Rudy, - I agree with mum. The point about velocity is to my mind particularly telling, and very strong evidence in considering the "validity" of this rally. Thanks for the illuminating way in which you analysed that matter.
So much for the supposed end of Greek troubles ...
And how they might help to push the Aussie dollar and our share market to unsustainably high levels. ----------------------------------------------------------
THE fallout from Greece's debt woes have helped propel the dollar to a 13-year high against the euro, experts say.
However, they also say that while the Australian dollar has become a proxy for the China growth story, the Greek crisis could spark another global financial meltdown.
The Australian dollar reached a 13-year high of 67.15 euro cents on Friday, while debate rages over how the European union should deal with Greece's sovereign debt that stands at 113.4 per cent of gross domestic product.
Currency traders are being left with little choice but to buy the Australian dollar because of the weak euro and lacklustre US and Japanese economies, says City University, London, professor of global political economy Roger Tooze.
Australia's strong economy and close ties to China are also two reasons investors are so keen to pour money into the Australia, he says.
"The collapse of Greece would be an enormous blow to the euro," said Prof. Tooze, who is a visiting professor at the University of Technology Sydney.
"A lot of people are putting money into Australia and the Aussie dollar as a sort of proxy for China.
"What you get is you're investing in China through Australia where the legal structures [exist] to protect you, structures you don't have in China."
National Australia Bank head of currency strategy John Kyriakopoulos said that while the crisis in Greece is undermining the euro, neighbouring european economies could also come under pressure.
He said that scenario would lead to a second global financial crisis (GFC), weaken global commodity prices and sap the energy from the resource-sensitive Australian dollar.
"You have to be careful because if you see a spreading of the debt crisis to somewhere like Spain, it could really shake the financial system," he said.
"If we had another GFC off the back of it, the Aussie is not necessarily going to go up on the back of it."
The economies of Portugal, Ireland, Greece and Spain are at risk of being dragged down by any collapse in the Greek economy.
Ireland has an unemployment rate of 12.6 and Spain 19.4 per cent, and Portugal's public debt is expected to climb to 85.4 per cent of GDP this year, up from 76.6 per cent in 2009.
Mr Kyriakopoulos says he doesn't believe the European Union will let the Greek crisis spin out of control.
"I think the sovereign debt issues are on the radar screen, but I think Europe will deal with it because they want to preserve the euro.
"I think Europe will implement policies to cut their deficit, with consequences for growth."
While European leaders debated the formation of a European Monetary Fund (EMF) to act when the euro is threatened, Greece this week announced plans to save a total of 16 billion euros ($A23.91 billion) in 2010 through spending cuts and higher taxes.
Included in that package is an austerity package worth the equivalent of $A7.7 billion announced in February, which has angered unions and led to mass protest.
Athens is borrowing at high interest rates by selling government bonds to international markets, and needs to raise the equivalnet of $A80.7 billion this year.
Last week, the Greek government took $A7.47 billion from a 10-year syndicated bond issue, offering a 6.3 percent yield to offset market fears it could default on its massive debt.
German bonds of similar maturity offer roughly half that rate.
Earlier this week, Greek Prime Minister George Papandreou called on the United States to act against speculators betting on Greece's demise.
"If the EU - still America's biggest trading partner - should falter, the consequences here would be palpable," Mr Papandreou said in a speech in Washington DC.
"Unprincipled speculators are making billions every day by betting on a Greek default. All this may sound a bit familiar to American ears."
My apologies for the poor quality of the chart below but I thought that it was worth sharing with readers of the ODB thread. The price action for markets spend their time oscillating around the 'mean value' of the particular market being analysed. There will be times when the price action will 'stray' away from the mean but inevitably it must be pulled back to the mean value.
Moving averages provide us with some idea of the 'mean value' of the market. One of the problems of moving averages is that they 'lag' the price action by roughly half of the cycle period. In other words with say a 50 day MA the result you have plotted on the chart corresponding to the current price action is actually what the actual 50 day average was (very) roughly 25 days ago.
What I did for the chart below was to take the values for the 50 day MA and move them backwards into time so that it actually lined up with the price action on the day. This 'regressed' MA is the one in pink on the chart. Note that it now provides a 'mean' MA around which the XJO wishes to move its price action. I have also added an 'envelope' around this regressed 50 day MA to capture the larger moves within the index during the analysed time period.
Now because I have had to 'move back' the 50 day MA values we unfortunately do not have the value for the current price action. As indicated in the chart, the price action covers the period from the 13 November 2001 through to around the 20th January 2010. Readers may recall that the market peaked at 4955 on the 11th January 2010. At that exact time, the 'mean value' was sitting at around the 4566 level.
So the price action was around 389 points above the mean value and also at the extreme boundary of the envelope (see yellow boundary). Like an elastic band the index was snapped back towards the 'mean value'. In fact, like markets do, it actually went down to 4465. Hence it overshot its mark.
The current rally that we are seeing is a result of the overshoot and once again it will be brought back towards the 'mean value'. I suspect that the 'mean value' will by now be slightly higher than it was on the 11th January but it will definitely still be well below the current market action.}
(Message edited by rdumas on March 15, 2010)
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Re the chart in my previous post. I actually do know how to spell 'envelope'. EVELOPE is just a dyslexic form of the word.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Bottom line - anyone who thinks this is the start of a new bull market is dreaming. Governments have thrown everything they have at this and still things are not improving - they have no more bullets to fire - the tank is empty. Consumer credit fell at the fastest pace since 1942 in the US and job losses are still going on. If the US consumer accounts for 70% of GDP, then even blind Freddy can see that this is NOT THE START OF A BULL MARKET but the end of a 1 year correction within a bear market.
You cannot compare where we are now with 2002-04 - completely different set of circumstances. If you want a "true" comparison have a look at the charts from 1929-32....
True, we may grind a tad higher from here, but as Ody quite rightly points out, the higher it goes the more scary the ride will become.
MM, I believe you are in a contest with Ody as to who has the scariest scenario. So far this morning you are winning as I had to have an early morning brandy to steady my nerves for another bullish day.
What you are referring to is market noise, The fact is the market is still heading higher. That's what we should focus on the people who run the world will tell you anything in order to scare you or make you buy and sell according to their wishes. If you look at the charts however you will see it is still heading higher which is the real story. If things were really bad then it would be reflected in the charts you would see markets tumbling. The smart money would want to be out if they saw a big fall imminent.
You are basing your opinion on fundamentals rather than looking at what is happening.
Sure at some stage in future the market may fall, well we should worry about that when the time comes. If the market crosses down over the 30 week ma then its time to get cautious.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
If you look at my previous posts I did say I think the market will go up after a short pullback - and I am still of that view. I am talking about the very short term - possibly reaching a high (ASX200 target 5100) within weeks from now.
After that... well, yes it is scary. Although I think that by being in cash, TDs whatever and earning 6%+ is far safer than investing in this market that is extremely overbought.
I'll have a scotch in my coffee and toast you. I look forward to that bottle you will be sending me in October!
I look at both technicals and fundamentals. Technically, it looks like a double top is approaching on the Dow, similar to what happened between July and October 2007. During that time, both the Nasdaq and the S&P500 posted new highs (only just on the S&P500 and by a bit on the Nasdaq) which is exactly what has happened today in comparison to the January highs on all 3 major US indices.
I'm not saying it can't go higher, all I'm saying is on the balance of probabilities on both a fundamental and technical basis, this rally is close to an end in my opinion. The indicators that I use from a technical perspective are in overbought territory.
Also, I don't listen to a lot of the "noise", if I did I'd be predicting the markets would be putting on 20%+ this year like a lot of analysts and economists are saying.
MM, - I agree with your outlook as in your post 209. I should just like to add that, apart from the T/A and F/A indicating what you say, even the trading pattern on our own market during the last four days - including most likely today - is to my mind highly suggestive of a market where the bears are determined to sell the market down, and will eventually win out. That is, each day has started optimistically on a fairly high bullish note, but then the market is sold down. This pattern is to my mind in no sense suggestive of a bull market, or even of a continuing rally: rather, it suggests a rally that is getting exhausted. And let us remember that in any case the market has, within a zone, gone sideways for several months now. In other words, even on that basis a move down is no less likely than one up, if we are looking for a break in either direction.
Of course, it does remain possible that somehow the pattern of the last few days will so to speak "reverse", and the bulls may still gain the upper hand briefly - but briefly, I would have thought, is most likely what it will be. Whatever the size of the "correction" to follow - which in essence would be a resumption of the overall downward of a bear market - I do think we shall get it, and that almost certainly it is not far off. I admit I had expected it sooner, but I do not lay claim to being able to call the market to the day or even the week.
What I would find disconcerting would be a move utterly different from what I envisage, i.e. a longer-term move up. If that were to happen I agree with MM that it would be the prelude to a disaster; but - based on what I have seen of markets and my own record - I think that such an event is extremely improbable. I would give it no more than at most 20% likelihood of occurring, and I think that as so often the enthusiasts who overlook all the risks which at present place the market under siege will be shown to be wrong. Again, MM, I agree with you that we can see parallels with 2007 - both in pattern, and in sentiment, and, as well, fundamentals.
The fundamentals can, as Phil suggests, be ignored for quite a while, and I would not stake my forecast just on them. However, one does not need to. There are plenty of signs that the markets are getting more worried whether they are looking at fundamentals or concerned about locking in profits: it does not actually matter. The signs, as far as I am concerned, are all in all quite clear.
Asian markets are predominantly lower today, and it strikes me as likely that they are worried by the latest things Premier Wen has told us about China. That would certainly account for our own performance, as one factor - while New Zealand is actually in the green, as it is not a minerals/metals country.
You have told me in the past that you enjoy the intraday charts so for your benefit and others who may be interested, here is the intraday chart for the XJO as of 3pm today.
