Any Place Left For US Investors To Hide? - Impending Bond Bubble Burst

Bond markets and bullion markets are considered as safe haven for risk averse investors. For risk tolerant investors stock markets and forex markets are supposed to be the places to be in. But when risks in stock markets increase to untenable and unbearable levels, even the risk tolerant investors seek out the safety of bond markets and bullion markets. This action of investors is often described eloquently as "flight to safety".

Now there is disaster lurking around the corner in US bond market in the shape of a bubble burst. Abysmally low interest rate regime coupled with high demand for bond papers has resulted in high price of bond with extremely low yield. Hence investors chasing some decent yield end up buying high-yield-junk bonds. This has caused a bubble like situation in US Bond Market. The last bastion of safety for US investors is on the verge of a collapse. Will there be no place for US investors to hide?

I have no ready answer to offer for US investors. They surely will have some Plan B tucked up their proverbial sleeves. After all they are the most sophisticated and evolved investors on this planet with the deepest pockets. But of late in US stock markets they have been behaving like small school children. Almost everyday some weekly economic data or the other is churned out from various US organisations. And everyday US investors act according to the sentiment of the data. That means if the data is negative they sell off in stock market and vice versa. Hence you have two days of gain and on third day all your gains are erased because that day some weekly data is negative in tone.

It is a sad commentary on the sophistication of supposedly the most evolved financial wizards and savvy investors of the world. Then tell me how are they any different from investors of Banana Republics? Going forward if that is how US stock markets are going to keep behaving, it will not be long before other markets stop looking for direction from US markets. That will be the stepping stone to the oft quoted concept of  "Decoupling"

Can You Spot a Design in Market Madness? - Cartels at Work

Sixth of May 2010. A day I simply cannot seem to erase from my recent memory region. US markets plunged nearly 10% on a single day!!! Dow Jones Industrial Average crashed 1010 points from its day high. New York Times headlines screamed "Stocks Plunge on Concerns Over Greece". Investors on Wall Street are left licking their wounds and the general public sympathizes.

Concerns over Greece? What was so new about concerns over Greece on that particular day that stock prices had to be reduced to few cents and then made to rebound up to 70%  within an hour or so? By the way, financial problems facing Greece was not a new fact uncovered that very day that market players had to sell off in utter shock anything and everything in sight in such tearing hurry. In fact on 17 Dec 2009 I had published a post titled "Debt Laden Dubai - When Will The Woes End?". In that post I had indicated that Greece and Spain were simmering with debt troubles and global investors were worried more on that account than Dubai defaulting. It was common knowledge in global investment circles for the last six months or so that Greece was tottering on a serious financial crisis and would be the first of the European nations to start the Domino Effect. Now would the regulators please explain to US public as to what really happened on 6th May 2010 and who were the extraordinary beneficiaries?

One can understand European markets selling off with one or the other bad news. First from the blocks was Greece with its credit contraction, then Spain bailing out one of its banks and then Germany banning short selling - all that is understood. In between North Korea brandishes its sword on South Korea and China goes on clean up drive to rein in inflation by pulling back some stimulus packages in small measures. Perfectly fine. But what would you say when Financial Times on 26th May tells investors with all authenticity that China was going to sell its reserve of Euro bonds. China holds about $ 630 billion in Euro bonds. That news sent jitters down the spine of global investors.

The shock waves created in Europe from the shattering news in Financial Times was so great that Euro currency nosedived and almost became  serious competitor of Zimbabwean Dollar!! With it the European stocks were dragged down and US exports to Europe presented a great challenge. Pandemonium broke loose in global investment circles. Dow Jones lost 230 points from its day high. Investors were planning their exit strategies further when the very next day China in a surprise move rubbished the news of Financial Times and reiterated its faith in Euro and the European Union. European markets and Euro rebounded with zest and Dow Jones gathered 295 points extra weight.

In all this high drama, one thing stands out very clearly. Influential parties will go to any length and pull off any stunt to browbeat the investors. How can Financial Times, the venerable publication of global markets, be so callous as to publish a news which is so far from the truth? Who are responsible for painting such panic-setting scenarios? Has Financial Times apologized to the investors and to its readers? Will market regulators take some time off their busy schedule and look beneath the cover? Bizarre things are on the cards in global markets. There will be more rude shocks and many more deceptions. Wild swings will tear short term  traders apart on both sides of the trade. Welcome to the Year of Volatility, because cartels are at work with a vengeance.

I will be providing more evidence of big boys of Wall Street who are working in cahoots with other big global players to swindle billions from honest investors. Watch this space for more on this issue of cartelization. Till that time just mull over the news that Wall Street investment banks have engaged lobbying firms for close to $ 450 million to block financial bank reforms in US. You will get to know more about big boys of stock markets and their Machiavellian plans in the sequel to this article. God save US investors!!

