TINA Factor

The extreme arrogance of what happened in the last one week leaves me wonder struck. After great wrangling, the US has decided to increase its debt limit. Please understand the statement. After great debate, the US has agreed that it can and will borrow more to spend on itself. In an act worthy of the master illusionist Houdini, they have got the entire audience (the world) rooting for them to increase the debt limit while really there should have been a great pressure on them limit their excessive spending.

Excuse me, am I the only one who is not getting it? Is it not the lenders who have to decide whether they will lend more? If I tomorrow decide that I am willing to borrow more to buy a better house in Worli, near my place of work, will lenders automatically come and lend it to me? Since when did it become the prerogative of the borrower to decide that he is willing to borrow more? The extreme arrogance of the belief that There Is No Alternative (TINA) other than to lend to the US and that too at a pittance of 2-3% for a 10 year period is staggering. The icing on the cake is that this borrowing is denominated in their own currency which they can devalue stealthily over a period of time to ensure that they eventually do not even pay back the total amount that they borrowed.

Since this cannot continue indefinitely, i.e. US Govt borrowing is unlikely to be funded by external sources for an extended period of time, it is more than likely that they will eventually monetise that debt and grow the Fed balance sheet. This can only mean a further devaluation of the Dollar and every other paper currency. Gold and land seems to be the only asset worth holding in this kind of pessimistic scenario.

Despite all this, I am still trading the Nifty. I am short as most of you are aware.                                                                            Current Position: STT Short LTT Short

Probable Trades: STT cut short and go long > 5711

LTT cut short > 5761