Thursday, June 30, 2011

This Summer's Market (Revised)

As the world turns, so does volatility.  The Algo Machines from Hell have smelled the fear in the market and are front running the "Greece is A-OK" rumor, which has the DXY at support and the Euro at resistance.  The trade will slide in the opposite direction, and everyone will beg for QE 3, even while QE Light supports the fragile US bond market. 

I am going to paste a comment a made on the last thread here:

It looks like due to the French/German "restructuring", the debt will be paid up front to the banks that issued the loans (French/German banks). So this "bailout" is not likely to help Greece in the long run. It is a short term fix for the Major European banks.

The "bailout" will give the European banks a minute to move assets around their book. One thing they must buy is European Bonds, as it would be foolish to take the money and run right away. It is not a bad deal, because the bonds are cheap, and the yield is far greater than those across the Atlantic.

The likely hood of Euro bond strength is great, which means that the Euro will likely weaken. The range is likely to break, and EUR/USD is likely to test $1.38. I think that it will take a few weeks to get there. By that time, DXY should be slightly above 76.

Currencie trades will remain volatile, so it will not be a quick move to $1.38, but likely choppy, which is why I think it will take a few weeks. I think gold will move with the Euro, but silver and oil will remain at the bottom of their ranges, as will US equity.

Yet oil and silver are on a bull run, and they will over take this move even in the face of a European bailout. This will lead to DXY weakness, which will reverse the downward trend in the Dow (since the lesser value of the dollar will make equity more expensive).

Yet this does not address the US default situation, and the Treasurie needs to issue massive debt to stay out of the red. The US debt ceiling will be raised, and QE 3 will be issued to accomplish the feat, as the Treasurie acts in coordination with the Federal Reserve, and the liability of debt must be paid off in dollars.

Since oil trades inversely to the dollar, there will be a two fold move in oil's favor, because of the bull move in real assets, and because of the issuance of new debt/credit. This will have the Euro strengthen as well, even though it will stay minute, sense it will have gone through a period of weakness.

I think that EUR/USD will be at $1.38 around July 29th, at which point the trend will begin to reverse. Bernanke will announce QE 3 around August 11th, and this will quicken the move.

Gold will move back to the high of its near term range ($1550) through this first leg of Euro weakness, but will move to $1650 soon after QE 3 is announced (by September). Silver will remain under $36 until late July, but on Dollar weakness it will move quickly to $50. Oil will move with silver, and will test $120 when silver is at $50.


  1. Thanks for the info, was thinking of getting into some December AGQ calls at the end of July

  2. Just wanted to say I stop here every day to look for and read your insights.
    Thanks - and a very big one at that, your stuff rocks!

  3. Tesla,

    You are welcome, and thank you for saying so.

  4. Nitsuj,

    You are welcome. Silver price suppression will only last so long, due to supply/demand constraints. You are right to get ammo ready for this on going war between the Dinosaur Kings and we the people.