, things turned out the other way around; so the USD denominated bets in US triggered a massive sell-off as fund houses got margin calls and they had to dump all assets to fulfil their dollar denominated liabilities. With Europe proposing a 50% haircut and leverage of the EFSF fund, this time it was the turnh of the Euro denominated margin obligations and hence people had to dump the dollar backed currencies and fulfil the Euro denominated obligations.

[and all of this is being fit in right now as the charts had forecast most of these values in advance but yes - must acknowledge that some rise has been a bit bewildering; for instance FTSE posting a close above 5550 was not expected and likewise for DAX posting a close above 5950 - these are throw-overs and are hinting that within the next 3 months the falls are going to be far more severe; 4900 support for FTSE will be decicively broken down and the next stop is 4750 on FTSE now but please look at the timeline - we are looking at 3 months]

First and foremost, the European bailout has no details of the mechanism as to how the falls will be arrested; this move has brought forward a lot of negative consequences and it is going to be politically extremnely difficult to manage; The 50% haircut on Greek debt has actually encouraged other countries like Italy, Spain to simply take a laid back attitude of not paying debt as the haircut precedent is here to stay. The proposed haircut is valid for the interest payable for the previous instalments of bailouts i.e. the entire principal is still pending and Greece needs more aid for running the show. Ireland, another PIIGS country is now having domestic pressure - the honest tax-payers are asking a very logical and straightforward question - we got whipped due to bankers' mistakes; still for the pride of the nation and the genuine issue of having taken bailout money, we the people agreed to take paycuts, and pay higher taxes so that the irish government can fulfil the debt obligations. Inflation if anything is only taking a northward trajectory and why this step-motherly treatment for us; [From the perspective of Irish, they are on the losing side for playing the game as per rules whilst Greek are getting away with all the mess!]

The other major challenge is that there is a lot of debate on-going as to how the write-downs and losses on bad debt be handled and capital raised for the next round of re-capitalization be tackled. The farce of the stress tests is evident with the progress in the European financial turmoil; with each passing day/week/month more and more banks are falling from 'risk-free' / 'adequately capitalized' status to 'risky' / 'inadequately capitalized' status and this is seriously hurting the credibility of the stress tests and the European bond market has lost credibility completely. What is the guarantee that at some point of time they will come back and say 'Consider the amount paid as paid' - game over? This is going to hurt the banking businesses tremendously. Most banks are now coming forth and talking about balance sheet adjustments to ensure that the adequate capitalization comes through. All that this means in simple terms is whether you are a small business or a person, by and large your access to bank credit is gone; banks won't lend money for economic progress! They are making a mockery of the entire system saying 'Bailouts - welcome; it gives us cheap finance for speculation' This is evident in the rising price of commodities.

Another joke that comes from the 'elite' analysts about banks and companies posting double digit growth figures in EPS and here, I have to quote cricket legend's Sidhuism 'statistics are like swim-suits - what they reveal are enticing, what they hide are essentials' Earnings per Share is one aspect but then we have Stock Price and Number of Shares Outstanding. A company deserves the comment growth when the shareholder value of the firm has actually grown.

Enterprise Value [Shareholder Value] = Stock Price x Number of Shares Outstanding

First and foremest, most there have been deliberate attempts to keep lower EPS expectations prior to results season this time for all major companies in major firms this year. Second, as one can see with the Enterprise Value metric, a higher EPS does not guarantee wealth creation! None of the top notch banks [the leading barometers of global growth] have managed to grow shareholders wealth; they have continuously eroded shareholder value due to fat bonuses and excessively leveraged speculation. In fact, the US has again proved that how shallow it's concepts of 'procedural justice', 'ethics' are concerned. Most top management positions across all major firms have negotiated such lopsided contracts [especially in banks] that the executives leave with a golden parachute in case something goes wrong and services are terminated.

My simple questions to all bulls yelling with roaring indices is simple and straightforward - if the indices are really roaring and the bull market are

1] If that is the case, why is enterprise value not coming to normalcy?
2] Why so many jobs are being cut in both private and public domains?
3] Why is the housing market not roaring with the same enthusiasm?

