Imminent and severe market correction

[explod]

That's my point. I'm an optimistic bear. The lower it goes, the more chance there is that the stocks I like to own will be available cheap. There's plenty more bad news coming for financial stocks, and every chance we're going to get a downturn in the housing market here, or even a recession. Great! I'm a value investor and I love bargains!

My guess is the bottom will be around the end of the year, and before then we'll get some bad news that everyone said could never happen. Meanwhile, there's no harm in cash and a spot of gold.

I think it may be very much worse than that.

By many accounts, this downturn has more troubling demensions than the Great Depression which began in the 1920's and did not really lift out of the doldrums till the late 1950's, some would say a small lift and then still bad in the 1970's.

I think this one got going in earnest about 2001/2, the Dot.com and the lift from there was built on cheap money, which in effect, as we are beginning to witness has been a valueless spike/bubble.

So if it is as bad as the Great Depression, some 30 years, then 2040 could be ok, except by then the problems of global warming and too many people will be a real problem.

 

[nioka]

I think it may be very much worse than that.

By many accounts, this downturn has more troubling demensions than the Great Depression which began in the 1920's and did not really lift out of the doldrums till the late 1950's, some would say a small lift and then still bad in the 1970's.

I think this one got going in earnest about 2001/2, the Dot.com and the lift from there was built on cheap money, which in effect, as we are beginning to witness has been a valueless spike/bubble.

So if it is as bad as the Great Depression, some 30 years, then 2040 could be ok, except by then the problems of global warming and too many people will be a real problem.

There is so much that is different in this modern world. The problem this time around was the cheap credit in a system that allows banks to lend money they didn't have in the first place and without proper security. They are allowed to lend 10 times their deposits which works if nobody wants their cash. In the great depression the banks had lent actual money and couldn't get it back. Then they ran out of money themselves. The money has dried up but the world is still functioning almost normally apart from that.

Nor was there a super fund rolling along as there is now. Oil was abundant but had little use. Oil is scarce, energy is scarce, food is scarce. From the depression to WW1 farmers couldn't sell their produce. Men were walking the roads looking for work, now we have a labour shortage and the reserve bank is trying to slow the economy.

The bears are endangered, cattle prices today are at near record highs. The bulls will rule.

 

[Macquack]

Nor was there a super fund rolling along as there is now.

"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale. "
Thomas Jefferson 3rd president of US

 

[wayneL]

There is so much that is different in this modern world. The problem this time around was the cheap credit in a system that allows banks to lend money they didn't have in the first place and without proper security. They are allowed to lend 10 times their deposits which works if nobody wants their cash. In the great depression the banks had lent actual money and couldn't get it back. Then they ran out of money themselves. The money has dried up but the world is still functioning almost normally apart from that.

Nor was there a super fund rolling along as there is now. Oil was abundant but had little use. Oil is scarce, energy is scarce, food is scarce. From the depression to WW1 farmers couldn't sell their produce. Men were walking the roads looking for work, now we have a labour shortage and the reserve bank is trying to slow the economy.

The bears are endangered, cattle prices today are at near record highs. The bulls will rule.

You have drawn a number of erroneous conclusions about the the causes Great Depression. I would do some more research.

The basic similarities are striking.

* Massive credit expansion.

* Massive malinvestment.

The details differ, but the result could be similar.

I hope it doesn't result in GD@ , but one unavoidable economic fact is that the result of massive malinvestment is inevitably contraction. Only the size will have to be decided in retrospect.

The wild-cards in the deck is oil/energy and Israel (as catalyst for a truly insane war with Iran).

Read up on Kondratief as well.

Nokia, you have a propensity to characterize bears as lemmings. Dumb. Bears are bulls with different criteria. Bears are looking for restoration of value and/or hedging aginst imbalances of value, nothing more.

Cheers

 

[ithatheekret]

The 1920's were the good times , when the Fed was just created , everyone thought it would keep the economy stable , businesses responded and went overboard as did investors , with blind confidence inspired by rhetoric and wishful thinking . Then when the Fed couldn't stabilize , production waned , durable goods stayed on shop floors , prices started to fall and then finally wage earners used to beef and three veg ended up with bread and dripping .
Fifteen years earlier the 1905 market had peaked on good news from the Admin and confidence was high .

