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     holycow
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Username: holycow
Post Number: 940
Registered: 08-2004Rating: N/A
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| | Sunday, March 13, 2005 - 07:21 pm: |  
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I just wish sometimes Stephen Roach of Morgan Stanley can tell us some good news... but he remains steadfastly a man who likes to tell the truth and every so often he pokes his fingers into others' noses...
Global: The Paradox of Stability
Stephen Roach (New York)
On this fifth anniversary of NASDAQ 5000, there is an eerie sense of déjà vu. Unlike the excesses in equities five years ago, today’s bubble is more of an interest-rate and currency phenomenon — complete with extraordinary compressions of interest-rate spreads in notoriously risky asset classes such as emerging-market debt, high-yield securities, and a broad array of credit instruments. In my view, these bubbles are joined at the hip, with today’s excesses very much an outgrowth of the post-equity-bubble defense tactics of America’s Federal Reserve. Excess liquidity and extraordinarily low real interest rates are indeed the “candy” of the current profusion of carry trades (see my 25 February dispatch, “The Instruments of Rebalancing”).
There’s another important similarity with the heady days of early 2000 — one that pertains more to the psyche of the markets. Emboldened by a recent outbreak of Goldilocks-type conditions in the macro space — namely, new hopes of inflationless growth — investors are becoming more and more combative at my rebalancing presentations. “You don’t get it,” they increasingly lecture me, “we live in a newly symbiotic world.” After all, they go on to say, as long as Asian central banks and their infinitely potent printing presses keep financing the excesses of the American consumer, why worry? “It’s in everyone’s best interest that this continues,” is the punch line I hear all too often these days. And, of course, that’s pretty much the way it has worked out so far, with the major nations of the world having managed to cope just fine with all the stresses and strains I seem so concerned about. I am getting challenged more and more these days as to why I believe imbalances will ever come to a head. Motive is not my concern. I certainly concede that it is in everyone’s best interests to put off the day of reckoning. The big question is, Can they?
The answer lies in what can be called the “paradox of stability” — the possibility that a seemingly tranquil status quo is, in fact, masking a dangerous build-up of tensions. That is a clear risk today, in my view. While it is possible and, for some, even easy to draw comfort from the appearance of a new symbiosis between debtor (America) and creditor nations (mainly in Asia), there is a worrisome undercurrent of tensions now building. Such signs are evident on the real side of the global economy, its financial underpinnings, and also in the political arena. Ironically, this confluence of forces could well be reaching a critical mass just when investors have mistakenly concluded that this new symbiosis — code words for yet another New Paradigm — is rewriting time-honored macro rules.
At the risk of over-simplifying, I would single out two economies that are most worrisome in this regard — the US and China. Courtesy of America’s record saving shortfall — a net national saving rate that has averaged just 1.5% since early 2003 — US excesses are only getting worse. That’s true of the current-account deficit and the mounting burden of America’s external indebtedness. That’s the case with the outsize trade deficit and the growing possibility it sparks a protectionist backlash. That’s also true of the low level of personal saving and the asset- and debt-driven consumption that has arisen in response. And it’s equally true of the unusually low level of US real interest rates that has been key in providing sustenance to the Asset Economy. In short, the superficial appearance of stability in the US economy is hardly comforting. Ultimately, the test will come as macro policy levers — monetary as well as fiscal — are ultimately set at more normal levels. The longer America continues to live beyond its means, the more daunting that test is likely to be.
For China, the unintended consequences of global stability stem largely from its role as a financier of America’s gaping current-account deficit. Courtesy of a trade surplus with the US that ran in excess of $160 billion in 2004, together with speculative capital inflows betting on a revaluation of the renminbi, Chinese foreign exchange reserves ballooned to over $600 billion by year-end. In order to maintain the RMB peg, the bulk of these reserves were recycled back into dollar-denominated assets. Under the reasonable assumption that about 75% of total Chinese reserves are held in US securities, that means China currently holds slightly more than $450 billion in dollar assets. That exposes China to a big portfolio loss in the event of a sharp depreciation of the US currency; for every 15% drop in the dollar, there would be a $75 billion position loss — the equivalent of about a 5% hit on Chinese GDP. Moreover, there is good reason to believe that the Chinese FX reserve build-up will continue at a rapid pace — an outgrowth of a persistently wide US current-account deficit, a pegged RMB exchange rate, and reduced dollar exposure of other central banks. If, as a result, China’s dollar reserves increase by approximately $200 billion per year, then a 15% loss in the dollar would be the equivalent of about 9% of Chinese GDP by 2008 — hardly trivial by any means (see N. Roubini and B. Setser, “Will the Bretton Woods 2 Regime Unravel Soon? The Risk of a Hard Landing in 2005–06” February 2005, on http://www.stern.nyu.edu/globalmacro/).
