Archive through June 12, 2008

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mrlunch

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Post Number: 323
Registered: 09-2006

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Monday, June 09, 2008 - 04:27 pm:

Ody - I would say 10 years is entirely unrealistic myself. I gave a timeline of between 10 to 1,000 years. I hope 1,000 years is even more unrealistic.

ody

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Post Number: 2516
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Monday, June 09, 2008 - 04:41 pm:

mrlunch

Any suggestions as to what you think MAY be realistic? It's hard, isn't it? I thought I needed to "rule out" 10 years as even a possibility. But heaven forbid we'd still need to rely on the stuff 1000 years from now! Intuitively I'd think that possibly within 20-30 years we may largely have (a) reduced demand greatly and (b) have significantly come to replace this poison. Purely a guess, though!! If it takes much longer we'd be in very deep trouble, I would think. In truth, one would think that whatever happens 10 years from now the situation will not look like today. Either it will be much worse if we simply stick to oil or there will at least be some impressive beginnings of alternatives at work.

What a ghastly situation to have to think about - and yet, there are some very real problems upon us, that is clear.

ody

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Post Number: 2517
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Monday, June 09, 2008 - 04:46 pm:

Oil and the Australian market

Ironically I think the ASX is largely up on oil: if so that just shows how much confidence people have in its continuing to be a valuable commodity, and how unlikely they consider its disappearance. Admittedly, many of the punters may prove to be wildly optimistic about a sustainedly high price. History has shown that it never does last, and probably even this time, with far more demand than in the past, there must still be limits.

Meanwhile the market was obviously enjoying itself. Not so in the US or many other oil-dependent countries, I would think, even though Wall Street's fall was probably exaggerated.

mrlunch

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Post Number: 324
Registered: 09-2006

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Monday, June 09, 2008 - 06:09 pm:

Yeah I'd like to think 20 to 30 years would be enough time for alternatives to have taken a lot of the places that belong to oil today, but I'm sure it would still be used a lot. Realistically though I doubt there is the urgency to make that happen... yet.

It isn't even as if we need to completely replace oil in one go either. Once the process gathers some momentum it will take on a life of its own and the phasing out of old technology will happen naturally.

10 years should be enough to see potential from a lot of alternatives. What could be interesting is how much turmoil there is during any transition.

ody

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Post Number: 2518
Registered: 10-2006

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Monday, June 09, 2008 - 08:53 pm:

mrlunch: oil

Well said - I completely agree with what you say, and not least about the potential turmoil. For this, I think, is going to be the difficulty - that in many ways we know what sort of things we should be doing, at least when it comes to reducing the use of oil, but do we have the true will power to do it? Admittedly, high prices do help - but the sad thing is that we don't really seem to be able to act without such an incentive. Which is one frightening aspect about any fall in price, viz. that once again we might regard the high prices as the exception, and lower ones as normal, or due to us.

ody

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Post Number: 2519
Registered: 10-2006

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Monday, June 09, 2008 - 10:27 pm:

THE AUSTRALIAN MARKET TOMORROW - WHAT WILL IT DO?

Earlier today I was really writing on the basis of what our market did BEFORE the weekend, and assuming that the strong oil price would help resources stocks tomorrow, but all in all I am not now sure at all. Oil, and perhaps other resources too, should still be a help, and BHP and RIO are both up a bit on the FTSE, but not by a lot. Much else will probably be weighed down by the unemployment figures in the US, new inflation worries arising from high oil prices, etc. All in all I now think that the negatives will outweigh the positives, and that we shall go down tomorrow. However, Europe has been uneven today - by no means only negative, and prices for Wall Street are up, though of course only at a fraction of the amounts they went down by on Friday.

In general, my assessment for the weeks to come is fairly negative, with resources perhaps providing a bit of a buffer, but not, I should think, enough. There will be further worries, definitely, about credit woes, higher inflation, higher costs in general. The general psychological climate under investors, including Australian ones, seems to be once again "on a downer". There will be tax loss selling, too.

ody

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Post Number: 2520
Registered: 10-2006

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Tuesday, June 10, 2008 - 02:16 am:

CANADIAN MARKET

I happen to be up (around 2.00 am Adelaide time), and have just noticed that the Canadian market is doing quite well, In circumstances like these, when certain resources are very much UP and much else DOWN, Canada, which has similar strengths to Australia, often gives an indication of what will happen here. With luck we may be up, on the basis of resources. On the other hand, the countries are not the same, and we do have some very negative sentiment, again, about financials. So the market as a whole may not do that well - but possibly our resources stocks (and not only those in energy) will perform OK. In fact, we should probably look at Canada more often, as in many ways we have in some ways less in common, as a market and indeed economy, with the US.

