Imminent and severe market correction

[davo8]

This IS more or less the bottom ... it represents a significant real loss in the market over a considerable amount of time and huge losses short term.

The thing people need to adjust to is that once bottomed the market wont rocket up from here anytime soon ... volatility will continue and the market will trend flat or up 5-10% for a couple of years.

Yes, this is a recession, and no, this is not the bottom. Things that haven't happened yet (but they will):

1. Peak in unemployment.
2. Multiple bank failures, possibly including a big one.
3. Crash in commercial real estate.
4. Further downward revision of GDP figures.
5. Other failures: airlines? GM/Ford?

That's the good case. In the bad case, there is a global sell off of agency and/or treasury bonds, the USD heads for the cellar and loses AAA. The DOW headed down meets gold coming up.

I'm still picking October as an interesting month. It's got a good track history.

But I agree with the other bit -- this is going to be a long one.

 

[Whiskers]

I still think the US (stock markets) was stabalising and on the verge of recovering a little until oil went balistic.

For me the US market is dancing to the tune of oil more than anything else now as in a bit of green at open tonight, but turning to red as soon as POO shot up sharply about $5.

But oil will start the next leg of free-fall later next week and all will be green, green, GOOO again.

 

[explod]

I still think the US (stock markets) was stabalising and on the verge of recovering a little until oil went balistic.

For me the US market is dancing to the tune of oil more than anything else now as in a bit of green at open tonight, but turning to red as soon as POO shot up sharply about $5.

But oil will start the next leg of free-fall later next week and all will be green, green, GOOO again.

Well I think you are wrong. The effects of oil above $100 some time back have not hit the bottom line yet. There are many economic matters in the US over the last fews years that have not yet been acknowledged on Wall Street commensurate with the bottom line. And these are just a few points.

The conditions are different and worse than the crash of 1929, a crash that lasted and continued for at least four years.

I see no magic cure or white knights to save the unwinding economic chaos that is the US. And I THINK oil looks like it could be on the way up again after overnight action.

 

[Sean K]

I agree with the cat, in the very short term.

Seems POO is driving a lot of sentiment right now.

Except for gold. Oil down, gold up. Oil up, gold down. What the?

Probably just a temporary thing though.

 

[kotim]

hAVE A LOOK BACK AT 1987-89 and you will see the major bank stocks and what happened to them. This is what is going to occur again.

The governments and financial institutions will have to put some sort of cap on the way banks continually extend credit and securitise "money"

This will impact upon earnings for the bank., this means that we may see them drop their dividend payouts.

The banks control the direction of the market in general and if the banks drop their dividend payout then there is less reason for people to invest in them as they are historically part defensive because of their dividend payout and associated growth. If that is compromised for a while then that will effect peoples investment in them.

What will happen when we see the major bottom is a huge rush up about 30-50% over many months and then the reporting season will be upon us again and the banks will come out and say we are not earning as much money as we like and the profits(growth) are down, so then people will sell out of the banks and force the price way down again and so forth and that will go on for a few years.

The banking stocks effectively went sideways from 87 through to the early 90's.

 

[brty]

Hi,

The banking stocks went from a low immediately after the crash of '87, to new highs by late '89. In other words they gained about 100% over a short period.

What you really mean is what they did between the high of late '89 and the lows of late '92 when WBC and ANZ lost ~66% of their value. NAB lost about 30% between the '89 high and the '91 low, and then rose as it was perceived as the 'safer' bank.

brty

 

[CamKawa]

I tried to look up what the banks did between '87 - '92 but my data only goes back to '92. Anyone got a chart?

 

[brty]

Cam,

Go to bigcharts.com, they have charts back from early 88 for ANZ, NAB and WBC. Choose 'all data' for the time frame.

brty

 

[kotim]

brty look at the highs in 87 and it does not matter what they did after that, anyone who was a long term buyer of such a stock as anz in late 87 etc either made a little bit, lost a lot or lost a little in the following half dozen years until the market started to move away and up finally. Not good for buy and hold unless you bought the bottom.

chart attached of westpac, weekly chart from 1987 thorugh to 1996

 

[Whiskers]

I agree with the cat, in the very short term.

Seems POO is driving a lot of sentiment right now.

...'the cat'... well, coming from the king of cats I suppose thats a compliment. ... by the way I called him Tiger.