Then came 1914 ( we know what happened then ) the market dropped , off to war they went , the market rallied , but just before all the troops came home the market wobbled again , had a recovery bounce the next few years , then just as the cycle had restarted the whole lot collapsed .

In the 20's prices were strong and the market believed the Fed tales this gave investors confidence ,

Does it sound like a familiar story line yet ? If 1905 was our 80's and 1920's were the 90's , we would have to look for the signals to call in our 30's ( end of 1929 on ) .

Then the controllers sat back and let it roll , and roll it did , all the way down puke lane .

What will happen when all those troops come home ?

What will happen when all the banks start to really turn the screws ?

I'll leave this section with a passage from that wombat Keynes .

" once banks realize that deflation has significantly impaired the value of their collateral ............ they become particularly anxious that the remainder of their assets should be as liquid and as free from risk as it is possible to make them. This reacts in all sorts of silent and unobserved ways on new enterprise. for it means that banks are less willing than they would normally be to finance any project ............. "

On the oil spin , well okay they want to get out past the shelf , oh and Brazil of course ( the only good thing I like about Brazil is it's currency that soared ) , just side stepping shale in this observation . Now these offshore ideas are all great sounding , but ........ the depths they will have to drill down to will border on records and probably surpass many . To do so they will go through many drill heads and other soft metal parts that will all end up melting into a useless pulp and twisted mess . So as they struggle to get down to the oil , a good bet would be to find the suppliers and buy these stocks , they'll be selling plenty of drilling rods and heads to the oilers .

Oilers get into all sorts of problems when drilling , much of which when the drillhead driver or rods twist or get stuck , can simply be redrilled , but that at levels closer to the surface than where they want to drill on the outer continental shelf and the deep holes they'll have to put down off Brazil .
At the depths they are needing to achieve it's going to be expensive work , I don't think they'd even contemplate the projects from a business sense if they didn't think oil was going to stay high . My money says oils going up , the 130 spot was a nice test area , the 140 flirt followed by the 138 flirt are ominous , and the China news lasted one night , boy the weeks are getting quicker nowdays ...........

................. and lots of melted and buckled rod will be coming back as scrap from the rigs . It's going to be a lot of work for little gain and it will take years to achieve . I prefer the alternatives except hydrogen fuelled vehicles , we don't want bombs driving around our world , it would be safer to get around on weather balloons , as long as you don't smoke that is .........

 

[nioka]

Nokia, you have a propensity to characterize bears as lemmings. Dumb. Bears are bulls with different criteria. Bears are looking for restoration of value and/or hedging aginst imbalances of value, nothing more.

Cheers

There is a good reason for this. Bear activity brings out the conditions for lemmings to mass ready for a run to the cliffs. Bull activity stamps them into the ground. I do agree that a bear market does help to re-establish values.

My knowledge of the great depression is mainly gained directly from being brought up by people directly affected and listening to their lessons and their experiences. My youth was spent during the days when families and friends spent many hours sitting around conversing. Also having many friends with their lives greatly affected by the depression as indeed was mine. Reading about it is the same as reading advice from some of the current economists. Even though I say that, I know that I'm never going to always be right and never too old to learn.

 

[explod]

There is a good reason for this. Bear activity brings out the conditions for lemmings to mass ready for a run to the cliffs. Bull activity stamps them into the ground. I do agree that a bear market does help to re-establish values.

My knowledge of the great depression is mainly gained directly from being brought up by people directly affected and listening to their lessons and their experiences. My youth was spent during the days when families and friends spent many hours sitting around conversing. Also having many friends with their lives greatly affected by the depression as indeed was mine. Reading about it is the same as reading advice from some of the current economists. Even though I say that, I know that I'm never going to always be right and never too old to learn.

The bear bull thingo is a bit of a connundrum. I relate to the old school as like you grew up amongts those who surferred at the hands of the Great Depression.

However in mid 40s (20 odd years ago) hit business and management school which was basicly management by objectives, over the top encouragement, and how high to jump. This has made the super bulls, anyone contrary to this is staid, uncool and a loser.