As you can see it's a 15 minute chart which gives you the price action for the XJO since the 4th March till 3pm today. We can see that as at that time the index had stopped its decent at the top of the gap. Traditionally the XJO 'loves' closing gaps and I suspect that in the next day we should see that gap closed.
Whilst it is possible that we have seen the top of the current rally, I still favour another leg up before the index capitulates sometime between the 19th and 23rd March.
Cheers
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Yep, I'm looking at the same thing but targeting 4725 as the potential pullback - the low point from last Thursday.
I agree that there will be another rally after this current pullback on our market and that the next down after that will be so severe it will catch almost everyone out..
Really useful. Having come back after a number of hours away from my computer I was not surprised to find the market well down, and it does seem as though the trigger was most likely Premier Wen's statement about China. (See below.) Then again, the market had been indicating a propensity towards falling during the previous three days as well, and inherently it is "topping" - overbought, as MM points out - and worrying investors who are holding stocks that might lose their value if they don't sell them.
None of this is to contradict the possibility of another move up if at first we only get a "closing of the gap" and a return to only a slightly lower level. But IF another good, elevated level for selling occurs I would, if I were owning shares at present, use that as an opportunity for exiting.
Nor would I be in any hurry to buy back in once the selling starts in earnest. There is plenty of room for some quite widespread selling, and there will be plenty more disquieting news to encourage that, about matters like an overstimulated China, a dangerous Greece, economies not recovering or purely and only doing so on stimulus rather than their own steam, etc. In short, the markets are at quite an exaggerated level where they have been taken either simply by those who make hay while the sun shines (quite understandably, if you get out in time) or the many - the multitude, really - that refuses to read the market as being based to a very large extent on "puff" only. As Colin argued the other day, an economy cannot actually buy itself out of trouble. Those who think that it can confuse appearances with the underlying reality.
There is, I think, growing awareness now that markets MUST correct to match that reality, i.e. that deleveraging is inevitable, and once that awareness becomes generally shared we could see quite a bit of selling off. I don't think the time is far away.
The following extract from Bloomberg may be useful. The complete article appears on Bloomberg itself. -------------------------------------------------- Asia Stocks, Commodities Fall on China Tightening; Pound Drops
By Rocky Swift and Shani Raja
March 15 (Bloomberg) -- Asian stocks dropped while oil and copper declined on prospects China will take more steps to cool its economy. The pound weakened after Moody’s Investor Service said the U.K. is close to losing its top credit rating.
The MSCI Asia Pacific Index slid 0.4 percent to 122.70 as of 4:18 p.m. in Tokyo, as the Shanghai Stock Exchange Composite sank to a five-week low. The pound fell against 15 of 16 major counterparts after Moody’s Managing Director Pierre Cailleteau said the U.K. and U.S. have moved closer to losing their AAA ratings. Futures on the Standard & Poor’s 500 fell 0.4 percent and declined 0.3 percent for the Euro Stoxx 50.
U.S. lawmakers and economists say China’s reluctance to let the yuan appreciate is threatening global competitiveness at a time when Premier Wen Jiabao also is taking steps to rein in growth in the world’s third-largest economy. Wen rebuffed calls yesterday for a stronger yuan, while Morgan Stanley said it expects increases in bank-reserve ratio requirements and higher interest rates as early as April.
“Given that China has been a powerhouse of economic activity since the global financial crisis, the fear is that withdrawal of stimulus prematurely will see a rapid fall in Chinese economic activity,” said Tim Schroeders, who helps manage $1.1 billion at Pengana Capital Ltd. in Melbourne. “The concern is that tightening measures will choke demand.”
Two shares fell for every one that gained on the MSCI Asia Index, which gained 2.4 percent last week, a third weekly advance.
China Stocks
The Shanghai Composite Index lost 1.5 percent, the biggest index mover in Asia today. Baoshan Iron & Steel Co., China’s biggest steelmaker, dropped 2.9 percent, and Jiangxi Copper Co., the nation’s largest producer of the metal, fell 1.6 percent.
“There are still lingering market expectations about further tightening and there’s a possibility that the reserve ratio will be raised this week,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “There isn’t much upside for the market, though the economy is recovering.”
“We expect multiple reserve requirement ratio hikes as warranted by the need to sterilize the liquidity impact, with the next one imminent,” Morgan Stanley’s Hong Kong-based economist Qing Wang wrote in a March 14 report. China may raise interest rates as early as next month, he said. The government has set a 7.5 trillion loan target for 2010, after a record 9.59 trillion yuan of new loans last year. [CONTD] -----------------------------------
Chinese Premier's pronouncements undermine markets
The connection between what Premier Wen said over the weekend and what has since happened to share markets is palpable, even though more damaging in some markets than others. In this particular instance, Australia is not - as often - in the best position, as of course neither are China or e.g. Taiwan.
There are two distinctive fears. One is that the intransigent, indeed truculent statement about the yuan not being capable of being raised will ultimately lead to US retaliation. This is capably discussed by Alan Kohler below. Whether he will turn out to be right or not, the issue is potentially a serious one, and the article is certainly worth paying attention to. There is no doubt that Australia would suffer if artificially low Chinese prices led to trade imbalances and indeed possibly serious trade/political friction. And in any case, as Kohler points out, many are too optimistic about China, particularly in its current phase. (I think that few doubt that longer-term it will no doubt continue to be beneficial to us, but that does not mean that we cannot experience some significant "derailment" in the shorter term; and it does not seem to me that matters in China are actually in desirable shape.)
The second worry concerns the likelihood that because China is overstimulated, it will no doubt continue to "squeeze" the money supply, and seek to make sure that the economy's activity level gets reduced. This is the MAIN worry in several countries, including Australia, and a reason why of course commodities are affected. But the currency issue is also important, as are issues of supply and demand, of imbalances of wealth demographically, a hugely inflated property market, etc.
Here is Kohler's piece from the Eureka Report, which is informative on more than just the currency matter, though that has a central position in it: -----------------------------------------------------
PORTFOLIO POINT: A trade war with the US would ruin China’s economy, and therefore Australia’s.
Chinese Premier Wen Jiabao is playing a dangerous game by upping the ante in the Cold War of words with the United States over exchange rates. And it’s a game in which Australia, and Eureka Report members, are more than interested spectators: we are on the field, in danger of being trampled by elephants blinded by rage.
China seems to have persuaded itself that it’s already a superpower that doesn’t need anyone else, least of all yesterday’s superpower, America. Over the weekend Premier Wen lashed out at the world over the pressure on China to let its currency rise: “We oppose all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies”.
He claimed the yuan is not undervalued and accused other countries that are trying to get their currencies to fall, of “protectionism”.
This escalating conflict between the US and China is by far the most important and dangerous development for Australian investors in 2010, far more significant that the bankruptcy of Greece or the prospect of a crazy political bidding war in Australia as the 2010 election approaches (both of which are quite significant, let’s face it).
China is not as strong as it thinks, and is extremely vulnerable to a trade war with the United States. It is not, as is often believed, the financial equivalent of the Mutually Assured Destruction (MAD) that underpinned the nuclear standoff of the Cold War between the Soviet Union and America. This relationship is far more one-sided: China needs America far more than America needs China.
China’s domestic market – that is, the average wealth of its vast population – is not yet sufficiently developed to support the massive investment China has now made in production. There is massive over-capacity in China even with the American market open to it; if the US West Coast ports were closed to it, China’s economy would go into a deep recession and its demand for our iron ore and coal would collapse.
This is an especially delicate moment for Australia on this score because negotiations are getting under way for new contract benchmark prices for iron ore and coal. In each case, the spot prices are about double last year’s contract prices because of Chinese buying.
That buying has not been driven by consumer demand for products, either domestic or export. It has occurred because of debt-funded stimulus spending by the Chinese government designed to maintain GDP growth and keep its citizens employed.
In other words, the increase in iron ore and coal spot prices have been associated with the increasing over-capacity of the Chinese manufacturing sector.
BHP Billiton and Rio Tinto need to be mindful that increasing the contract price by the full extent of the spot price increases would put more pressure on the Chinese economy and worsen any crash caused by a trade war with the US.
In about a month, the US Treasury will formally rule whether China is a currency manipulator, which would trigger trade sanctions under US law. With unemployment at 9.7%, and the broader measure of unemployment, called U6, which includes the under-employed, at about 17%, the issue may not be put to one side this time, especially after Wen’s inflammatory comments at the weekend.
It is simply not true that China’s foreign currency reserves of more than $US2 trillion – an outcome of years of currency manipulation producing trade surpluses – give the Communists the strength to outmuscle the United States, and to threaten selling US government bonds and thereby destroy its economy.
This is the basis of the idea that China and America are in a Mutually Assured Destruction stand-off which means neither will do anything that turns the Cold War into a hot one.
Ambrose Evans-Pritchard, writing in the London Telegraph, points out that only two nations in history have amassed such a stash as China has now, equal to 5–6% of GDP: the US in the 1920s and Japan in the 1980s. Each time preceded a Depression.
In fact, Michael Pettis of Beijing University argues that reserves of that size are a weakness, not a strength. “The … reserves cannot be used in China. They cannot go to pay doctors’ salaries, to build bridges, to lower taxes or to subsidise consumption. They can only be used to purchase or pay for things from outside China.”
China manipulates its currency by buying and selling US dollars, not by passing a law that sets the value of the yuan and making it a crime to trade a different value. The Peoples Bank of China simply offers to buy or sell unlimited amounts of yuan at the desired rate.
This means that if it wants to set a certain value for the Chinese currency, it must take the opposite position to the market. Since the rest of the market is a net seller of US dollars, China must be a buyer – all the time.
And this means, according to Pettis, that the PBoC has a balance sheet consisting of dollar assets on one side and yuan liabilities on the other.
