Imminent and severe market correction

[Whiskers]

Having maxed out many of their 1.4 billion credit cards, between 2001 and 2006 Americans tapped $1.2 trillion of their housing equity. Business Week reports that the middle-class debt-to-income ratio is now 141 percent, double that of 1983."

Australia is on borrowed time, whatever the price of coal and iron ore. Household debt is 175pc of disposable income, up in La La Land with England, Ireland, Denmark, and the Dutch. The wholesale funding market for mortgages that underpins this nonsense remains frozen.

I wonder about expressions like these sometimes. Often a bit ambiguous and easy to presume too much into them like some of the other numbers splashed about in the press such as the trillions of 'estimated' debts that jurno's don't specify whether it's 'provisons' for debt or just some arbitary figure conjured up from somewhere that they usually don't specify.

Do they mean debt to income ratio (DTI) as a percentage of gross or disposable monthly income that goes toward paying debts?

The Aus case specifies 'disposable' income. Is the US case talking about gross or disposable income?

The US case implies a number specific to 'middle class' America. The Aus numbers refer to 'household' debt. So you have single income households and dual or multiple income households which obviously can carry more debt, but when you bundle them all together it gives a distorted picture of 'household' finances. A relatively small number of reckless, irrisponsible people can run up quite a large amount of debt that reflects badly on a lot of others when they are aggregated.

Are they talking about total debt, regular debt repayments or regular debt repayments plus outstanding repayments.

Or are they some other ratio, ie total debt to annual gross income?

Are they an aggregate of total national debt to total national personal income... again gross or net, including those who have no debt?

It's all very confusing and unreliable data unless they specify better what they are talking about. Can be like a fishmonger talking about 'fish' without specifing whether he is talking about salmon or sardines.

In any event, debt to income is a bit of a dubious ratio when an increasing number of people have other assets and or periodic capital gains income of various sorts these days to supplememt their day job.

I would place more emphasis on debt to equity ratio's, net worth anytime.

Sure a few bad apples can spoil the barrel. That's why I much prefer to know more about each apple so that you can root out the source of the bad ones quickly without loosing the whole barrel... throwing the baby out with the bath water so to speak.

In the Agriculture industry there is technology to track all the inputs and production from individual blocks, sub-blocks down to individual trees, ie to be able to track a case of bad apples back to a specific block, often sub-block and sometimes individual trees so a poorly performing tree or small part of the block can be remied or removed as the case may warrant.

You would think economists and or economic jurno's could do a much better job of inentifying there apples and oranges!

 

[Kauri]

Ye Gogs... what does that mean..
Paulson has been talking and saying that the strong US is in the US interest and that G7 language speaks for itself. He notes that though the US economy is in a rough patch, that fundamentals are strong and will be reflected in the USD.

There is none so blind as those that have had their eyes punched out... ooops.. mispent youth reasserting itself..

Y
ME

 

[Uncle Festivus]

Paulson has been talking .......

Reason enough to be cautous about what is happening in this reactionary 'lull'. It is pretty obvious that what is unfolding is based on a lot of rhetoric, a lot of targeted 'stimulus' at opportune timing, a general plan involving other central banks in collusion, and a willingness of the general investing populace to want the correction/contagion to end and resume an bullish bias.

Normally, as in the past, it would work, and we would all be back to onwards and upwards based on creative debt creation and manipulation.

But, as is being exposed in the LIBOR scandel, dig a little deeper and all will be revealed, in due course, of course. Make some hay, but stand close to the farm gate for a quick exit. Still no sign of the fat lady .

 

[Uncle Festivus]

You would think economists and or economic jurno's could do a much better job of inentifying there apples and oranges!

Yes, how often have we seen this in the recent past -

The decline in new-home sales to a seasonally adjusted annual rate of 526,000 was much weaker than the 577,000 pace expected by economists surveyed by MarketWatch.

Considering that pontificating on data is pretty much they do all day you'd think they would get somewhere in the ballpark.