If the unemployment numbers are going to increase and inflation is showing no signs of peaking out, how can companies grow? No rational and ethical 'expert' can answer this question because s/he knows that there is no answer to this. There is no right way of doing the right thing. If financial engineering has created this mess, financial engineering is not going to solve this problem as somebody said 'the devil lies in the details'

Next targets for major indices are
Dow - 10250 (full confirmation will come through when it decisively breaks 11425 on closing basis)
FTSE - 4750 (full confirmation will come through when it decisively breaks 5200 on closing basis)
DAX - 5000 (full confirmation will come through when it decisively breaks 5550 on closing basis)
CAC40 - 2500 (full confirmation will come through when it decisively breaks 2800 on closing basis)

So that is how we stand with major global indices; the pullback on Bovespa (Brazil) has been very encouraging but it is all set to retest the 40k mark but will bounce back smartly as we inch closer to the next Football World Cup. Hang Seng has staged a smart pull-back and is almost on the verge of finding the current bottom [looking at 14k - 15k levels for the bottom after which it will march towards the 32k mark in 15 to 18 months] I would encourage the Indian investor to start accumulating some Hang Seng Bees [Scrip Code HNGSNGBES] when Hang Seng is going in the range 14k - 16k [don't worry just in case it pokes down to the 12k mark once] - this is not a trading scrip. This is a healthy investment scrip with a target of doubling the investment in 12 to 18 months time frame.

As far as gold is concerned, there is some divergence - it was in a Contracting Triangle for almost a month and has now broken out of that triangle and has retraced up towards the USD 1750 levels [another indicator of fear plus speculation by banks speculating on commodities]. The top seems to be in place with USD 1925 levels and the next stops for gold are USD 1450 and USD 1200 within 3 to 6 months. If you have gold in the form of coins, bars, this is the time to book some profits on those holdings and sit tight on the cash. We had given a buy call for gold since Diwali last year as we were relatively sure of an upside until USD 1650 on gold but now we don't find much steam left in gold for now. The negative divergence has been confirmed by platinum and silver.

Coming to silver, one can forget about the highs it made earlier this year at almost USD 50 levels; the next destination for silver is USD 25-26 and we expect this to show up within the end of this year. Silver is in a way a measure of risk appetite of hot money and the fact that they are dumping silver is a good measure of how much they sense risk in all asset classes of capital markets.

Coming up next, coverage for India 

EOD Analysis for 28th October and Outlook for 31st October 2011

A very positive start for Nifty, following positive global cues and a very healthy OI of 31.2 mill in Nifty futures throughout the day. Banknifty finally did manage to see some supply beyond the 9800 zone but still early to comment whether it was an extension in short-covering or fresh longs initiated; outlook remains unchanged - 2 consecutive closes above 9750 opens BNF for retest of 10k levels. As indicated earlier, a close above 5150 on Nifty had potential to deliver upto 144 points in the upward direction and fill up the pending gap to 5325 levels. That has been achieved now and we are left with 2 major gaps 4750-4880 and today's gap-up; expect today's gap-up to be filled with a downward price action next week but the other gap still needs a close below 4880 to fill it up. Weakness in BNF can only be confirmed with a close below 9500 that opens BNF for retest of 9000-9250 levels.

5032-5092 levels have survived and will continue to do so in all likelihood until Monday EOD. If bulls manage to keep 5032 intact until Tuesday EOD, that will limit the downside to 4980-5020 for another week of trading. Still maintain that there is nothing much exciting about this upside right now and markets are not out of the woods. A simple clue of what is happening lies in the EUR-USD exchange rate relationship; first major fall took place from 1.51 to 1.41 and subsequently a 61.8% retracement was seen; next major fall was from 1.44 to 1.32 and a subsequent retracement of 61.8% to 1.425 [in progress]; the same is being witnessed in the DAX/FTSE/Dow etc and the news from Europe only accelerated the time factor of the rise; the next major leg of fall will be seen around 16th Nov to 22nd Nov; the mechanics of the current financial engineering and pitfalls will be given in global market updates tomorrow.