“Here is where things get interesting,” he says. “China’s reserves are often thought of as if they were a treasure trove available for spending. They are not. They are simply the asset side of the mismatched balance sheet. If the PBoC wanted to ‘spend’ $100, for example, to recapitalise a bank, it could do so, but this would automatically create a $100 hole in its balance sheet – it would still owe the RMB [renminbi, or yuan] that it borrowed originally to purchase the $100. To put it another way, the reserves are not a savings account, free for the PBoC to spend as it likes. Reserves are effectively borrowed money.”
It means China cannot use its reserves without increasing its indebtedness. And although China can theoretically exert influence on the US because it is its largest creditor, America’s power to shut down the Chinese economy by closing its ports to Chinese imports is far greater.
It’s true that, in general, a retreat into protectionism now would be a very bad thing. The common wisdom is that the protectionist Smoot-Hawley tariff in 1933 worsened the 1930s Depression and made it Great. That may be true, but tariffs have a far worse effect on surplus countries than deficit countries; it just happens that the surplus country then was the United States, and tariff did, indeed, devastate its economy.
A trade war now between America and China could ruin China’s economy, and therefore Australia’s.
This is no longer a distant theoretical threat, but an increasingly real one because after the weekend display from China’s leadership it’s clear that they are becoming deluded.
Wen Jiabao said China’s biggest threat is inflation and that the survival of the Chinese Communist Party is at stake. “If there is inflation plus unfair income distribution and corruption, it will be strong enough to affect our social stability and even affect the stability of state power,” he told yesterday’s press conference.
He is, typically for a politician, taking a narrow view based on his own party’s interests. Inflation is not a serious problem for China and given the overcapacity built up over the past 12 months is very unlikely to become one.
The biggest problem is the Communist Party’s increasing arrogance and belligerence.
Total volume was a reasonably substantial 2,475,674,822. A problem for bullish investors is - conceivably - that most of this amount was down volume: 1,393,999,038. That is quite a large sum. Up volume was 698,845,144, which is just over half of the down volume.
There were 431 advancers, and 610 decliners. The malaise was visible pretty well across the board as far as sectors were concerned, with all of them in the red.
However, it's not as though there are no bulls left, for more stocks reached new highs than fell to new lows!
Nevertheless, this was a bad day for the market, and not one that occurred in total isolation either, as the market had already had some quite flat (negative-looking) days prior to today. But probably today's poor result was due to renewed fears about the Chinese economy.
Over the weekend, Chinese Premier Wen Jiabao not only warned the world of a possible return to recession, but was subject to impassioned pleas by steel makers over the enormous price rises looming in iron ore.
And the Australian economy depends more than any other in the world on the Wen Jiabao forecast and the iron ore strategic discussions.
Whether we have a global recession will depend in part on whether the world cost of money rises substantially as the US, European and other governments step up their borrowing. In turn, that will partly depend on how much of the global money demand China can fund (China feels the heat, March 15).
But when it comes to iron ore pricing, it is China that caused the problem and Wen Jiabao has made the first moves that may lead to a big fall. The spot market for iron ore is double the 2009-10 contract prices, so the Chinese are looking at a truly enormous rise in costs, which will flow right through the Chinese economy. That spot iron ore price increase was mainly driven by incredible spending by the Chinese on infrastructure and dwellings as part of their response to the global financial crisis. In turn, that forced the Chinese steel mills to pay big prices on the spot iron ore market to gain material to satisfy the demand (Background: iron ore price negotiations).
A lot of the Chinese infrastructure spending was very productive, but a vast amount was wasted. The Chinese have built empty blocks of apartments, roads and rail that they will not need for years (China's shaky foundations, March 12; China's capital conundrum, January 26).
Base metal spot prices are down significantly on Kitco.
This not likely to change much unless we were to get positive news on China, which, again, is for the time being not likely to be on offer. So this really means that prices for commodities - and probably other sectors - will be subject to pressure. However, if no further noises or findings emerge from China, markets may soon forget or ignore the news. Right now they are clearly influenced by it, although the size of the impact depends on the nature of the country's economy.
Futures for Wall Street are down. Not hugely, though. Several European markets are also down. But not all.
In general, the Australian market just now looks to me as being one of the more vulnerable ones, especially because of our exposure to commodities. China and Taiwan overall look worse, however.
Ironically our dependence on China, which we tend to be so smug about, could very well prove less of an advantage than many are confidently assuming - at least for some time, anyway.
Now for one last run up to suck in some more bulls and then the trap door springs open!!!!!
I would expect that by this time next week there will be much gnashing of teeth amongst the bulls.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Overnight a good deal of belligerence towards China was shown in the US. If this translates into action, as it well might, Australia will certainly suffer. One mistake the Chinese Premier made was that he antagonised the US with his threat not to raise the value of the yuan, thinking - presumably - that this would put an end to that matter. The opposite has been the case, as is usual with people trying to threaten the US. Americans are convinced of their own military superiority (with good reason), and of their superiority more generally. Therefore, they never accept threats from others without immediately turning aggressive themselves. This is not a nation for compromises. But that is also true of China, so that we are witnessing a situation that might indeed, as Kohler argued, lead to something like a trade war.
And in any case the worry about further deflationary measures in China has markets on edge already, so the current belligerent situation will unsettle markets; indeed, it already has done. Wall Street nevertheless didn't end on too bad a note. But most markets were decidedly negative, and it would be very surprising if our market today doesn't continue down that path.
Note, below, especially Paul Krugman's comments. Most likely, as others have also argued, the US would probably gain more than lose from imposing a hostile tariff on Chinese goods, which China does not seem to have worked out. China, however, would suffer - and that, in any case, is not to Australia's advantage.
The imbalance in trade China's way, with the masses of money it is hoarding, is indeed damaging to the world economy. About all it is planning to do (and can do) with it is buy up assets elsewhere, like our own. Should Australians be tempted to sell off their mineral resources companies, as they will be, then we shall have short term prosperity, but long-term poverty, as our economy is more dependent on mineral resources than anything else, and we haven't built up any major alternative strength. Hence, it is important NOT to sell off our companies, but to build up our wealth over a longer period, by selling the products of those companies instead. ------------------------------------------------------------ 7:08 AM, 16 Mar 2010 Karen Maley (from Business Spectator)
Congress calls China's bluff
Global share markets were shaken overnight by fears that simmering trade tensions between the United States and China could be about to boil over.
In the United States, the Obama administration is being pushed to take a tougher line with China over its artificially low currency, which hurts US producers and workers. Overnight, a bipartisan group of 130 members of the US House of Representatives fired off a letter to the Obama administration, urging it to force China to stop manipulating its currency, including slapping tariffs on Chinese imports if the Chinese failed to respond.
“The impact of China’s currency manipulation on the US economy cannot be overstated,” it said. “Maintaining its currency at a devalued exchange rate provides a subsidy to Chinese companies and unfairly disadvantages foreign competitors.”
The letter, sent to US Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke – also demanded the Treasury department formally label China as a currency manipulator in its mid-April report.
The US reaction comes a day after Chinese Premier Wen Jiabao claimed the yuan was not undervalued and issued a blunt warning to the US to stop trying to force China to let its exchange rate rise. China, he said, opposed “all countries engaging in mutual finger-pointing or taking strong measures to force other nations to appreciate their currencies".
He also went on the attack: “What I don’t understand is depreciating one’s own currency, and attempting to pressure others to appreciate, for the purpose of increasing exports. In my view, that is trade protectionism," he said (Grim words from China, March 15; China feels the heat, March 15).
But the Chinese Premier’s strong words misjudged the US mood. Faced with sluggish economic growth, and large pools of unemployed workers, US patience with China is wearing thin.
Nobel prize winning economist, Paul Krugman pointed out in his New York Times column earlier this week that there have been widespread allegations that China was keeping its currency artificially low [in] order to boost its exports since about 2003.
At that stage, China was adding about $10 billion a month to its reserves, and its current account surplus was $46 billion. But China’s surplus has now ballooned to the point where the country is adding more than $30 billion a month to its $2.4 trillion hoard of reserves. And the International Monetary Fund expects that China will have a current account surplus of $450 billion this year. As Krugman notes, “this is the most distortionary exchange rate policy any major nation has ever followed”.
What’s more, he argues, “it’s a policy that seriously damages the rest of the world”. Most major economies are struggling with sluggish economic activity, but they can’t cut interest rates to give the economy a boost because interest rates are already close to zero. China’s big trade surplus, he says, amounts to an “anti-stimulus” on these economies, one that they can’t offset.
Krugman argues the US Treasury should finally identify China as a currency manipulator in its mid-April report. If China digs in and refuses to let its currency appreciate, he says the US should impose a hefty 25 per cent import surcharge on Chinese imports.
But what about worries that China will retaliate to tough US moves by dumping US assets? After all, more than two-thirds of China’s $2.4 trillion in reserves are estimated to be in US dollar denominated assets?
Krugman argues that if China did try to sell off a large chunk of its US assets, short term interest rates wouldn’t change. Long-term interest rates, he says, might rise slightly, but the US Fed could increase its own purchases of long-term bonds to offset the effect of Chinese selling.
The biggest impact, he argues, would be on the value of the US dollar, which would fall against other major currencies such as the euro. But that would be good for the US, making its exports more competitive and reducing its trade deficit. And it would be bad for China, which would suffer a large drop in the value of its remaining US investments.
It will be tempting for China to dismiss these increasingly vehement threats from the US as mere rhetoric – after all, China has withstood bouts of US dissatisfaction over its exchange rate policies for the past seven years.
But this would be a highly risky strategy. The US is now convinced that China’s artificially low currency is jeopardising its economic recovery. This time the US will likely follow up its threats with trade sanctions.