In reality we know that the bull is the uptrend and the bear is the down trend. So if one can throw off the shackles and looked objectively at both camps then suddenly the light shines on great opportunity. Out of the bear comes the bull perhaps.

From my own current viewpoint, currencies are losing value, so it is a no brainer to look for those things going the other way, in my case I have chosen gold. Others oil and so on.

 

[sassa]

And then along came.....

In the past, I would make market pronouncements with absolute certainty, but I have since learned my lesson. I don't know what will happen, but I do know that all good things come to an end. Nearly everyone who doesn't work for the government believes the economy is in recession. The second quarter ends this month and companies will start releasing earnings reports in early July. What will they say? How was business? The market already seems to be getting the jitters.

Common sense dictates slow to no growth for a long time coming:

High gas prices with no sign of abating
Higher food prices, especially in light of Midwest floods
No end in sight to housing bust
Continued tight credit
Rising unemployment
Consumers maxed out, little savings and starting to save what they can
The possibility of war before the election
It is that last item that could result in catastrophe. A war with Iran, as is being discussed, would send oil prices skyrocketing overnight. Americans may be able to get by - barely - on $4 gas, but what if that doubles? What would happen to the economy at $8 gas? How would people get to work? What would happen to the price of food, and to heating our homes come winter? Printing more money for the war would send the dollar's value down further. Inflation would go into overdrive.

Considering the cavalier attitude this administration has shown towards war, it simply cannot be ruled out. The drums of war are getting louder. The stock market is clearly getting nervous about something heading into summer

http://www.safehaven.com/article-10565.htm

 

[davo8]

And then along came.....

Indeed. It really could get that bad -- there is no obvious driver for recovery.

On topic: the S&P carpet looked awful and I saw some EW site claim the DOW is about to break a 34 year trend.

Any want to pick a direction for Monday? My pick is: look out below!

 

[sassa]

Secretary Paulson announced plans to give the Federal Reserve new and explicit powers to oversee and regulate the financial services industry. However, a sober look at his plan reveals that it is tantamount to giving the fox complete autonomy to guard the henhouse

What few economic leaders have acknowledged is that the Federal Reserve itself is responsible for the real estate and credit bubbles, which are the source of our current troubles. By keeping interest rates too low for too long, the Fed ignited a speculative fever and engendered a disregard for risk management that pushed asset prices above rational levels. Should we blame the private sector for taking advantage of all the cheap credit, or the Federal Reserve for supplying it?

If Paulson can be so completely clueless regarding the Fed's role in the current debacle and in America's economic stumbles over the past two generations, why would anyone place any faith in his proposed remedies? In fact, an unaccountable and unelected Federal Reserve, which nonetheless has lately proven to be as politically craven as any two-bit politician, does not hold the keys to our economic revival. However, with its increased willingness to rescue the big financial firms from their own excesses, perhaps Paulson sees an expanded Fed as the best way to ensure the continued prosperity of his former pals on Wall Street

http://www.safehaven.com/article-10559.htm

 

[Whiskers]

Indeed. It really could get that bad -- there is no obvious driver for recovery.

On topic: the S&P carpet looked awful and I saw some EW site claim the DOW is about to break a 34 year trend.

Any want to pick a direction for Monday? My pick is: look out below!

Talking about obvious drivers... one thing about this oil bubble, dare I call it that... is that there are no fuel shortages behind the sharp price rises. Quite the contrary, everyone seems to be pretty well supplied.

Seems to add weight to the artificial, speculator driven scenario.

Interesting that all the major fuel co's seem to be saying the prices are artifically high.

Regardless of whether oil prices retreat back below $100 tomorrow, I think the damage has already been done in terms of people changing their habits and lifestyle to reduce their demand for oil. That is what the Saudi's are seriously worried about.

The other twits like Chavez nationalising industry and the Iranians are so short focused on domestic grandstanding that the damage will be done to demand for oil before they wake up and their likely response will likely be to screw down supply further accelerating the conversion to alternatives.

If a whiff of tougher regulation of commodity markets comes out of the weekend summit, in the name of international economic and political stability, then I reckon speculators holding contracts will be falling over each other to unload them.

It's being seriously considered by some US lawmakers keen to reel in the renegades in other industries like they are doing with the property and finance sectors.