Moreover, if China continues to experience such massive capital inflows, its relatively undeveloped debt markets suggest it will have difficulty sterilizing the resulting dollar purchases required to maintain the currency peg. That implies a sharp increase in base money and a rapid expansion of the credit cycle. Such trends are a recipe for accelerating inflation — either in the real economy or in asset markets. The Shanghai property bubble — duly noted by Premier Wen Jiabao in his recent address to the National People’s Congress — is a worrisome example of just such a development. Inasmuch as interest rate hikes would probably encourage further speculative inflows into China, it becomes exceedingly difficult for the monetary authorities to raise Chinese interest rates in the event of an inflation problem. In short, the combination of a currency peg and massive capital inflows means that China has all but abdicated control over its financial system — the last thing it needs on the road to reform.
Moreover, complacency over this new global symbiosis masks some worrisome developments on the geopolitical front — namely, increased risks of US-China trade frictions. To this point, bipartisan legislation was recently introduced in the US Senate that would slap massive tariffs on all Chinese products sold in the US if the RMB were not revalued by 27.5% within 180 days. At the same time, there is growing concern over a surge of Chinese textile imports in the US in early 2005 — an outgrowth of the year-end 2004 elimination of global quotas on multi-fiber products. Washington insiders that I recently spoke to believe that this year is shaping up to be the worst year of China trade-bashing in a decade. That could be a real problem for China and its open development model. China needs unencumbered access to its largest trading partner, the US. In 2004, US exports to China accounted for close to 12% of Chinese GDP, according to Roubini and Setser. To the extent Washington’s political forays lead to increased trade frictions, China-US trade would suffer the most — dealing an especially tough blow to China. Needless to say, there’s nothing symbiotic about that outcome either.
Global rebalancing does not have to have a disruptive endgame. Fed Chairman Alan Greenspan used the occasion of the fifth anniversary of NASDAQ 5000 to argue for just such a benign scenario (see his 10 March 2005 remarks, “Globalization,” presented to the Council on Foreign Relations in New York). While such a constructive stance is to be expected from any central banker, Greenspan has been in a league of his own in arguing for gentle post-bubble adjustments over the past seven years. But there are no guarantees as to the severity of the endgame. Irrespective of mutual interest in the benign resolution of global imbalances, experience tells us the greater and longer the build-up of imbalances, the higher the chance of a more serious correction. In the event of a rougher endgame, the dollar would undoubtedly fall a good deal further, while longer-term US real interest rates would finally start to rise toward more normal historical levels.
For a world economy that looks stable on the surface, it is tempting to ignore the undercurrent of mounting tensions. Sadly, this is human nature — seemingly destined to lapse back into denial at precisely the point when the unintended consequences of global imbalances have increased. Graham and Dodd said it best back in 1934 when describing the excesses of the late 1920s: “…that new theories have been developed and later discredited, that unlimited optimism should have been succeeded by the deepest despair are all in strict accord with the age-old tradition.” That’s a lesson well worth pondering on this fifth anniversary of the bursting of the Great Bubble.
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 950
Registered: 08-2004Rating: N/A
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| | Wednesday, March 16, 2005 - 08:43 am: |
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US Sector Mar15
1) something is scaring the investors last night, not even the glitter of gold would tickle their greed... it seems the market was jittery about the anthrax scare - Al Queda is back to haunt the market. Again.