On the basis of the following anticipated moves I bought into the market for a short term play with the intention of being out of the market by Thursday afternoon.
XJO to move up to a peak either late Thursday or early Friday. Most of Friday will be up and down but the trend will be down.
What is unclear to me is the following couple of days. I believe that either we will head down after Friday or have a one day move up on Monday. I would expect the market to start moving down from Tuesday onwards.
It will be interesting to see if I'm wearing egg on my face on Tuesday or not.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Rudy, your 5 mins are up; do you still have the same next few day's 'road-map' view or has it changed...joshin', mate! Seriously though, bold predictions and I hope(and maybe think) you are right. However, I'll let the market do the 'talkin'.
What I was really interested in was what you meant by "...I bought into the market for a short-term play with the intentions of being out by Thursday".....Do you mean via a Futures play, options, stock(s). I wouldn't have thought it was the latter as the percentage gain(if at all) would be negligible?
I actually don't mind taking a small percentage profit on a closely monitored trade as it does pay for some of the bills. Brokerage is cheap so it becomes a small part of the equation.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
As Dolphin says........'I'll let the market do the talkin'. I enjoy having a go at anticipating what it is about to say.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Gee there are a lot of ways to analyse the same data and here is my take on the possible scenario forming.
I included the twiggs money flow just to get a sense of the possible direction it may take.
If the head and shoulders completes, then I calculate a possible target price around 4062 which is remarkably close to the line noted on the chart (4047)
Rudy, - I thought you were a "goner" when the XJO went down to around 4790, but lo and behold, it is now up from that level. But ... BRRRR ... I couldn't commit to this action myself, and can only wish you luck and hope you are right.
I shouldn't have thought, though, that you'd get a really sizeable jump by Thursday, even though of course the market had indeed gone low, so that if you caught it early today there is logic in the belief that there might be upside in it. I say this purely in terms of market mechanics, not with respect to what I think will be the "deeper" market sentiment that would eventually counteract any move up - whether today or on Thursday. But you have been known to be right before, so I suspend judgement until the market HAS done the talking!
Actually you will find that we are not seeing things differently but rather in different time frames. I posted the following chart in early March of the potential H&S pattern for the XJO.
That is what I believe will be the ultimate goal of the XJO once the correction starts in earnest. What I was talking about this morning was what will happen in the coming 2~3 days.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
No confusion here about your time frames, but i did miss your previous post about the potential formation. Good luck over the next few days - hope it goes to plan.
Not sure if I need to do this, but I will clarify what I was trying to say just in case. Which was: "There are many ways people analyse the market to make buy/sell decisions and here is my view of the current circumstance."
In watching this potential pattern forming I note about a 20% increase in volumes on the right shoulder than were on the head. However the candle sequence and declining Twiggs and Volumes of the last 5 days look ominous.
I totally agree with your observation. I have mentioned in recent posts that the chances of us already having seen the top for the XJO is very possible but there was a reasonable chance (and still is) that the market will attempt a last move up before capitulating.
My post this morning was on the basis of that possibility. At this stage it appears that my timing is probably out by at least a day as I fully expected the low yesterday to hold.....it clearly didn't so my earlier expectation is already wrong. Now what remains to be seen is whether there is a last move up in the index or we are heading south 2~3 days earlier then I expected.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Maybe the slight move back up at the end is an indication of something better to come for you tomorrow - but I must say that, looking at the trading over the last five days, both at what that ends up in and what appears to be a similarity of pattern that gets repeated, I would be inclined to think that if a true move up were to come it really should do so fairly quickly, or else the market will decide that it is on "the slippery slope". It is probably not an accident that Eugenio got out yesterday: likely enough today a good many people decided similarly, and unless some truly good trigger comes along I'd not be surprised if tomorrow yet more people were to leave the market. In general, that is rather how it looks to me.
Indeed, though I am perfectly willing to believe that a move up can still occur, I do think it is becoming more likely, literally by the day, that 11 January will turn out to have been the high of this rally, and that the bears are increasingly gaining control.
Even so, there ARE bulls, of course, and any truly positive piece of news could readily change matters around, at least short-term: the market is that fickle. But at the moment a truly good piece of news is perhaps not likely to be in the offing, with negative events predominating and in the process of revealing that we are most certainly not in anything like as convincing a pattern of global recovery as many people have been all too willing to believe.
The market will often ignore bad news if it is in a truly bullish mood, and we have seen quite a bit of this. However, this is not a rally occurring in a bull market, or in a healthy economic recovery period. There is every indication that currently investors ARE looking for fundamental news, and reacting to negative statements.
You could well be right. Looking at the recent pattern forming for the XJO it looks like its making a standard Flat pattern. If that is the case then the best I could hope for is to go up to about the same level as the termination of A which was around the 4800 level.
The problem with that scenario however is that the bulls may have already seen the top for the XJO and its all down from tomorrow sometime onwards.
I will monitor but if so I may have to pull out tomorrow sometime.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
The problem with using a chart that is 10 minutes old is that you don't notice that we have already almost got to the termination level of point A. Point A was terminated at around 4806.
Today the XJO closed at 4797.2 !!!
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
I'm not quite sure why there is so much pessimism on here. fact is xao is still in positive territory i.e trading above 30 wk ma.
Sure there are lots of fundamental scary stories out there if you look for them but they are not being reflected in the charts. I don't take any notice of fundamentals only look at the charts the fundamentals are already reflected in the charting action.
Seems to be a lot of people saying we are going to have a massive fall for some reason but always with the provision repeatedly that we could see 'just a few more' positive days.
Having a bit each way I guess.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
Hi MM What time frame are you looking at for your call of 5150? I'm wondering if we won't meander up and down to that figure over the next 4-6 weeks until we hit May. You know the old saying, sell in May and go away or something like that. I'm in agreement with Ody and Rudy's analysis it's more a question of timing. These things can take longer to pan out than anticipated. The July 07 fall preceding the Nov 07 final fall springs to mind. Four months of thinking everything is ok before it wasn't! If we take a similar timeframe we're looking at mid May for the big fall.
Phil - surely if you look at the last five trading days you can see the market is actually going down? Sure, it is not a long period, but the negativism in the market seems to be getting worse rather than better. And I say that purely about the charts - without any reference to F/A.
However, there is no doubt either - and it really can be very clearly seen - that markets ARE reacting to F/A. That is why the market fell so badly yesterday after the Chinese Premier's talk over the weekend, and why today, after the bulls as usual started optimistically, the bears once again took over. That is now the characteristic pattern: the bulls start the market off, but the bears come in after a while to sell it down. Given the combination of T/A and F/A at the moment I really wonder where you see the action upwards as coming from.
At best the market is moving sideways, though most recently its tendency has been downwards. For that matter, it has - with ups and downs - actually made no progress for some months. In other words, the character of the market during that period has been that of indecision rather than the optimism that it expressed before.
Of course there are quite a lot of optimists giving us their views of markets and economies in the press. Notably people like Anthony Oliver and Craig James, whose task it is to get people to buy shares; and they do make an impact on people's minds. That is why many people are failing to see that the market is actually not performing well, and that economies are not recovering, except inasmuch as they are held up by stimulus measures.
With stimulus gradually getting withdrawn, even in our absurdly over-stimulated economy, the effect of the underlying weakness is soon seen: already, there is less borrowing for housing now, and an increasing chance of the property bubble at long last weakening. So it should do: in Melbourne, for example, the increase that has occurred during the last year would be totally unsustainable for the future. Banks, as a matter of fact, have in some cases REDUCED their rates for deposits, even though they are supposedly competing for more Australian money. Clearly, to an extent activity is diminishing after a highly artificial period of spending and investing (notably in real estate, but also the share market).
The ULTIMATE prospects for Australia are probably very good, for as long as its mineral resources are wanted and last, but we are still in a financial crisis playing out, and little has been done to address that at any fundamental level, while there has been a lot of money thrown at it in a way which is by itself damaging and cannot be kept up. I do not refer specifically to Australia here - this is a global phenomenon, but it does include Australia.
Baysider, - I would have to agree with you that the timing of any fall is harder to get right than to see that a fall is coming: you refer to 2007, and I must admit that on that occasion I did think it would occur in a big way in early August. The market did fall by 15% then, but it went up again, as many people do not understand such things as the subprime mess and how that will eventually hit share markets. What could be safely said was that the market in 2007 nevertheless WOULD collapse, and it did - very badly, as I had repeatedly expressed here on this thread before the August fall, but the fall did happen later than I thought it would.
In a case like that, if the market really does pick up strongly, as it did, one can of course enter it on a T/A basis, as even I was courageous enough to do without fooling myself into thinking that the TRUE fall was anything other than delayed. But no more than delayed - and what a fall it was!
We COULD, I agree, get a fall in May, but if that were to happen, I would still very much doubt, this time, that the intervening period would show much upside. The situation is in that respect not the same as in 2007. Then, people in August mostly still saw themselves as being in a boom period. Now, they know that they went into a financial crisis not long ago, and though many are persuading themselves that we have moved into full-blooded recovery, it probably is not going to be too difficult for the bulls to be knocked over or to start doubting. Indications are that THE AUSTRALIAN SHARE MARKET, in contrast to OPTIMISTIC FORECASTERS, is actually NOT operating in an optimistic mode any more. It is the people who continue to talk in an optimistic mode who are not actually looking carefully at what the share market is doing. As I said before: in essence our market has been indecisive for some months, and in the last 5 trading sessions it has clearly been weakening. This does NOT mean, of course, that I am certain that it will soon crash. I do feel, however, that it is very unlikely to move up with any power and for any length of time, and I think that for the most part it will at the least be weak, with the chances of a fall growing. This is because there is actually not much chance of news which will make the market confident and comfortable. With news likely to be in the opposite direction, the market will most probably be negatively affected.
