Archive through March 29, 2008

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rdumas

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Tuesday, March 25, 2008 - 10:07 am:

Shane Oliver's positive view on the market outlook.

The following article came from the Australian Investment Review.

===============================================================

Markets 2: Outlook
March 25 2008 - Australasian Investment Review – (AIR)

So are we seeing a sign of some settlement in world markets in the wake of the saving of Bear Stearns, or just another bump on the way to the bottom?

Market strategists point out that there have been 20 instances in the past 20 years or so of the Standard & Poor's 500 rising 3% or more and all have been during bear markets. So whatever the market does might have a lot to do with very short term trading sentiment and not any intrinsic appreciation of medium or longer term developments.

The rush is still on to pick the bottom of this particular slump, proclaim it and hope on for the ride. The AMP's Chief Strategist, Dr Shane Oliver believes there is a reasonable chance that all the recent volatility – both down and up – over the last few weeks could set up a base for a decent rally in shares in the next few weeks or so.
"Shares have become very oversold and undervalued after big falls since late February, investor sentiment has become extremely bearish with everyone talking about a bear market which is normally a good sign from a contrarian perspective and the fact that US shares did not make a new closing low after the bad news on Bear Stearns suggests that a lot of bad news has already been factored into share prices.

"On top of this there is a lot of short selling of shares in place suggesting that there is plenty of fuel for a rally if the traders who are short have to close their positions. As such there is a reasonable chance that shares have put in a decent bottom for now and will move up for a few weeks or so.

"However, while it is possible that we have now seen the lows in shares for this bear market, we think that it is premature to be conclusive and still lean to the view that shares will have more downside at some point in the next three to six months.

"The next bout of share market weakness when it comes is likely to be driven by non-financials, eg consumer discretionary, materials and industrial shares, responding to the continuing flow of bad news on the US economy and increasing signs of a slowdown in other countries. Australian shares also have to face the added burden from the fall-out from high local interest rates and the strong $A. As such, it remains a time for caution.

"Our assessment remains that the best approach for investors with spare cash is to use the current period weakness to average into shares spread over six months or so as this minimises the risk of getting in too early or too late.

"One thing is looking increasingly likely though and this is that share markets will see some sectoral rotation over the next few months as the problems move on from the financial sector into the real US/global economy.

"After huge falls it looks like the worst may be over for banks, listed property trusts and other financials, but non-financials are now more vulnerable as the economic outlook deteriorates. In Australia, this suggests that banks and LPTs may start to outperform resources. This has certainly been the case over the last few days.

"Whether we have seen the low or not we remain bullish on shares on a 12 month view. "Valuations are very attractive with shares trading on extremely low price to earnings multiples, some sectors such as banks and listed property trusts are now trading on very attractive dividend yields, big 20 to 30% falls in profits are already factored into share prices, the global monetary backdrop is becoming extremely stimulatory and US fiscal stimulus should also be positive for global growth next year.

"By year end we see share markets being back on to a sustained rising trend. "Bond yields may still fall a bit lower as global growth slows. "However, on a one-year perspective, global bond yields are now very low and offer investors very poor returns. "Australian bonds offer much higher yields which are likely to fall as the RBA moves in the direction of cutting rates some time in the next year and as such Australian bonds should have much higher returns than global bonds over the next year or so.

"The ride for the $A over the next year is likely to be rough as concerns about global growth and commodity prices continue to surface and Australian growth slows, leading to possible interest rate cuts locally in 2009.

"But high commodity prices and still relatively high local interest rates should ensure that the $A remains reasonably strong. Expect a range of around $US0.85 to possibly as high as parity against the $US."

===============================================================

ody

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Tuesday, March 25, 2008 - 10:41 pm:

A LESS OPTIMISTIC VIEW OF US FINANCIALS

This article is interesting asking what American financial companies actually are or should be worth, and the answer is not exactly encouraging, which makes one wonder just what basis Wall Street actually has for now suddenly expressing a new kind of trust in this sector. One of the most inherently worrying points is that the PLACE of financials in the US economy has greatly and dangerously increased, at the expense of what could be far more solid and profitable activities of a different nature. Or, to put it bluntly, the financials "fabricate" part of the economy, and have devoured money which used to be spent more wisely.

http://money.cnn.com/2008/03/24/news/companies/McLean_wallst.fortune/index.htm?p ostversion=2008032416

(Message edited by ody on March 25, 2008)

deanrosario

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Wednesday, March 26, 2008 - 11:27 am:

Some interesting technical developments are now unfolding on the Aussie & US markets.

The DJIA (weekly) has hit the 20 EMA, which - for me - adds more significance to next week's movement.

