Thursday, January 5, 2012

Market sentiment at odds with reality...

The market sentiment is that overwhelmingly the markets will have a good year essentially because of intervention. Jim Rogers and (Marc Faber apparently too) thinks because of all the elections the markets will do ok…16 out of 16 analysts from big firms think the markets will return 10 to 20% for the year. This is just a stupendous statistic. All the while the divergence between the currencies continues to expand and strain the very fabric of our financial system. Despite the supposed overall bearish position of the COT open interest that apparently Rogers is using as the basis for his EURO long trade, the euro is, as expected on this blog, beginning a dramatic waterfall. The markets have not even caught up with the previous euro levels and require roughly a 20+% drop just to meet the EURO. The irony is that I think that the markets will catch up with this imbalance sooner rather than later and will do so in catastrophic fashion closing the divergence in a matter of a few days…when that happens is anyone’s guess, but THAT it happens is beyond a guess for me. Probability now overwhelmingly favors that it most definitely will happen and soon. The Dollar has begun a dramatic rise that will likely target the upper 80’s perhaps the lower 90’s in short order. The results will be as I have stated Ad nauseam - a collapse in value for all debt markets that are not able to be backed by direct currency and a collapse in risk asset prices…it will NOT be pretty. The secondary results of this will likely be more financial instability as the leverage is forcibly extracted and unwound from financial firms globally.
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