Darshan's Blog

Darshan's Daily Market Ponderings

Lies, Madness and Comedy on Wall Street

Monday February 8th, 2010

Morning all!

The world has officially lost the plot in the past week. I'll explain in a bit.

First of all, I hope you had a great weekend and enjoyed the Super Bbowl. They certainly pumped the markets in the last few minutes on Friday - just to get the Dow closing above 10000. Beautiful. The great thing about this is that our targets still stand. (Just to reiterate - when 10200 broke, you were told to get short for a target towards 9700 and even possibly 9300 now! That would mean the SPX would stop at 1030 or 995) We got 9833 and then it turned! However, I think this is a short term pump and the Dow should be dumped either tomorrow or Wednesday, back towards that lower target. The amazing thing about markets is how they can work so well to technical targets...when computers are running the show. When humans interfere - i.e. at the last minute on Friday - then things get even more interesting. On the forum I run, we decided to take a gamble and put on a tiny long at 9850 with a stop at 9800 - for a target of 10000. It worked. Why did we do it? Well, I felt that with the market that low on a Friday, especially a Superbowl weekend - the big boys will want to close the market above 10000 - so that everything looks rosey. Many people probably went home, oblivious to the intraday carnage that had occurred.

Talking about carnage what on earth is happening at CIT! Remember all the issues (that the media suddenly stopped talking about by late last year?) that it went through and how it somehow managed to emerge from bankruptcy in December? Well it might be heading back that way. I mean come of it, they have just appointed Jon Thain as their Chairman and CEO. Thain?! This is the guy that lead Merrill Lynch into the ground and ultimately into the arms of Bank of America. Appointing him as the CEO is like giving Sarah Palin a book to read...it's just inviting chaos and trouble. I am confident we will see this story emerge into madness later this year. Jon Thain - haha - I cannot stop laughing. The world has gone mad.

It's okay though in reality because the G7 Finance Ministers gathered in Canada over the weekend and decided, that they would continue their joint economic stimulus effort. Most importantly they said they had the European debt issues under control. Can I just say that I am fed up of this 'PIGS' (Portugal, Italy, Greece, Spain) issue being brought up. This is nothing new. It's an underlying long-term problem but notice how the media have focused on it all of a sudden? Conveniently at the same time, as the USA talks about unwinding the currency swaps. Talk about convenient cover. Is nobody asking why the USA is not also a debt bomb? No. They need the Euro to be demolished at the moment and so it's all focused on the southern European nations. Yes they are a total mess and are to blame but they are not alone in the world. The UK, the Eastern European states, the USA - all are equally as bad. Only last week, Moody's warned that the USA could lose it's AAA bond rating and Timmy Geithner quickly denied that there was any such risk.

Weird that - the Treasury is about to hit the $12.4 trillion debt ceiling by the end of February and the extension by Congress to $14.3 trillion should allow the USA to borrow well into 2011 but that's $14.3 trillion of debt! Timmy are you seriously saying that the USA is not at risk of losing it's top rating? Listen Timmy - it is at risk but like I say, it's all relative. The fact is that the dollar is still the flight to safety currency and the US Treasuries are still relatively safer compared to any global alternatives.

However, being the best of a bad bunch - doesn't mean you should ignore the rot. Just to remind you - it's only February and we have already had 16 bank failures in the USA this year! Of course, with this in mind - the Fed will be outlining their tightening plan this week. I wonder what they will do. Their aim is to tighten liquidity and ultimately tighten credit. I am not going to go into the problem with the latter again but I'd love to see how you tighten a lack of credit. Almost comical Mr Bernanke. I await with eager eyes and ears.

I especially await to see what you do as Friday's labour data showed that 14.8 million Americans were unemployed in January and we got a reduction in the unemployment rate to 9.7% from 10%. Sounds great hey? Well yes on the surface. However, this reduction in the unemployment rate has occurred because, some Americans decided 'to leave' the labour force and stopped looking for jobs in the last 4 weeks. So what does this mean? Well 2.5 million unemployed Americans were looking for jobs but might have not been looking in the 4 weeks before the survey was taken and so the Labour Department does not count them. Whack those in and the unemployment rate is 11.3%. Of course if include those that have totally given up looking for work - then we have a total of 26.7 million Americans. So all is not rosy - but the way the stats are reported, the sheep will think that things are getting better. They are NOT! The essential fact is that the Government can goose up the GDP with their own intervention BUT without consumer spending (70% of the GDP) rising in a sustainable manner (26.7 million unemployed Americans - does not make for healthy consumption), then what exactly is the Fed acting on?

Sad times people, sad times. In the long term this will all out but in the short term, all we can do is trade against the computers. For today, like I said, I expect a short term rise to about 10150 on the Dow, 1080 on the SPX and 5150 on the FTSE 100 and then we head lower towards 9700 on the Dow (9300 at an extreme), 1030 on the SPX (995 at an extreme) and 5000 (4950 at an extreme) on the FTSE 100. From there the trap is set and we head towards one more final new high and then we collapse hard. All the lies from the government will hit home by the end of this year. The lies, madness and comedy cannot continue like this for much longer.

Good luck, keep your stops tight and manage your positions well.

Happy trading

Darshan

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