Again, I feel there is just too much international political will to kill off the high price of oil for nothing to come out of the weekend summit. Given that oil has taken over from the credit crisis and is at the heart of emerging (hyper) inflation concerns, if the right announcement comes out on monday... it could just as well be more a case of watch out above.

 

[Undertow]

I have doubts about any effort to quell the demand for oil in the immediate future. They have been talking about alternative fuels for a very long time and although there are other fuels for use these have not gained much momentum in the industry of motorization. Although there will be comments like the one recently from China that is used to try and quell some demand or indeed even to cause the price to drop at the bowser it looks like the oil price will remain solid or near enough to current levels or perhaps even higher for many years.

 

[explod]

=Whiskers;305826]Talking about obvious drivers... one thing about this oil bubble, dare I call it that... is that there are no fuel shortages behind the sharp price rises. Quite the contrary, everyone seems to be pretty well supplied.

Would be interested to know who "everyone" is

Seems to add weight to the artificial, speculator driven scenario

And the "artificial"?

Interesting that all the major fuel co's seem to be saying the prices are artifically high.

Yep, good PR, not our fault, and if it goes higher, exonerated

Regardless of whether oil prices retreat back below $100 tomorrow, I think the damage has already been done in terms of people changing their habits and lifestyle to reduce their demand for oil. That is what the Saudi's are seriously worried about.

Not convinced that people in my area will give up the guzzling 4 x 4s without a very much greater hike and or fight

The other twits like Chavez nationalising industry and the Iranians are so short focused on domestic grandstanding that the damage will be done to demand for oil before they wake up and their likely response will likely be to screw down supply further accelerating the conversion to alternatives.

The more damage the better, the sooner we bring on alternatives the better for my Grandchildren

If a whiff of tougher regulation of commodity markets comes out of the weekend summit, in the name of international economic and political stability, then I reckon speculators holding contracts will be falling over each other to unload them.

The continual jawboning summits have had almost no effect so, with anticipation we will see what pans out

It's being seriously considered by some US lawmakers keen to reel in the renegades in other industries like they are doing with the property and finance sectors.

The lowering of interest rates by the fed to lift the Dow from the collapse of the 01/02 bubble are the real culprits. The heat is starting to make em run for the exits by blaming others.

Again, I feel there is just too much international political will to kill off the high price of oil for nothing to come out of the weekend summit. Given that oil has taken over from the credit crisis and is at the heart of emerging (hyper) inflation concerns, if the right announcement comes out on monday... it could just as well be more a case of watch out above.

Oil is just a part of the credit crisis, as is debt, food and the lack in the western world of value adding production. However the focus does take attention away from the real issue that we are (not in Aus) broke, and gives time for the Fed to try and respond.

Intersting times indeed

 

[ithatheekret]

What is worrying is that we have had a series of 52 week highs and 52 week lows in the market at the same time once again . The market has seen banks drop and energy stocks soar , but with oil running headlong into $140 , it must have us question exactly what will be the catalyst for further gains in the current market conditions . Is it once again the Hindenberg Omen ? I tend to believe this is so .

The current signal which is clearly a Hindenberg has me pondering whether we will get the count going against the market in the statistics of the indicator , which is around 1 in 4 . That's a 1 in 4 chance of a spectacular crash , which would run it's course if it occurs for around a minimum of around 100-120 days .

To get the signal showing up more than once in less than 36 days is not a good look and with the new lows well in excess of twice that of the new highs , I think it would be safe to say that the parameters have been met , so the framework for a significant decline is there .

The last run I counted out prior to the latest was back in June last year , actually June to August where the signal had all the pre-requisites met 10 ( ten ) times , then we had the decline . The US boards are now showing a heavy divergence once again . Until the lows overtake the highs or visa versa , the market will remain unstable IMO , I'd rather have a whole swag of lows , at least I'd know the bottom was close or close enough to buy without worrying .
If it was the reverse and we were drowning in highs , well I'd be running with the bulls , but right now I see a predominant HO signal and I don't like it one bit . Whilst it is never a 100% guaranteed event , every major decline in the NYSE has had a HO signal precede it .

