Ominous Baltic Index?

Ominous Baltic Index?

I also see H&S pattern with HEAD at 4900 and shoulders at 4200. It was not lead indicator in 2008 (this can be argued) but I see correction in Markets in first/second week of January followed by small uptick and then decent downturn in February/March in all Major indices like; S&P, DOW and FTSE.

Note also that 4900 is exactly 38.2% retracement of its fall from 11800 to 663. Another bad news?

-Shrihas Pandharkar
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DYOR.

Expect the unexpected

One fine morning, Connaught (CNT.L), stock fell from 110 to 18 (to close at 38) on the news of financial distress. One fund manager came in print and said “A year before I stopped a van of Connaught and asked the driver what he is doing for the day? Driver pointed his figure to bunch of papers and (driver) said that I (driver) don’t understand anything out of this. Hearing this, I (fund manager who was speaking) shorted the stock (CNT.L)”.

Turning to latest development, unconfirmed reports suggest that Paulson fund has pared holding in BofA. Unconfirmed reports suggest that Singapore based commodity investor has shorted BofA. When WikiLeaks said that it is going to publish documents on “not so good practices” in one of the bank, BofA tanked 4%.

Above two paragraphs, show that reason for fall (or rise) in stock prices are very different from what appears in print. It just needs a trigger. That is why current whisper (or whisper numbers) is what makes the difference.

-Shrihas Pandharkar

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DYOR.

Control?

If my information is correct then in recent interview Mr. Bernanke said that he can increase interest rates in 15 minutes and can stop Hyperinflation.

In my earlier post (which drew comparison between German Hyperinflation and USA today), I indicated why and under what circumstances hyperinflation will happen in USA. Let me revisit that post in different manner.

Mr. Bernanke is correct when he is saying that he can increase interest rates in 15 minutes. It is also correct that as soon as he utters word “tighten” S&P will fall 10% and gold by 12% (percentage figures are pure guess). It is also correct that prices will fall across spectrum.

He will be correct and proven right provided “OIL REMAINS PRICED IN DOLLARS”. As soon as Oil is priced in another currency, very few will watch what FED reserve chief is saying. As long as dollar is accepted exchange for commodities, all FED chiefs can manage world economy and remain in control.

-Shrihas Pandharkar

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DYOR.

PPT & Contradictions within

Most of the people are convinced that there is a PPT (Plunge Protection team). Some technical analysts also include PPT factor in their analysis.

Now let me look at contradictions. People who believe PPT is active are same people who follow technical analysis. These people look at various technical indicators and give BUY or SELL signal. Now, if you believe, PPT is active then as you look at technical indicators, PPT is also looking at those indicators. If you believe PPT is manipulating markets then it is also manipulating technical indicators (as technical indicators are the result of price movements).

I am not saying technical indicators should not be followed (these are built in HFTs, so one should be careful not to ignore those). I am just driving the point.

One needs to be counter intelligent.

-Shrihas Pandharkar
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DYOR.

History repeats itself

History repeats itself but in different form.

It looks to me that indices will put major top in January-11 coinciding with Chinese Premier’s visit. Markets will react once visit gets over. Markets will rally back in March-11 but will not break earlier high of January-11. However, major bottom will not be in until March-12. Around March-12, I expect S&P at around March-09 bottom.

I will update this later if I suspect it will play out differently. Stay tuned.

This will be similar to 1970s.

-Shrihas Pandharkar
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DYOR.

1920s German Hyperinflation

Some commentators are drawing similarities in German hyperinflation in 1920s and the USA today. In their opinion, USA will face same problem. I will be brief.

German hyperinflation was a result of high “Money in Circulation” and we are not there yet. I am saying this again, all depends on future action of FED. However, here is the trap. If I look at dollar bills in circulation in the USA then it is not alarming. However, dollar bills in circulation in whole world are alarming if all dollars return to USA and start circulating ONLY in US economy.

Dollars will return to USA if there is a loss of confidence in dollar. Confidence in dollars will not be lost as long dollar is “accepted exchange” for commodities.

In my opinion, in the first stage world will price commodities in any other currency and then in second stage all dollars will flood back to USA resulting in hyperinflation. Note that there will be volatility, as everyone including US citizens will try to get rid of dollars. EMERGING ECONOMIES WILL NEED TO ENSURE THAT DURING SUCH PERIODS THEY IMPOSE CAPITAL CONTROLS AND ALLOW NOT A SINGLE DOLLAR TO PURCHASE REAL ASSETS. Once this happens then with due respect to chiefs, all future FED chiefs will be third page celebrity.

It needs a mention that in ensuing volatility during German hyperinflation in 1920s, bulls and bears both lost, as everyone became trader instead of investor (REMEMBER TO CHANGE TACTICS WHEN SUCH THINGS HAPPEN). Only those who remained invested in FOREX and gold preserved their wealth in Germany in 1920s. My guess is no one made huge money in that volatility.

All readers note that there is huge difference in approach by successful trader and successful investor. Most of us think that we are investors but in reality, we are traders. Very rarely, an individual will be successful as investor and as trader both.


-Shrihas Pandharkar
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DYOR.

Strategy

Banks depleted their capital during 2008 financial crisis. To help banks, US government came out with Stimulus where Fed bought securities held by banks and gave them much needed capital. Now this is how I think, strategy will unfold.

Fed knows that banks are investing money outside of US and making money. American Banks are controlling some stake in companies outside USA thereby insulating against dollar fall. The plan could be, banks make enough money (even by investing outside USA) and then Fed withdraws slowly.

The USA is also targeting unemployment but that plan is unlikely to succeed. If I get labour at 1 dollar an hour in Alabama and 6 dollars in Washington, will I get my work done in Alabama or Washington? Therefore, instead of doing it in USA, I will do it in Chindia. I firmly believe that most of the jobs from developed economies have disappeared forever. Job market does not go to zero, as people need electricity, water, food and other basic amenities. To supply these basic things, you need to employ certain number of people per household. Therefore, thirty thousand people employed in social service sector (including some privatised utilities company) are not an indication of growth. If population goes up by 10%, then you will need 10% more people in social sector. Therefore, if someone comes up with a chart that shows rise in employment in social service sector (including some privatised Utilities Company), one must see how much population has gone up by in the period under consideration. I THINK POPULATION IS KEY TO GROWTH!!!

Before I end this post, I have started to believe that gold price is an indicator of structural changes. When Mr. Nixon broke gold standard, traders reacted by jacking up prices of gold. Action of Mr. Nixon was sudden and probably caught world unaware. As a result, gold prices rose AFTER the announcement of Mr. Nixon. This time, god prices are reacting BEFORE any kind of announcement.

-Shrihas Pandharkar

DYOR.
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