5032-5092-5132-5177 are current support levels
5348-5378-5408-5440 are current resistance levels

Trade accordingly, with hedges and for futures, 25 point stop loss on either side and trail the winning leg - that is the strategy to be employed; for options, as mentioned earlier, I am not very optimistic about the options side as there are a lot of holidays in between and the frequent gap-ups or gap-downs may not help. Those with low margins should probably take 1 strike lower on both sides, apply a 10 point stop loss on both sides and trail the winning leg

EOD Analysis for 25th October and Outlook for 26th October 2011

This was probably odd expiry by every means; the OI in Nifty futures were high at 34.5 mill throughout the day; Banknifty took steep cuts but no signs of Nifty giving up whatsoever; RIL extended strength whilst MnM, Tata Motors, Infosys all saw significant upside and lots of short-covering seen on LnT. VIX cooled down by almost 3 points which is actually confusing given the upward and downward gyrations seen [and a negative market breadth on the bourses] Nifty has broken out of the tight range and given a close above 5150 and this implies a high probable chance of filling in the gap all the way to 5328 on mahurat trading. Towards the end, lots of short-covering seen on BNF as well.

Markets are certainly not out of the woods and the danger of retesting sub-4700 levels still lies but that has to wait for some more time towards the critical time zone of 16th Nov to 22nd Nov; tomorrow for mahurat trading, we may not see too much negative action on the bourses regardless of global market cues. Again in November series, there are a lot of holidays so one should be very careful with the options of Nov series.

Weakness will only get confirmed with BNF giving a close below 9500 and Nifty giving a close below 4880; as mentioned earlier, closing above 5150 raises the chances of generating another 144 points in the same direction and hence now shorts should wait for a breakdown to be confirmed. All interest rate sensitives along with banks will lead the fall; 9750-9800 still remains a profit booking zone for BNF;

Last but not the least, this is a bear market rally and has remarkable resemblance to the patterns seen in April and August - enjoy the ride till it lasts but the next fall is again going to be severe;

PS: For all who are wondering why this corrective is taking so much time; would encourage reading the section on correctives following a sharp impulse action that usually takes the form of a Zig-Zag/Flat/Zig-Zag; From the 26th July to 26th August, Nifty dropped from 5702 to 4720 levels i.e. it fell at ROC = 32 points per day where as normal ROC for Nifty is 10 points per day. Second, with such sharp falls, a 50% retracement is very logical [we saw this at the fall from 6181, 5944 and now with 5740] and that 50% retracement has been completed today. The zig-zag structure comes into play because the previous corrective could not attain the required price target. Through-out August and September, the market geometry was trying to balance the time and price factor.

Happy Diwali to All of You and a Very Prosperous New Year

EOD Analysis for 24th October and Outlook for 25th October 2011

A positive start to the day and OI in Nifty futures opened at 28 million and as we approached the European session open, the OI had surged to 34 million [a tendency seen as we inch closer to expiry]. Markets are not out of the woods but something to cheer from Europe may lift the mood along with the festive cheer on Indian bourses. On the downside, the real risk comes with a close below 5032 and complete weakness with a close below 4880. Banknifty did extend the gains today at the back of a strong Euro and the longs extended towards 9850 on spot but there is a lot of profit booking seen beyond 9750-9800 levels and absolutely no signs of fresh supply coming through - 2 consecutive closes above 9750 and BNF opens for a retest of the 10k zone.

Infosys as advised last week did manage to inch towards the 2775 mark [although we did not take a long position ourselves in this nor encouraged longs - we have been constantly advising to avoid shorting this counter due to the technical setup on the charts] Weakness in INFY will only be confirmed with a close below 2650.

