Imminent and severe market correction

[numbercruncher]

I see Japan is starting to come clean ....

Japanese financial institutions together lost more than 1.5 trillion yen (14.4 billion US dollars) in the year to March because of the US subprime mortgage crisis, a report said Friday.

The nation's eight major banking groups alone are likely to post a combined subprime-related loss of more than 900 billion yen, the Nikkei newspaper said.

That is around 200 billion yen more than forecasts made public so far, it added.

http://news.theage.com.au/japanese-banks-see-144-bln-dlrs-in-subprime-losses-report/20080502-2a6m.html

 

[davo8]

I have been riding this rally all the way up and it has been fun... but the one thing that is most important and that is missing, is volume... and that is why i think we are headed for a correction within a week

You're in good company.

Trade the charts if you will, but keep those stops tight!

link

Wall Street faces the growing risk of an equities bloodbath in coming months as the credit crunch spreads to the wider economy and earnings crumble, according to a pair of grim reports issued by Goldman Sachs and Wells Fargo.

David Kostin, the chief US investment guru for Goldman Sachs, expects the S&P 500 index of Wall Street equities to plummet a further 15pc over the "near term" as companies scramble to lower their outlook for this year.

"Although only a few firms have reported first quarter results, early signs are awful. We expect a swath of lowered profit guidance," he said in a research note published today, entitled 'Fasten Seatbelts'.

Mr Kostin, who replaced the ever-bullish Abby Cohen as chief strategist in December, expects the S&P index to reach 1,160, which would amount to a fall of 27pc from the bull market peak of 1,576 in September and enter the annals as a relatively severe bear market.

 

[ShareIt]

You're in good company.

Trade the charts if you will, but keep those stops tight!

link

Totally agree... ride the way up while it lasts and keep tight stops... but already we see a topping candle as of Friday... we had extremely bullish news and the markets sky rockets.... then it doesn't go any higher after that and sells off into the move up....

Looks to me like the big guys are starting the distributing.... might get another bounce up and then that should from a short term top

 

[refined silver]

Aaa Maaa!

Warren Buffet gets $1.7b deriv loss in Q1!

After calling OTC derivs "financial weapons of mass destruction", in 2003, he didn't heed his own words!

http://www.bloggingstocks.com/2008/...by-1-7-billion-worth-of-financial-wmd-losses/

 

[sassa]

" The "end of the credit crisis" apostates looks to be a small and shrinking group (and we don't mean just the downbeat but nevertheless accurate Nouriel Roubini or Michael Panzner).
A particularly persuasive reading comes from Doug Noland at Prudent Bear. A student of Hyman Minsky, he takes his theory of "Monday Manager Capitlaism" one step further into "Financial Arbitrage Capitalism," which means that the inmates are not merely running the asylum, they've learned how to position themselves not as crooks, but as prison facilities managers, expand their operations to other locales, and secure government funding.

In all seriousness, the problem that Noland alludes to is that finance is now driving the real economy. And given how speculative our financial system has become, this is leading to poor capital allocation and increased volatility, both of which will dampen growth. Keynes considered reducing volatility to be a major goal of policy, since it would lower the risk premia investors required, and more favorable interest rates would promote greater investment and with it, growth (note that Keynes did not propose the countercyclical measures that have become associated with his name). But high volatility produces the reverse effect: investors demand higher returns to compensate for heightened risk, which reduces invesment. But traders find it hard to make money in quiet markets; a certain level of fluxuation is their friend. So Wall Street's interests can and increasingly do conflict with those of Main Street.

Looking at the world through the Minksy-via-Noland lens exposes the flaw in the credit optimists' thinking. Keeping the game going in its current form requires an increase in leverage. The private sector had hit the point where credit had expanded beyond the ability of the underlying assets to support it. but rather than let asset prices fall to a level commensurate with their cash flow (or try to temper the deleveraging), central banks are instead trying to validate inflated asset values via artificially low interest rates and credit support to dodgy debt. That effort will eventually fail and eventually is likely not all that far off. The negative real rates will fuel new speculative activity, exacerbating the problem of overly high leverage relative to GDP. As AutoDogmatic pointed out:
That very complex of unusually high foreign buying of US debt (that is, lending to us) is now being choked off by its own consequences: the collapse of all the US credit markets...

The upshot is we aren't going to be able to increase our borrowing to fix the problems now. And we can't enter a war to generate the necessary stimulus (a-la FDR) because we're already completely extended fighting two of them....virtually all of the capital investment in America in the past three decades went into the military and military-related expenditures overseas, rather than truly productive areas like manufacturing back here at home, so we have nothing we can gear up to generate surplus output.