Failure next week would send us back to test recent lows of 11800ish, however, a further push up would test the 12800ish level.

The XJO futures chart has a huge - 100 point!! - gap that, in my view, will start to fill in the not-too-distant future. My guess is late this week or by end of next week.

Some selling now occurring on the XJO and the next support seems to be 5320ish, although 5300 would be a "nice round number" that the market seems to enjoy.

"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

"Hope is a dangerous thing. Hope can drive a man insane." Ellis Boyd "Red" Redding, played by Morgan Freeman, in 'The Shawshank Redemption'.

mrlunch

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Post Number: 298
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Wednesday, March 26, 2008 - 01:07 pm:

Dug, finally opened that CNM thread in long term.

http://forum.incrediblecharts.com/messages/316907/1466674.html

captain_chaza

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Wednesday, March 26, 2008 - 04:30 pm:

Crikey!
The DOW is now ONLY ~11% off its ATH

I think the Bearish skippers in this thread need to explain why they got it
"SO WRONG!"

Please explain!!

Salute and Gods' speed

"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.

"I believe the future is only the past again, entered through another gate."
Sir Arthur Wing Pinero 1893

"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897

rdumas

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Post Number: 1271
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Wednesday, March 26, 2008 - 05:59 pm:

Could someone please explain to the captain of the Titanic that we on this thread invest in the Australian market which is currently down 21%.

Crikey no wonder he keeps running into icebergs.......he doesn't have any idea where he is !!!!

coyotte

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Wednesday, March 26, 2008 - 08:26 pm:

Fail to see at this point what you are wetting ya pants about Capt. ?

yesterday (not on chart) was a inside day on low relative Vol as was the prior days up move on low Vol.

There may have been a couple of False breaks, that could not carry on with it.

only positive i can see apart from TMF (secondary analysis) is the latest Low was both a Absolute and Relatively Higher Low.

Seems to be trading in a Channel -- break above the top of the channel with a higher low or close , other wise it is just churning.

sure someone once said only beachbums and landlubers traded long below the 150 dma .

The "Sea of Uncertainty" is defeated by the nimble vessel "Probability", not the unwieldy vessel "Prediction".

ody

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Wednesday, March 26, 2008 - 10:56 pm:

GOOD NEWS: CREDIT WOES BACK!

Every time the market goes up these days I feel I am taken out of my rhythm: I persuade myself that we are clearly in a bear market and that there is no substantial FACT (as distinct from surges in SENTIMENT) that would or should take the market up. But it's hard going, at times, not to allow yourself to be swept along by enthusiasts, however hollow their talk. So it is with some genuine satisfaction that I can once again be the bearer of truly bad tidings (you know the sort of thing - probably nothing as treacherous as Bear Stearns that suddenly turns out to be worth MORE to its buyer!!). Here we have a true-blue USA event of the old, ongoing style that we have enjoyed so much in recent months - a company really in deep trouble, and a big one too. AND there were sundry bad figures yesterday and today to confirm that the credit crunch is still well and truly alive, and

... no doubt the recession that we have to be in, though we shan't know that we are in it or perhaps out of it (take your pick) until we have been in it, even if we thought that PERHAPS we could stay out of it by throwing enough money around, etc., etc.

At this stage it is still only a feared unknown, not yet a known known, but it is not an unknown unknown either for we have known its possibility for long though not its necessity or inevitability. Meanwhile the boys at the Fed are doing all they can to combat this much feared enemy and though we have had to make a number of sacrifices they were inevitable and are necessary for the good war against a possibly to come (or possibly already real) recession that we are doing our darnedest to avoid. A pity about the people who will lose their houses, but the banks, I always say, are more important. So long as we can keep the American banks ticking, even if on a (temporary) time-bomb, they must tick, and the Fed has a firm grip on it all and is doing all the right things. Not long to go now: they will lend and give until we are all blue in the face, and then the recession (if ever there was one) will be well and truly over, and our strong economy can show itself once again in its true colours. Already there are some adventurous folk who are borrowing because interest rates are low, though not yet low enough, it seems, for everyone's needs. Here is all the latest, to let you see how much on track we are:

http://money.cnn.com/2008/03/26/markets/stockswatch_ny/index.htm

(Message edited by ody on March 26, 2008)

ody

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Thursday, March 27, 2008 - 05:45 am:

SURE, WE ARE GOING TO HELP OUT BEAR STEARNS *AND* HOMEOWNERS

"In our country, we first help out the rich when they ruin themselves: otherwise the economy would collapse - first things first. But we are not heartless: those who have borrowed money for houses which they cannot repay will ALSO get financial assistance. You can't come a cropper in America! SOMEONE - not least responsible and hardworking taxpayers - will fork out the money for you. An advantage of this is that we are not living in a heartless capitalist country: we use the money from hard-working responsible people to assist just those that are deserving: those who have lent as well as those who have borrowed irresponsibly. Why should they come a cropper because they have done something wrong? On the contrary, they should come FIRST in our extending sympathy to our fellow-human beings. Those who behave responsibly can look after themselves, in contrast to these poor irresponsible individuals who cannot. God bless America, and the strong nation that we are building up, where reckless lenders and borrowers are helped at the expense of those who are careful and looking after their money. First things first!"