rdumas

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Post Number: 1439
Registered: 11-2006

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Tuesday, June 10, 2008 - 08:11 am:

Hi Ody,

Unfortunately I'll be out most of the day so will miss a lot of the market action today. Last night the S&P500 closed up 0.08% forming a spinning top candle which shows the fight between the bulls and bears as being evenly matched. What we cannot forget however is that if we take the last two candles in the S&P500 (or any US index) we still have a combined candle that is very bearish.

Whilst a small rebound is a possibility the general trend of the market is definitely down for the next week or two.
As usual I have edited last friday night's chart to show the action on the S&P500 last night.

As for the XJO, it will probably have a similar action to that of the S&P500 in that whilst it may rally for a while the general trend of the ASX200 will be down. I suspect that we will still be heading towards the orange support line in the short term.

ody

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Post Number: 2521
Registered: 10-2006

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Tuesday, June 10, 2008 - 09:38 am:

Rudy: Direction of market

Agreed! Thanks for the guidance. I can't see the market up impressively today at all, and even if it were to be, I think we are unanimous in believing that, still, its general direction will be down. Both t/a and f/a seem to point strongly in that direction.

ody

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Post Number: 2522
Registered: 10-2006

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Tuesday, June 10, 2008 - 05:12 pm:

A VERY BEARISH DAY

Interestingly, he financials were again among those sectors hit most savagely. Probably high oil prices are seen to equal a deteriorating economy; moreover, people are afraid of financials anyway, because the problems surrounding them have never been actually solved, the pretence of Bear Stearns notwithstanding: the Fed's action was the only one available to it, in practice, because alternatives were yet worse, but it was just a bandaid, and that has become more and more obvious. Once again the credit crisis is causing all sorts of problems. And at the same time we have inflation increasing, but the Fed can hardly take interest rates UP or it would throttle the economy entirely, or if it takes them down then it irresponsibly encourages the gamblers (2% is already irresponsibly low in a debt-addicted US economy). Central banks thus don't have much choice to do anything. For the time being oil looks like being high: it will raise costs hugely, and damage economies worldwide. That is why even materials have been falling substantially today. Whichever way one looks, at the moment, one soon stares some significant problem in the face. We are suddenly in a much worse situation than a few weeks ago - though it is not as though matters were sound then, either.

Time will have to be the healer, in all probability, as it is not easy to see quite what governments or central banks can do short-term to improve matters. Possibly a good thing would be for oil to go REALLY high and then crash. But that may not happen either. And whatever the fall and the extent of speculation, oil is "out of the bottle" and sure to cause havoc in any case. Many other prices are also very high: again, probably often unsustainable, but damaging in the meantime, and not easy to control. Probably market forces themselves will have to do the lion's share.

Don't count on much confidence in the markets for the weeks - and possibly months - to come. We are most probably now clearly in the true second leg of the bear market, the leg that almost always occurs - often after an unexpected trigger - to spoil the complacency of those who thought the bear was "over", or never existed.

Once again a substantial holding in deposits will prove a blessing for many, while a large number of heavily exposed investors will lose a lot of money, and often irretrievably. Those whose financial situation is sound and who are holding good stocks will probably eventually benefit, but may need to show patience and hope for a possibly long and certainly arduous period.

rdumas

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Post Number: 1440
Registered: 11-2006

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Wednesday, June 11, 2008 - 08:57 am:

Hi Ody,

Last night the S&P500 ended down 3.32 points (-0.24%) after forming another spinning top candle but this time it was a slightly negative 'inside day' candle. Basically it was saying to us, 'you work out the future direction of the market because I'm not telling you'.

My gut feel tells me that we wil probably form a 'spinning top' candle ourselves today so I suspect that whilst the Share Price Index futures is currently down 8 points there will probably be a time today when we will be 'in the green'. Regardless of today's action however I still see a continuing downward pressure until at least the orange support line at 5342 over the next few days.

rdumas

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Post Number: 1441
Registered: 11-2006

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Wednesday, June 11, 2008 - 09:20 am:

Some one is finally looking at the Credit Defaults Swap problems in the US.

Alan Kohler's article is in my opinion probably one of the more important articles that I've seen so far today.

