US subprime $2 trillion vs Europe $9 trillion debt

The European financial crisis is worse than the sub-prime crash of 2008 because the sums are so much bigger and it is governments that are in dire straits.

Mervyn King, the Bank of England Governor, summed it up best: "Dealing with a banking crisis was difficult enough," he said the other week, "but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop."

The sub-prime property market in the US, together with its slightly less toxic relatives, represented a $2 trillion mound of debt. The combined public and private debt of the most troubled European countries – Greece, Portugal, Spain and so on – is closer to $9 trillion.

The entire story can be read here

http://www.telegraph.co.uk/finance/comment/edmundconway/7770265/Is-Europe-heading-for-a-meltdown.html

Nifty at its volatile best

We are seeing the Nifty at its volatile best. We are still around the region of the 200 DMA. Its normal to hover around this region for a bit before the bears take charge. Also these kind of spikes are very common for a bear market. The old saying goes “ bull markets roar, bear markets spike”. Tops are built on greed and greed takes a long time to let go. Bottoms are driven by fear and so they happen fast.

FIIs are still selling in a big way. Yesterday they sold 533 cr. To put things in perspective FIIs have sold 13000 cr till now in May. This is similar to the number they sold in Nov 2007 before the crash happened in Jan 2008.

We have seen a pattern of higher tops and higher bottoms from March 2009
To me 4667 which we hit on 8 February 2010 is a very crucial level to be broken on the downside to confirm we are actually having lower bottoms. On the upside if we break 5398 which is the recent high on 7 April 2010, this move is further confirmed as we will still be aiming higher tops.

All Big Bears grow up from little Cubs

Every big Bear market has started from a minor correction. Is the current situation (little Cub) going to grow into a full blown Bear market?

Let us understand what is going on in the world:

1) China - overstimulated property market by govt, govt cutting back now
2) Europe - PIIGS in bad shape, officialy in bear market territory (20% correction from peak), Euro getting hammered against the dollar, banks in Spain failing. LIBOR rate rising

3) US - huge govt bailouts, 165 billion bailout planned for private pension funds

Technically things are very bearish. Fundamentally things are very bearish.

Let the bear market complete this corrective action. There is no point in the governments spending trillions of dollars in trying to stop the primary bear trend of the market.

Germany's 'desperate' short ban triggers capital flight to Switzerland

A year ago, Germany's financial regulator BaFin warned that the toxic debts of the country's banks would blow up "like a grenade" once hidden losses from the credit crisis caught up with them.

But the regulator's shock move on Tuesday night to stop short trading on banks, insurers, eurozone bonds – as well as a ban credit default swaps (CDS) on sovereign debt – has left markets wondering whether the slow fuse on Germany's banking system has finally detonated.
The entire story can be read here:

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7742355/Germanys-desperate-short-ban-triggers-capital-flight-to-Switzerland.html

My comments: The current situation reminds me of 2008 when Lehman etc were failing. Currently it is countries at risk of defaulting rather than banks. Banning short selling is a bad idea and ultimately will have negative effects. Right now the market is very nervous and any negative news will can immediately result in panic selling. Conversely there can be spikes as is characteristic of a bear market.

The Nifty has immediate resistance at the 200 DMA which is around 4985 levels. 5200 is a much broader resistance above which I would look at going long. On the downside 4667 is the first support.

FIIs continue to sell in May...and go away!

The market is still bearish for the short term...FIIs contine to sell in May...they have sold more than 6000 cr in May...although the market is still hovering around 5000, the global scenario is extremely weak..We can expect a panic selloff anytime in India. Going below the 200 DMA (4985 levels) in India should be a crucial level to watch out for. A selloff in the Futures market can cause a selloff in cash which can cause a further selloff in the futures market. This self - reinforcing process can cause a slide to convert to a crash something like what happened in the US on May 6.

