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Tuesday, May 11, 2010

Death of the Western World Economy

Over the weekend, the European Union announced a 1 trillion dollar package to defend the Euro. That is what drove the markets much higher today. I have only one question. Can ANYONE reading this blog show me an example in history when countries that are running a deficit, after propped up by short term finances, it working out well?

These actions by Europe and US are actions taken by politicians backed by the financial industry trying to take short term answers to problems that are not solvable by creating larger debt. The key to watch is what FUNDAMENTALLY is changing with the MECHANICS of the situation?

The answer is not a thing. Therefore there is only one result, the resume of a depressed economy which will lead either to an market collapse or explosion upwards as a result of currency devaluation.

What I am most amazed with today is how the market was stopped DEAD in it's tracks by the previous bull trend line, but now from the "underside".

If the market cannot close above this line, I am going to flip quite quickly to the final decline has begun, which may last for year(s) to it's final destination. Hopefully the market closes above this line in short order, so I can use it to flip in the future for a downward view.

If the market can move substantially higher, I think it will be the last time. The US already "doubled down" with the Fed and US government trillion(s) of dollar infusion. Now the European Union has done the same. Japan has already kicked all of it's assets in and no longer has the credit it used to.

That only leaves China. They are the wild card here. They could do something nutz like decouple the yuan from the USD. Assuming China keeps status quote as they focus on their own issues, there really is no body left on the planet to help kick the can further.

The next kick the can by the US or the Euro may trigger mass selling of their bonds, and therefore some severe issues in those countries. The bond market can only absorb so much before bonds flip from a saftey play, to another high risk play like Greece.

I haven't changed my positions much, but I am now once again watching the markets closer than I have for months. The market needs to close above the greed bull line for me to get a little more at ease.

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