We are thus faced with the farcical situation where the government has already begun "bailing", but it is having to borrow even more to do so. Since we're past the point of exhaustion (beyond the "Minsky moment") already, this borrowing is apt to have increasingly disastrous effects. Look at the $160 billion emergency stimulus bill congress passed a few months ago (with checks having started going out in the mail a few days ago). The government is immersed in a record-breaking fiscal deficit -- so bad the Treasury Borrowing Committee is crying "uncle" -- so where is it going to get the money to pay these checks?

More borrowing, of course. But what happens when you add more borrowing when the supply of lenders is shrinking? Interest rates go up.

The Fed currently has a policy of holding interest rates down, to hold together the creaking financial system. As we discussed, borrowing is already dramatically ramping up because of structural spending needs, the war, and now bailouts. These two objectives are in conflict. Something will have to give.

Whether the Fed allows it or not, interest rates will rise. The Fed may succeed in artifically holding down interbank rates, but this will not help most of us. Soon we will be faced with the ultimate farce of mortgage rates dramatically rising because of all of our national borrowing, even though much of it has been piled on to help out those harmed by the housing bubble."
http://www.nakedcapitalism.com/2008/05/is-credit-crisis-really-over-minsky.html

 

[ShareIt]

Rather than smell a bull trap I think we are smelling what has been a bear trap.

This mornings open seems to look like a bull trap... but let's see how it closes

 

[explod]

Well done Sassa, for posting the above. It is what the Privateer newsletter has been saying for years now but due to the crapola it is hard to stay on track and get it through to people.

I really feel sorry for the carnage that is being dropped on the ordinary innocents.

 

[ShareIt]

A close below the all important 1400 level on the S&P... it now turns out that we have a lot of people trapped above this level... if it continues to inch lower Thursday, a heap of selling might start

 

[sassa]

And about time for investors if the said body sticks to their word.The only problem is that it is too late and why wait till the end of the year!
"The U.S. Securities and Exchange Commission will require Wall Street investment banks to disclose their capital and liquidity levels, after speculation about a cash shortage at Bear Stearns Cos. triggered a run on the firm, SEC Chairman Christopher Cox said.
The disclosures will be ``in terms that the market can readily understand and digest,'' Cox said today during a speech in Washington. The SEC will require the disclosures ``later this year,'' he said."

 

[Uncle Festivus]

Should be an interesting night - have the rising wedges finally broken down?

AIG reports $7.8 bln net loss; to raise $12.5 bln
Insurer hit by $9.11 bln write-down, $6.09 bln of realized investment losses

American International Group reported a $7.81 billion first-quarter net loss late Thursday as the giant insurer was hit hard by the credit crunch.

 

[explod]

Should be an interesting night - have the rising wedges finally broken down?

Yep Uncle, and the US$ index is moving down tonight and pencilling in that next head and shoulders, from what my eyes see. And right on cue in line with the established pattern.

 

[Uncle Festivus]

Yep Uncle, and the US$ index is moving down tonight and pencilling in that next head and shoulders, from what my eyes see. And right on cue in line with the established pattern.

I have a similar rising wedge for the DOW, and a roll-off top for oil too. So this is leading us to some sort of new phenomenon called 'inflation'. I thought it was tamed but somehow I think all it's fury is about to be unleashed.

Talk about chickens coming home to roost???

 

[sassa]

"How can we realistically trust the data that come out of the various US departments anymore? Even given the benefit of the doubt.

Case in point: the Net Birth/Death model of the Bureau of Labor Statistics. During the most severe downturn in the real estate and homebuilding sector since the Great Depression, the model keeps creating phantom construction jobs.

Not only did the model spew out a total of 98,000 net additional construction jobs in the 12 months to April 2008, it produced more such jobs in April 2008 than the same month last year (45,000 vs. 37,000, or +21%). In other words, new construction businesses that were established in that period supposedly created many more jobs than those lost from businesses shutting down.

The first casualty of war is the truth - Aeschylus. Problem is, who's the enemy?"
http://suddendebt.blogspot.com/

 

[Uncle Festivus]

"How can we realistically trust the data that come out of the various US departments anymore? Even given the benefit of the doubt.

Case in point: the Net Birth/Death model of the Bureau of Labor Statistics. During the most severe downturn in the real estate and homebuilding sector since the Great Depression, the model keeps creating phantom construction jobs.

The first rule is that we shouldn't trust the latest employment/NFP data as it is lagging, it estimates a lot of things and will be revised in the coming months, just as GDP will be revised to negative. I think the period from July onwards will be very interesting because some of the secular trends emerging in the real economy will actually start to show up in the balance sheets of the next tier of affected companies, the first tier being financials and builders/real estate.

