Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Bear Capitulations (by Springheel Jack)

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If there's one thing that I'm noticing around the blogosphere this morning, it is that a lot of bears are throwing in the towel. John Murphy is leaning bullish now I think, and Carl Futia has also thrown in the bear towel. They might well be right. While the sovereign debt crisis is likely to result in a major crash at some point, that debt crisis won't be about two bit players like Greece or even Italy, it will be about the US and the EU as a whole, and when the members of the Euro zone bind themselves together ever more tightly to escape these first sovereign debt problems, they are increasingly creating a situation where if they go down, they all go down together.

The key thing here is that sovereign debt levels in the US and the EU (on average), on the optimistic reading where onerous pay as you go future pension and other commitments are excluded, are reaching about 100% of GDP and are still rising fast. I've read that the tipping point at which it starts to get a lot more expensive to roll over debt is at about 120% of GDP, and by 140% you are effectively insolvent. Debt can go higher of course, Japanese debt is close to an astounding 200% of GDP, but it's hard to find a serious analyst who doesn't think that Japan is effectively insolvent, and that default there is just a matter of time.

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Euro Area Bailout Deal (by Springheel Jack)

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Just a quick post today as I have to do a lot of offline stuff, but obviously my doubts about the reversal this week were well founded, and ES has leapt to new highs overnight. The big news overnight of course was that the terms of a Euro area bailout were agreed, and that may kick the Euro area problems a few months down the road. You can see that story on Bloomberg here. The EU has arranged a 50% 'voluntary' writedown of Greek debt, though how that can be effected without triggerng CDSes still seems a bit doubtful. It strikes me that any holders of greek debt who refuse the writedown could make a lot of money here at the expense of other bondholders, and if they are forced to accept the writedown, then the writedown isn't voluntary. It will be interesting to see what happens. It seems likely though that the main bondholders, the banks, will be strongly encouraged to accept the writedown, and that they will probably accept the loss for fear of a formal default and/or loss of official goodwill from their governments, who have been effectively underwriting the banks since 2008.

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Reversal at Resistance (by Springheel Jack)

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That was a strong reversal day yesterday and that was an encouraging start. There haven't been two consecutive down closes in October so far and we'll see if that can be broken today. On the big picture the reversal at main resistance yesterday was very encouraging for the bear side. On ES (though not on SPX) there was a bearish engulfing candlestick and a potentially very bearish setup that I've detailed on the daily chart:

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