Archive for October, 2013

We are entering the phase of a Market – Blow Off Top. This is extremely profitable and scary condition when liquidity starts to chase liquidity with very little economic sense. The last Blow Off Top of epic proportion was in the NASDAQ with the famous Tech Bubble. This condition can last a few month (as the Nasdaq case it lasted from November to March) and always ends in pain and tears.

This blow off top is feared by the US FED. Maybe they will do something during this week meeting – but they are between a rock (Blow Off) and a hard place (Congress stalemate). 

Now we could see what for the Elliott theorist (complicated wave theory) a 5th leg rally extension. It could be sparked by the “normal” Republican defeating the “tea party” Republican or by a liberalization of the Chinese financial system during the 18th November meeting (there are indication that Chinese will be allowed to invest overseas).

But all indicators signal that this rally is not economic data driven, but by liquidity…money chasing money.

When and what will end it. Statistical data shows that this condition can technically last till April 2014 (I would think a bit earlier).

The termination of this rally can be spurred by an issue on the US Treasury Bonds (specially 10 and 30 years) as, since September 13, the Fed is looking more struggling in keeping the yields low. For now it is successful, but there are signs on increasing stress.

Or, naturally, a political shock. Now the main issues have faded, but three main potentials are still there:

_ The Tea Party wins against the normal Republican

_A revolution in one of the Southern Europe countries (EG the military take over Greece)

_ A unilateral pre emptive strike of Israel against Iranian nuclear facilities.

_Saudi Arabia is really upset against the US for their behavior against Syria/Iran (no war) and could pull their equivalent of “nuclear option” which is end the petrodollar oil transaction (the use of US Dollar as currency for oil transaction is one of the main real reason why the US Dollar is the world reserve currency. This also explain why the US has always so keen to keep the Saudis happy (remember President Bush Sr and Jr). A well media planned and abrupt change in this policy could provoke a major shock.

All this events (apart the last one) are pretty far ahead in the future.

Enjoy this rally, but consider it a wave. Soon or later will hit the rocky shores.Image

Ok …it is not called KGB anymore….it is FSB.

First the Syrian operation crippled the image of the US  in the Russian ex Soviet Republic and in part of the Middle East.

Now some leaks are seeding distrust between the European allies (Germany, France, Spain…also with Brasil) and the US.

And the escaped contractor Snowden was granted asylum by Russia.

This is a KGB (ops sorry FSB) master operation. It almost feels “cold war”. In reality Russia is very far from what it was, but sometimes perception works even better than reality.

And the US needs really to step up its collective brain

Japan and China

Posted: October 29, 2013 in Uncategorized
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Japan and China are squaring off their military might in the South China Seas.

Nothing major …..just the synchronicity of two military test runs shows how in the years to come these will be a space to watch closely.

Japan even set up a few batteries of Type 88 surface to sea missile in Okinawa that are able to block one of the main obligatory passage (first islands barrier) for the Chinese maritime force.

Are we there yet? Not. But watch this space in a few years. One of the first thing to watch is when article 9 of the Japanese Constitution will be abolished (it is the article that prevents Japan to build an offensive military force after the 2nd World War)

Europe is apparently out of the crisis as long as the markets are concerned.

Yes the European Central Bank clearly saved the financial and bond markets…so the financial crisis of Europe has been averted.

In 2014 the BCE will do another stress test of the banks. And the stress test will reveal that the banks are not lending out money (in Europe 75% of all corporate lending is done by banks – only 30% in the USA and above all they do not lend to the small enterprise which, in Southern Europe employs 75% of the workforce…see a problem there?))

But what in 2014 will start to appear clear is what, in 2012, I called Europe: DOA (Dead on Arrival). And by this I mean that Europe will be financially “saved”, but nationalistic parties (of right and left ideology) will start to grow asking who is really benefiting the Euro/Europe structure. Low interest, low Euro and free money/goods flow definitely is benefiting a lot Germany

 

For sure not the “average Joe” (who is by the way, the voter) nor the Southern Europe Countries.

So as soon as the financial European crisis is finished a political European crisis will start. Quiet a bit overdue, I must admit.

