Ultimately, the Fed is irrelevant.... What could be the catalyst for wave 3 down this time? It appears that the next logical bubble to burst is governments' debt bubble. Almost every government in Europe is either in a worsening debt crisis or is fated to see their big trade surpluses come tumbling down. I hear a lot about the Greek problem, but of course there are much larger problems, such as Spain. But, what I don't hear about is the problem caused by Germany's big trade surplus. Here there is a country which is reaping big benefits at the expense of its neighboring countries. It's as if here in the United States, there were a couple of states, say California and Texas, who were showing tremendous trade surpluses while all the other states were running up huge deficits. If the US didn't have a political system which bails the states together and helps equalize the financial pressures, the union would split apart very quickly. In Europe, they have Germany, where the citizens are refusing to help their neighbors in this time of crisis. Politically, no German leader can agree to bail out any of their neighbors without being thrown out of office. Therefore, unless Europe can unite like the United States, the whole Eurozone is in danger of breaking down into a hotbed of squabbling neighbors, ending with depression for all of them.
And, that's exactly what is happening as Europe sinks. But, this time, instead of the US real estate market pulling the world down, it's going to be Europe pulling everyone down. And, the US has shot all its bullets, rescued the bankers and engendered a lot of pent-up political anger against the bankers. When the bankers come begging to Congress to bail them out again, the answer they get is likely to be, "No, drop dead greedy pig."
Looking to China, where the real estate bubble is massive and likely to implode this year, I can see the possibility of a large contracting triangle resulting in a thrust rally. But, triangles can be tricky and the thrust could be weak and fail to make a new high. Or, it could be a fakeout triangle where the break is to the downside. China is certainly not going to escape the tumble that all world markets are going to endure. If the market can rally to tag the 50% retracement at 3894.48, it would temporarily make stock traders think that the next leg down in the depression had been averted - and provide the greatest short selling opportunity this century in world stock markets. |