===============================================================
7:38 AM, 11 Jun 2008

ALAN KOHLER

One less thing to worry about

This morning’s surprise is that Wall Street was directionless overnight: in the circumstances (inflation worries, Chinese market rout) it might have been expected to have a pronounced downward direction.

The fact that it held up is probably due more to relief that the credit default swaps (CDS) market is slightly less likely to collapse today, than any new conviction about the economy.

Fed chairman Ben Bernanke’s speech about inflation last night was, in my view, not the most interesting or important Fed speech this week.

In a less well reported speech to the New York Economic Club yesterday, the New York Fed president, Tim Geithner, announced that he had organised a meeting of 17 investment banks, who between them account for more than 90 per cent of credit derivatives trading, that afternoon.

The meeting was designed to hammer out a set of changes to the “derivatives infrastructure”.

After the meeting Geithner issued a statement to the effect that a series of objectives had been agreed, including creating a central counterparty or clearinghouse for credit default swaps to reduce settlement time to T+0 and reduce systemic risk.

The CDS market is $62 trillion. It is a very scary, unregulated over the counter market in which the securities being traded bear little relationship to the underlying bonds.

The risk that this market will collapse and produce a tsunami of bank write-downs and insolvencies has been weighing on equity markets for at least six months much as the fear of aftershocks weighs on earthquake victims.

It’s why Bear Stearns was not allowed to fail: because it would have risked massive derivatives counterparty failure.

The Bear Stearns rescue and sale operation was the turning point for the sharemarket in March; if Tim Geithner, with Goldman Sachs, Morgan Stanley and the other CDS traders can effectively stabilise this market it will be hugely important in stabilising financial markets more generally.

The process for reforming the CDS market that’s being run by the New York Fed is actually just a reminder that central banks cannot allow this market to collapse: the Fed, along with the European Central Bank and the Bank of England, are fully committed to backstopping the CDS market.

But that still leaves the problem of inflation together with slowing growth, which are now the dominant concerns. Last night Ben Bernanke gave the markets a bit of a tweak about inflation.

After his speech in Massachusetts, in which he elevated his inflation rhetoric a touch, futures markets immediately went to pricing in a 100 per cent chance of a 0.5 per cent rate hike by November.

More importantly the Shanghai market was crunched 7.7 per cent and Shenzhen by 8 per cent after the Chinese authorities increased the bank reserve requirement by 1 per cent to control inflation. It was the fifth time this year that the People’s Bank of China has done that, but the market was taken by surprise by this move and it was twice the size of the others.

The last time the Chinese market fell this much – in February 2007 – it set off a global rout that included a 7 per cent drop in a day in Australia.

But while the Chinese sharemarket is now, if anything, more fragile than it was then, other markets in the rest of the world are more worried about their own problems than China’s. The fact that the west’s inflation is largely caused by China’s economic growth is apparently beside the point.

Anyway, Ben Bernanke was pretty clear in last night’s speech: “the latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.”

At the end of the speech he went on to explain that: “there is much we do not understand about inflation expectations, their determination, and their implications.” But no matter – he’s going to resist them strongly, whatever they are.

The New York Fed’s work on CDS risks might mean there is one less thing to worry about – if it works in time - but that certainly doesn't mean that there is nothing to worry about.

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

eblode

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Post Number: 792
Registered: 11-2002

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Wednesday, June 11, 2008 - 02:11 pm:

Just returned from the funeral of Lily Sheezel. She was 93 years old. A lady of the old school. Her 3 children, her 11 grandchildren and 28 great grandchildren were all there. Lily's daughter Val (OBE) married Jack Smorgon (AO), who is the son of Eric Smorgon who is the brother of Victor Smorgon. I spotted Victor in his wheelchair, white bearded and still active at 95 years old.I approached him and congratulated him and his wife Loti on their appearance in the Anzac Day release of their images on the Australian postage stamp. They are still married and celebrating their 72nd wedding anniversary. AFter mentioning what a lovely person Lily was we began speaking about the role of women into today's business world. He confessed to me that when he sold one of their businesses to Southcorp they had a woman on their board of directors. This amazed the Smorgon group and mortified them when they realized they did not have any toilet facilities for women in their executive offices where the meeting with Southcorp was to take place.
Without delay and at a cost of $10,000 they built a "womens" restroom. What would they have built for Gail Kelly? How times have changed.

Eugenio

cat_lady

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Post Number: 458
Registered: 10-2006