Monday, February 14, 2011

Monday February 14

Good day to everyone.  Another manic Monday as they would say.  As this market appears to go more parabolic and irrational I am staying further away from the daily noise. This is the quiet before the storm if you ask me and time is best served refreshing the mind and preserving both physical capital and equally important emotional capital.

I remain convinced more than ever at the horrible state of the US and global economy. My mind is always open to new ideas, challenges to my thoughts but to me the data has not changed.

Keep an eye out for the next chapter in the derivative posts.  Very few understand these products yet the unregulated portion is twelve times greater than global GDP and no that was not a typo.  As we slowly wrap up February and begin to look to March a few headwinds will become more prominent.

  • QE ends in June.  Considering equities rallied three months ahead of the actual launch of the program, it is quite possible the markets will begin to fade QE in the next few weeks.  So far an extension of the program is unclear.
  • Ireland remains a huge unknown.  Elections will take place in March and it is very likely this will be the beginning of the true battle where bondholders are finally forced to accept risk.  Germany and France have the most exposure but the entire global banking system will be affected.  This is not just an Ireland issue.
  • Portugal will be bailed out soon.  Yields have exceeded the 7% threshold for a long enough time that a bailout is all but certain.  The more countries that are bailed out, the less that contribute to the fund so this problem is truly self reinforcing. 
  • Geopolitical risk will grow.  Just this past weekend there were protests in Italy, Yemen, Algeria, Paris, Bahrain, Iran and even Egypt still.   Movements start slowly but once they gain traction they accelerate in size and message. Watch many ill prepared governments implement many ill advised strategies to stop this movement.  

Stay focused my friends!


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