Dr Doom - Correction to be 30%

[Knobby22]

We are suffering a short term liquidity crisis.
The central banks are providing money for overnight loans.
The loans are slowly clearing.
This is a blip only.

One thing for sure. The state of our financial reporting is woeful.

 

[dhukka]

We are suffering a short term liquidity crisis.
The central banks are providing money for overnight loans.
The loans are slowly clearing.
This is a blip only.

One thing for sure. The state of our financial reporting is woeful.

What loans are clearing?

 

[theasxgorilla]

Any of you economist types have any idea of how forced investing via super will play out here? And second, how could/will this be offset via babyboomers retiring and ripping money out of super to protect it in a falling market?

With the tax effectiveness of super in Australia, I'm wondering if that will have much of a cushioning effect on any fall here. Not much of an economist
so I don't know.

Anecdotally the many baby boomers I know still think this is just a correction and they're prepared to continue to let their super ride for several more years. As a general group, in my experience, baby boomers are not traders, they're buy-and-holders and they're optimists...and why shouldn't they be? They're the most prosperous generation the world has ever seen. So, just like they were prepared to leave their money in real estate and never paniced, or perhaps even bought more when prices were flat in many parts of the country, so they'll leave their money in the share market for several more years.

Many scaremongers have neglected to consider the human effect of these last few years. Baby boomers who saw their mutual funds lose 30% between '00 and '02 (and HELD, 'cos thats what their financial planner told them to do) are now projecting gains from the last 5 years a further 5 years into the future and seeing a retirement of wealth and prosperity which 5 years ago was completely unimaginable.

This sentiment is in addition to many 'boomers anticipating another 5 years of work, at least some of it full-time, at their life's peak earning capacity.

Come what may in the US in the short term due to credit liquidity issues, here in Australia thanks to Keating we have what has in effect become a minimum 9% national share market contribution. And thanks to Howard we have irresistable tax incentives for the people who in aggregate earn the most money in this country...practically ensuring that the national share market contribution is going to be something well above 9% for years to come.

ASX.G

 

[Knobby22]

What loans are clearing?

Sorry, they are getting rearranged. The problem is that the banks don't trust one another and want a higher interest rate to lend short term. The central banks are supplying the money to cover the shortfall and keep interest rates down. It is their job and it stops the financial markets freezing up.

 

[dhukka]

Sorry, they are getting rearranged. The problem is that the banks don't trust one another and want a higher interest rate to lend short term. The central banks are supplying the money to cover the shortfall and keep interest rates down. It is their job and it stops the financial markets freezing up.

What loans are getting rearranged and how are they being rearranged?

 

[Knobby22]

It is about derivatives dhukka.
Short term money (less than 270 days) does not have the same controls as long term money. This money is used for derivatives and short term deals.

As the money unwinds the people obtaining the loans need to make new arrangements or pay up and go broke. The banks are saying we don't want to lend you money anymore and as times are interesting have little trust in other banks.

It is a health clearing out of the system. It will probably cause a mild recession in the US but generally it means fast money will be less forthcoming for a while.

 

[Boggo]

Interesting Commentary


No One Has Learned Anything
Monday August 13, 10:41 am ET
By TradingMarkets Research

I am an optimistic person. I am a positive person. I am a jubilant person...with everything but Wall Street...and as an aside, with the Mets' bullpen. As you know, I have been and am always suspicious of the goings on...on Wall Street. It is still clear in my mind that Wall Street brought a bunch of "no revenue internet companies" public even though they knew it was all crap. Why? Because they knew they could make money. They did not care about you...the investing public. I remember when many mutual funds changed their name to include the words "internet" or "net" in their name. I remember when the internet went out of style, those monikers were taken off. I remember how Wall Street watched the accounting industry turn into nothing more than attorneys for the companies they covered...instead of monitors of the companies they covered. I remember every famed strategist on Wall Street telling you to buy every dip while the market went into its worst bear market in 70 years. I have marveled at how Wall Street parades these same people out 7 years later telling you what to do. I remember how we were told the analyst community would change but continue to see the buy-hold ratio at 9-1...and that's being nice. I remember AOL insiders saying the poor economy was not affecting their business...while their business was heading south and the insiders sold en masse. I remember how not one of them paid the piper on it. I remember the absolute scam that was Global Crossing and not until years later did anyone pay any price. The list goes on and on. I remember it all. Frankly, I may have to write a book.

No one learned any lessons from the past.

I start with the rating's services. They are basically acting like many accountants did in the late 90s. Instead of being the defenders of the investor, they are becoming, if not already, the attorneys for the companies they follow. I do not need to name names. You know who I am talking about. I found the timing amazing last week when Bear Stearns had to defend themselves...and no more than 5 minutes later did a rating's service come out to tell everyone everything is A-OK in the brokerage industry. Who do these rating's services care about more...and who exactly are they working for?