For those unaware of this indicator investopedia has a well set out description .

http://www.investopedia.com/articles/trading/07/HindenburgOmen.asp

 

[kingbrown]

The worlds an expensive place now ?

oil now food ?

This is a link to a USA govt report on peak pil production
may be of some interesting reading ?

http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf

also i would hate to be poor wheat up over 200 per cent

Can any one see a correlation here ?

See link below re World Bank report :

High Food Prices - A Harsh New Reality

While headline news about high food prices is a relatively recent phenomenon, the broader upswing in commodity prices began in 2001. Large structural shifts in the global economy””including growing demand in China and India””have been steadily reflected in commodity price increases, especially of metals and energy.


Click graph to enlarge




Click graph to enlarge

Food prices have increased in response to many factors: higher energy and fertilizer prices; increased demand for biofuels, especially in the U.S. and the European Union; and droughts in Australia and other countries. World grain stocks are at record lows and next year’s prices depend on the success of the next harvest in the northern hemisphere.
Wheat prices (US$) have increased by 200 percent, and overall food prices (US$) have risen by 75 percent since the turn of the century. Adjusting for exchange rates and domestic inflation reduces the price increases faced by developing countries””but these increases are still severe for millions of poor consumers.

http://econ.worldbank.org/WBSITE/EX...165401~piPK:64165026~theSitePK:469372,00.html

After all we are a growing hungry world

Rice sales rationed as supplies dry up
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/01/nrice101.xml

 

[Whiskers]

Oil is just a part of the credit crisis, as is debt, food and the lack in the western world of value adding production.

Yes, but the spike in oil has severely compounded those effects in the markets. I think it has been demonstrated that there are now a number of 'funds' out there with huge financial resources and quite capable of influencing the market, especially where little or no regulation and/or public knowledge or disclosure of the participants are.

Conversely, if the oil price were to fall I suspect the economy and share markets would look a very different proposition.

My point is that oil is a vital commodity which could and probably will be much more tightly regulated 'in the public interest'.

Most of the speculative positions or market manipulation has occurred in the US. My feeling is that public opinion all over the world is demanding the US close the 'loopholes' and reign in another batch of renegades that are abusing the system and I believe it will happen.

PS: If some of these bills get passed in the US, we could see an oil price collapse... a-la sub-prime mortgages.

Oil: Speculation or demand?

NEW YORK (CNNMoney.com) -- "Speculation," a dirty word across America as Wall Street traders take the blame for record oil and gasoline prices, drew more attention Friday from Congress as three Democratic House members introduced yet another bill attempting to limit activity.

To underline his case, Rep. Bart Stupak, D-Mich., said speculators now control 71% of oil on the market. That means only 29% control the physical oil being traded, down from 61% eight years ago.

Stupak blamed loosely regulated trading markets with numerous loopholes for the ease that traders have to buy and sell crude.

As a result, Stupak introduced legislation with the support of two other Democratic Congressmen to close loopholes that allow oil to be traded electronically in unregulated oil markets. The bill would also regulate other methods that Stupak claims oil traders use to avoid federal oversight.

"We can eliminate a major avenue that traders use to avoid oversight," said Stupak at a press conference Friday. "It's time for Congress to close the Enron loophole and lower our gas and diesel prices by 50%."

Many in Congress have suggested that closing a provision in the Commodity Futures Modernization Act of 2000 that critics call the "Enron loophole," after the energy trading company whose bankruptcy was the centerpiece of the corporate scandals early this decade. The provision allows oil futures to be traded in markets outside of the jurisdiction of the Commodities Futures Trading Commission.

Stupak, the chair of a House Energy and Commerce subcommittee, has pledged to investigate regulation of speculation further in a hearing on Monday.

Congress is currently awash in nine different bills - including Friday's proposal - that attempt to limit the role of speculators. Several have bipartisan support, but only one was co-sponsored by a Republican.

Proposals have included requiring foreign exchanges to provide more information about crude oil trades, limiting the number of contracts speculators are allowed to hold, increasing the amount of money speculators need to put up to buy an oil contract, and removing speculators from the market entirely and limiting trade to just producers and consumers.

Opposition against regulation mounts
Traders have lashed out against some of the lawmakers' proposals, such as banning speculation in some markets, saying that would only result in oil trading shifting to even less-regulated areas.

