Bear vs. Bull

(The cartoon is from 1939)

I find it extremely interesting that the few people, and yes it is v.v.v.v few people I acutally read-and-follow, are EXTREMELY NERVOUS right now.

 I am talking about people who has been in the market 40-50 years, like Richard Russels http://ww2.dowtheoryletters.com/  - pretty much the only paid subscription I have (except for the Financial Times). His daily newsletter is pure gold for anyone and dirt cheap to (which always appeals to cheap guy like me).... but also the true old-style macro managers of the world are all issuing WARNING ALERTS similar to the ones I have been trying to send to my friends.Click for last weeks warning note

On the other hand - post Fridays RIDICOLOUS manipulation up day! (Which could not even get close to the 200 dma) - the pundits of the ever so happy, happy crowd was out in force over the week-end and in notes this morning telling me how this could work, the market is floated with liquidity et al...but friends....... when in doubt visit your premises:

1. There are still no end insight for dealing with the SOLVENCY CRISIS
2. The Beta-models are all in BEAR mode
3. Sentiment - remains optismistic with MSM(which should all be closed down pretty much for incompetence!!!!) leading the way. A 2% up is celebrated like the 4th of July while a 5% down-day is merely a correction inside a bull market. I do not watch CNBC too much these days(particularly in the US it stinks) as the ratio of morons to common sense is almost 20 to 1. The point? The market is still far, far from realising the true scope of this crisis - when the truth hits home with the Sunshine crowd we will be way into the worst crisis since 1920s.....

Read excellent piece by RBS' Bob Januaha called:  Bob's World | Maybe Not Such an Idiot...( Every Bear has his day!) . 

Bob is calling on major shift to DEFLATION seeing 2 yr US below 2% - but his point being the private sector has never been able to make a self-sustained recovery (it has been based on massive fiscal- and monetary help) and now this stimulus is running out while most G-20 nations are looking for tightening of policies(UK+ Euro-zone). The horrendous Keynsian/Monetrarist nightmare is upon us - with the sovereign credibility reaching ZERO......

We shall not, ever, believe the politicians and policy makers will give up, we need to prepare ourselves for massive QE in the US, UK and Japan end of the year, and potential for, despite all the tought talk right now, of further MASSIVE STIMULUS. Watch China to lead as they did in 2008 (by implementing) and in 2009 (by stopping)...... Where China goes, goes G-20 - a point not discussed too much these days while China makes new low week-after-week. 

I was always taught as young trader to "watch the flow" - where the flow goes, the power goes - Clearly the globalisation put China in the driving seat, that the market fails to acknowledge this is sad as trading market with China as leading indicator has been an excellent recipe for positive P&L. (Yes, I know China was up big today on talk of no further tighetening..... but wait for Friday to make your judgement)

Trading-wise - we added to risk during last coming from low, but this mainly through options... long Gamma on: DAX, Bunds, EURUSD, STOXX50. Keeping it simple. My target for EURO remains 1.10000 - and after touching 1051-00 in the S&P and closing below 200 dma - I found old low of 1010/20 as first target, but if we are right about incomign focus on DEFLATION, the stock market should easily take out those levels and trade towards 950.00.

However, the "short-term noise" of central bank intervention and manipulation will be in play and increasing into next week-end - I wonder which kind of meeting there will be in G-20 this week-end. 

Finally, I hope I am wrong (I can afford to loose my option positions), but as many others I remains extremely concerned about the state-of-play from here. We failed to use the crisis in 2008 for something good (deleverage, restructure, bettter regulation) instead of our "Masters" decided to buy some time extension and time is one thing we do not have enought of.

Best wishes,

Winston