Monday, May 30, 2011

Are you ready? don't let the dollar smack you on the way up...

The reality is that the market putting on "happy happy joy joy" again...the charade is continued and the world is doing very well thank you very much. Well, well, well...we have quite a few charts which I posted this weekend which tell quite a different story. My expectation was for additional strength into the open and early trading Tuesday...followed by significant weakness. There are very strong indications for a resumption of the down move...and a rather more stronger version of it...possibly as soon as tomorrow. The Greece announcement has signficant implications and they are not compatible with the market reaction...even if leadership would like them to be. If ever there was a finishing touch for the market - this is it. People are going to make full end run out of EURO's and just about anything in any bank in a country being attacked by the central planners and straight into dollars via US treasuries. Don't be surprised to hear a lot more about bank runs through out the world in the next days and weeks. People who withdraw money from a non US bank will have no choice but to go into Dollars. For the USA, rates will drop as people panic and try to figure out what to do...and ofcourse the dollar will ramp hard, fast and relentlessly. Risk assets stand no chance in this environment.

Now lets look at what is going on. The risk markets are not participating in the overnight party. Clearly, the centrally planned markets are rather ebullient. However, there are quite a lot of issues to contend with. On a fundamental note, giving Greece more money as a pathetic ploy to prevent them from forcing bond holder to take haircuts on debt is a highly ineffective way to accomplish the task. Taking control of their privatization process will not help either...the reality is that debt slavery keeps on ticking and the interest keeps on clicking...Greece will never be able to cover the outstanding interest...not if they sold the last grain of sand in Mykonos. Further, there are very dangerous underpinnings for the sovereign state and for the unrest inside it. There are significant accusations that the prime minister not only arranged, facilitated and likely pressured the sale of CDS purchased by the Hellenic Postbank of Greece (the state bank) protecting it in the case of a Greek default. The CDS contracts qualify as an asset of the state and were sold for 1.3 billion to a group that the prime minister and his family have significant interest in and connection to. Those contracts are now worth $27 billion – a huge 2,000%+ gain. He certainly knew that the value of the CDS would rise substantially and his leadership certainly has the ability to positively affect his, should this guy not be in jail?...and quite a few others? Well how about some of the guys whoe decided that the Central Bank of Greece redfine settlement for government bonds from  the standard T+3 (3 day) to T+10 - yes 10 days! If you happen to be naked short you get to keep your position for 10 days without having to locate the underlying to borrow...nice!

Regardless of this, the reality is the social upheaval and resentment will only be fueled by these developments. As the Greek citizen watch their most precious assets being sold to the CEO's of banks that should have taken losses and watch their government officials become ery wealthy of their countries demise...the result will be rather predictable...and it will happen in short order.

The sniff test is not panning out...and the markets tend to be rather interested in the stench when it becomes unbearable. With all these IMF, EU and ECB guys farting up the place combined with there brethren in the US competing to see who can be the loudest and the smelliest...I do think that it seems that DSK might be scoring good wins for the IMF in those departments...However, the situation is getting rather untenable regardless of the bureaucrat debauchery. The dollar is primed to a large run from here to the upside as people panic about the smell coming from Europe...with suitable effects on risk assets.

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