5032-5092 levels yet again managed to keep Nifty afloat and the behaviour of Nifty tomorrow may depend a lot on how Dow features tonight. If Dow manages to extend its gains from Friday, there may be some more steam left in bulls and may make one attempt to close over 5150 levels; a close above 5150 opens Nifty for a retest of the upward gap towards 5177-5328 levels. BNF is still well over 9500 so it may try once again to cross over 9750-9850 levels where IMHO, no fresh supply can be seen but a lot of profit booking. On the downside, if Dow lives to its tradition of sad Mondays, then we may see weakness continuing on Nifty but since 5032 has held firm for 9 trading sessions in a row now, the downside risk may be limited to 4980 for now but as always - difficult to tame expiry.

Looking at the way longs desperately rolled over today [short roll-overs would have decreased the premium on Nifty futures whereas long roll-overs IMHO has the tendency to increase cost of carry, thereby restoring a lot of premium on Nifty futures] we may just be in for a surprise because despite such steep cuts from the highs of the day on BNF and NF, the VIX dropped! [this is a cruel joke on Indian bourses in my personal opinion]

Crucial levels remain unchanged as given on Friday and over the weekend. Wishing all of you a very prosperous year along with the festive cheers

Global Markets Update - Special Coverage For Indian Bourses 22nd October 2011

As mentioned earlier as well, let us not forget that the market has moved no where from 26th Aug till date; we have been oscillating in the broad range of 4700-5100 levels with a lot of gap-ups and gap-downs and as explained in the previous part, it is a game of futures and options that is being played - simple. The only good part is that we are almost on the verge of finding a bottom as far as Nifty is concerned; 4450-4550 is almost certain to be tested in November [please refer harshal's weavologic section for the Fibo logic and Raghuji's section for the Wavologic] and fundamentally we can't get worse than where we are.

Our per capita GDP is still well below USD 1250 per annum and even with the western world's slowdown, their per capita GDP continues to remain far above our levels. The real problem for India is that despite the impact of Euro and Dollar going down amongst some of the other major currencies, the Indian rupee is simply refusing to go below and this has far more negative consequences than positive consequences. Here, would like to pat the team on the back that the 'Sell Warning Triggers' from FIIs were sounded when the Rollar convincingly breached past the 46-47 mark before any media channel could catch it and make it headlines towards 48-49 [thanks to the 'breaking news' by media, most of the damage was already done by then and we had melted from 5600 levels to 4800 levels within 12 odd trading sessions; this also vindicated our stance that charts are supreme and news simply follow in most of the cases]

So let the hot money and big punters take Nifty as high as they want to - expiry manipulation and mahurat trading are coming very close to each other this time. We are near certain that 16th November to 22nd November is going to be a very turbulent period with a lot of downside risks and whilst I personally do outline support and resistance levels on a daily basis, personally am sticking on to cash and waiting for the correction to take place as far as largecaps and NiftyBees, BankBees etc are concerned. In the worst case scenario, either in November or towards the end of the Indian fiscal year in March, there is one risk of retesting 4200-3800 levels [odds are very low for these levels] but since the worst is already factored in, India will be one of the first countries to emerge from the financial mess. We should be able to see a new high on Nifty in 2014 with the election fever [and it does not depend on which party wins the elections] and most of the upside will be captured in 2012-2013 [just as it happened in 2009-2010] Some mid-cap counters were mentioned last week and some more are on the horizon

So whatever capital one has, it may be prudent to start picking some Nifty Bees, BankBees, HangSeng Bees etc from the lows [levels given in last week's update] Too early to predict the bottom right now but a lot of mid-caps are almost near their bottoms; Fundamentally, I look for segments that receive regular revenue and with reasonable debt on their books. For instance GPPL, a port terminal venture is definitely worth considering IMHO - regardless of where shipping prices move, a ship has to pay for using the berth and ships will continue to be a main mode of transport for basic commodities and retail goods. On the same lines, I would also be looking at counters like GDL, All Cargo etc and pick them up from bottoms. These are freight stations with warehouses close to the port; again steady revenue flows move in because of merchandise being docked here and reworked for containerizion [or decontainerization in case of imports]. Such counters will not be able to escape the wrath of bear market conditions in the short term but provide a good value proposition if one is willing to wait for a 2 year to 3 year period.