The talk about "news being in the price" etc is meaningless in that it should first acknowledge that there has to be such news for it to creep into the price. To believe that the players are not affected by bad news at a time like this is demonstrably wrong. Hence, those of us who keep an eye on what is happening economically and what the fund managers are therefore likely to do will usually outperform people who ignore such information.
I was happy to be in the market in 2009, as then you could assess that players would judge matters positively. That is not probable at this stage. We are no longer at a low price level, and the news is getting worse.
Over the last 5 days there has been a very small marginal fall. Finished off with a gain today. I am looking at the 30 week ma and the market is well above that Weinstein says to never go short when the market is trading above that level.
Sway Thanks for your comments.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
Philr, Although the market was up today I still had five of my favorite shares knocked out with Stops. These were strong companies with good futures but down they went. AND, CEY, OZL, QBE, and WSA. So for me I see a definite change of mood in the market and will not be buying in until I see real confidence restored and quite frankly I just don't see it around. What I do see is a confrontation between China and the USA looming in the not too distant future and that may be the breakdown of the market as Rudy is predicting. Time will tell.
Phil, - A fall is a fall, however so small (how is that for a rhyme?). I concur with the points that Eugenio makes.
But in any case, I should like to make clear that I am not suggesting AT ALL that people should go short. That is a risky procedure even if a market is strongly going down, and in any case would require a far larger body of clear evidence than I think at this stage we have.
However, the way you make matters sound there are only two positions one can adopt, or actually ONE position, with two options: a person is to be in the share market, and then one's choice (between two options) is to go either long or short. Sure, if you are in the market that is indeed true, and from that perspective Weinstein is of course quite right.
But why would one feel compelled to be in the share market at all, at a time like this? That, I think, is really the key question. I don't see the matter as one of being short or long. I see the decision as one between being outside the market with the certainty of making money, or being in it and subjecting oneself to considerable uncertainty and risk.
The reason why I spend time on the market even when I am not financially involved is that I want to continue to learn about it by studying it, and, of course, in particular to be ready for entering it when that makes sense to me. Even for a short-term trader it does not seem attractive to me just now, with so much uncertainty. For someone who - as in my case - would like to have a sense that a market is likely to go up for some considerable time, this is not at all an appealing market. However, I would have thought that for someone specialising in shorting it would probably pay to wait for a bit just yet.
Eugenio is prepared to trade shares within a much shorter timespan than I, and I find it telling that he is uncomfortable with this market, right now. Rightly so, in my view. And I add that he is very much a Weinstein fan.
Spot on Eugenio - the China v US trade issue, I have no doubt will trigger moves in the market that to be frank at the moment, is a really dull trading environment.
Hi Baysider, I would think that 5150 on the ASX200 within the next couple of months is certainly a target. It could happen quicker than that given that we have had a decent sized move for a few weeks now. I would target 5000 as a level and set stops around this level and ride it up.
I don't consider I was knocking fundamentalists as you put it if people want to follow fundamentals that's up to them. I was just stating things as I see them and with no Dug or cc on here anymore someone has to liven the discussion up a bit.
I see I have 3 votes (none of them mine) so some people must like my opinion.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
Markets turned up internationally as a result of what they saw as good news: (1) the Fed announced once again it would not raise interest rates; and (2) Standard and Poor judged that Greece didn't deserve a downgrading: apparently the announcement of austerity measures plus a statement of support (lending/bailing out certainly being considered by other European nations) was regarded as reassuring. To me neither situation is adequately addressed if the US keeps risking its economy by not making people pay for debt, and if in the state of Greece we have no austerity being practised yet, leave alone tested over time, while yet other European nations are weakening already and thinking of financial support if Greece were to fail! If we go by Greece's record, it will not implement effective measures, and in that case a bailout would, after all, be on the cards. This would be another instance of weakness being preferred over sound economic policy, with those who work and produce being compelled to make their money available to those who are wasteful - just as in the US, in effect.
The world is exactly on the wrong course with attitudes like these, which will prolong more irresponsible behaviour, avoid and thus make worse the problem of debt, while bulls, knowingly or unknowingly, will act as though there are new bullish situations being created. Yet awareness of these situations being unsustainable will also grow, thus setting up very dangerous conditions. As we sow, thus shall we reap. Already a good many things are visibly not working or getting worse despite unprecedented stimulus packages, and these latest signs of weakness are all within the same mode.
By the way, by going up markets implied also that they have now begun to occlude China from their vision - another problem they are shutting their eyes to.
Markets of course do lap us what is happening and for that reason have gone up. It is important to understand why, as one should know what one is investing one's money in and what risk one is running with it. Also, as reactions show that people do act on the basis of news, that helps those who want to have an idea of what is ahead - i.e. to form a view of how markets are likely to act when further bad news, unavoidably, comes in. The more they try to shut their eyes and allow themselves to be comforted by Mickey Mouse policies, the more scared they will be when they hear further evidence that these policies cause harm rather than a return to strength.
The globe is creating huge balloons of debt, and even a nation of scrooges like Germany stands ready to encourage the process (outside its own borders) rather than cutting an irresponsible debtor nation adrift. Thus the strong are helping the weak and irresponsible to inflict yet more damage, while making themselves the poorer. All this in the supposition that pouring money into problems will solve them. Keynes would presumably be proud to see the modern world. For myself I cannot remember any period since around 1960, when I first became actively interested in matters of this kind, with so much irresponsibility being shown, and accepted as supposedly beneficial/inevitable, as now.
Yes we do have global overheating, at least in the area of global economic stimulus measures. The one thing we must hope for - and it appears to be happening - is that the evidence of these policies not working becomes the more palpable, as that is probably the only way that they will be dropped: but it is likely to require a second significant dip in economies and markets to bring that about with REAL effect.
And here we have the evidence for a possible trade war between China and the US: ------------------------------------------------- US Senate bill to punish China over currency Wednesday March 17, 2010, 5:26 am
WASHINGTON (AFP) - Under election-year pressure over trade-driven jobs, US senators unveiled legislation Tuesday that would impose tough new penalties on China if it failed to revalue its currency.
The legislation, which enjoys support from both sides of the political aisle, would punish currency manipulation as an unfair subsidy and could trigger a set of retaliatory US action.
The move came as lawmakers in Washington stepped up criticism of China ahead of November mid-term US elections, accusing Beijing of securing an unfair edge in trade by keeping the yuan artificially low.
It also follows Chinese Premier Wen Jiabao strong statement at the weekend that Beijing would resist any foreign pressure for a stronger yuan.
"When Premier Wen said that China's currency is not overvalued two days ago, that was the last straw and here we are to tell them we are going to force you to do it -- plain and simple," said Democratic Senator Chuck Schumer as he unveiled the legislation at a news conference.
"There is no bigger step that we can take to promote job creation here in the US than to confront Chinese currency manipulation," said the senator as he referred to the double digit unemployment crisis dogging the United States.
Republican Senator Sam Brownback said he expected a "huge vote," both in the House of Representatives and the Senate, on the legislation.
This will enable President Barack Obama's administration "to do what it needs to do," Brownback said.
On Monday, a group of 130 Democratic and Republican lawmakers called on US Treasury Secretary Timothy Geithner to brand China a currency manipulator in a report due next month, saying Beijing was in effect subsidising exports.
"The impact of China's currency manipulation on the US economy cannot be overstated," the lawmakers said in the letter submitted to Geithner and US Commerce Secretary Gary Locke.
"We share Congress's commitment to the continued rigorous enforcement of US trade laws to ensure that US businesses and workers maintain a level playing field," Locke's spokeswoman Parita Shah told AFP.
President Obama last week renewed his call to China to embrace a "market oriented" exchange rate, upping US pressure on the yuan currency at a time of turmoil in Washington's delicate relations with Beijing.
The legislation proposed Tuesday would require the US Treasury Department to identify countries with "fundamentally misaligned currencies" and a second "priority action" list of such countries that pursue such imbalances as policy.
Countries on the "priority" list would face a range of US responses, including a possible change in whether such nations get "market economy" designation for the purposes of US anti-dumping laws.
US policy would be required to reflect currency undervaluation in dumping calculations for products made in the designated country, and forbid the US government from buying goods or services from such a country unless it is a member of the WTO Government Procurement Agreement.
The measure would target projects in a designated country, including forbidding overseas private financing or insurance and opposing new multilateral bank financing, if the country fails to adopt "appropriate policies," according to a summary of the legislation.
Washington would also ask the International Monetary Fund to engage designated countries in special talks on their currency under the plan.
The measure would also require the top US trade official to request dispute settlement consultations in the World Trade Organization with the government responsible for the currency.
And it would call on the Department of Treasury to consult with the Federal Reserve Board and other central banks to consider remedial intervention in currency markets.
Chinese Premier Wen blamed the United States on Sunday for recent tensions in Sino-US ties, indicating no let-up in their diplomatic row.
Wen accused Washington of violating China's sovereignty when it approved the sale of billions of dollars in weapons to Taiwan in January, and again when US President Barack Obama met the Dalai Lama at the White House last month.
Relations between the two countries have deteriorated over a series of other issues -- Google's threat to leave China over cyberattacks and web censorship, a string of trade disputes, and the value of the Chinese yuan.
Yep, I will be taking my small profits and running today. I don't like what I'm seeing in both the US and Australian markets.
The S&P500 has been making a large complex corrective wave pattern. It is a 5 wave pattern which should end in an impulse wave. Currently the 5th wave is making an impulse pattern. So far it has completed 5 waves in this impulse. As we know impulse waves can be either 5, 9 or 13 waves depending on whether they extend or not. We have reached the first milestone. For the index to survive it needs to extend into a 9 wave pattern or it will drop like a stone.
