Sunday, November 14, 2010

Bubblicious "Bernanke Span Krudman" Baby...

Well here we go again, QE is announced and the yields that Ben and Paul say will go down go up...yet they will apparently swear under oath that rates actually are going down, have gone down, will go down and will stay down. Ben is living in a fantasy world. The results of the vote of no confidence in the QE ploy are readily available in the Junk, Muni, Corporate and Treasury markets. Interest rates will go up since credit risk is also increasing.

As I indicated in my post regarding the ending well line...Bernanke was willing to risk all and try to trigger a technical breakout that would create a sustained rally. What he forgot is that he needs shorts for that...there are precious few shorts left to be squeezed. Additionally, when you make it apparent to all corporations that you are going to increase their costs while lowering the demand from their customers due their customers increased costs and jobs attrition that are the result of said increases in corporate costs and cost cutting...most CEO's will stand back from taking risks and feed the beast by cutting more and spending less...In an environment where there are less jobs and fewer consumers, credit risk increases with the commensurate need for better compensation for bondholders brave enough or willing to take the risk. These are ultimately the dynamics that will prevail regardless of our blind, deaf and dumb leadership. But take heart - for atleast a few days to a few months, insolvent bank balance sheets like JPM's, BAC's, GS's etc will look better...and that is sure to create a gargantuan increase in confidence which will surely fix everything.

So there we have it. Default risk has doubled for Muni bonds, increased dramatically for Junk and corporates and will likely increase dramatically in the future.

Additionally, Mr. Bernanke has triggered a fearless rush into commodities regardless of fundamentals. We have parabola everywhere. Silver, Sugar, Wheat, Corn, Uranium...these patterns are very unhealthy and will require new cyclical lows to flush out the excesses in these markets. This type of activity is also not good for a stable market place or economic environment. What is interesting is that these activites fall so nicely into the "stable prices" mandate for the Fed. Bernanke must have left his reading glasses at home when reading that part - as he clearly has misinterpreted it.

The MUNI bond market pumped by Goldman Tax's new division as ultra safe investments are now on their way to the same insurance scam, financial fraud triggered default territory that nearly blew them up in 2008. This will not be pretty. All these markets have gained significant fuel due to Bernanke's bubble blowing and have additionally added the public to the bus. The public will now be raped because they will get the bill for the Fed's abusive manipulations and they will lose after having bought into the parabola psycheout.

All the Elliotwaver's are busy looking for a new high towards the end of the which I say they will probably get another missed trade - just like they got on this one. What happened to that missing 5th wave anyway? Where did it go? I got the shorts via my weekly and daily systems...but the current patterns do not look like we will be getting another high into the end of the year...though I do think we will get some sort of a bounce off my "ending well" line on the weekly SP500. In case you are wondering, we needed to avoid the breakout over that trendline, for the best possible outcome IMO...Benanke killed that and now we are going to have to watch the worst case scenario play out over the next few years. Below are some of the reasons that this will take years to unwind...and the world will likely look quite different when that is completed.

The Nasdaq has confrimed its overthrow sell signal and targets much lower levels. This is a dangerous pattern. 1,840 to 1,860 are possible if the pattern proves accurate.

The PIMCO Muni Fund 2 was stable for many years then broke out of its range and has now setup a bear flag which it has broken out of to the downside - perfectly timed with Mr. Bernanke's announcement that rates would be going lower. Apparently not!
Below is the PIMCO Califorania Municiple Bond Fund...clearly this is much weaker of a bounce and a much more bearish chart overall.
Picture perfect parabola...Silver is shown below. Popular wisdom apparently has it that Silver will go to new highs because there is a shortage, there is currency risk and there is a squeeze on the large commercial banks attempting to manipulate the Silver market...people tend to forget those were the reasons that the rally started...and will not likely be the reasons for its continuation.
The sugar parabola has started to break down. A true blow off top will require an appropriate bottom...lets start preparing to say hello to sugar below 10 bucks. 
A parabola before and after. This is what it looks like, except this was just one was relegated to just a relatively small group of energy markets. The recent parabola that hasve just happened have been much more pronounced and damaging. We are still recovering from the earthquake of the Energy complex parabola and Bernanke just had to make new ones for us...wonderful...we appreciate it Mr Bernanke.
The Schwab High Yield Bond fund was marketed as " safe as money markets and Treasuries" just like the primary dealers would like you to believe the Muni's and other paper are supposed to be now. We are now 2 years later and there is yet to be a meaningful bounce in this particular hyper safe, ultra conservative investment marketed by Schwab (among many others)...including the Auction Rate Securities that turned out to be a total fraud. The problem with MUNI's is that they are likley to reach a point where there simply is no bid. Selling in that enviorment could collapse the entire market so there will be intervention into our socialized markets.  There will likely be all sorts new limitations, rules and fake marking. Ultimately, I think it will be difficult to get money out of these securities at some point in the future.

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