Ad Hoc Commentary – bears time to shine is only after Aug 24, or a month later

Yours truly decided that he can’t change being made redundant, but he can change the way he feels about it. So, instead of wallowing in self-pity, here is the usual commentary to a great audience.

On to markets. As we maintained since the Greek elections and through the month of July, the bulls will be victorious by the start of the Olympics. Mr Market seldom disappoint. Our favorite Dow Jones Industrial closed Friday above 13000 for the first time since May. Of course, yours truly was expecting a bond to equity reallocation (nicknamed Bund to Dow). But that didn’t materialize. Instead, the supportive cash flows from European government bonds found its way into both Bund and Dow.

Analyzing net surplus/deficit from European government bonds had helped us turn bearish on time in May, and bullish since mid-Jun. Now that the cash-flows are effectively flat from here, this compass will not help till end 2012. So, we are back to analyzing confidence.

Yours truly maintain that the time for the bears to shine is only after Aug 24, or a month later. In Europe, the Greeks are supposed to run out of money by Aug 20. The Europeans are likely preparing a firewall which excludes ‘misbehaving’ Greece. If they are successful, Aug 24 will then be an inflexion point and we are headed for euphoria as the European debt crisis is ‘solved’.

But putting lipstick on a pig is superficial. The demographic driven European debt crisis will only be postponed. However, the restless bond vigilantes will migrate to another country while waiting, possibly Japan. Let us hope earthquakes do not strike twice; and political bickering do not lead us to a Japanese debt ceiling standoff.

Good luck in the markets.