Zak Mir peers over the fiscal cliff to take a view on Bonds & the Euro

3 mins. to read

I have never been big on politicians, even though it could be argued that this is just sour grapes on my part, being robbed of the chance to live out egomaniacal dreams, fiddle expenses and then get a knighthood/peerage! Sadly these do not look yet to be part of my career plan…

One of the problems in the  21st century is that both politics and the legal system which it props up, remain based upon the 18th century and even before – hence the silly clothes and wigs  you see at the opening of Parliament and in court.  This would not matter so much if it were not for the fact we are collectively suffering for the outdated processes that are as anachronistic as the Gentlemen’s Clubs  (nothing to do with Spearmint Rhino!) on which they are essentially based. Indeed, to be blunt, as far as the whole Fiscal Cliff episode has been concerned, you could argue that this kind of idiotic, irresponsible game playing with the fate of the world’s largest economy could only have been served up by middle aged men. Essentially, all the parties concerned should have been locked in a room as soon as the Presidential Election result was out early last month – and not be allowed to leave until a deal was delivered (even for a loo break!).

So far today, the markets have rallied extensively, something which is not surprising, certainly with the FTSE 100 given the way that just before Christmas we were treated to three rather obvious (in hindsight anyway!) bear traps below 5,900, culminating in the blatant bull crushing close below 5,900 on Christmas Eve. This should be enough to deliver  a sustained move through 6,000 for January, and I am in fact targeting 6,300 at the top of a rising trend channel from May.

Despite having written 44,000 words on the subject of what may happen in 2013 via a book entitled Lessons From The Financial Markets From 2013, for some unfathomable reason, I seem to be the only person either in the City of London or beyond who has not been asked for their (normally totally wrong) tips for the New Year… But something which has stood out as far as other people’s ideas for this coming year is concerned is the likely direction of the US “T Bond” which is in a mega bubble. A lot of people are expecting it to tank, finally, in 2013. The ingredients appear to be there with dollar debasement – inflation; debt ceiling issues and so further potential downgrades; competition against equity yields and, perhaps most importantly, the potential “exit” from loose policy by the Fed.

In looking at the chart however, to me there is nothing in it that is particularly scary, essentially trading within a range between former December 2011 resistance at 146 and 152. Only a weekly close decisively below 146 would even begin to suggest here that this market  is ready to take a tumble any time soon.

As you might imagine, the Euro featured highly in the aforementioned Lessons book, with some gloating on my part in terms of how the so called “smart” money (and currently going short of the FTSE 100 at 6,000 – doh!) did not want to listen to my technocrat hero Mario Draghi telling them not to be short of the Euro. So far they would be 10 cents offside, with even Lord Jacob Rothshchild (via RIT Capital Partners (RCP) going short in August, and presumably currently “doing his conkers” (in East End parlance) as my less posh friends might say.

Looking at the latest charting position of the Euro and it can be said that while above the September $1.3171 intraday peak we should head quite swiftly through last year’s $1.3485 intraday peak and very likely over the next 2-4 weeks.

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