Sunday, 27 February 2011

The easy money tide is about to turn!

As everyone who has not suffered brain damage will understand, stock markets, for the last 2 years, have been fuelled exclusively by the availability of cheap money. The tide is about to turn. It is a process and it will not happen over night. The markets however will be anticipating the action in advance. TMN has called for a pause in the decline of the bond market a few weeks ago and we have seen a decent bounce since then. In order to achieve a breakout on the top USH1 needs to rise above 122-09. 

As per TMN's last post a couple of weeks ago, "risk" is topping out and especially TRAN has not been looking good lately. In fact, the TRAN are very close to a bearish monthly key reversal.

The USD saw some pressure last week but recovered on Friday. On the weekly charts it is pretty clear that major support is coming in now. TMN is confident that it will hold and bounce off there. 81.44 remains the key level that will turn the USD view of most participants upside down once it trades.

And finally one of the most important big picture charts TMN can think of:

Saturday, 12 February 2011

Bonds will take a decision here - "Risk" topping out

TMN has called for a decline in Bonds a while ago and gradually lightened up on the position. Every time the equity market has been as annoying TMN the most bonds seemed to feel the pain and started/kept dropping. We have been through some kind of consolidation now since December and lately bonds decided to break below the recent range albeit not by much. In yield terms this has led to a touch on the down trend line from some years back. It happens to be just at the 50% fib level between the 2007 top and the 2008 bottom. 

Obviously a decision is coming up shortly. What is likely to happen? Hard to say. The bond market is the lifeblood of all bailout policies. 

Easy money's unintended consequences are making their way into politics now, as events in  Tunisia, Egypt, Algeria, Yemen, Jordan, Syria and Pakistan impressively show. In a way it is a H1 2008 replay, as inflation fears at the time were also widespread. If TMN is not mistaken it was all to go the other way shortly after the inflation scare:

Bonds are threatening to put an end to a 20+ year bull market, commodity prices, especially soft commodities are threatening to hit vulnerable nations, this makes TMN wonder how much longer western politicians will let this bailout brain damage go on?! Precious metals, widely recognized as a good hedge against inflation, have stopped their advance a few weeks ago. Gold, in fact, looks a bit damaged unless it trades up and above 1394 soon again. The Gold/Silver ratio however has been dropping ever since QE2 talk started relentlessly. Should it reverse, the top in "risk" will be nigh. Silver has started showing some cracks recently, too:

It's all about easy money in the end and it might just come to and end... Be sure the markets will let us know!