Imminent and severe market correction

[Uncle Festivus]

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.

If only I could be an economist so that I didn't need food or fuel .

Add in f&f, we get 5 month's of increases over 3% per month.

Housing bust still busting -

More U.S. homeowners fell behind on mortgage payments last month, driving the number of homes facing foreclosure up 65 percent versus the same month last year and contributing to a deepening slide in home values

More than 54,500 properties were repossessed by lenders nationwide in April. In all, about 2 percent of U.S. households were in some stage of foreclosure during the month, RealtyTrac said.

Import inflation gone? Not by my data? Always wait for the revisions, GDP too.

Prices of goods imported into the U.S. increased 1.8 percent in April, led by a jump in fuel costs and metals that threatens to boost inflation. The larger-than-expected gain followed a revised 2.9 percent rise in March that was higher than previously estimated, the Labor Department said today in Washington. Prices excluding petroleum increased 1.1 percent on higher costs for capital goods, industrial supplies and auto parts.

On the face of it, and the markets always do trade on any glimmer of hope these days, a reduction in the trade deficit would be appear to be good, until you read the reasons why - the US consumer is bankrupt, and the rest of the world is contracting!

U.S. demand for imported goods slumped in March, overwhelming the impact of the first export decline in more than a year and causing the American trade deficit to shrink more than forecast. ``Consumers have cut back significantly in just about every area but necessities, and we're seeing clear evidence of this in imports'', said Russell Price, senior economist at H&R Block Financial Advisors in Detroit. ``Weakness in our economy also seems to be affecting growth in other areas of the globe, thus slowing demand for our exports as well.''

When you havn't got cash, use the credit card @ 20% interest? Just to buy food & fuel - basically to live. Not much left over for discretionary spending?

The money drain from high food and gas prices is causing consumers to fall behind on home-equity loans at Bank of America - at an even faster rate than the bank forecast only three weeks ago. The grim report from the nation's second biggest bank underscored new problems ahead from the widespread debt that consumers piled up by borrowing against inflated home values to finance spending sprees over the past three years.
Bank of America said more of its once-credit-worthy customers are struggling just to fill gas tanks and food pantries, and are relying on debt-laden credit cards to pay for necessities.

Yes the only anomaly in all this is that the share market is still in denial. And the obligatory chart - coming up against resistance rather than uptrend channel

 

[sassa]

"PROFITS After Tuesday’s slight decline, the Standard & Poor’s 500-stock index is still up almost 10 percent from the recent low it hit in mid-March. “Many on Wall Street,” as my colleague Vikas Bajaj recently wrote, “seem to think that the worst is over.”

To figure out whether they’re correct, don’t watch the week-to-week movements in the market. Instead, pay attention to corporate profits.

Corporate profits have just emerged from a historic boom. From 2002 to 2007, inflation-adjusted pretax profits rose more than 50 percent. But they’re not rising anymore. They are likely to end the current quarter 7 percent lower than they were a year ago, according to Global Insight, a research firm.

The big issue here is that current stock values are based on the idea that the profit boom wasn’t a bubble. Investors are assuming that profits will bounce back quickly ”” and justify today’s stock prices. If profits do rebound, stocks may hold up or even keep rising. If not, the market is going to start looking very expensive very quickly."

http://www.nytimes.com/2008/05/14/business/14leonhardt.html?_r=1&ref=business&oref=slogin

 

[CamKawa]

Looks like the US isn't the only one going through a correction. How much of a litmus test is NZ for Aus?

NZ shoppers slam on the brakes


New Zealand retail sales fell at their fastest pace in 11 years in the first quarter, led by weaker vehicle sales, backing views that consumer spending is slowing and interest rates will fall later in the year.

.....
Latest housing data from an industry body on Monday showed the number of house sales fell to its lowest level in 16 years in April, with the median price falling 1% from a year ago.

Source: http://www.businessday.com.au/nz-shoppers-slam-on-the-brakes-20080515-2egw.html

 

[CamKawa]

Looks like the commercials have sold off in to this rally. What, don't they have any faith? Looks like they bought in as it fell to, cluey buggers.

 

[YELNATS]

Looks like the US isn't the only one going through a correction. How much of a litmus test is NZ for Aus?

NZ shoppers slam on the brakes


New Zealand retail sales fell at their fastest pace in 11 years in the first quarter, led by weaker vehicle sales, backing views that consumer spending is slowing and interest rates will fall later in the year.

.....
Latest housing data from an industry body on Monday showed the number of house sales fell to its lowest level in 16 years in April, with the median price falling 1% from a year ago.

