A healthy correction. That is all.

Did not post anything over the weekend as I was being dragged into a wedding as a brother to suffer from humiliating challenges posed by a bunch of young girls looking to have fun. All in all a very interesting weekend but that meant not having the time to write anything on this blog.

Not that there is nothing to write about because we are having some really interesting news coming out from all the major markets and markets have gone into consolidation mode since last Friday. China has fallen 11% since last Friday and here I am licking my lips as stocks get cheaper for me to buy. You must be thinking, I must be nuts to want to buy stocks at this time when Chinese stocks are falling 4 percent per day. Well in my mind, the faster it drops, the faster we get over with it and then we can resume the way up. We have had a good run since September and it is about time to slow down and take a breather before the Capricorn effect takes its place in December and January. What the markets are doing now is just taking a break so that it can move further forward.

So what is causing the current weakness in the market? So many people are pointing the fingers at the Irish debt issue. But what is really new? Is this really going to cause us to go into another correction of the same magnitude of what we saw in May? No chance. Why? Because in May, the Eurozone peripheral countries sovereign debt problem had caught everyone by surprise and the shock of finding out how poorly managed the fiscal balance sheets of Greece were, created a panic in the markets. I do not know about all of you, but by now, I am really sick of reading about how the PIGS countries in Europe are all going bankrupt and getting their debt downgraded. You want to know what I think about this whole issue? I think it is just the Eurozone's way of competitive devaluation of the Euro. In one of my previous posts, I said, Europe was the only one that has not done anything to devalue their currency and now they have moved to action. They have achieved it with the Euro falling more than 3% over the past week. But this is not going to be a big deal, who the hell cares about Irish debt besides the Irish creditors? Please do not waste time reading about this. Pointless.

Next we have worries about the Chinese moving to contain inflation. So much speculation that the Chinese will move to raise interest rates again as early as 19 November. With the inflation number coming in much higher than expected, what do you expect? I remember writing about how Chinese inflation will be here a few months back. By the end of the day, they did raise most manufacturing job wages up by more than 40% on average, consumption is bound to shoot up. Is it surprising to you that food prices went up by more than 10% last month? So how do we contain inflation in food prices? By raising interest rates? No way! Who cares about interest rates when making the decision to buy more pork for dinner. Expect food price curbs from the Chinese government. Personally, I do not know how they are going to do it because this will never work in democratic countries but with a central government this will be much easier to implement. No one except the pricing committee will know the extent of these price curbs so lets just wait and see.

Markets are overreacting to these price curb measures by selling down most of the commodity stocks. The fears over more rate hikes also caused the banks to bear most of the brunt of the sell down. This is a buying opportunity, not a selling one. So hold onto your horses. This is a very healthy correction and it makes me even more optimistic because it shows there is still logic and rationality in the markets. The more linear the move the more fearful I become.

The USD is moving back up again and many people are saying this is the return of risk aversion from fears over the Eurozone problems resurfacing. I choose to disagree with this notion. Many people are not paying enough attention to the treasury yields when they are making such a statement. If there is really risk aversion, shouldn't treasury yields be going down especially since the ? But instead the 10 year treasury yield is at its highest point in months. Since QE2 was announced, there should be more pressure on yields to move down, but instead it has been moving up. If there was so much fear in the market, there should be tons of money flowing into treasuries but there is no such move right now. My view is that the USD is now moving up because of the shorts covering their positions. QE2 was hinted to the market 2 months ago and the shortists have been having a ball of a time making money from shorting USD. So now that the news is out, they are just busy covering their positions. It will not be long before the USD resumes it fall. And when that happens it is our cue to get back into the market.

Since this is just a midweek post, I am going to keep it short and simple. Just buy during this correction. We are going to have a good time over the next few months.

Have a good rest of the week.

Best,

SVI