US Markets Plummet On Good Results And Flimsy Grounds

Last three trading sessions were literally devastating for bulls in US markets. Consider this fact. Dow Jones took most of November, full December of last year and half of January 2010 to rise from 10100 level to 10700 level, a gain of roughly 600 points. And it took just three trading sessions for the bears to erase these gains in Dow Jones. What alacrity on part of the bears in going about their business!

One must keep in mind that this has happened in the midst of result season. Companies have done fairly well. In fact some companies like Intel and Google have done exceptionally well. Intel had posted the best quarterly result of its lifetime. And how is that news greeted by Wall Street? The scrip is sold off, driving the stock price to nosedive into negative territory.

Mind you, here we are not discussing a high beta stock market, nor are we referring to any banana republic. We are analyzing market behaviour of the most developed stock market on this planet, a market that boasts of an army of highly evolved, rational and informed investors. Then what spooked the US markets so much that we had to become spectators to such sharp reactions? Comparable exhibition of panic selling was last witnessed in Oct 2008. But at that time there were enough global reasons to justify such investor-behaviour. What has happened this time around? To ferret out an answer let us dig deep into the state of affairs existing in the present global financial ecosystem.

The first bit of news that unnerved US investors emanated across the Pacific, from the dragon nation. Chinese central bank advised banks in China to go slow on lending. This was taken as a cue that China was feeling the negative effects of stimulus and hence was taking steps to slowly withdraw it. In limiting credit off-take, China was ready to sacrifice its growth curve. This action by the Chinese Government was not appreciated by Wall Street, and so in a gesture of utter disappointment US markets sold off.

In this episode I seem to have lost the thread of US investors' reasoning. Everyone has been accusing that China is fast entering bubble territory because of its loose credit policy. Such liquidity needs to be reined in so as to avert bubble situations developing in different asset classes. And Chinese bubble bursting will be 1000 times more catastrophic than Dubai default scenario. So far so good - I am with the thought process of US investors. If all that is true then China is taking measured steps to attenuate the effects of an anomaly existing in its financial system. It is simply taking corrective action gradually so that the world is not put into a crisis situation. We wanted China to promptly address its liquidity imbalance, didn't we? And if it has started acting judiciously in that direction, shouldn't we be happy? Do we have to express our happiness by selling off stocks indiscriminately? I am pained to admit but selling off Intel and Google shares at this point of time cannot be categorized as actions of any evolved investor.

The second tranche of bad news for Wall Street emanated from Washington. Well good or bad, its just a matter of perception. I don't think its so terrible, but Wall Street feels otherwise. Hence I leave it to you to decide. President Obama wants to tax Big Banks which had to be bailed out. He wants tax payers to be suitably compensated by these banks for having saved their skins during the height of financial crisis. He plans to extract $ 90 bn over a period of ten years as tax from these banks. Big deal!! How is it conceived as such a bad news for investors? These banks are today paying more than that to their employees as bonuses. And here the total tax of $ 90 bn is planned to be collected over a spread of ten years, which is hardly any negative. I wouldn't be surprised if Obama feels exasperated with such reaction from US investors on this tax issue. Who wouldn't?

President Obama also wants to limit the size of these banks and pass legislation to prevent them from proprietary investments. They will not be allowed to use their own money to invest in risky financial instruments. And they may not be allowed to grow so big by acquiring other smaller banks that their failure becomes unacceptable to any US government in terms of collateral damage that such failure will cause. President Obama points out that he is doing all this so that when these big banks take dumb decisions in future, the tax payers will not have to foot the bill for their mistakes. Very noble thought! Firstly the President is ensuring that big banks in future cannot gamble with the money of depositors, thereby making them safe destinations to park your money. Secondly, he is preparing the grounds to bury any bank that fails, without ever having to think of injecting tax payers' money into such a doomed bank. That will be possible since the bank will no longer be so big that on its way down it can devastate the entire financial system.

As one can see, the proposals are genuine and for the betterment of the financial system. By putting such reforms in place one is only going to ensure that US financial system remains protected from hurricanes caused by greed in the investment world. Global economy will remain stable only when US economy doesn't get jolted by crises caused by unscrupulous financial wizards, who have invented things like Credit Default Swap (CDS) and Collateralized Debt Obligations (CDO) . Then why has Wall Street reacted in such furious manner? Whose side are the investors taking - the side which is fighting to keep the investment world a safer place or the side which is constantly conjuring up some dirty tricks to dupe the investors?

Its time to see right from wrong. I hope US investors will come around and realize the long term benefits in President Obama's proposal of bank reforms. One should dismiss the politics in all this and assess it dispassionately for the merits. Of course timing of the announcement from President Obama could have been better, but that's no reason to dump all investment ideas like Intel!