Source: http://www.businessday.com.au/nz-shoppers-slam-on-the-brakes-20080515-2egw.html

Let me tell you the same thing's happening here but the Fed government hasn't woken up to it yet.

I have a retail business and I can tell you that people have totally stopped spending and many small businesses are going to the wall. The Budget last night missed the point - it needed to be expansionary to revive the economy, not to deflate it further. There won't be inflation, only massive lay-offs unless Treasury and the RBA catch-up with the most recent developments.

 

[CamKawa]

Treasury and the RBA catch-up with the most recent developments.

Developments in NZ are moving very quickly.

"New Zealand's employment fell by the most in 19 years in the first quarter as plunging business confidence prompted companies to fire workers, adding to signs economic growth has stalled. "
source: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atBcv__tCDqQ

I agree the speed at which the downturn may take hold here may catch the RBA by surprise. Especially since commodity prices are booming and many still believe China is going to save us.

If commodity prices are in a bubble that bursts Australia may struggle for many years. The Great Depression only lasted between 1929 - 1933 in the US, however commodity countries like ours were hit very hard and we didn't pull ourselves out of the $hit until 1939.

 

[andy87]

maybe someone can clarify for me, but I heard that the demand for Aussie commodities from China is only going to make inflation worse due to the them having a strong Yen against the AUD or vice versa.

 

[sassa]

"V Stands For Victory(S&P)
At least that's what the bulls are really hoping with today's push above the 1420 level.
We not only reversed back to yesterday's highs but just for good measure ended up closing above it in the final few minutes of trading. Many are citing the pullback in oil as the reason, but I think the real reason is the bears' inability to gather any significant momentum on the downside. The idea that "if you can't beat'em, you might as well join'em" has been and continues to be the right trade.

That's probably a good thing since just about everywhere you look today from jobless claims, industrial production, housing, and manufacturing offered more gloom and doom. Thankfully some M&A rumors and over-hyped dealmaking kept Wall Street happily distracted."
http://www.thekirkreport.com/

 

[nioka]

The stock market bears have one thing in common with the polar bears. They are an endangered species. With the all ords again above 6000 the bears credibility is shaken again as it has been for some time now despite the sub prime, the housing crisis, the interest rate hike and the recession we are supposed to be having.

Not imminent and not severe.

 

[Uncle Festivus]

The stock market bears have one thing in common with the polar bears. They are an endangered species. With the all ords again above 6000 the bears credibility is shaken again as it has been for some time now despite the sub prime, the housing crisis, the interest rate hike and the recession we are supposed to be having.

Not imminent and not severe.

Been waiting for some posts like this - now we can close the longs & go short, again? In fact, I shall be doing that this arvo on some selected blow off toppy type stocks.

ps - 20% not severe enough for you? And try not to get entangled in your bull trap .

 

[CamKawa]

The stock market bears have one thing in common with the polar bears. They are an endangered species. With the all ords again above 6000 the bears credibility is shaken again as it has been for some time now despite the sub prime, the housing crisis, the interest rate hike and the recession we are supposed to be having.

Not imminent and not severe.

Where do you think XAO will be by Christmas?

 

[nioka]

ps - 20% not severe enough for you? And try not to get entangled in your bull trap .

I'm enjoying eating prime beef. My stocks are worth more now that at any previous time and it has been gained by absorbing the fat from the bears. I love lemmings too.

 

[nioka]

Where do you think XAO will be by Christmas?

I don't really know and what is more, I don't really care. I'll work with whatever hand I'm dealt and the bull attitude will get me some bargains as the bears shed fat. Over time it will continue to rise.

 

[dhukka]

Let me tell you the same thing's happening here but the Fed government hasn't woken up to it yet.

I have a retail business and I can tell you that people have totally stopped spending and many small businesses are going to the wall. The Budget last night missed the point - it needed to be expansionary to revive the economy, not to deflate it further. There won't be inflation, only massive lay-offs unless Treasury and the RBA catch-up with the most recent developments.

Interesting, may I ask what type of retail business you have and where it is? ie. capital city, metropolitan area etc.

 

[Trembling Hand]

Interesting, may I ask what type of retail business you have and where it is? ie. capital city, metropolitan area etc.

Dhukka from the many friend/ex-colleagues I have in the Hospitality biz(Melb) I can tell you they are particular depressed at the moment. The obvious rise in food cost is squeezing them bad but what they are finding harder to handle are the things like CPI linked rent increases. Many are coming to the realization that the profit margin on their products are close to nothing at the moment. Their higher profit "discretionary" products are selling less and the volume has moved to the stables.