As for financial journo's, the majority are the ones who were too dumb to be economists .

 

[davo8]

Make some hay, but stand close to the farm gate for a quick exit. Still no sign of the fat lady .

Just so you don't feel lonely...I'm standing right next to you!

The facts coming out of the USA are universally horrible and getting worse. Employment, prices, credit defaults, bankruptcies, foreclosures, business downturns, oil, inflation, banks -- all bad and no end in sight.

The rhetoric is variable. There are those talking the market up, but not a single competent independent commentator in that camp. Then there are those predicting disaster, including the usual suspects. Mostly the independents are predicting a very, very severe recession lasting at least another year and resulting in a serious drop in standards of living.

Meanwhile the US market is levitating. It's obvious there is market intervention and it can't last forever.

Anyone who has the eyes to see the facts and still thinks that gloom and doom from competent commentators is a sign of the bottom and hype from the popular press confirms it is just plain stupid, IMHO.

The USA is a cot case, for now. All that remains to wonder is: what will happen to the rest of the world, and us?

 

[explod]

Yes, how often have we seen this in the recent past -


As for financial journo's, the majority are the ones who were too dumb to be economists .

Nearly right Uncle, one of them made it to President.

 

[Kauri]

Crude prices have jumped this morning, rising $3 on the back of a slightly weaker USD today as well as news that the US has shot warning shots at an Iran boat. The strike at Grangemouth, with the shutdown in the refinery reported by the BBC , coupled with further attacks in Nigeria continue to fuel supply concerns. Gold prices are up ...

Cheers
............Kauri

 

[CamKawa]

I read articles like this

U.S. Economy: Sentiment Weakens More Than Anticipated (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeW44YtQ_2s8&refer=home

and then find the DOW is up 42.91

 

[eric341]

Perhaps the market has already taken these economic data into account, and is now on the way up....?

 

[eclipse]

Is the US ready to drop interest rates again, lets wait and see what they will do next

 

[Broadway]

I read articles like this

U.S. Economy: Sentiment Weakens More Than Anticipated (Update3)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aeW44YtQ_2s8&refer=home

and then find the DOW is up 42.91

I heard a guy on tv (can't remember-sry) say that this is because funds are placing money in the Dow 30 companies as a flight to safety because commodoties are not looking attractive anymore, and there's not much else, apart from cash.

And so this is pushing the market up temporarily.

But who knows for sure. For every doom and gloom expert there seems to be someone saying the bottom is in and ancient history.

There was good volume around mid-march, and the hang seng is trending up strongly, and the us dollar might have hit it's final bottom for a while - so I'm in with the bulls, for this week anyway.

 

[Uncle Festivus]

I think this week may be pivotal for everything - equities, commodities, currencies & gold. Lot's of fund managers & investors with itchy trigger fingers willing to pile into & out of the flavour investment/trade of the hour; the last gasp flip flops of the capitalist debt binge.

A long legged-doji for gold & hanging man for the DOW may suggest a roll-over week ahead, and support for the 3rd alternative currency, gold, as the Euro zone too shuffles towards the recession precipice. The end of the European Union perhaps, or a few recalcitrant countries to break free ie France & Spain, due to their systemic problems?

The headline confidence figure fell to -7.4 in April from plus 1.2 in March, with a dramatic slump in the export order books to -14. This is flashing near-recession warnings. David Owen, an economist at Dresdner Kleinwort, said Europe would soon be engulfed by the twin effects of a "collapse in export volumes" and a slow motion credit squeeze. "The wheels are coming off the eurozone economy," he said. BNP Paribas warned clients yesterday that the "decoupling story" was no longer credible. "We see Europe in the early stage of a credit crunch, and if we are right credit supply will shut down," it said. Key governors of the European Central Bank began to back away from their hawkish stance of recent weeks, clearly disturbed by the market perception that they are mulling a rate rise to choke off price rises. Inflation has reached a post-EMU high of 3.6pc on surging oil and food costs.