Nifty Update

Let us take a step back and look at things from a longer timeframe based on Elliott wave analysis. The 1st wave lasted from 2003 to 2008 January which took the Nifty from 1000 to 6350. The 2nd corrective wave bottomed in October 2008 around 2250 levels. We are now part of a larger 3rd wave which should take the Nifty to 14000 in the next 4-5 years.

We have seen a pattern of higher tops and higher bottoms from March 2009
As long as we don’t break 4667 which we hit on 8 February 2010 this bull move is intact. On the upside when we break 5398 which is the recent high on 7 April 2010, this move is further confirmed and we will hit fresh highs

The 200 DMA is at 4987. If the Nifty closes below this level for 2-3 days in a row then it is a critical point as if this is broken lot of Long only players like pension funds and trusts etc will exit which could easily give a 300-400 point drop.

For the shorter timeframe, traders can go short with a Stop Loss of 5200

U.S. posts 19th straight monthly budget deficit

The United States posted an $82.69 billion deficit in April, nearly four times the $20.91 billion shortfall registered in April 2009.

The U.S. full-year deficit this year is projected at $1.5 trillion on top of a $1.4 trillion shortfall last year.

White House budget director Peter Orszag told Reuters Insider in an interview on Wednesday that the United States must tackle its deficits quickly to avoid the kind of debt crisis that hit Greece.

Some day all this debt is going to explode...Europe, US everywhere

The story can be read here:
http://www.reuters.com/article/idUSTRE64B53W20100512

Europe Debt

The real scenario in Europe - mind boggling numbers!

Diagram Source - NYT

Financial Lies

The media is full of stories about how the sell-off in the Dow was due to computer errors etc.That's the biggest set of financial lies. The market fell simply because there were no buyers - lower volumes in the last few months have been pointing towards this scenario.Its a bearish scenario now. Similar to what happened when Lehman collapsed in October 2008.

The next few weeks are going to be very exciting as we wait and watch if the bears actually take control!

Nifty testing 200 DMA

Nifty is very close to its 200 Day Moving Average aqround 4964 levels. A close below the 200 DMA for 2 or more days is a bearish sign. Let us see how the scenario unfolds.

If the bear market unfolds in India, expect to see days like last week where Dow crashed 10% intraday and CAC closed 6.4% lower in a single day.

Fannie, Freddie akin to the Greek tragedy

All trouble seems to surface together.

People seem to have forgotten about Fannie and Freddie.

The bailout of America’s failed housing finance giants is taking on Greek proportions. On Wednesday, Freddie Mac said it would tap the Treasury for another $10.6 billion after first-quarter losses. Together, Freddie and its cousin Fannie Mae have drawn $136.5 billion from Treasury’s unlimited equity line since they were seized in September 2008. The European and International Monetary Fund rescue package for Greece – one that was supposed to shock and awe international markets – comes in at the same kind of figure, around $139.7 billion.

The U.S. Treasury and Federal Reserve has spent $1.4 trillion to buy the mortgage-backed securities of both Freddie Mac and Fannie Mae

http://blogs.reuters.com/columns/2010/05/06/fannie-freddie-bailout-plays-like-greek-tragedy/

Overall the global scenario seems to be playing out like October 2008 when Lehman etc collapsed.

China, Greece and UK

We are now at a ery important juncture...China appears to be a bubble with so much of China growth dependant on housing and govt stimulus...China has corrected significantly in the last 6 months and like 2008 it might prove to be the predecessor of a crash in india

Greece has been bailed out..But the problem is if the govt cuts spending, its revenues are also going to be cut as there is lots of black money there...

If Greece defaults, most banks will be in a BIG problem and also neighbouring Euro countries...

UK is in high risk of a sovereign default....that will be BIG news..

Overall the trend is in favour of the bears now...Till we cross 5300+ on the nifty it is safe to exit longs and look at going short...

Nifty breaks down

Nifty has broken down below 5200 and 5162...this is bearish for the short term...time will tell how this move materialises...Traders can look at existing longs and remaining short as long as we are below 5300...globally things are looking weak...if this move materialises the next support is at 4850