"We are not like Robin Hood, stealing the money from the rich to pay the poor. We take it away from honest taxpayers who try to live responsibly, and give it to both rich and poor people who bankrupt themselves. Now THAT is American generosity for you, and that is how we forge both national unity and maintain our fabled strong economy."

"Our troubles are almost over. We are evening things out. Moe so than in any communist country, we shall ensure that everyone is comfy, especially those who have failed in achieving riches - no matter what harm they did to others in the process or how much they have left - and those who wasted such money as they had on buying themselves into mortgages they could not pay for."

http://money.cnn.com/2008/03/26/news/economy/bailout/index.htm

rdumas

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Thursday, March 27, 2008 - 07:40 am:

The events of 11th of September 2001 changed the world forever. We have recently witnessed another world changing event that some may not have realised.

=================================================================

5:57 AM Mar 27, 2008

MARTIN WOLF, FINANCIAL TIMES

The limits of liberalisation

Remember Friday, March, 14 2008: it was the day the dream of global free-market capitalism died. For three decades we have moved towards market-driven financial systems. By its decision to rescue Bear Stearns, the Federal Reserve, the institution responsible for monetary policy in the US, chief protagonist of free-market capitalism, declared this era over. It showed in deeds its agreement with the remark by Joseph Ackermann, chief executive of Deutsche Bank, that “I no longer believe in the market’s self-healing power”. Deregulation has reached its limits.

Mine is not a judgment on whether the Fed was right to rescue Bear Stearns from bankruptcy. I do not know whether the risks justified the decisions not only to act as lender of last resort to an investment bank but to take credit risk on the Fed’s books. But the officials involved are serious people. They must have had reasons for their decisions. They can surely point to the dangers of the times – a crisis that Alan Greenspan, former chairman of the Federal Reserve, calls “the most wrenching since the end of the second world war” – and the role of Bear Stearns in these fragile markets.

Mine is more a judgment on the implications of the Fed’s decision. Put simply, Bear Stearns was deemed too systemically important to fail. This view was, it is true, reached in haste, at a time of crisis. But times of crisis are when new functions emerge, notably the practices associated with the lender-of-last-resort function of central banks, in the 19th century.

The implications of this decision are evident: there will have to be far greater regulation of such institutions. The Fed has provided a valuable form of insurance to the investment banks. Indeed, that is already evident from what has happened in the stock market since the rescue: the other big investment banks have enjoyed sizeable jumps in their share prices (see chart). This is moral hazard made visible. The Fed decided that a money market “strike” against investment banks is the equivalent of a run on deposits in a commercial bank. It concluded that it must, for this reason, open the monetary spigots in favour of such institutions. Greater regulation must be on the way.

The lobbies of Wall Street will, it is true, resist onerous regulation of capital requirements or liquidity, after this crisis is over. They may succeed. But, intellectually, their position is now untenable. Systemically important institutions must pay for any official protection they receive. Their ability to enjoy the upside on the risks they run, while shifting parts of the downside on to society at large, must be restricted. This is not just a matter of simple justice (although it is that, too). It is also a matter of efficiency. An unregulated, but subsidised, casino will not allocate resources well. Moreover, that subsidisation does not now apply only to shareholders, but to all creditors. Its effect is to make the costs of funds unreasonably cheap. These grossly misaligned incentives must be tackled.

I greatly regret the fact that the Fed thought it necessary to take this step. Once upon a time, I had hoped that securitisation would shift a substantial part of the risk-bearing outside the regulated banking system, where governments would no longer need to intervene. That has proved a delusion. A vast amount of risky, if not downright fraudulent, lending, promoted by equally risky finance, has made securitised markets highly risky. This has damaged institutions, notably Bear Stearns, that operated intensively in these markets.

