The Circular world continues towards the endgame.

Dear Friends,

This Friday' posting is a mixture of an article of Economist and related thoughts from me. Three-way split - The Economist Link

This is the best Outlook for 2011 I have seen and it's not even trying to be an outlook!

The Economist draws up the conclusion that the three global drivers: US, Europe and EMG will work against each other and that it's all circular, which indicates market/investors over hyping output and "more of the same" relative to the needed "circuit breaker".

Domestic agendas has changed in Europe and in the US, but to opposite positions... as they state elegantly: ' The US (with tax bill) is gettimng another dose of stimulus steroids just when Europe is checking into rehab and enduring a Cold Turkey'.

Meanwhile in trading-land the ever higher US yield stopped yday, but high enough to invalidate any hope of false breaks. Market now betting on Treasuries being oversold, but my friends in the real-money world keep telling me, more selling is incoming post December 31st, 2010. 

Short Treasuries has been my main position for last two month but I have to admit I'm down to less than 10% of the original position, enjoying the profit on what my old uncle (FX trader extraordinaire) called "Amateur Friday" .... Chinese numbers and action this week-end will tell us more than anything where to from here, but the picture is bleak....

1. Our leading Growth model turned cold and down
2. Congress in the US in stalemate, and looking extremely silly.....
3. End of year manipulation running into opposite risk being taken of by investment banks and prop. traders overall.
4. Stock market is slowly wakening up the conclusion in the Economist article above: "Worries about bubbles has been replaced with a broader fear of overheating in EMG. 
5. An add on to point 4 - the new law of markets reads:  (US loose monetary policy)  + (Sovereign default risk Europe) = (Speculative inflow into EMG), which again creates burdensome need for EMG countries to embark on restrictive tightening in 2011.... and then lower growth from Asia feeds negatively into the same law.........

S&P can still see 1240/1255 on year-end manipulation, but reality will bite in Q1-2011. where I see a move down to 1000.00.

On this positive note....I wish you a great week-end. Enjoy.