Stupak countered by saying the new proposed legislation is "the most comprehensive approach" that has yet been offered. He suggests closing all loopholes, including bilateral out-of-market trades, foreign trades on the InterContinental Exchange, swaps, and hedging exemptions. As a result, he believes excessive speculation will be stopped by complete oversight of the markets.

http://money.cnn.com/2008/06/20/new..._legislation/index.htm?postversion=2008062209

 

[explod]

Yes, but the spike in oil has severely compounded those effects in the markets. I think it has been demonstrated that there are now a number of 'funds' out there with huge financial resources and quite capable of influencing the market, especially where little or no regulation and/or public knowledge or disclosure of the participants are.

.

Agreed, however no amount of manipulation is going to solve the medium term shortages of oil and food. We need new wells to come online and good agricultural seasons. It is stated that the new oil fields that Dubya was speaking of last week will take years to come online and will require $US200 to make them economic.

Certainly the futures markets can work wonders to ballance the books (and profits) but have we perhaps hit the perilous edge to those plays too.

Will be a very interesting week, I thunk

 

[nioka]

Speculators can only influence the market in the short term. Sooner or later, usually sooner, the law of supply and demand takes over. If oil is in ever increasing demand and in ever decreasing supply then the price will rise regardless of the speculation. With grain the speculators are gambling on the weather with the use of grain for biofuel production adding to the situation which in turn is influenced by the price of oil. The speculators affect the daily price but the trend is on the up and up regardless.

The commentry on the market is hard to follow sometimes. If the market falls and the oil price rises then the market fell BECAUSE the price of oil increased. But then if the oil price falls and so does the market then in is because the oil price has FALLEN.??? And sometimes "increasing price of oil is causing a recession" other times "a recession is causing the price of oil to fall".

The volatility will continue and grow as 'peak oil" gets more serious. It is a fact of life regardless of Rudds blowtorch to OPEC.

Invest in energy and the resources that are associated with it. They will get more valuable as money gets worthless.

The Aussie dollar is propped up to artificial highs with our high interest rate. It is not high to beat inflation but kept high to attract overseas money to finance our current account shortfall. Selling the farm and most of our manufacturing industries isn't bringing in enough to do that job.

 

[Uncle Festivus]

Invest in energy and the resources that are associated with it. They will get more valuable as money gets worthless.

Up to the point where MADness takes control - Mutually Assured Destruction - from the high price of everything, leading to, in a best case scenario, a global recession (imminent?)?

Money supply inflation has contributed to a large part of the oil price (& commodities etc) rise over the years, with a top up of supply/demand fundamentals from Chindia, who are looking a bit 'over-inflated' at the moment ie detracting from the demand side of the equation. Inflation will be the problem until it isn't, ie a recession when deflation is the norm and they (BBBBBenny & the Jets) wished they had good old inflation back again.

 

[Whiskers]

Speculators can only influence the market in the short term. Sooner or later, usually sooner, the law of supply and demand takes over.

That's true nioka, but as my earlier post was trying to highlight, it seems that speculative interests now have a dominating influence, nearing 3/4 of the oil market in an enviornment less open and accountable than Wall St. I don't think that is resonating very well with consumers at the moment.

That doesn't sound like a good thing to me and if this little poll on CNN is anything to go by it supports my estimation that US consumers have well and truly started voting with their feet as further illustrated by a chart on ABC TV news tonight showing US travel miles at significant lows.

Not sure what the latest US consumption figure is, but earlier in the year it had actually dropped over 1ml bpd, ie about 5%... to just above 20ml bpd.

Any perceived future slowing in demand will make the 'speculative' end of town edgy and together with China decreasing the subsidy on oil, it is not difficult to see oil consumption growth fall much less than forecast or even decrease for a period as people rebel against paying high prices.

If the US excellerates the conversion to more fuel efficient vehicles it will actually cause their oil consumption to continue to fall for awhile. If they drive less miles and fly less planes as well, that will make a significant decrease in their short term demand for oil.

I'm not holding any oil stocks at the moment because unlike gold, oil is a vital resource which I can see getting increasingly regulated... and to re-use my earlier analogy... popping it's poofu valve.