Next...I must mention Bernanke and Wall Street. All I heard over the weekend was how Bernanke has performed so admirably...and that the Fed has been terrific the past few years. Yes...and Pacman Jones should get the Man of the Year award. What am I missing? The same people who gave you subprime lending...who enabled subprime lending...who enabled trillions in derivatives...who told you they were good for the economy...who told you there wasn't a problem...who have been calling a housing bottom every 2 weeks...who waited and waited to the problem bubbled over...are now being complimented by Wall Street...and for what? Spending a crapload of money to save the day? Who are they now bailing out? Yup...all the mutthounds that leveraged themselves into oblivion. Oh yeah...and for those calling for a housing bottom, why am I finding insider selling in a couple of homebuilding names AFTER a monstrous drop?

How about mentioning Paulson and Wall Street? How can the man who is the poster child for leverage...continue to tell us the system is fine? Is everyone missing the major conflict of interest with this man and where he came from? Does everyone believe the ties have been cut? Am I the only skeptic? Only on Wall Street is it custom to have a blind eye.

How about Beazer Homes telling everyone that the rumor of a bankruptcy was untrue? No way...can't happen...and a week later...whoops...accounting irregularities. The point...they were so sure there were no problems...a week later...yonk!

How about Goldman? Yes the almighty Goldman...everything is fine...everything is ok...when rumors came up that one of Goldman's funds was having big losses...Goldman came out to say that rumors of big losses at their funds were unfounded. Initially, when the rumor surfaced, the stock market, which was up 180 points...swooned 190 points. When Goldman came out to deny, the market rallied 150 points in minutes. Fast forward to this weekend...WHOOPS!...Goldman just announced a 26% loss in a huge fund. No way...no one at the almighty Goldman would lie...would they? Nah! So...what penalty did Goldman pay for this? What does Wall Street do? Is Wall Street investigating? Nope! Goldman just announced another $3 billion investment into that fund. Only on Wall Street! I am out of business if my accounts drop 26%.

Now...finally, the SEC is moving to investigate the books of a number of Wall Street Brokerage firms...duh! Where have they been? Yes...I am sure they do their normal investigations...but are you telling me the SEC has been fine with the leverage we are now hearing about? Are you telling me the SEC never checked the arbitrary pricing of some of the investment vehicles that were out there? Gee...now let's investigate. Now let's investigate margin that I am now hearing was 15-1 in some cases. Now let's decide it is time to get to work.

I would have thought my rant would stop there. It doesn't...because Wall Street did it again this weekend and Monday morning. It was almost like all of Wall Street got together on a conference call to tell everyone to use the same talking points...and I mean everyone.

Here is what we received on Monday.

Upgrades outnumbering downgrades approximately 10-1...this is approximate and on the low side. 2 of the fabulous downgrades were on DHI and TMA...2 stocks that were already blasted...hey thanks! Good timing!

A slew of target raises...on stocks that were hit last week...hmmm! RIMM down $9 on Friday...hey...we already have a STRONG BUY on it...what can we do? Yup...let's just raise the target to get the stock moving. Good timing!

One big brokerage is telling you to raise the stock portion of your portfolio. Good timing!

Several sectors being upgraded. Good timing!

More buyback announcements! Good timing. Please keep in mind, most of the buybacks we have recently seen came with the announcement that the buybacks would be funded with debt. I wonder how many of those will get done. Also keep in mind that most buybacks come with the wording: in the future, at our discretion and just because we announced a buyback, does not mean we have to do one.

Companies added to focus lists...did not see any deleted. Good timing!

Positive comments on lenders...yippee! Let's buy some lenders. Good timing!

FINANCIALS upgraded by another outfit...yup...let's buy FINANCIALS...! Good timing!

That leads me to the last part of this rant. Did you read the overall commentary by Wall Street over the weekend and Monday? Yes...there was an occasional bear...but once again, Wall Street sees no problems. It is all "contained"..."overdone"..."overreaction"..."hiccup"..."short-term blip"..."won't affect the economy"..."value"..."cheap"..."the Fed is doing the job"...in other words, everything is fine. Get back to business. The DOW is headed for 16,000...housing is bottoming...the economy is great...the consumer is in force...no downside risk here...and life is good.

Please understand I have no blood in this game. If you have ever listened to my radio show "THE INVESTOR'S EDGE"...which you can listen to at www.garyk.com, you know I have a deep desire for level playing fields, fair play and everything else that goes along with it. I am not a dummy. I am not naive'. I do recognize that Wall Street has only one goal in mind...and that is to keep markets going up...and when markets should go down...to keep them from going down. Some of the things I am now seeing scare the heck out of me...and I only need to use the goings on of the past week to show you what I am talking about. The good news for Wall Street is that they have history on their side. The bad news for you, the investor, is that when we do hit a rough patch, you will get absolutely no help...and if this market ever goes into a bear market again, a real bear market, you are on your own. So far, we have seen a nominal correction in the major indices...but have seen some serious bear markets in many sectors.

