Despair means - obvious

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.

Alright....so after all that, let's get to the BIG question. How do we make money from the whole thing so that while everyone else is in the grips of despair, the few of us that are initiated into this whole Forex thing can cash in while blood is in the streets?

Look for the market to go long on the EUR/USD?

What do you do when the "spark" you mention kicks off the collapse? If each currency on a pair essentially rises and falls as an indication of the strength of the economy it's tied to, what do you do when BOTH sides of a pair are falling?

I mean, if things start taking in Europe, the value of the Euro should fall right? But if things quickly start falling in the U.S. then the dollar should fall. If both are falling then the respective momentums would cancel each other, right? The result would be that the EUR/USD would then remain locked in place unless one economy is falling "faster" than the other.

If prices don't move, then traders don't make money....so where's the angle to make money if both economies and thus both currencies fall at the same time?

Don, good post, and I agree with most of it (except that I don't see military action in Iran - more likely in Syria - and I don't see China being that badly hit as internal consumption is rising fast with their growing middle class).

That said, all of these facts have been known for months. We knew about the fiscal cliff, the fight to the bottom in currency devals, Greece and Spain being worse than everybody is letting on (today's news has a new estimate that Greece can't get back on track based on current plan. They need to lose about 80B of debt) etc. But that hasn't stopped the markets from rising.

Interesting read...

It seems that the Mayans did not predict the end of the world but maybe the beginning of the end of the world, or at least as we know it today...

A little timing precision about Spain is that they will not ask for a bailout this year anymore as their 2012 debt has been fully financed, so it will be next year.

I would add that to finalize the Europe picture, there are also, Portugal, Italy and France that are also suffering or starting to suffer.

how to profit is an easy question - you short stocks and buy usd.

with the currencies it is not the matter of economies falling, it's the matter of safe haven and there is nothing safer than the dollar. when markets fall the demand for usd goes high because during crisis money becomes scarce. it cause deflation and businesses go under creating unemployment. the economy collapses... that's why Ben printed money - to make it available. but the system is such that money have to through banks and rotate in the banking system. bankers took that money (QE) and instead of loaning it, they invested it in stocks (they bought parts of companies increasing banks' influence on them! and that's important to understand as banks now own most of the US industries...). thus - stock market boom, and the real economy got pretty much no support. here's what i think about QE - http://www.forexfactory.com/showthread.php?t=394088

the euro is actually much more stable than the dollar, but the expectations of the euro are such that it is likely to perish as a currency completely. so, you probably don't want to hold something that has the potential to disappear and therefore it doesn't matter which economy falls faster or slower. though i'd say the EU economy doesn't even have room to fall anymore - it's practically dead already...

the usd is the main currency - everything else is based on the dollar. so when dollar rises pretty much everything else falls, and vice versa. the parallel currencies you refer can be illustrated (more or less) with, say, eur/aud - both currencies fall to the dollar and both stay very close to each other. though the aud was much stronger compared to euro in the past few years. but it had to trade it right now because both countries are collapsing, Australia has some room to lower interest rates, and i believe it will. but overall i don't like this pair because it is not an easy one to read and you have to follow the news in both regions which is not easy especially if you've never been to one of them and you know nothing about their industries, etc. i know EU much better because i lived there, i studied there, and i know very little about Australia because i've only seen it on TV... anyhow, trading in-parallel currencies is, imho, easier and more profitable... like today - something happen to aud and i have no clue what it was (need to read the news about it). doesn't seem like inflation expectations and vehicle sales had anything to do with it. i had a long position in eur/aud few days ago as i expected this jump (cuz aud is obviously overbought and euro should jump a little) but i closed that position, so there is no profit...

anyhow, don't look at currencies and economies, look at currencies and demand for them or risk taking on them. right now the euro is showing a little bet of risk taking. i hope to see this last bull run, i hope to see usd lower so i can buy it cheaper, and to close my long positions that i have...