For the XJO the ASX futures suggests a target of around 4832. Just above that level is some strong overhead resistance that the index has only been able to successfully breach on one out of four occasions. Even when it was successfully it quickly retreated back below that level.
We have seen the XJO carry out this sort of hitting its head on the ceiling before plummeting several times during this bear market. This is just another perfect example of the same thing occurring once again.
Naturally enough you can't convince bulls who spend their time looking at indicators (30 week MA) that give them information on what happened 15 weeks ago. I only hope they don't drive their cars using the same methods. Still, if it wasn't for them I wouldn't have anyone to sell my shares to just before a fall so I'm not complaining. That's what makes a market and in the end the market is always right.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
...just a thought: maybe I should hope that the market drops like a stone, then, when it's lower than I thought it could ever go, I'll buy up big and retire in a couple of years. Should've done it in March 2009, but that was the "end of the world" !! Next time it's the "end of the world" I'll know what to do! Anyway, ever since March 2009, there's been constant talk of a bear rally / suckers rally etc etc (and it may well be in the longer term) but if I'd listened to all that, there would have never been a good time to buy in. Every week that it went up, it seemed more and more risky... Well, here we are a year later! I am not for a moment suggesting that everything is rosy and it will continue upwards - and I appreciate the concern and "warnings" that things are getting very edgy at the moment - but only time will tell. We've all been surprised before, no point arguing about it! Cheers
I think that if you check the records of the posts on this thread that prior to the rally I suggested that we would enter a multi-month rally which would probably take the market up between 38.2% and 50% of the retracement of the original plunge. I continually said that it was a bear market rally and Ody and a number of other posters indicated the same thing.
I can't recall the exact dates but I think that in August (or there abouts) I thought that perhaps a top was getting close and I kept warning readers to start being careful. By the time Prechter called a top for the S&P500 in September 2009 I had already formed the view that we still had further to go and that after a retracement there would be one more leg up. A few weeks prior to the actual top I had posted on this thread and in my weekly market wrap that the S&P500 index would peak sometime between the middle of January 2010 and the first week in February 2010.
If you check out my post of the 4th January I had also projected a market top for the S&P500 of 1150 and in subsequent posts I mentioned that 1171 was the maximum that it would reach.
It's all on the record that the S&P500 topped out at 1150.45 on the 19th January.
Now I am not saying that to be boastful but rather to point out that the multi-month rally that I had predicted prior to the event eventually turned out to reach a top at around the level I later predicted and within the timeframe that I predicted.
I don't know about you but to be accused of being a bear and not seeing the rally opportunities is a bit much based on my past history on this thread.
I call the market as I see it. I attempt to make prediction of potential falls and potential tops. I don't get it right all the time but I would suggest that I get it right more often than most.
As I called the start of the rally prior to the event, I am alerting readers that the rally is nearing completion. We will see whether I was scare mongering or not in the coming weeks.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
I don't doubt your skill and accuracy in calling the movement in the market. I meant that there has been general talk of it being too risky to get into (not only here, but almost everyone I seem to have discussed it with over the past 12 months!). Please don't take any offense from my comments, your posts (and those of the other regulars here) are much appreciated and read with much interest. I only wish that I could contribute as much valuable insight as you guys do. I'm sure you have taken advantage of the many opportunities along the way since March 2009. I have been lucky to make some good decisions also during this time. Thanks again for your efforts in trying to help us all out with your analyses! (and sorry for my last post coming across the wrong way!) Cheers
I respect all the commentary on this thread, and certaintly will not question whether people are right or not, because truth be known noone knows what will happen next. But if we all have our trading systems in place with appropriate stops, exit strategies, then if/when the market turns, the trader can get out accordingly without to much pain. If it continues up then were all a winner. To many traders worry about open profit, and want to get out before they lose to much. To me that is trying to pick the bottom and tops of markets, not an easy thing to do I would think.
For example, Rudy's system is telling him it's time to get out and you are obeying your rules, that to me is a sign of a good trader. It doesn't matter whether the system is Elliot, Trend, TAZ or discretionary as long as you have you rules in place and obey them when they trigger you can't go wrong as long as you have faith the system is a positive one. No rules will make a negative trading system come good.
For short term traders who are trying to pick up 20 - 25%, then they may tighter rules to know the turns, because if it goes south quickly and they don't have a system to pull the trigger on exits due to fear, emotions, then all the 20% wins get quickly eroded in one quick turn.
Which comes down to money management and risk. If you only risk 1 - 2% per trade on your capital, you have to get quite few wrong before you lose your base. If you trading at 10 - 20% risk you will lose your undies pretty quick, which happens to a lot of beginner traders who want to see profits quickly but let losses run hoping they will turn around, and therefore have fear each time they put on a trade.
My view I don't know if it is going up or down, my system turned long again a week ago, so tightened up my shorts stops, and begun opening longs. If it turns again I will do the opposite without much pain.
I guess that both Ody and I get a bit miffed when we are called bears based on the current market conditions. During the bull market we were the greatest bulls and only turned bearish in December 2007 with the market had dropped 2% from the top. I think that what followed vindicated our bearish stance at the time.
That allowed us to move into term deposits to both safe guard our investments (made during the bull market) and actually make some money with our capital rather than have it sitting in equities achieving so called 'paper losses'. We both also made some money out of the rally that has been underway for a fraction over a year now but did so with the understanding that the rally was based on imagined (brought about by the massive debt creating stimulus packages) rather than real fundamental improvements.
Now our outlook is bearish based on both technical and fundamental grounds. The annoying thing is being branded perpetual bears when in fact reality does not bear out the title.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Bottom line, market has gone nowhere in 5 months. ASX200 is still below where it was on Oct 15. So, we had a huge rally from March to October and have gone sideways since.
True, what happens next, nobody knows - that is why we all post here - to give our opinions on what we think will happen, not to be shot down if the market doesn't move exactly to the day that some people are predicting it will.
Keep up the great posts guys and lets not lose sight of what this great forum is used for!
You've hit the nail on the head. Our trading plan is based (amongst other things) on our risk profile. There were periods earlier in my life when I had other sources of income where I could allow myself to try to milk out ever last percentage point out of a trade.
Now where the only income I have is buried in a tin can in the back yard (I'm not say exactly where its buried) safety is the greatest consideration and I'm happy to take a 'bit out of the middle' and leave the riskier part of the rally to others.
Using that kind of strategy means that you will always tend to get out 'too early' but it also means that you preserve your capital to employ on another day. It's not a great ego boost but it sure allows for easier sleeps.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
The following is my own answer to dion's post, which Rudy has already very fully and pertinently addressed, even though some childish souls who do not look at reason and fact have given him one star for it (as though he was producing nonsense or untruth).
I add here, by the way, that although Rudy and I very often arrive at the same conclusions about the market, we are NOT clones of each other, or working in collusion. It IS the case that we have broadly similar objectives; but in trying to find ways of meeting those objectives, we use different methods, and I suppose that many think that our findings are the more trustworthy because we do work independently, yet usually reinforce each other. Certainly this is an aspect of this thread that many have appreciated and commented on over the years that it has now been going (by itself an unusual enough event).
I have not had much time to be concerned with the market this morning, and am therefore only now reacting. The basic position is that Rudy's post 3219 is entirely right, and that I can confirm that historically, both for him and for myself. The whole idea that people like ourselves were constantly afraid of investing in 2009 is ludicrously wrong. In fact, I was so convinced the market would go up during that year that I started investing too early, at the end of 2008. I had to take the stocks that I had chosen initially through the 1 March dip, but did so and invested the more because I can recognise a genuine big bear market rally when I see it. I did all this, by the way, on F/A grounds - purely riding the rally, not at all in the belief that economies were improving. In the end, I made an amount that for the vast majority of retirees in this country would be a very significant percentage of what they hold IN TOTAL.
Hence, it would be - indeed is - an utter mistake to see someone like myself as ongoingly bearish and missing out on big opportunities. As MM points out, the market has actually gone nowhere since October, which is when I exited. If I am now cautious about the market I think I have good reasons for it, just as I had good reasons for investing during 2009 - and indeed for leaving without having "milked" the market in full.
What I think many Australian investors still do not sufficiently understand is that timing of the market as a whole can considerable add to your total return, not just by being in the market when you should be, but also by being out of it when you should not be in it unless as a shorter or very short-term trader. Americans, who of course are obsessed with the share market, and who have experienced a lot of volatility for a long time, often understand this whole notion better. I read in The Australian's "Wealth" section, p.3, this morning, that America has 500 web-based timers, whereas apparently until MarketTiming here was started (run by Percy Allan) NOT ONE such site existed here in Australia.
In this country, the main methods used tend to be based on two extreme principles. One is very short-term TRADING, and the other one is BUY-AND-HOLD INVESTING. The latter is - rightly, in my view - increasingly under attack in a world where companies constantly change violently, disappear through collapse, or get taken over, and where the markets are much of the time extremely volatile. I have not been a buy-and-hold person since I started investing in the market in 1983, and my refusal to be in the market at all times but to try and be there when the chances of success were high has made me a lot richer than I would have been if I had listened to the almost universal cry propagated by BT etc that it is "time in the market which counts, not market-timing".
For myself, I am not particularly adept at short-term trading, and achieve my best results by going in during somewhat longer periods of strength, and out when the market is more dubious (not necessarily going down, but not clearly offering enduring good prospects). In essence that is what my timing of the market is governed by. It is not for everyone, and it is not the only way to make money. However, there is no doubt I have found it working in my own case. In particular, by being invested with almost all our money from early 2003 until mid-2007 and with about a third during the latter part of 2007, I made a very large amount of money indeed, which I have never seriously placed at risk since. And again, by investing in 2009 - during a BEAR market, be it noted, when many people dared not go in - I made another substantial amount. By avoiding investment in 2008 almost totally (except for one mistaken experiment) I avoided the huge losses which the vast majority of investors in this country experienced, and thus, when re-investing part of our money again, I did so from a very strong position. That has only been enhanced by having money in deposits to the extent that it has not been in the share market. During no year since I actively took charge of our super fund late in 2002 (leaving nothing to "advisers" any more) have I failed to make a significant amount of money.