That is, if it all doesn't go to pot in the meantime, as the chart wedges have broken to the downside now, all that positive spin momentum looks to be spent. Prepare for the next round in the coming global recession?

 

[sassa]

These 'little' snippets of news probably are of no use any more as they are already priced in and the investor doesn't care to hear of them.
"HSBC is expected to announce tomorrow that it is writing off a further $4.6bn (£2.3bn) against mortgages, credit cards and other loans to stricken US consumers."
"Barclays is expected to warn of further write-offs when it issues its trading update next week, although these are thought to be less than a third of the £9bn write-offs made by RBS."
http://www.jessescrossroadscafe.blogspot.com/

 

[sassa]

Prepare for the next round in the coming global recession?

Ambrose Evans-Pritchard of the Daily Telegraph agrees with you-

"The bears at Société Générale are going into Siberian hibernation, issuing an "Ice Age" alert. They have slashed exposure to global equities to a minimum 30pc for the first time ever.

Their weighting of super-safe "AAA" government bonds has been raised to a maximum 50pc. This is a bet on gruelling "Japanese" deflation. The bank expects equities to fall by 50pc to 75pc.

"Nowhere and nothing will be immune. We are on the cusp of an equity meltdown that will slash and shred portfolios," said Albert Edward, SG's global strategist.

"We see a global recession unfolding. Liquidity will drain away and crush the twin emerging market and commodity bubbles. The recent hope that 'the worst might be over' is truly staggering. Profits are disintegrating," he said.

Today's "bear rally" may live on into June. Don't count on it. Global bourses are no longer rising hand-in-hand with oil in exuberant celebration of liquidity relief (US, UK, and Canadian rate cuts).

Crude ceased to be a friend of equities when it reached around $110 a barrel. At last week's close of $126, it became an outright threat. The Bush rescue package - $800 in rebate cheques per household - has been rendered null and void by the latest spike. The average US home is now spending over 8pc of income on energy or fuel.

OPEC is playing with fire by refusing to pump more oil to offset rebel attacks in Nigeria. The cartel's output drop of 350,000 barrels a day in April is a hostile act at this point.

But there again, why should Middle Eastern states help America as long as the White House keeps filling the US petroleum reserve to prepare for war with Iran? Bush is playing with fire, too.

The oil spike will burn itself out. China has hit the buffers. With inflation at 8.5pc, it risks political turmoil. Moreover, it has repeated Japan's mistakes in the 1980s, building too many factories shipping too many goods at slender margins into a crumbling export market.

Lehman Brothers' Sun Mingchun says China will tip over in the second half of this year. "With so much latent overcapacity, an export-led slowdown could trigger a chain reaction which, in the worst case, could threaten the stability of [its] financial and economic system," he said.

Britain, Europe, Japan, and China will go down before America comes back up. This is turning into a synchronised bust, after all. The Global Slump of 2008-09 is under way."
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/05/12/ccambrose112.xml

 

[CamKawa]

I'm going for some reverse psychology here. The market will rally on this great news. lol

"The collapse of the U.S. housing market, the worst since the Great Depression, is contributing to the economic slowdown and may push the economy into a recession. Median prices for a single- family home fell 7.7 percent in the first quarter, the biggest drop in 29 years, the National Association of Realtors reported yesterday. There were 4.06 million U.S. homes for sale at the end of March, 40,000 more than the prior month, the Realtors association said in an April 22 report.

``Inventory levels have soared to unprecedented levels'' Brian Fabbri, chief North American economist for BNP Paribas, said in an interview. ``Builders and homeowners have to lower their prices significantly to sell that inventory out.''

Source: U.S. Foreclosures Rise 65 Percent as Vacated Homes Add to Glut

 

[Uncle Festivus]

Yes, it will be very interesting going into this weekend, as pressure is building between the push for a good finish for options expiry & a natural tendency for this low volume bull trap to run it's course. That and the closeness of indices to technically bullish break out points which the cb's will likely massage over the line. Literally make or break time for global equity markets.

 

[sassa]

I like this statement,especialy since it came from CNN-
"No inflation if you don't eat or drive."
Tonight the inflation figures come out from the good old U.S.of A.They are expected to remain unchanged since last month but the ordinary folk are beginning to question the figures put out by the Gov.on this and unemployment.
And many wonder why markets..........

 

[Whiskers]

The US of A is all up up and away for awhile.

Recession worries going, going, gon...

Import inflation going, going, gon....

The USD Index rising... as expected... well by some of us. :

I think that's just about all that matters at the moment.


The chart looks a lot like it's settling into an uptrend channel.