 

[ShareIt]

so far the market doesn't seem to want to go down... it keeps rallying back to the highs and is showing a more positive outlook to break upside.... evidence that this market (S&P 500) does want to go higher, volume was heavier to the upside at the end of Friday (Friday is usually a profit taking day).... my , i think we will come in weak on Monday, possibly go below support and shake people out, then rally to the upside either the same day (Monday) or on Tuesday.... either way, it will be exciting to watch

ps. I also believe we might see some money rotation, the financials might start to take more of a lead and give the commodity stocks a breather.

 

[sassa]

so far the market doesn't seem to want to go down... it keeps rallying back to the highs and is showing a more positive outlook to break upside....

"If Tech Companies Are Beating Earnings, Why Isn't NASDAQ Breadth Improving?
There is one problem with the rally theory. Market breadth on the NASDAQ stinks:
Market breadth hasn't moved higher with the market, and
the new highs/new low number has been decreasing as well.
Why isn't NASDAQ breadth improving? Fundamentally it should be."

Charts on the Nasdaq are available at-
http://www.bonddad.blogspot.com/

 

[Buster]

G'Day Fellow ASF'ers,

Here's an interesting article I thought worthy of sharing..

By Colin Twiggs
April 26, 12:30 a.m. ET (4:30 p.m. AET)

Recoveries And Inflation

Investors may wonder how the market can possibly rally when the economy resembles a punch-drunk boxer hanging on the ropes. The answer is fairly simple: the big money is not betting on the economy it is betting on inflation.

The Fed is printing money as fast as it can ”” in order to save the banking system from annihilation. Nobody gets up off the canvas without assistance after taking a 1 trillion dollar sock on the jaw. While the Fed can provide liquidity, there is only one way to protect banks from falling asset prices which threaten to wipe out their reserves. That is to create inflation ”” to reverse the fall in asset prices.

Investors and financial markets response to low interest rates from the Fed is to borrow all that they can and invest in real assets in anticipation of rising prices. This becomes a self-fulfilling prophecy as demand for real assets exceeds supply, driving up prices.....and the next asset bubble is born.

The Fed does not mind, as investors mop up surplus money in the system and prevent it from flowing through to consumption ”” where it would affect consumer prices. Economists thought that they had found the holy grail. They could stimulate the economy without any significant impact on consumer prices. Only to discover that it is a poison chalice. There is no quarantine fence around asset bubbles and eventually higher asset prices flow through to consumers. When average workers can no longer afford to buy their own home, upward pressure on wages starts to rise. And when asset bubbles burst, as they are prone to, causing severe shocks to the economy, the Fed's only available response is to..... you guessed it ....... print more money and start the next asset bubble. The ever-increasing shocks are eroding the ability of the economy to recover and grow in a stable, predictable environment.

So where is the next asset bubble likely to occur? With wounds from collapse of the housing bubble still fresh, there are only two viable alternatives: stocks and commodities.

Inflation targeting by central banks is a major cause of bubbles. Inflation targeting is based on CPI which is a poor measure of the loss of purchasing power of the dollar. Why have house prices doubled in the last 5 years if inflation is averaging between 2 and 3 percent? Not to mention gold, oil and most other commodities. By using CPI as a measure, the Fed responds to crises long after the real damage is caused. Ever tried to steer your car while looking through the rear window to see where you are going? No wonder the Fed crashes into the sidewalk every time they encounter a bend in the road.

If you believe this is all too complicated and best left to a bunch of academic economists and self-interested bankers to sort out, allow me to remind you that the definition of stupidity is to repeat the same action and expect a different result.

If you agree with this opinion, please share it with your friends and colleagues.

Regards,

Buster

 

[ShareIt]

"If Tech Companies Are Beating Earnings, Why Isn't NASDAQ Breadth Improving?
There is one problem with the rally theory. Market breadth on the NASDAQ stinks:
Market breadth hasn't moved higher with the market, and
the new highs/new low number has been decreasing as well.
Why isn't NASDAQ breadth improving? Fundamentally it should be."

