Sunday, February 10, 2013


Zero Hedge reported again this week that the Federal Reserve monetization is going into excess reserves of European banks, and like 2007, it is causing a run up in the Euro, and at some point Europe cries uncle.

But who gets to decide when enough is enough?  Apparently Germany does.  They are on a mission to impose budgetary discipline in Europe, and they just out maneuvered France on the EU budget.  OK, so what.

Well I think it gives us the price for the top.

Everyone is talking about 155 as a top, all time highs are at 156.70, and if you take the last Fed fueled run in 2007, you had a 20% move over seven months before Europe could not stand the pain any longer, not to mention us.  That takes us to 161.

Now I read this from Deutsche Bank.  "A study by Deutsche Bank last month calculated that France's exporters start being priced out of world markets when the euro rises above 1.22-1.24 dollars - a level it has already long left behind to trade at $1.33 now.
Germany's higher value-added export products, however, only start to be disadvantaged when the exchange rate is above $1.54. Until that point, there is little damage to the German economy and indeed some benefit in a strong euro because it keeps the prices of imported goods and hence inflation in check."
If we get there we are looking at a SPY number of 177.  I put the range in as I am unsure how loudly the southern and Eastern belly of Europe will be screaming by then.  Also, I can't even imagine what the price of oil here will be, nor the ten year.  I imagine China will be a basket case by then, as well.
I am still looking at a pullback imminently, and my range is no lower than 147, unless the kabuki sequestration dance takes an unscheduled turn.   We have the State of the Union, then negotiations to give the "reason" for the pullback, then boom, shaka, laka.
Right now, I have sells on Oil, platinum, Paladium and Treasury prices, and SPY and VIX are overbought.  Gold and silver are neutral, and copper is a buy but only because of Friday's action which I discount due to volume.
If I am right, it will make the next twelve months (after the top) horrible economically, all because the banks are broke, and we must pony up to keep them alive.

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