Apart the latest raft of bad news on “bad loan” in China (everybody knows that anyway), China in November will held the I 18th CCP Central Committee where the main focus will be the liberalization of the financial system (gradual as usual) – it is expected that they also  will make it easier for wealthy Chinese to invest abroad…this could be a huge amount of money (the Chinese savings stands at USD 4.2 trillion – double the US savings) if you think how many rich Chinese kids are already studying abroad – it actually could be the spark that ignite the “blow off top”.

“Obamacare” stands for Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act.

It has been introduced in 2009 and signed in March 2010. It has started to go partially live 1st October 2013 and it will be in full swing by 1 January 2014

What will it do?

The main aim is to expand coverage and make it better quality and more affordable. It will be done through a complex mix of spending cuts, tax hikes, subsidies and mandates for individuals. Some of the key elements of the policy include:

• Insurance companies will be banned from refusing to insure those with pre-existing conditions.

• It will be compulsory to get health insurance. Those who don’t will have to pay a penalty (1% unless exempt on religious or financial grounds.

• Policies will become more comprehensive, meaning people won’t lose their insurance if they fall ill or become pregnant for example. They will also cover more things like prescription drugs and routine check ups.

• People will be able to compare policies and buy insurance online through insurance exchanges.

• Eligibility for Medicaid will be expanded to make insurance more affordable for those on low incomes.

• Children will be able to stay on their parent’s plan until they are 26.

• Businesses with more than 50 full-time employees will have to offer coverage, although this won’t come into effect until 2015.

The issue that the Republican are raising that it will increase the debt.

Obama administration estimated USD 938 Billion over 10 years in 2009, the Senate Budget Commitee in 2012 estimated USD 1.76 trillion over 10 years (also because the “main” Obamacare factor enters 1 Jan 2014).   

 

They also raise the fact that by being obligatory it infringes  the civil liberty and has the potential of decreasing the level of service.

Also Obamacare increases quite a lot of taxes (USD567 billions) and imposes a lot of budget savings (USD477 Billions) -that is why Democrats say that Obamacare actually will improve the Budget. (source Senate Budget Committee and June 2012 National Review)

The biggest issue is that Obamacare has a three pronged attack: compulsory insurance, ban on insurance companies  excluding people and increase in MedicAid (sort of a benefit for less wealthy).

The MedicAid increase has been successfully challenged by 22(!!) states…so in those 22 States low income earner could miss out. But what is worse is that Obamacare counts on everybody been insured in order to function properly.

There are 4 levels of Obamacare (bronze to Platinum) and the cost depend by age, residence and income

The Saudi Kingdom issue

Posted: October 23, 2013 in Uncategorized
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The new geopolitical positioning of the US is creating a strategical problem for the Saudi Kingdom. Their refusal to join the UN Security Council is more of a temper tantrum against the US than the official story of the issue of lack of help towards the poor Syrian civilian (who, unfortunately, nobody really cares about).

In reality the Saudis have plenty to worry about as they have been a very smart (and self serving) ally of the US for over 70 years (more than Israel).

The softening of positions between the US and Iran and the missing bombing of Syria in the midst of a generational change of the kingdom princes is actually creating a major strategical problem.

Saudi and Iran (Sunni and Shia) are the two rising powers of the Middle East (also Turkey, but it has quite a few issue to solve) and Saudis also counted on (and manipulated) the US to have the upper hand.

This potential re-alignment between US – Iran (historically correct as Iran is much more libertarian than the Saudis) is actually destroying the current Saudi strategy.

Already there is unconfirmed  evidence that they decided to send to the Syrian opposition (whatever, they do not care if it is Al Qaeda – most of the act of terror in Iraq are Sunni (read Saudi) driven) more sophisticated weaponry. And probably they will look into friendly deals with China in search for a new patron (and if you wonder yes there are opening between Israel and Russia).

The situation is very fluid indeed.

US Founding Fathers

Posted: October 23, 2013 in Uncategorized
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During my analysis of the US Congress, Tea Party and others I always found a lot of references to the US Founding Fathers.

So who are these founding fathers and what they wanted…and what they would want now?

Their names were the like of President George Washington and President Thomas Jefferson and others around AD 1800

Quite a few things appear clear.

– They willingly created a stalemate -prone Government. The main fear for them was to create a Government where someone could gain so much power to become a king or an emperor. They did not envisage the level of stalemate that we have now in the US Congress…but the counterpart at the time were the likes of Napoleon.