Yet the extension of the Fed’s safety net to investment banks is not the only reason this crisis must mark a turning-point in attitudes to financial liberalisation. So, too, is the mess in the US (and perhaps quite soon several other developed countries’) housing markets. Ben Bernanke, Fed chairman, famously understated, described much of the subprime mortgage lending of recent years as “neither responsible nor prudent” in a speech whose details make one’s hair stand on end.* This is Fed-speak for “criminal and crazy”. Again, this must not happen again, particularly since the losses imposed on the financial system by such lending could yet prove enormous. The collapse in house prices, rising defaults and foreclosures will affect millions of voters. Politicians will not ignore their plight, even if the result is a costly bail-out of the imprudent. But the aftermath will surely be much more regulation than today’s.

If the US itself has passed the high water mark of financial deregulation, this will have wide global implications. Until recently, it was possible to tell the Chinese, the Indians or those who suffered significant financial crises in the past two decades that there existed a financial system both free and robust. That is the case no longer. It will be hard, indeed, to persuade such countries that the market failures revealed in the US and other high-income countries are not a dire warning. If the US, with its vast experience and resources, was unable to avoid these traps, why, they will ask, should we expect to do better?

These longer-term implications for attitudes to deregulated financial markets are far from the only reason the present turmoil is so significant. We still have to get through the immediate crisis. A collapse in financial profits (so significant in the US economy), a house-price crash and a big rise in commodity prices are a combination likely to generate a long and deep recession. To tackle this danger the Fed has already slashed short-term rates to 2.25 per cent. Meanwhile, the Fed also clearly risks a global flight from dollar-denominated liabilities and a resurgence in inflation. It is hard to see a reason for yields on long-term Treasuries being so low, other than a desire to hold the liabilities of the US Treasury, safest issuer of dollar-denominated securities.

“Some say the world will end in fire, Some say in ice.” Harvard’s Kenneth Rogoff recently quoted Robert Frost’s words in describing the dangers of financial ruin (fire) and inflation (ice) confronting us.** These are perilous times. They are also historic times. The US is showing the limits of deregulation. Managing this unavoidable shift, without throwing away what has been gained in the past three decades, is a huge challenge. So is getting through the deleveraging ahead in anything like one piece. But we must start in the right place, by recognising that even the recent past is a foreign country.

*Fostering Sustainable Homeownership, March 14 2008, www.federalreserve.gov;
**Globalization and Monetary Policy, March 7 2008, conference on globalization, inflation and monetary Policy, www.banque-france.fr

================================================================

ody

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Thursday, March 27, 2008 - 11:05 am:

RUDY: THE LIMITS OF CAPITALIST FREEDOM

I think that was a very good article, in that indeed the intervention of the Fed showed something like socialism - though not to shore up the poor, but the rich who were losing a significant portion of their money. Apparently the idea is still that it is capitalism that must be rescued rather than that we shall see even a social-democrat European set-up. But the key is that CAPITALISM WAS NOT LEFT TO ITS OWN DEVICES, AND THE AUTHORITIES, THOUGH HELPING IT, COULD NO LONGER PRETEND THAT "THE MARKET" COULD "GO IT ALONE". Perhaps what we are seeing is, rather, the end of Adam Smith's "invisible hand" - of the supposedly self-correcting and self-steering market.

And true enough, as the article argues: that also means that a set of sharp regulations needs to be drawn up so that the Wild West practices which we have seen operating and which the world is suffering under get thoroughly reined in. So long as that does not happen, we are bound (a) not to see an end to this disaster, and (b) many repeats.

ody

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Thursday, March 27, 2008 - 11:16 am:

KEEPING UP WITH AND THROUGH GREG PEEL (FNARENA)

Here is his latest informative, comprehensive report on what has been happening, notably in the US - and how much of a flash in the pan much of the "good" news once again tends to be when measured against the more negative news. Yet the article is sober and factual - not sensationalist. Also, not all news is bad, particularly if one dare look outside the US.

The Overnight Report: Optimism Fizzles
FN Arena News - March 27 2008

By Greg Peel

The Dow closed down 110 points, or 0.9% last night. The S&P lost 0.9% and the Nasdaq 0.7%. The Dow made some effort to rally from its lows an hour out from the close, but faded once more.

The renewed optimism on Wall Street seen these last few days took somewhat of a beating last night, as if a fuselage of bullets were hitting a game soldier trying to exit the trench. It started with economic data.

After a devastating 4.7% plunge in durable goods orders (everything from fridges to machinery, cars and computers) in January economists had pencilled in a 0.5% recovery rise for February. Yet again the economists were wrong, as the figure was a further 1.7% fall. Included in the number was a full 13.3% fall in machinery orders. The R-word is overwhelming economist predictions lately, with very little data failing to surprise to the downside. While Wall Street was happy to take the more in