Friday, June 24, 2011

Policy Makers Give Answers. Markets Grade Them.

Human beings, those behind market movements, are a curious kind.
Was there any important news yesterday to cause the sell-off?
Was there any important news yesterday to cause the rally in the afternoon?

In my humble opinion there wasn't.
First of all we all know already that Greece is insolvent.
Second, every one knows that policy makers will try really hard to keep the ball rolling. Forever.

European policy makers (and the IMF crew, the banks, the Fed, China) will fight for austerity for now, no matter what the consequences are for Greece's growth. Or global inflation. Or the CNYSEK currency cross. That is obvious.
Everyone is worried about the global banking system and (as R.E.M. put it: ) the end of the (capitalist) world as we know it.

Policy Makers are putting moral hazard aside and, learning from the Lehman collapse and its shockwaves, will force any thing possible, within their means, to keep the ball rolling.

Only market prices will solve the european solvency issues. And if the issue's solution is forced by the markets, yes, things won't look good at all.

So.... some charts for you:

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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