Wednesday, March 24, 2010

An unexpected result...

A while back, I published this chart before we had a breakout of the symmetrical triangle. I was expecting the triangle to break out to the upside, as I presumed that Britain was in more trouble than the U.S. This chart almost suggests the opposite...

Then today I found this:

U.S. Is Riskier Than Euro Zone; So Says CDS Market


The article is warning that something deep is being revealed, that we need to be wary now..

Both the article and the chart are in agreement that something is going really rotten in the state of Denmark, er..the U.S., rather...


john said...



old john

Anonymous said...

The first move out of the pennant is usually the incorrect move. That is, typically, but not always. In this case, I would interpret it to mean that FTSE will decline faster/more than SPX going forward. (Note that during '08-'09, FTSE lost < 50%, whereas SPX lost about 60.)

Yes, today's bond auction was a failure, but it pays to remember that it was the blowup in treasury market that did the equities in during the rally in 1930 - after the crash of 1929. The dollar was devalued (against Gold) more than a year later.

I do think that the bond vigilantes are now back and that will put us back on the track of deflationary depression. Unfortunately, that would mean PERMANENT increase in real interest rates (worldwide) and strengthening of dollar (higher demand, lower velocity).

Typically debt deflation works in 3 stages -

1. The Event (2008-2009)
2. Realization of reduced earnings
3. Liquidation

We'll now see the market reaction to # 2.

- Shankar

mlytle said...


Thanks for the analysis, I was thinking along those lines, but you probably said it better than I would have..

Mark L.

Penny Stock Newsletter said...

I cannot just imagine what will happen to the united states if china and all the countries and all investors the world over shun the dollar. Interest rates would sky rocket and the federal reserve would be forced to buy bonds from the treasury to fund the government and pay interest on all of the governments bills notes and bonds. When the buyers for united states debt obligations disappears the whole system will come crashing down. This is the type of thing that peter shiff has been warning everyone about when the ability of the united states to pay its debts becomes clearly in doubt all the buyers for united states debt securities disappears overnight.