well i hope we don't see any wars at all and i hope to see US military spendings cut at least 50%))) but hopes don't get us very far unfortunately... Iran is said to have nuclear weapons and it pretty much cuts all the options about how to deal with it. i personally don't mind Iran having nukes. i don't think they would use them on anybody. but it would definitely shift the powers in the region and the US and Israel don't like that. that's why they are very likely to attack and attack very soon...
as for China - indeed, locals are growing, but if we have the crisis (that i call 5 times bigger than 2008) - it won't help... China will cool off very fast and unemployment may skyrocket...

yeah, i agree... if Obama didn't manipulate the markets we would still be growing! by now oil would be 105-115 (WTI). i believe it is the manipulations that inflicted great loss of trust in the market. my original forecast was that we would grow to Christmas on all the stimuli we've got. but ever since the markets got manipulated - that's it. the trust is gone and now the fundamentals start to surface again, and they are freaking scary!

well, that's even worse. because if France and Germany sink the ECB will have no alternative but to cut rates and bring the euro down thus giving more strength to the dollar... if they start any forms of QE it further brings the euro down...

usd should rise with equities. Money is coming back as it slowly starts to circulate in the system. There still is hope but there has been a shift in power. Every generation has it and we are witnessing a big one like we saw in early 1900s...

So us will be fine.. they dug a hole on purpose but with their technology and molitary noone can stand a chance.

Germany will lead eu and china and russia will join their side..

all will heal however we should witness a large
crash before its all over and then prosperity sets in again. I see 2015ish.. trust is still there.

i dont buy the part that eu is the lagest china consumer. there are very few items selling in eu with made in china sign.

'only' thing that is exported are motor parts, computer parts whatever parts which are then assembled and sold in eu and elsewhere. like bmw.

eu is just processor living off brands. Shutting down by riots for example, will benefit other companies outside eu.

Where did you got your numbers ?

I can assure you that a lot of what you find here in Europe is stamped "Made in China"
China main trading partners are EU, US, HK and South Korea




http://www.tradingeconomics.com/china/balance-of-trade

i am very suspitious about numbers. If employment rate can be manipulated to such large degree, so can be any other number.

I follow all sorts of news from all sorts of sources, direct visits, etc... and then form opinion.

I believe china items in eu are not popular. However small trick to replace sticker with made in germany makes people happily pay many times more in eu and elsewhere for some brands. So, only little % of proceeds goes back to china.

If eu started major strikes, etc, then nobody will be buyinbg and noone will be working in eu, leaving place for say china company to capitalize on increased demand from the rest of world.

Yes, there will be impact but less than numbers suggest.

Hi mate, why do you think 2015 if you don't mind me asking?

I see largest bull in history coming in first... laws of the market too many bears around now

largest bull in history became history in 2008, why anybody wish to buy already fed controlled, inflated & fake market were real value is non existent?
largest bear in history is most likely imo.

Well peaks and valleys happen all the time... and if you truly believe that they are going to let it get out of control (no more usdx ) then that means your job/your home/your family on the streets... its a game controlled by a few... and cards are changing hands... it causes a ripple effect but essentially aslong as noone can challenge the might of the US military then it will keep going as is. Confidence has been lost by the retail public who buy the homes and own family run businsses etc... but they have no choice but to buy in again to the dream... the option is lingering.. as soon as they do the banks will start to lend agian and watch it rise up like fire... until the next big issue comes up again... aslong as they keep money circulating they won't have an issue with inflation.

I was in France on holiday for most of september and my lady noticed a very strange thing over 4/5 weeks we had spend there.
On receipts which she like to collect, price of most of goods went up week by week for a cent or two, here's a homework, keep your receipts from your local store for the month or two see it for yourself.
Inflation is big issue, I am talking about real purchasing power of euros & dollars not some shiny not too shabby gov numbers.
Without rising interest rates and neccessary cuts in public spending this whole system won't last.
Not my words - from wise few who saw that coming.

Yes food inflation is another story... food is a rather large issue on its own as we have the same of less amount of resources to feed more and more ppl especially needier ppl who want need the best quality. On top of that the weather patterns have been changing drastically as a result of out involvement with the planet and other cyclical effects. This will drive price of food way higher.