On the same lines of logic, I would also be looking for investments in counters like PVR [given our craze for movies - count me in as well bcoz I may talk some fancy gibberish mumbo jumbo but my weekend is incomplete without some Hindi movies!] Telecom is definitely something to have in the portfolio and I am sticking to the main ones only Airtel, Idea, RCom and would pick them from the lows next month. As I always keep saying, to structure a portfolio, one need not have too many counters and as middle class people, our investment capacities are also limited. I look for about 8 to 10 counters and then straightaway move on to the indices.

So to recap action for those who trade, crucial levels for Nifty are as follows
4663-4693-4720-4750-4809-4840-4880-4911-4944-4994-5032-5092-5125-5150-5177-5196-5225

A close above 5150 can give upto 144 points in the same direction filling up that pending upside gap towards 5328; weakness to be only confirmed with a close below 4880 that will give upto another 144 points in the same direction filling up the gap of 4750-4880. Play safe, keep hedges intact and don't read too much into the news. As Ashu Dutt keeps reminding on his show, develop the trader's edge and that lies in the power of charts and not news.

As usual would like to put in my disclaimer - it is my first year in the market and have a lot of things to learn still. I have been lucky to be under seniors like wwji, raghuji, harshalji, mgusaji [all my mmb portal mentors] who kept giving me hard knocks to keep re-visiting the books and refining the analysis each day.

Recommended Books for Develeoping TA Skills
Technical Analysis by Martin Pring
Encyclopedia of Chart Patterns by Thomas Bullkowski
Elliott Wave Theorist by Robert Pretcher Jr and Alfred Frost
Futures and Options by Jonh Hull

IMHO, these 4 books are more than sufficient as far as theory is concerned; the real challenge is to comprehend these and learn the different patterns in real-time with passage of time and as per records kept at Ivy League Universities, it takes about 2 years to 3 years to be able to relate to a chart pattern in real-time without even looking at any reference book; so that shows how far behind I am in learning and hope that it is inspiration enough for some of you to read more and comprehend more.

Global Markets Update - 22nd October 2011

As indicated last week, the ideas to further monetize debt keeps on continuing as a cruel joke on people across the board. On the surface it seems all ok with Euro inching back towards the 1.4 mark and GBP inching towards the 1.59 mark, a roaring Dow [that target was anyways pending regardless of the news steroids - just that it seems a bit over the top right now] - so what the hell is going on - first and foremost, at least for Dow, FTSE and Nifty, it is all an induced volatility to gain maximum out of the FnO business as the entire market knows there is nothing more pending in terms of stock market rise any more for a pretty good period of time.

The stark reality is hitting us straight in the eye with rising CDS premiums i.e. hot money is relatively sure of default on debts sovereign as well as corporate debt. Fed is contemplating another round of QE [at least that is what markets are expecting] and yet another round of inflation on the cards; the euro zone, so far has been very cautious not to activate the printing presses like US and UK have already done but it now seems like it may just end up doing so to delay the inevitable.

Fundamental case in point is that if the fiat currency has not been able to pay up for debts for decades of growth periods, for sure it is not going to be able to pay off for this debt now and who is going to buy this debt?? Banks are under-capitalized when it comes to stress tests, and do not have liquidity to lend for business credit; yet every dose of QE is jumped upon and all sorts of items like corn, crude oil, soybeans, live cattle, pork bellies and the laundry list goes on - is lying in the books of the banks! Is a bank supposed to hoard pork bellies and live cattle or is it the responsibility of the bank to pay interest to savers and lend for economic growth???

This is one of the most cruel jokes being played by hot money, governments and central banks on the struggling middle class. With each passing week, the manufacturing segment, one after the other is talking about pay cuts, job cuts due to escalation in costs. Yet on the other hand, the purchasing power of those bills in the wallets/purses be it dollars, euros, yen, rupees or whatever is decreasing; private label purchases are increasing exponentially and growth forecasts are getting grimmer - so the writing on the wall is clear - let us not get halucinated by what we see on the screen and let us focus on what the reality is and be prepared for another set of turbulent times.