Has changed many business profitability even if the volume is not down that much.

 

[ShareIt]

I don't really know and what is more, I don't really care. I'll work with whatever hand I'm dealt and the bull attitude will get me some bargains as the bears shed fat. Over time it will continue to rise.

I think you speak to early

 

[dhukka]

Dhukka from the many friend/ex-colleagues I have in the Hospitality biz(Melb) I can tell you they are particular depressed at the moment. The obvious rise in food cost is squeezing them bad but what they are finding harder to handle are the things like CPI linked rent increases. Many are coming to the realization that the profit margin on their products are close to nothing at the moment. Their higher profit "discretionary" products are selling less and the volume has moved to the stables.

Has changed many business profitability even if the volume is not down that much.

Thanks for that TH,

We are starting to hear more evidence of things slowing down in Oz. Things like lower auction clearing rates, significant house price declines in certain parts of Sydney. Housing finance, both in number and dollar terms is pulling back. Banks reporting slower volume growth and higher bad debt charges. Retail sales were down quarter over quarter in 1Q08.

Compared to the US economy, the Aussie economy can change direction relatively quickly. (the NZ economy is showing signs of an abrupt slowdown at the moment) Not saying the Aussie economy is there yet, but signs are increasing.

 

[Whiskers]

maybe someone can clarify for me, but I heard that the demand for Aussie commodities from China is only going to make inflation worse due to the them having a strong Yen against the AUD or vice versa.

:headshake

Hey andy, the Chinese currency is the yuan. :bonk:

Japan's is the yen.

I know, it's tough... what with curriencies called, Yuan, Yen, Won, Lek, Taka, Rouble, Mark... :

This article from the Asia Times probably addresses your concern.

SUN WUKONG
'Devalue' call undermines yuan true faith
By Wu Zhong, China Editor

HONG KONG - Until last week, it had been a general belief among financial investors and speculators that the Chinese currency, the yuan, would continue to appreciate particularly against the US dollar at least for the next couple of years. That faith is being undermined by market talk that the Chinese government might reverse its course of the past two years and deliberately devalue the currency.

The heretical talk started with the publication of a paper by Tan Yaling, a senior analyst with Bank of China (BOC) on May 6. The

fast appreciation of the yuan was now beyond the country's "bearability", Tan said, and was becoming harmful to the short-term stability and long-term development of the economy. She said the government should consider taking a "one-step" measure to significantly devalue the yuan at "an appropriate time" so as to disillusion the market's expectations of a continuous appreciation of the currency.

http://www.atimes.com/atimes/China_Business/JE14Cb01.html

 

[Uncle Festivus]

Here's one for those who think it's all back to normal (& believe in the tooth fairy).
The veneer of collusion illusion by the Fed & Bernanke & the other central banks can only delay some hard reckoning. This is at the coal face.

The Californian city of Vallejo, population 117,000, has filed for bankruptcy. A city has never filed for bankruptcy before in the US. Vallejo's tax income has been shattered by a 26% fall in house prices. There are other cities on the brink in California. They're lining up to file.

http://www.sharecafe.com.au/fnarena_news.asp?a=AV&ai=8593

The reality is that every bear market has a relief rally, and never does a market drop 20%, turn on a dime, and then return directly. The euphoria soon runs out of puff as those investors who missed out on selling on the way down take the opportunity to sell on the bounce. And just as the down-move may well have overshot, so too will the bounce likely overshoot as well. As to what the correct levels and timing are is a matter of conjecture, and that which ensures a market exists. But at the very least, dooming and glooming aside, global equities will need to do some more work to form a more solid base before investors can start to worry that they've missed out on the next great rally.

 

[nioka]

Here's one for those who think it's all back to normal (& believe in the tooth fairy).
The veneer of collusion illusion by the Fed & Bernanke & the other central banks can only delay some hard reckoning. This is at the coal face.

While we are not sheltered from the fallout in the USA we are DIFFERENT.

We have a government with a surplus of funds. We have a compulsory super scheme which is feeding a heap of cash into the market. We have a resource boom, the like of which has not been experienced before. Our natural gas and coal seam gas offsets the oil price on an international basis. We have almost recovered from the subprime fiasco. The Eddy Groves and the margin borrowers have paid their price but ABC Learning has business as usual as do most of the businesses whose shares were dumped by ANZ.

And somewhere the tooth fairy lingers.