I expect more hedge fund losses and more mortgage problems to bubble to the surface. Whether or not they affect markets...well, we will just have to see. As an optimist, I am now sitting back, continuing to keep my list of leading stocks that have held their ground during the recent deluge. In my past studies, I have found that stocks that have held up best during market drops, usually lead when the ugly ends. Most of these companies I follow have strong earnings and strong revenue growth. Currently, I am eyeing names like ANAD, BIDU, WYNN, AMZN, ISRG, RIMM, VSEA, GRMN, CSCO, NOK, SPWR, UA, FAST, PCLN, CMG, MR, CROX, ILMN, NVT, SIGM, CMI, HPQ, BIIB, CY, MOS, MBT, VIP, FMC, POT, APPL and GLDN. I am also watching the OILS like a hawk as they have led both up and down. I would love to see the market calm down here. I would love to see the market just sit a little here. Right now, most charts look like a 3 year old who scribbled on a sheet of paper. Near-term, markets are way oversold. Near-term, while opinions are only bullish, a lot of news has been all bad. I gather we can bounce from here. I will know a lot more by the tone of the bounce.

Gary Kaltbaum

 

[dhukka]

It is about derivatives dhukka.
Short term money (less than 270 days) does not have the same controls as long term money. This money is used for derivatives and short term deals.

As the money unwinds the people obtaining the loans need to make new arrangements or pay up and go broke. The banks are saying we don't want to lend you money anymore and as times are interesting have little trust in other banks.

It is a health clearing out of the system. It will probably cause a mild recession in the US but generally it means fast money will be less forthcoming for a while.

Thanks for the clarification. I agree a clean-out out of the system is long overdue. I think you have oversimplified somewhat. Impaired mortgage backed securities and CDO's aren't being cleared away. The mark to market write-downs have yet to happen on a major scale. Central banks are acting as pawnbrokers not offering bailouts.

This is what I wrote on the subject, let me know what you think.

 

[Uncle Festivus]

Any of you economist types have any idea of how forced investing via super will play out here? And second, how could/will this be offset via babyboomers retiring and ripping money out of super to protect it in a falling market?

With the tax effectiveness of super in Australia, I'm wondering if that will have much of a cushioning effect on any fall here. Not much of an economist
so I don't know.

There is the chance that the attractiveness of tax free super withdrawals will be just too tempting for even those 'optimistic' baby boomers in the event of a sustained negative period in equities, as we may be seeing the start of now. This time it may be different?

 

[wbooo]

Hi

Have you read any of the interviews with Sir John Templeton and other value investors who have been forecasting a recession for the last few years, they had originally predicied this for 2006, oh well timing is always tricky, looks like 2008 may be closer to the mark. Lets not forget there are always outliers on the bell curve and that quality companies with minimal competiotion can still buck the trend and have significant increases even in a bear market. As an investor it is important to find good stocks even ina falling market, when you have no other income.

You can always short sell in a falling market but this requires a strong stomach I am yet to come across anyone who has done this successfully, other than Buffet, who was selling the USD a couple of years back.

 

[KIWIKARLOS]

Australia just invested 20 billion of the future fund into blackstone which I assume is currently in the process of being invested (hopefully not in the sub prime sector)

But even if all the oldies pull out their cash from super what do you think they will do with it? Isn't the idea these days to spend the kids inhheritance. My point is even if you pull the cash out of the market it just flows back in through company revenues.

There still seem to be alot of jobs in the US and alot more are been generated by the big defence industries and private companies in iraq etc. When you think about it the US spends billions every week in Iraq and on what. Bombs made in the US which blow up Iraqi stuff then US contractors come through and build dodgy replacements and keep huge profits. They are basically feeding themselves and while the wars on the war economy will go strong.

As for the cash injections by CB the majority of the injected money has come from countries other than the US wouldn't this essentially weaken their currency more with respect to the US currency essentially giving it a leg up?

My point is even if the US is screwed there are so many opportunities in the global economy for expansion.

PS can someone please post a current ASX200 chart to see what the current correction is doing. I'm not much of an analyst

 

[chops_a_must]

Australia just invested 20 billion of the future fund into blackstone which I assume is currently in the process of being invested (hopefully not in the sub prime sector)

Bahahahahahahahaha!

Where did you find that out?

Another fantastic Liberal Party legacy by the looks...

 

[insider]

Isn't the idea these days to spend the kids inhheritance.

If their plan is to end up in a retirement home! sure (not that my parents are like that)

 

[CanOz]

Australia just invested 20 billion of the future fund into blackstone which I assume is currently in the process of being invested (hopefully not in the sub prime sector)

But even if all the oldies pull out their cash from super what do you think they will do with it? Isn't the idea these days to spend the kids inhheritance. My point is even if you pull the cash out of the market it just flows back in through company revenues.

There still seem to be alot of jobs in the US and alot more are been generated by the big defence industries and private companies in iraq etc. When you think about it the US spends billions every week in Iraq and on what. Bombs made in the US which blow up Iraqi stuff then US contractors come through and build dodgy replacements and keep huge profits. They are basically feeding themselves and while the wars on the war economy will go strong.

As for the cash injections by CB the majority of the injected money has come from countries other than the US wouldn't this essentially weaken their currency more with respect to the US currency essentially giving it a leg up?

My point is even if the US is screwed there are so many opportunities in the global economy for expansion.

PS can someone please post a current ASX200 chart to see what the current correction is doing. I'm not much of an analyst

Heres a 4 hour chart KIWI