FxCurve

27/05/12
What is the event of the year 2012? 1. The Greece Exit

HEDGFX
For Private Circulation Only

2. Attack on Iran 3. Disintegration of Eurozone 4. Slowdown in China 5. Mayan Calendar!

If you have selected any of the above, you have probably selected the wrong one. The real issue for the rest of the 2012, and one with the utmost tactical importance is the US Presidential elections. Undoubtedly the Euro issues will have longer term importance but over short term, say a quarter they may not have the sting as much as this can have. We have seen in past the cycles tend to go awry and biased towards bullishness during the election year. Post-Clinton FED is effectively a re-election platform and strategizer. Though its too much to argue that the Republican President would act any differently from a Democrat, the issues going into the elections will have bigger relevance for stock market movements across the world. Given the correlation we see we may see it mirrored across market screens. Think of it as a narrow window of relief rallies.

1. Greece Exit
Greece exit is supposed to be and could be catastrophic. Greece exit has been a given since in 2010 but that has been a hard fought battle. However Grexit has been in news for so long and so loudly it is hard to find a person who wont blame Greece for their unfortunate circumstances. However, it would be utterly naive to think the exit is not already priced in. The only reason it would have an immediate impact is due to the large scale unwinding / deleveraging on the event. The major asset allocations and reallocations have, its safe to say, already factored in an exit. Grexit in our opinion would be a damp squib.

BETA

hedgefx@gmail.com

FXCURVE

HEDGFX

The post-Greece may lead to string of downgrades across the European banking sector and even sovereign bonds. This remains the biggest risk post Grexit, the large scale capital flight from Eurozone. We can imagine ECB and Germany coming out with all guns blazing to protect Spain, Italy, and any other weak links from contagion. Note: Almost every investment bank, banks, HFs, the whole-street are negative to severely negative on Grexit. The first reaction of this action is to sell, and subsequent selling is likely to cause a series avalanche with positive feedback until we hit a selling climax. Where exactly it may bottom out is anybody guess at the moment. What they also agree on is an imminent Euro strength rally, the target of which varies from 1.4000 to 1.5000 depending on who you talk to.

Attack on Iran
Any steps towards military isolation of Iran is most unlikely during the ending days and regime of the Obama. Obama would not like go to polls with a possibility of going into a war as soon as he gets re-elected. Obama came to power with the promised of withdrawing from Iraq, pretty sure he wouldn't want to change that stance before elections. The "Iran premium" that gets built into oil prices are unlikely to be triggered for next few months at least. This should help cool down the crude oil prices into second half of 2012. This should also add to some economic recovery. Iran is the least of the threat facing the OECD countries. Iran can wait.

Disintegration of Eurozone
In our opinion this is unlikeliest scenario. Greece may be dismembered but no other country is likely to be shown the door now. Remember, even after 2-3 years of firefighting Grexit is still not imminent. And Greece is one the most 'expendable' of the European peripherals and toughest EZ rescue project. If it however happens, no matter when, it would have some catastrophic consequences.

Slowdown in China

hedgefx@gmail.com

FXCURVE

HEDGFX

The problem with Chinese statistical data is that its all smokes and mirrors. The data somehow always paints a more optimistic view, a very different situation from the ground. The official statistics too now are going sour with contraction, slowdown and risk of credit bubble bursting looking all too imminent. China's slowdown is likley to be a slow motion train wreck. Anything faster than it needs to be is unnecessary nuisance for Chinese govt. With all the stats under their control they will be in command for a long time. However, they can control the stats but not the proxy or inputs into those stats. Commodities' consumption and prices, for instance.

These are genuine fears of market and a matter of fact. However the election years are different. Your normal cycles do not work anymore. And pre-election is almost always see a rally into the election almost up to the swearing in of the new president. While occurrences in Eurozone are beyond the reach of Obamas foreign policies what is definitely within control is the maintaining of status quo in many international affairs and geo-political situation. And we guess, this would include certain bailouts (remember the swap credit lines of December?) to Eurozone to compartmentalize any financial events.

Issues of elections
The biggest issues of this elections are undoubtedly unemployment and growth. Its only and simply the economy. And the citizens facing the barrel of the gun, arent that stupid or clueless. Obamas policies have been a non-starter since day one and the undue amount of effort on the healthcare bill pretty much sealed the fate. Frankly Obama has nothing to show to people as his achievements or cajole them to vote him to power again. Last few months are little too late for any reforms push and he is bound to get really busy with budget discussions. He cannot deny the fact that debt addition has been the maximum under his administration and so is the unemployment and so is the lethargic recovery. There isnt much we can hope from him in the second term given the conditions of the senate. However his non-election may be even worse which is why it would be in the interests of the FED to see Obama is reelected! Choose among the devils! Comedy indeed.

hedgefx@gmail.com

FXCURVE

HEDGFX

HEDGFX Forex Concepts

A unit of Agastheeshwaran Securities and Trading Pvt Ltd
No 212, Palace Orchard, Bellary Road, Sadashivnagar, Bangalore, India. Mail: Hedgfx@gmail.com Phone: +91 87490 94542

Disclaimer
Trading and Transactions in Financial markets - equities, forex , commodities and other markets are risky, and has potential for substantial losses. All the suggestions and information shared by HedgeFx and or Agastheeshwaran Securities and Trading Pvt Ltd (ASTRA) through its reports, websites, orally or through any other communications, are shared in good faith and to best of our knowledge and expertise. HEDGFX, ASTRA or any of its officials are not responsible and cannot be held responsible for any losses or risks arising from following these suggestions and reports. Under all and every circumstances, the maximum liability of HEDGFX is absolutely limited to the subscription or service fees paid by the customer. Users and Customers by using these reports, information and other communications agree and accept this disclaimer.

hedgefx@gmail.com