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It seems Alan Greenspan, former chairman of Federal Reserve, is speaking ‘Bernankian’ language these days which precisely means ‘Fed is always right’. Here are few important things he said in an interview on Bloomberg:

• Fed rates didn’t cause housing bubble
• Stocks are CHEAP
• Equity stimulus is driving economy
• Equity stimulus is underestimated
• Housing markets are not moving for sometime now.
• Zero-bound rates can be technically increased
• Monetary policy be left for unelected people and Fiscal policy  should be taken care by elected ones.
• All the economic data are based on non-financial system and financial system is excluded.

Well, I tend to disagree with many points he said but there certainly few points which he was spot on.

If Fed rates didn’t cause housing bubble then what did? Wasn’t cheap money available to people made prices to rise. If rates were not low then only the demand from creditworthy people would have decided the prices but cheap money meant anyone could demand a house, doesn’t matter if he was anywhere near to creditworthiness to pay for it.

Stocks are cheap. This statement was heard even when markets were at same level as they are now in 2007 and rising. With stock markets nearing all time high, US debt increasing, Euro crisis persisting and fear of contingency still there among the market players, how can we say stocks are cheap? Current market rally is fuelled by excess money thrown in financial system and it will continue till Fed continues its ‘keep-markets-happy’ policy. If equity stimulus is so good for the economy then why didn’t the job markets performed as good as equity markets? We are reaching pre crisis levels of stock markets but why aren’t were reaching same unemployment levels as before crisis?

Interest rates are not increasing because policy makers are trapped within their obscure models which are mostly flawed. Policy makers are trying to avoid disaster at cost of a bigger eventual disaster. Until the mess (debt) is cleared from the financial system, we can’t see real growth. Look at Japan, they haven’t been growing for 2 decades because they never cleared the debt in their system. Worst part is that the fear of crisis will never go away from the households, institutions and corporations. Long run stagflation is what would result in the end.

I definitely agree with second last point of Chairman that fiscal and monetary policies should be independent and left to their respective in-charges but that would be an ideal world for me. The way world works today is not like that. Even if central bank wants to increase the rates they will face immense political pressure and criticism. Markets are too sensitive to such policy measures and politicians know that.

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Continue reading »]]> 2 weeks ago when crude oil was rocketing up, many analysts came up with different explanations why crude oil would reach $140 and some said it would go till $180. That doesn’t seem possible to me anymore. Firstly let us see why everyone was so upbeat on oil:

US WOULD ATTACK ON IRAN

SUPPLY SIDE SHORTAGE OF OIL

EXCESS LIQUIDITY IN MARKETS

First reason seems to be very important one and looks like most important reason of price rise of WTI Crude. Well, that still is a case but why are prices going down now?

Second reason again was a temporary one which never actually caused any major shortage anywhere and can not cause oil to spike like that.

This leaves us with the third reason which was indeed why prices went up.

But, what has changed now then? What has changed now?

CONCERN THAT EUROPE IS IN RECESSION AND IT WILL PULL REST OF THE WORLD INTO RECESSION AS GREEK PROBLEM INCREASES EVERY NEST DAY.

PETROLEUM USAGE IS ACTUALLY DECLINING SO SUPPLY SIDE SHORTAGE ISSUE NO MORE EXIST

NO INDICATION OF ANY QE BY FED ANY SOON WHICH MEANS LESS LIQUIDITY

I think in near future the factors for decline of oil prices would be far more strong than those causing its rise. So, oil might continue its downward journey in coming weeks.

Continue reading »]]> Let us see where these countries stand as per their ratings by rating agencies and find out who would go burst in which order.

It seems Germany is the only country for which all the three rating agencies unilaterally agree on stable outlook. UK, Netherland and Austria are in stable zone. But look at the outlooks of rest, all negative except Greece which can’t go more negative than that. So, for people who are guessing how would the EU states default look like, here is the order in which they would go burst. Greece which has already started to default. Then it would be Portugal who will very soon start asking for Greek type bailouts. They would be followed by Ireland,Italy and Spain would be fighting hard as to who will be the first to default but I guess it would be Spain. By the time all this happens the ratings of UK and France would have already gone down and what happens after that is called ‘depression’.

Continue reading »]]> Zero Hedge comes up with amazing analysis and prediction most of the time. Here is another flow diagram from them showing CDS triggers as the only possible outcome with the current Greek PSI deal.

As seen from the diagram, there is high probability CDS triggers (of the sort highlighted in red circle). Even if that isn’t the case and something else happens, CDS triggers are sure to happen.

Continue reading »]]> Crude Oil (WTI) is going high everyday. As I write this article it stands at 108.56 and shows no signs of moving down. If it goes like this then very soon we would see crude oil at $115 which is my target for now. It would probably consolidate around those levels before again taking a leap to $120 which is my final target. Off course if situation in Iran becomes completely war like then even $140 is possible. On the other hand if Greece defaults and Euro region goes into recession or EU breaks up then situation would be different. Though it would be interesting to see what happens if both the events occur simultaneously.

Here is how Crude Oil performed today:

Here is the weekly chart for Crude Oil showing how crude is ready to reach yearly high now.