-They did not want a big Government nor big taxes…just enough to have commerce operate lawfully and smoothly. Definitely Obamacare for them would be too much.

-They said that a Government had to repay its debts in full. And in an event of war, after the Government should repay its debt aggressively even with taxes for a definite period.

-They preached neutrality for the US. US was much weaker. And this was just a principle, as President Jefferson bought from Napoleon Louisiana…so technically siding with the French against the English

-They saw the political career as a burden..not a career. One of their hero was Roman Emperor Cincinnatus, who, after being Emperor, returned to his farm.

In reading about them what surprised me is that they were much more pragmatic than ideological than the kind of politician we have. But I should not. They invented democracy as we know it.

 

I am trying to examine who is the Tea Party as now there is a real battle within the Republican Party of the normal Republicans and the Tea Party.

Why it is important to you? If they had won, the US would have gone over the Debt Ceiling and the market would have crashed possibly creating a 2008 scenario.

So the battle between the normal Republicans and the Tea Party Republicans is important as the next Government closure/Debt Limit is 15 Jan 2014 and 7 February 2014. And any evolution of this battle will be felt immediately on the stock market – possibly even end of November 2013.

The Tea Party historical foundation lay in 1773 in the Boston Tea Party (the Americans refused to pay the tax of tea to the English and defied what was, at the time, the largest world superpower). Rhetoric apart, the first recent activities are to be found in 2001 and the movement started to support its own candidates from 2009.

The Tea Party is essentially a decentralized party based on Judeo-Christian values  without an uniform agenda.It is labeled conservative, libertarian and populist with teh aim to return to the basic USA (Founding Fathers Documents).

A series of non-negotiable points are

1. Illegal aliens are here illegally.
2. Pro-domestic employment is indispensable.
3. A strong military is essential.
4. Special interests must be eliminated.
5. Gun ownership is sacred.
6. Government must be downsized.
7. The national budget must be balanced.
8. Deficit spending must end.
9. Bailout and stimulus plans are illegal.
10. Reducing personal income taxes is a must.
11. Reducing business income taxes is mandatory.
12. Political offices must be available to average citizens.
13. Intrusive government must be stopped.
14. English as our core language is required.
15. Traditional family values are encouraged.

How they are fairing in the election

Loosely speaking they seem to be in a “declining pattern”, but in April 2012 approximately 44% of Americans (including ex US Chairman Greenspan loosely agreed with their view). Declining, but still a force to be recon with.

2010 mid term election NBC identified 138 Republicans Tea Party (129 Senate and 9 House – 32% won). It was in general a big win.

In 2012 election they were still a considerable force, but not anymore as a new storming political force.

Current Situation

Speaker of the House Boehner has been seem to be bending too much to the “loud, but still a minority” Tea Party and that he needs to stand against the Tea Party (specially Texan Senator Cruz – held as an hero on his return to Texas). He will be tested on new issues soon (immigration, farming bill and  budget) and show the Republican Party direction.

The Tea Party is also not too much concerned with the Presidency of the US, so they can play hard ball, but also they are raising powerful enemies such as the US Chamber of Commerce and the American Trucking Industry Association.

The outcome of this very American battle will shape the markets in the very near future.  My forecast that a defeat of the US Tea Party could trigger a massive “blow off” rally by year end.

US Congress

Posted: October 18, 2013 in Uncategorized

As we all know the solution finally came. And I am pretty happy to have been cautious.

That was a risk that, as an investor, was not worth taking.

Now the next dates will be 15 January (US Gov shutdown) and 7 February (Debt ceiling).

What is most important is that it is clear that there is an ongoing war within the Republican Party that will shape the outcome of future debate.

The moderate pro-business Republicans are showing a more confronting stance against the small-Government Tea Party side. I was waiting for this as the results of the least election made it clear to me that the Tea Party wind is alienating the appeal of the Republican Party  to the average US republican voter and now also big business.

The development of this battle will shape the future of  any future budget battle.

Now the market has cleared this hurdle and will keep its “climb a wall of worry” (going up within scary news) stance…probably a lot of talk re February Debt Ceiling and assessing the damage done by these weeks of uncertainties.

Wow spot on…now on Bloomberg

http://www.bloomberg.com/news/2013-10-18/republican-civil-war-erupts-business-groups-v-tea-party.html