Such money as I invested directly, without "advisers", from 1983, has persistently resulted in much better outcomes than that which I had to leave to the so-called "experts". In other words, as much as I have been able to make my own choices, I have built up capital successfully for more than 25 years. I impute this above all to the avoidance of losses, as well as, of course, an ability to know when to be in the market, for someone going long, and with what investments. To my mind, and in my experience, it is very easy to make a good deal of money when the trend is your friend, and the secret is not to know how to do that, but how to preserve your gains.
As Rudy says, the idea that our adopting a cautious attitude NOW is representative of some sort of fear of being in the share market IN GENERAL is completely mistaken. Neither of us is in any general sense a bull OR a bear: we try to be long when the market is substantially, and with comparatively low risk, likely to reward us, and to be out when that becomes less likely.
I don't think anyone on here is saying that you or Rudy are full time bears. I have been reading this forum for many years and I have seen times when you both take various guises. Being either bulls or bears at certain times.
In my initial post above I was pointing out not referring to anyone by name that there seemed to be an overwhelming current pessimistic view on this thread.
I pointed out my view that I base my view on the position of the 30wk ma and that currently I did not think it was as pessimistic as was being portrayed. I may be wrong.
I enjoy reading a variety of views and am quite happy for other people to maintain their views of a massive imminent crash.
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
Thanks Phil. That is useful comment. I wouldn't, actually, necessarily punt on a big imminent crash; what I AM punting on, however, is a predominantly weak market during much of this year.
Much of the news that comes one's way is likely to be interpreted by current bulls in one way and current bears in another. Here is an example, From Business Spectator: ----------------------------------------------------- World Bank sees strong Chinese growth
By a staff reporter
The World Bank expects Chinese GDP to grow 9.5 per cent this year, but warns that inflation will become a major issue moving ahead.
The bank said in its quarterly China update that while Beijing's renewed focus on structural reforms was welcome tighter policies were needed to tackle macro risks.
The update, a regular assessment of Chinese economy, said that the Chinese economy had benefitted from the massive stimulus last year but China needed a different macro stance than other countries as a global recovery takes hold. --------------------------------------------------
To a bull, the prospect of growth may well inspire confidence, and the headline is likely to set the tone. To myself, as someone deeply wary of and suspicious about stimulated economies - particularly that of China, which already had considerable inflation WITHOUT stimulus - the part of the message that matters is the one that warns about the need for China to adopt a macro stance which will guarantee that the economy does not spiral yet more out of control than it already is. So to my mind this piece of news does not, actually, read like good news about China, because it makes me the more aware of (confirms) the view of risk in that economy which I already had.
And I don't think it is fanciful. We do know from history that if you let bubbles run on they will inevitably explode and usually create huge disasters, as happened in the case of the subprime crisis which very few people were originally prepared to take seriously.
I appreciate your comments, and want to make it clear that I was not implying that either you or Rudy (or anyone else specifically) has been continuously pessimistic about the markets in the past 12 months or so. All I was trying to say was that there have been a lot of people (of course many not on here) that have, in general, been extremely cautious and "advising" to stay away from the market as it is way too risky. I know that your confidence in market direction varies a lot - as it must as TA/FA indicators change - and almost all the posts on here have helped me in some way to better understand how the market operates. I'm just a newbie trying to learn, and this site has been fantastic. Please don't take any offense, I am most grateful for everyone's efforts and contributions here. All of the facts, opinions, quotes, suggestions, questions, warnings etc etc are what make this site great!
I am thinking of buying into IPP (they own various Asian property websites)- if anyone knows of them and has a reason why I perhaps should not, please share! I think that they may have great prospects in the next few years?? (or perhaps even longer-term?)
Further to my post on the 5th March on the ODB thread in which I discussed the key Fibonacci levels for the XJO. At the time I posted the following chart which showed a strong confluence of Fibonacci levels generated from the 100% wave equality level of 4843 and the 78.6% retracement level of of 4850 calculated from the move of 4955 to 4465 (rounded numbers).
At time of writing this post we have managed to break through the levels discussed this morning and peaked at 4849.3 which is close enough to that 78.6% Fib level of 4850.
It will be very interesting to see what happens from here.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
It would be interesting to see where IPP retraced to before entering.
On the 2 year 6 month chart above you can see that it ran up to (and exceeded) the 6th November 2007 high and has started a retrace.
It went from 14.66 cents to a peak of 32 cents. It's not the sort of stock that I would feel safe getting into but if it managed to retrace and consolidate above 50% of its up range then it might be worth a gamble. Stocks that double in price in the space of a few days could equally do the same thing on the way down.
Not shown on the chart is the fact that there was only 1 high volume day in the last 2.5 years and you'll never guess where it took place. It would make me wonder if there was someone wanting to jump on board for whatever reason and there were not many that were prepared to sell at the lower prices. The thing you need to find out is did the buyer/s pay too much or do they know something that the market didn't.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
This stock was recommended to me a few weeks ago. I didn't have a chance to look into it until very recently - after the rise through 30c. Volumes and trades are still tiny - but of course that doesn't mean that they always will be! I will dig a bit deeper before (if) I decide to buy in. I expect it to drop back a bit from its current level (it went there on very small volume). The recommendation that I got is based on fundamental longer-term prospects, that in general seem to make sense. I'll be doing some more of my own research though.. If I come up with anything encouraging, I'll share it here. Cheers
Some paragraphs of an interesting Bloomberg article: --------------------------------------------------------- Feldstein Sees Greece Euro-Exit Pressures as Deficit Plan Fails
By Simon Kennedy
March 17 (Bloomberg) -- Harvard University Professor Martin Feldstein, who warned almost two decades ago that the euro would prove an “economic liability,” said Greece’s austerity plan will fail and the country may quit the single currency to fix its fiscal crisis.
Under pressure from investors and fellow policy makers, Prime Minister George Papandreou’s government is striving to knock four percentage points off its budget gap this year from 12.7 percent of gross domestic product and has vowed to meet the EU’s 3 percent limit in 2012 for the first time since 2006.
“The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy,” Feldstein, an adviser to U.S. presidents since Ronald Reagan, said in a March 13 interview in Geneva. “The alternatives are to default in some way or to leave, or both.”
His diagnosis clashes with that of European Central Bank President Jean-Claude Trichet, who calls Greece’s strategy “convincing” and rejects as “absurd” any speculation it might leave the euro zone. Investors nevertheless aren’t ruling out Feldstein’s analysis. Billionaire George Soros said last month that the euro “may not survive,” and credit default swaps indicate a 22 percent chance Greece will default within five years, up from 16 percent a year ago. ------------------------------------------------ I'd rather trust Feldstein and Soros, as skilled external experts in these areas, than Trichet, who is after all in a position where he can hardly say anything other than he has said. It is indeed very difficult to see how this plan on Greece's part could actually work in reality, not least given its record and inefficient, disorganised and mutinous workforce.
I must say I find it fascinating that Rudy predicted that the market would go up over the period Tuesday-Thursday, for, although yesterday was not impressive, today certainly was - very good in fact.
Mos sectors were quite reasonably strong, with very little weakness, but IT really stood out - 3.1% up. It is an area that bulls are often very interested in.
Volume - let us note - was strong, at 2,812,997,243 with up volume at 1,366,412,023 (402,233,489 was unchanged). However, down volume was not negligible, at 1,044,351,731. Advancers outpaced decliners 628 to 416 (359 were unchanged).
An interesting day, for sure - and quite different, in its pattern, as the index went up in a very nice corner-to-corner diagonal line, in contrast to the several days we have had when the index jumped up at the start, only to be sold down by the bears.
The next few days should prove very interesting again. The market is being tested out, still, in both directions.
We haven't heard from Paddy for some time so I wonder if you'd be able to have a look at that chart for us. I'm interested because obviously last night it burst through to a new high for this rally to join the other US indices. I know you're wedded to your bearish theme for the moment but if I put the other hat on you could say that shorts will need to cover and new players who may have been waiting may now come out of the woodwork to join the 'party' creating some momentum. Having said that as we're severely overbought we may well retrace back to 1551. If that level holds and becomes support would you reconsider your position?
By the way I fully support the view that the market can't continue to go straight up given the severe issues in place from a fundamental point of view - it's just a question of time as I mentioned yesterday. Right now the market feels quite bullish to me particularly in the US and UK oddly enough as they two of the worst markets! I can only imagine it's because both markets see low interest rates and Gov. support for many months to come whereas in the Asia zone we're moving or have already started to ease off.
To add to the tooing and froing today I'd only say that all views are welcome so long as they are respectful to others and don't assume themselves to be right. No one does know for sure after all, as Rudy says that's what makes a market. Because Ody and Rudy are prolific writers for which we are all grateful the recent tone may have seemed bearish but Sway and Philr in my view are welcome to also state their opinions freely perhaps to add some balance.
PS Eugenio, I hope you still had some shares left today!
I'm not sure which chart you mean in your question. Are you talking about the S&P500?
As you are aware, Paddy is one of the 4 Musketeers so I am in contact with him on a daily basis. As you know Paddy's expertise is in the area of Fibonacci both for time and price. Paddy believes that the S&P500 will get up to either 1172.41 or 1179.89 possibly tonight and then the curtain will fall on the rally.
What will make me change my stance from bearish to bullish. As you receive my week end market wrap you will know that many months ago I told my readers that one of the best "no brain" systems that I have found for investing during this bear market from a medium term perspective successfully was simply using the 50 day EMA and the 150 WMA. At no time has it given a false signal so far during this bear market. Basically the method is to be in the market when the 50 day EMA goes above the 150 day WMA.