For those who find some of the jargon mentioned above a bit over the top, just look up Investopedia for terms like debt monetization, CDS [Credit Default Swaps i.e. Insurance if your borrwer fails to pay you] etc. In simple terms, it simply means we have a plain vanilla cake of 1 kilo; initially we thought we have enough and 4 pieces of the cake would take care of the party; suddenly, some more unexpected visitors came and we for sure do not have more cake; so we decided to make 8 pieces of the cake; this game of 1-2-4-8 is repeating itself through a vicious circle and we have come to a stage where we probably have 1000 pieces of cake - wow 1000 pieces of the cake is fantastic BUT the cake WAS 1 kg AND CONTINUES to be 1kg [and a lot has been evaporated now due to heat] so 1000 pieces is good but unless the cake is made big, no positive outcome is possible.

With elections around the corner in a number of places, a lot of white lies are being spit on the voters' faces and they happily take all of that with a smile because the markets are roaring out of no where. Anyways if this money printing nonsense goes on, all that we are going to see is a sudden rise in commodity prices and lesser purchasing power when people go to markets to buy essential stuff. Speculators will go on and on and then the headlines will be 'markets melt down severely overnight' - our 'leaders' want us to experience something worse than the Lehman Brothers debacle as we move on.

Even a liberal country like US as far as education is concerned is facing an increasing number of universities pulling out of scholarships - the news headlines will talk about standardized tests being unfair but the bottomline is that tax collections are not enough and corporations are not in a position to spend as they used to in the past - let us make no bones about that. 401k retirement accounts built from the hay days of internet bubble have seen no tangible growth in value of portfolios. On top of that, austerity measures are being forced upon people just to ensure that a sovereign debt default can be post-poned for as long as possible. Double whammy again as cost of living is going up and purchasing power is going down - nature's law dictates that creation of something fruitful needs an innovative mind and a lot of hard labor. Financial engineering and printing money like there is no tomorrow won't cure the real problem but rather make it more and more problematic.

There is a silver lining for a lot of people right now with these roaring markets - time to withdraw the cash and hold on tight to it licking whatever losses have already been affected. If indeed people get smart this time, there should be more and more redemptions and cash hoarding for a brief period. This is not the time to enter stocks or commodities but time to exit. The very psychological handicap that people have i.e. 'I have to be invested in something' is being milked upon to maximum by the big ponzis of the investment banking world. How else can one explain such massive fluctuations being induced on the bourses every day - simple write one end of the options and with the premium received buy the other end of the options and just keep on repeating the game again and again because again; the 'mass psychology' of traders is that 'I must have some longs and shorts with me all the time'!

The Euro can roar towards 1.4-1.42 as well probably but it is just a few days away from dropping to 1.2 and if the printing presses go on full steam, it will probably end at parity to the dollar. Let us not get misguided by the fact that this is a fight between US and China regarding currency and bonds - wrong wrong wrong. This is the state of modern day Cold War between Europe and US in the form of Tit for Tat and the Germans including members in Merkel's own party have shown their intelligence by outlining consequences of debt monetization. Whether it meets its eventual goal in the right form or no, time will tell but as of now, seems like we are heading into a large financial tsunami.

It will just take 3 days to wipe out values drastically making people brood as to why they got misled into being invested. Staying out of the market with cash for 3 to 4 months doesn't do any harm. In fact the potential to get bargain deals across all asset classes couldn't get better again for those who missed the rallies from 2008-2009 period - now that is something one shouldn't have missed and this is one of the best blessings by supernatural forces that a similar opportunity is coming in again.

So for global markets, let us remind ourselves that the highest denomination currency bills of Euros and Dollars and Pounds are not in the hands of these very countries even as the printing presses are getting activated. In terms of quantity and quality, they are in the hands of emerging economies.

Coming up next - outlook and a brief version of our team's proposed path moving forward [with inspiration from Conquer The Crash by Pretcher Jr and access to research papers available for free by Nadeem Walayat and team on marketoracle.co.uk (link provided in home page of this blog)]