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 983
Registered: 08-2004Rating: N/A
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| | Tuesday, March 22, 2005 - 11:33 am: |
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During market uncertainty (from my view), I like to "walk about" to "spy" on others and seek out their views. I like to know what others are thinking and feeling. Of all the market participants, at every market top ('tis what I think), I like to check on the FA'ers more than the punters and the TA'ers.
It's not that I think they are not wise or smart or whatever, it's this bit of market idiosyncrasy that I have found in every major cycle, that is, this group of people gives the BEST and the MOST CONVINCING arguments every time. And each time, they have never failed to be the most vocal group in defending the bullish view.
They simply embrace the market and quite rightly so - most if not all the evidence they need to support their view are there. And most important of all, the market agrees with them.
I have just come back from a FA forum and lately I have begun to read more defensive view of why certain of their stocks are taking a bashing (because they couldn't explain it from the fundamental side), and I have found there are relatively more vocal posts against the market bears (by highlighting more supporting evidence).
As time goes by, I would take that the more of such posts I come across, the closer it is to the market topping. When they reach a frenzy state, I think it's about time to exit - for real this time! 
Below is a chart for everyone to ponder over...
XAO Daily
HC
"... if you've got a chart, I have an opinion!"
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dogalog
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Username: dogalog
Post Number: 1000
Registered: 03-2004Rating: N/A
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| | Wednesday, March 23, 2005 - 04:55 pm: |
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HC,a little bit from when i used to 'walk about' and do some'spying'.
Basically this country[god's own OZ]goes on 'holiday' from Melbourne Cup day to Easter.This[easter] being early this year may be depressing the populace,it's certainly making them say"Gosh isn't this year going fast".Start counting how many people say this to you as a conversation starter and you'll find it's true,hc.
Of course most of the population here like,well,everywhere don't have a clue how Easter dates are 'set',from year to year they think it's the same time as Xmas,like a set date.One would think that from a purely christian perspective but actually Easter dating goes back to pagan Spring festivals that got 'Taken Over' by the do-righters,take out faction which is Christian.
Anyhow,just wanted you to know HC,what a basically well,stupid,crowd/herd you're dealing with,if you didn't know already.oh and i saw you commenting about private emails.If you get them make sure to UNDER estimate yourself,say you're pennyante.That'll stop any con coming down on you.THEY'll stop bothering,even talking to ya if you pull that'ever so humble'.You'll just have to trust me on that,hc.
cheers,
jr
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holycow
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Username: holycow
Post Number: 986
Registered: 08-2004Rating: N/A
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| | Wednesday, March 23, 2005 - 06:21 pm: |
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Dr,
Actually the gentleman in that PM has been very kind to forward me a list of documents, his intention was to help me to learn more - something I do appreciate very much (Ta!) - this is one of the main reasons why we are here in this forum.
I took a quick peek into the last two Easter and guess what I have found? It seems Easter had been a time for "selling"!?
Easter Periods(?) 2003/2004
With regard to the FA'ers I wouldn't want them to think that I hold a condescending view on them because frankly that's not what I meant - instead, I have a great deal of respect for them because: 1) they have shown plenty of courage to hold their ground; 2) they have shown plenty of discipline sticking to their method; 3) time and time again they have shown me their method works within the time frame (longer) they operate. (So from their angle, they really can't see where/why they are wrong and they need to change. )
But because of their steadfast adherence to their FA view, they also make very good contrarian "indicator" to me because the "mainstream" market/stock analysts are mainly/mostly FA adherents like them and since I am still having nightmare from the tech bubble, I am using their reaction to the market as my canary in the coal mine - hence my post above.
Let's not read anything more than that or they will start sending arrows and spears over my end...
HC
"... if you've got a chart, I have an opinion!"
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holycow
Member
Username: holycow
Post Number: 987
Registered: 08-2004Rating: N/A
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| | Wednesday, March 23, 2005 - 09:52 pm: |
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May be the Japanese economy will give us a hint on what to expect vis-a-vis China and the impact of high oil price moving forward...
Japanese exports falter, may continue to slip
Wednesday March 23, 2005, 7:29 pm
TOKYO, (AFP) - Japan said its trade surplus in February shrank for a second consecutive month as rising oil prices continued to boost imports and Asian exports, a key driver for economic growth, stalled.
The data came as the world's second-largest economy is struggling to cling to growth in the first three months of the year after a mild recession in the middle of 2004.
Exports are struggling to recover while consumer spending, backed by an improving job market, has not yet emerged strongly enough to take the lead in getting the economy back on a steady growth track.
Japan's trade surplus dropped 21.7 percent from a year earlier to 1.09 trillion yen (10.5 billion dollars) in February, well below the consensus forecast of 1.33 trillion yen.
Exports in February grew only 1.7 percent to 4.85 trillion yen while imports jumped 11.3 percent to 3.75 trillion yen, the finance ministry said.
"Exports were virtually flat while imports rose sharply mainly due to high oil prices and strong demand for steel and coal products," a finance ministry official said.(High price in Oil, Steel and Coal are driving up their input cost)
Japanese exports are expected to continue to falter in the near term as growth in global information technology demand is now slowing, Daiwa Institute of Research senior economist Junichi Makino said.
"Japan's trade surplus, which had bolstered economic growth early in 2004, is most likely to see a continued contraction in the near term," he said.
On the import front, steel jumped 77.5 percent from a year earlier to 61.8 billion yen and coal rose 41.3 percent to 91.6 billion yen, while crude oil increased 20.4 percent to 515.1 billion yen. (try work that out and see if it's sustainable for them assuming nothing will change in (price of material) the next three years...)
Apart from soaring commodity prices, analysts said the trade surplus fell as Japan's exports to Asia, which account for nearly 50 percent of total shipments, rose just 0.9 percent from a year earlier to 2.25 trillion yen.
"In China particular, exports of electronic devices, such as calculators and heavy machinery equipment, fell sharply,"(I'd take this as an early warning on China's cut back on growth esp with drop in import in heavy mchinery equipment) said senior economist Akihiko Suzuki at the UFJ Institute.
"It is too early to raise the alarm over declining exports to China as perhaps the fall was due to a slowdown in production during the Chinese New Year" in February,(could be, but I reckon China has stated very clear that they want to reign in uncontrolled expansion) said Suzuki.
Japanese exports to China fell 2.2 percent to 576.8 billion yen, marking the first decline in 38 months(can I read this as the Chinese cut back is beginning to bite?), while imports jumped 31.8 percent to 760 billion yen.
"As Japan's trade with China keeps expanding, even a modest setback could have a greater impact on overall Japanese exports," said Tatsuya Torikoshi, senior economist at Daiwa Institute of Research.
The trade surplus with the United States, rose 12.4 percent to 676.5 billion yen with exports up 6.4 percent to 1.15 trillion yen and imports falling 1.3 percent to 470 billion yen.(the yanks will never change, always the greedy one, chomp chomp!... and on credit!)
Significantly, exports to the United States accounted for 1.4 percentage points of the total increase of 1.7 percent and outpaced shipments to Asia for the first time since February 2002.
"The pace of increase in exports to the US surpassed the pace of increase in exports to Asia for the first time since February 2002," a finance ministry official said.(Yoohoo! US consumption is up! What's new?)
The surplus with Asia plunged 31.1 percent to 541.7 billion yen as Japanese imports from the region grew 18.4 percent to 1.70 trillion yen.
Japan's trade surplus with the European Union slipped 1.0 percent to 328.7 billion yen as exports fell 2.5 percent to 774.1 billion yen and imports declined 3.7 percent to 445.5 billion yen.
Link here.
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 988
Registered: 08-2004Rating: N/A
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| | Wednesday, March 23, 2005 - 10:30 pm: |
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This is the kind of analyst view that I have been talking about... they've never failed to bring up the median eps, the average, etc... they sounded very convincing but how relevant do you reckon the info is? Do you buy your stock base on this median eps? Even for comparing? How'd they reconcile this info with today's market action?
They are only good for the sales guy, I reckon.
If you take their "model" seriously, you should be buying/loading up as if there's no tomorrow all these while because it is only slightly over-valued and still "insignificantly" Not over-valued. Yet!
...and yes, they reckon the earning growth will be just as good as we move forward... (probably with certain miners, but with the other sectors? doubt it!)
Just love this stuff....
Market Overvalued? Just A Tiny, Little Bit!
Wednesday March 23, 2005, 6:01 pm
Following the bumper 2004, it’s good to remember that for the 20 years to December 2004, the median earnings per share growth of the Australian equities market was 8.4% per annum. The average was slightly less at 7.9%.
As a comparison, for the financial year ending June 2004, reported in September 2004, earnings per share in the Australian equities market grew by more than 27%. It has been growing at around the same pace ever since. For the year to February 2005, earnings per share growth for companies in the ASX200 was 26%. This makes it amongst the top periods of earnings per share growth experienced in the history of the Australian market, ABN Amro Morgans Chief Economist and Director of Strategy Michael Knox points out.
The above average EPS growth rate has had its impact on share price levels as well. ABN Amro Morgans values the market via its proprietary valuation model and Knox explains that a one point (around 1%) increase in earnings per share pushes the appropriate level of the ASX200 by some 16 points.
Also, a 1% fall in the Australian 10 year bond yield pushes the appropriate level of the ASX200 by 168 points. Knox reports that the appropriate value for the Australian equities market according to the broker’s model stood at the end of February 2005 at 4,150 points. To be overvalued at a statistically significant level, the Australian stock market must be about 7% higher than its appropriate value, he explains. In the current circumstance this means the index must be above 4,450 points.
The ASX 200 closed at 4,174.8 on Wednesday.
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 993
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| | Friday, March 25, 2005 - 09:24 am: |
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XAO Daily
1) A picture tells a thousand words...
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 995
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| | Friday, March 25, 2005 - 09:56 am: |
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Missed putting this in... very soon, we will find out which emotion shall rule - Is it greed? Or fear?
Also, very soon we will find out which side will win in the battle between the army of "valuation, fundamental and logic" vs the army of "speculation, sentiment and feeling".
Is it the beginning of the end? Or the end of the beginning? (just love this over-used line )
HC
"... if you've got a chart, I have an opinion!"
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holycow
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Username: holycow
Post Number: 1005
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| | Tuesday, March 29, 2005 - 11:55 pm: |
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For the record...
Instead of looking at the big picture, take a look at the small prints and numbers - do you like what you see?
Try to make sense of what has happened. Try to relate to what has changed that makes the big players want to sell their "good shares" at such a discount? Didn't they tell you the median EPS is about 15X and the market is 'still cheap"?
That was about three days ago, and now "they" are selling big time!
Steel is hot and they sold BSL. Iron ore is in great demand and they sold RIO and BHP. Insurance and fund management is the hot sector and they sold down AMP, IAG and a little QBE and AXA. The banks, the utilities, the retailers, "they" did them in too!
What has changed?
Something has changed and yet nothing has changed much. Spare a moment to ponder on this little puzzle and spare some space in your neurons to store your findings for the future because sometimes down the road I am sure history will repeat itself... if you can spare a moment, you will be more prepared next time.
Fifty Leaders Mar29
http://finance.news.com.au/story/0,10166,12689622-462,00.html
Stocks down as funds square folios
March 29, 2005
From: AAP
THE Australian sharemarket was lower at noon as fund managers sold off stocks to balance their portfolios for the end of the month.
After a strong start after the Easter break the market turned mid morning with heavyweights such as Rio Tinto, BHP Billiton and most of the big banks lower at noon.
Advertisement:
At 12.04pm (AEST) the benchmark S&P/ASX 200 was 17.5 points lower at 4118.9 while the all ordinaries index fell 16.9 points to 4114.7.
On the Sydney Futures Exchange, the June share price index contract sank 24 points to 4139 at 12.07pm on a volume of 8,993 contracts.
Reynolds & Co adviser Michael Heffernan said the downturn today came as a lot of fund managers were balancing their books ahead of the end of the month and the quarter.
"It could be a lot to do with a bit of book squaring and profit taking," Mr Heffernan said.
"Coming up to the end of the quarter they will be balancing their portfolios and if they are over invested in a stock, and they need to reduce their weightings."
HC
"... if you've got a chart, I have an opinion!"
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msparks
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Post Number: 65
Registered: 10-2004Rating: N/A
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| | Wednesday, March 30, 2005 - 12:54 am: | | | |