Recently the 50 day EMA went above the 150 day WMA again as you can see by the chart below.
I have to tell you that this bullish signal is really testing my other methodologies that are very bearish for the medium term. This is the first time that I have found myself at odds with what the bearish methodologies are telling me.
I will be monitoring this methodology very closely for the coming week.
Note also that the XMJ is looking quite strong from that perspective
and the XXJ which had been looking weak is back into a more positive territory.
If these keep going in their current direction it will be difficult to argue the bearish case.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Thanks Rudy, I did mean the S&P 500 good guess. Very informative post I must say. The next few days may help to persuade you one way or the other, I'll be following with interest.
As requested, the Fib level targets for the SPX tonight.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
I forgot to mention in my earlier posts that your comment about short covering is a very valid one. I think that the chart below shows where much of the market action was due to exactly that. We can see that once the previous resistance was overcome, short covering took place and then the rally failed.
I think that these uncertain times do create the situation where this does tend to happen a lot. It will be interesting to see if the impulse wave that formed on the SPX extends tonight. I somehow think that it will which could very well bring Paddy's Fib levels into play.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
Kitco spot prices are up, and share prices are up wherever there is trading, just about.
As this sudden enthusiasm seems to go through just about everything, it is likely that there is in fact ONE main driver to bring this about.
And it is not difficult to identify it: it is the decision of the Fed to keep interest rates where they are "for an extended period". Ironically, this is due to the fact that the recovery in the US is slow, as the Fed noted. But for investors in share markets, commodities, etc., it means that "happy times are here again", for if interest rates are in effect at zero, then surely we must make money.
A similar reaction has also been observed on previous occasions, and has not generally lasted. It is just possible, however, that this time the markets judged that the wording of the Fed was ESPECIALLY encouraging about interest rates, and, indeed, the slowness of the recovery which would - in the Fed's view - justify what are in essence zero rates for an indefinite period.
I am unable to find any other reason for the jump that is occurring, particularly not one that has acted as a trigger WORLDWIDE, and for a variety of assets. In other words, currently markets are once again buying assets with the expectation that they can push their prices up. And not least because there is a fear that the value of money may go down, so that "you have to own assets to preserve your wealth".
There had been some fear that the Fed would either now or relatively soon begin to move interest rates up. From the way that the Fed's words have been interpreted it is clear that it is now widely believed that no such move will occur for some considerable time. And that assumption is likely to be the more true if indeed, as seems likely, TRUE recovery will continue to be at best "sluggish", at least in the developed world.
Baysider, I still made a nice stash of $$$ today with AGO (up), BLY (up) MRM (up) TOL (up). But I'm investing up to my sleep level and I'm sleeping like a baby with half my $$$ sitting on the sidelines. I'm not worried about investing my money but saving my money.
Zaragoza Spain is among the countries the EU has expressed concern over
The European Union has criticised the UK and other European nations for having "optimistic" growth assumptions and bloated deficits.
The UK must tackle "uncertainty" in plans to cut its deficit, the EU said.
EU rules say government deficits must be below 3% of GDP, but the UK's deficit is expected to hit Ł178bn - or 12.6% of GDP - this year.
Germany, France, Spain and Italy were also warned they were over-reliant on economic recovery to meet debt targets.
Brussels was commenting on plans by some of the biggest EU countries to bring down public spending.
'Absence of detail'
As was reported earlier in the week, the report warned that the UK was not on course to cut its deficit in line with EU rules by a deadline of 2015.
"The absence of detailed departmental spending limits is a source of uncertainty," the European Commission said.
Alistair Darling
The UK chancellor argues it has been right not to cut spending more quickly
In the run-up to next week's Budget, UK chancellor Alistair Darling has defended the government's approach to the deficit, arguing that cutting it too quickly by reducing government spending would risk harming the UK's emergence from recession.
The shadow chancellor, George Osborne, said the report's conclusions - that the government needed to cut spending more rapidly - were "a heavy blow for Gordon Brown's credibility".
One of the other countries criticised was Spain. The report said Spain's forecast that it would cut its deficit to 3% of GDP in 2013 from 11.4% in 2009 was based on "markedly" optimistic growth forecasts.
The pace of bank restructuring in Spain, which the EU said posed a risk to growth, was also attacked as being too slow. ---------------------------------------
Here is a courageous and perceptive article showing what mess the US is in, never mind the partying Wall Street investors. The prognosis here, which seems to me very plausible, is for something far more serious than Bernanke's airy decision to stick with easy money would suggest.
------------------------------------------------------ Karen Maley (from Business Spectator)
Beware the deflation quicksand
Global markets will be watching on nervously as the US economy is progressively weaned off the unprecedented life-support systems that have sustained it for the past year.
Overnight, the Federal Reserve confirmed that it would be going ahead with its plan to turn off one of the main support systems – the purchase of mortgage backed securities – in a fortnight’s time. Over the past year, the US Federal Reserve has pumped a massive $US1.75 trillion into the economy by buying long-term US bonds, mortgage-backed securities and debt issued by the huge mortgage giants Fannie Mae and Freddie Mac.
This program has been credited for unlocking parts of the frozen capital markets, and driving long-term interest rates lower. But while Ben Bernanke is confident the US economy is now strong enough to withstand the withdrawal, others are fearful of the powerful deflationary forces at work.
These fears will be fanned by the latest weekly report from Societe Generale’s strategist Albert Edwards that draws attention to recent figures showing that total credit in the US economy is collapsing, despite the central bank’s money printing efforts.
“Most shockingly,” he writes, “the household sector shrank its borrowing for the seventh quarter in a row – the minimal signs of any abatement to the process. Combined with continued rapid balance sheet shrinkage in both the corporate and financial sectors, total domestic debt contracted for the fourth quarter in a row.”
As Edwards notes, before the global meltdown, seeing total domestic debt shrink in even one quarter was so rare that it was akin to “seeing a black swan with some pink dots thrown in for good measure.”
Even worse, the process of paying back debt still has a lot further to run. Edwards notes that household leverage (the ratio of household debt to income) inched back to 94 per cent after peaking at 96 per cent in the previous two years.
This compares to leverage levels of just under 70 per cent at the peak of the dotcom boom about a decade ago.
Edwards argues that we won’t know that this deleveraging process has come to an end until we see there are signs that the unprecedented plunge in bank lending is at an end. In the recession of the early 1990s, it took three years for bank lending to turn around. This time, it will likely take much longer.
At the same time, he argues that an unprecedented plunge in labour costs is exerting downward pressure on the US inflation rate.
Albert argues we’re now headed to a downward debt deflation spiral where falling labour costs prompt households to make efforts to reduce debts, which in turn forces the economy to contract, putting more pressure on labour costs.
Ultimately, he predicts that governments will respond to their own massive debt burdens by printing massive amounts of money and that will push inflation rates into double digits.
In the near term, however, he expects developed economies to be sucked into a deflationary quicksand. His gloomy prognosis for the next five years involves “hyperdeflation, followed by rampant inflation, with a smattering of stagflation thrown in for good measure.” -------------------------------------------------------------
Interesting point you made out the FTSE being bullish but being one of the worst markets.
I believe the reason that the FTSE is particularly bullish (even more so than the US) is given the fact that the FTSE is mostly populated with international companies with a large percentage of companies on that index having overseas earnings, therefore a 10% drop in their currency (the pound) makes these stocks 10% cheaper hence the out performance of the FTSE in comparison to other indices.
After the action of the past couple of days, I believe the 5150 target on the ASX200 will be reached within the next month.
Interesting point you make about people buying assets in your quote below. I was thinking the same the other day. You would have to wonder if there was a fall in the share market what people would want to put cash into. This is especially so with the worry over the $us, It may be the reason share markets are actually proving to be more resilient than would be expected with the plethora of bad news and lingering financial crisis news.
"In other words, currently markets are once again buying assets with the expectation that they can push their prices up. And not least because there is a fear that the value of money may go down, so that "you have to own assets to preserve your wealth"."
Phil
** Let blockheads read what blockheads wrote. Warren Buffett
Further to my posts last night in which I detailed the bullish case for the XJO, I must for the time being I remain bearish. This is not because of a deep seated bearish trait within me but purely because we have not yet had the 3rd leg of the corrective move from our high of 4955 on the 11th January.
In previous posts I have clearly shown that a bear market must have a minimum of at least 3 legs (A down, B up and C down). So far since the 11th January we have had an A leg down and we are still in a B leg up. As I have mentioned on many occasions in the past, B legs are well know for their complexity and tricky nature. This one is no different.
In previous posts I have also said that a technical analyst has to work with 3 parameters, namely time, price and pattern.
We have consistently experienced our time and price parameters being tested and eventually broken through but the pattern parameter remains unresolved. Now I mentioned earlier in the week that the Musketeers expected the market to peak sometime between the 18th March and the 23rd of March. It is difficult to get it any closer than that because the time parameter has a large cluster of potential cycle turning points within that time frame.
For example, today the 18th of March is another critical time cycle date. Readers may be familiar with the Fibonacci series which goes 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377........ to infinity.
As you can see I have highlighted 3 important Fibonacci numbers in the series. Now for those who have not studied the effects of the series on nature they will once again accuse me of 'mumbo jumbo' however I think that I have shown enough evidence of the effect of Fibonacci on the market activities to prove that they indeed do have a significant effect on the market. Those who accuse me of practicing mumbo jumbo have never once shown evidence to support their claims.
The chart below shows the importance of the 18th March on the XJO in terms of the time parameter.
So once again we have a period in time where there is a significant time parameter and price parameter in sight. The only question remains is will the the pattern parameter coincide? Once all three parameters coincide then change is inevitable.
I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy
