Too Big to Save, Too Big to Fail

A fiat currency is one that is controlled by a government. In
the US, its the Federal Reserve that controls the supply of
money by printing or sticking a bunch of zeros and ones on
some magnetic tape someplace. Like the Greenback, there are
other fiat currencies -- the Yen, Euro, Rupee, Zloty, Forint
etc., If History be any indication, fiat currencies that
have existed have been destroyed by the very government that
gave it spawn. In verity, Clan Chiefs, Kings, Emperors and
Governments have always had two simple choices

a) Say it like it is and level with their clansmen/citizens
and constituents that there really is no free lunch;
b) Borrow to spend (by printing) without raising taxes and
make the deficit by printing more of the instrument that is
the backbone of commerce and exchange;

The US is the biggest debtor nation and the expansion we
have seen is due to the lending by foreign nations. They
finance our trade deficit by taking dollars when we pay for
Building materials, BMWs, Chateau Latour, Bang & Olufsens,
La Perlas....etc., by buying bonds and other domestic
financial assets. Now, you keep doing that for a while,
move jobs elsewhere, create icing by mathematical
wizardry....and, as u can imagine the numbers in terms of
exposure and the situation start to creep into dangerous
territory.

While the action with respect to the US dollar has been
gradual and is long drawn, perhaps because its a reserve
currency - a good illustration of what will eventually
transpire is evident when we see what is being played out
in Europe :

Borrowing by Eastern European banks amounts to about $1.7
Trillion, much of it from Western European banks. Much of
the East is bordering on Depression and there is heightened
risk of a sovereign default. In the US, we might have the
"Too Big to Fail" syndrome but in Europe we definitely
have the "Too Big to Save" syndrome, which is a very virulent
and deadly economic form that arises from ungodly amounts
of leverage in the credit system.

The virulent effects of this leverage has been felt in the
very recent past by way of very negative currency action in
the Zloty, Forint, Suisse and the Euro. So what, you ask?
Well, its the start of a what I call a global trade
cluster-f**k! If European currencies go down, their goods
become more competitive and if Asian exporters want to
remain competitive they might have to either manipulate
their currencies or even devalue. We might start to see a
whole basket of protectionist actions around the world and
that would essentially put big time brakes on
recovery....blah-blah. U fill in the rest.

Monday
Feb 23rd, 1015hrs

OK, I was short SP last night, covered as soon as the Citibank
news hit the DJNewswires as a headline and then flipped and
went long. I put in a bunch of trailing stops and went to
sleep. This morning, I sold out a few minutes ago and now
I'm just watching it. It seems like this market does not have
legs and just wants to head down. I will have to wait for a
better opportunity to sell short.

I still do think that we have a BIG impending move coming to
us sometime this week. The market's health is very tenuous at
best. If we do rally from these levels (772 on ES), and break
through some serious overhead resistance area around 780-784,
I suspect we head up to about the 795-798 level and then fail.

I am still looking for the ES to be in the 650-660 range.

- aLV