Charts on the Nasdaq are available at-
http://www.bonddad.blogspot.com/

Have you seen how over extended the NASDAQ is? Take a look at the low (bear stearns point) and look where it is now.... a solid run up!

It is in a very bullish pattern but needs a breath before the next leg up... The market travels in waves, not straight lines... and to add, Microsoft had a shocker on Friday which holds a big percent of the NASDAQ weighting.

A healthy rally is one that happens in stages... up, pullback, up pullback...etc... one that happens too fast too soon is a sign of caution... perfect example was the dot com bust

As for tech beating earnings, look at the run up into the earnings day.... a nice run up... so from reading these charts, the market has already factored a portion of the earnings into stocks prior to the actual reports coming out.... why do some stocks now go down?

1) smart money sells into the strong move up as they would have bought at the low points... this is when the general public buys at the top when earnings come out.

2) sometimes the market over estimates the earnings and this causes a correction...

 

[Whiskers]

Well, one way or the other this week is probably going to be decisive in terms of the direction of the market in the short to medium term.

The first Bush rebates will be deposited into taxpayers accounts from today and the Fed meeting to argue, it seems over the extent of any further cuts.

Last time I expected 50bp, but they gave 75. This time I would have expected 25 to about wind up the cuts, but they have since presented a gloomier picture for the near future. However there seems to be some dissent about the size of the cuts.

I'm starting to lean a bit to a 50bp cut to appease the Bush camp to kill off recession talk quickly.

That should give the markets a decent thrill.

 

[treefrog]

AC markets' (forex mob)take, pre US open today:
"Last week's rally in the Dollar may have also led some investors to sell the currency ahead of the weekend to cash in profits, traders said.

On Friday, Dollar had limited reaction to a report showing US consumer confidence fell for a third straight month, touching its weakest in more than 25 years.

In Europe, the Ifo German business sentiment index showed the biggest monthly fall since September 2001 on Thursday, taking the April headline number to a two-year low.

The percentage chance the Fed will keep its benchmark interest rate unchanged at 2.25% at this week meeting rose to about 26%. Just a week ago, futures markets were pricing between a 25 to 50bp cut.
Meanwhile, FX participants were paring bets that the ECB's next move will be a hike in benchmark interest rates."

 

[Uncle Festivus]

Well, one way or the other this week is probably going to be decisive in terms of the direction of the market in the short to medium term.

The first Bush rebates will be deposited into taxpayers accounts from today and the Fed meeting to argue, it seems over the extent of any further cuts.

Last time I expected 50bp, but they gave 75. This time I would have expected 25 to about wind up the cuts, but they have since presented a gloomier picture for the near future. However there seems to be some dissent about the size of the cuts.

I'm starting to lean a bit to a 50bp cut to appease the Bush camp to kill off recession talk quickly.

That should give the markets a decent thrill.

Mmmm...you confuse me Whiskers - if things are going so well as you imply, then why do you expect a further rate cut. Surely the bottom has been priced in now? Shouldn't they start to resume their 'fight' against inflation again?
I think a lot of people will be surprised (as in :fan)before this week is out. Negative G-D-P!

 

[ShareIt]

Mmmm...you confuse me Whiskers - if things are going so well as you imply, then why do you expect a further rate cut. Surely the bottom has been priced in now? Shouldn't they start to resume their 'fight' against inflation again?
I think a lot of people will be surprised (as in :fan)before this week is out. Negative G-D-P!

The way I see it is as follows... the market doesn't really care if we get a cut or not, could be 25, 50, who knows... what they will be looking at is the statement from the FED... so far they have shown negative look on the economy, and right now I believe most of the market is looking for another negative statement to follow along the lines of "risk remains to the downside".... this is pretty much expected and probably factored in already... so this gives more of a positive bias from a contrarian view...

What could turn this market around is a statement like "we are still facing downside risk, BUT things have gotten a little wincy tiny bit better since last meeting" This will kick the rally