Monday, 8 November 2010

EU in trouble - Again

Now we are seeing a reaction with sovereign debt issues resurfacing in Europe as tensions grow over debt restructuring, bank bailouts and budget issues. Borrowing costs are rising because unlike the Fed, the European Central Bank did not purchase debt. The ECB will need to address these concerns of a declining dollar and rising borrowing costs leading to a potential liquidity trap.

This may lead to a replay of the May “Flash” crash where there were reports of banks refusing to lend to each other. It is beginning of a global trade war where countries engage in competitive protectionism through currency debasing. Interventions and market manipulations lead to market crashes.

Profit taking when the news and the consensus is bullish is the disciplined trader’s approach. When everyone else is comfortable I get cautious.

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