Still not sure about 'stubble', explod!

Except for gold. Oil down, gold up. Oil up, gold down. What the?

Probably just a temporary thing though.

According to my master formula the POG will wobble a bit out of sync while the currencies relalign to a better looking US economy with low POO. All that other stuff is pretty much ancient history now and pales in significance to the POO.

Ultimately, I'm pretty sure the USD index will al least stabalise or recover a little boosting the US and with lower interest rates on the Aus horizon the AUD has already started to fall to probably the low 80's.

All the right ingredients to settle down the uncertainty in the world economy and re-launch the Aus resource sector.

 

[brty]

Hi Kotim,

Who said anything about a long term buy and hold??

Providing you did not buy in july- october '87, then you would have done all right.

If you bought in Nov-Dec of '87 you could have made 100% on your money within 20 months. After each 40-50% pullback, the banks made marvelous lows that could have been traded for 50-100% gains in short (relatively) periods of time.

I do not buy and hold for the long term, history shows it to be a losing game. How many of the top 20 companies (by market cap) from 1987 are still in the top 20 today?? After the 3 big banks, BHP and RIO, I think you would be struggling to find any.

bye

 

[davo8]

The conditions are different and worse than the crash of 1929, a crash that lasted and continued for at least four years.

I see no magic cure or white knights to save the unwinding economic chaos that is the US. And I THINK oil looks like it could be on the way up again after overnight action.

Spot on. The market crash is by, with and from the collapse of the credit bubble. Oil is an unfortunate complication, but the financials are dead men walking. How can anyone believe that a financial stock dropping 90% is caused by the price of oil? Crazy!

Residential property is due to drop at least 35% across the board. Commercial property is just starting to drop. Banks cannot survive that kind of carnage, and another went bust this week, with more to follow.

Trade the bear rally if you must, but stick close to the exits. Repeat after me: this it NOT the bottom.

 

[kotim]

brty, no problems, the point of my original post was that we are going to be going into a relatively flat period for the next few years, yes if you can trade the swings then you can perhaps make good money, however for all the buy and hold brigade out there (read 95% whether through brokers or funds) then unless your fortunate enough to buy in at or very near the bottom then the growth they receive will be negative in real terms. one year the profit will be up, the next year not. allow for inflation and the cost etc. The whole point of my post was that we are int he same times.

Have a look at the bank stocks, made a big top in 2007, false break this year and down we go. ANYWAY its just talk

 

[Sean K]

From our Finance Minister today:

"Yes, the economy is slowing, yes we need to take the steam out of inflation, but people talking recession are getting way ahead of the facts."

Yes, yes, I am quoting politicians again. I must be mad, and we should all be listening to bloggers!

But, in the background, the TA anf FA experts are disagreeing somewhat.

One thing I'm considering at the moment is:

Does economics equate to sharemarket performance?

Anyone have a view on that?

 

[davo8]

One thing I'm considering at the moment is:
Does economics equate to sharemarket performance?
Anyone have a view on that?

Eventually, yes. The sharemarket is reasonably good at valuing companies; over time, valuations are driven by profits; and profits are driven by economics.

Economics: consumers have less money to spend.
Market: consumer discretionary marked down.
Reality: businesses sell less stuff.

Economics: credit is tight, less lending, more bad debts.
Market: hammers financial stocks.
Reality: banks and financials lose money, make less profits.

It's the timing that is the problem. TA helps there.

 

[2020hindsight]

Hmmm. Then again, it might be prudent to wait for the tsunami of potentially *DISMAL* (IMO) company reports covering the last quarter to be unmasked.....

As the first wave of floodwaters subside around end of July, maybe some sad pickings will be lying cheaply around the seaside.
..AJ

spot on AJ - I shudda listened to you lol.

 

[Whiskers]

Just glanced over at Yahoo, saw the line chart and just happened to think... hum, the market's rising nice and smooth like a fresh baked sponge cake.

 

[sassa]

Just glanced over at Yahoo, saw the line chart and just happened to think... hum, the market's rising nice and smooth like a fresh baked sponge cake.

How was the sponge Whiskers?Any cream on it for a follow up in the good old U.S.of A tonight?Volume was mediocre for a substantial increase.Selloff tonight?Constipated movement?

Today's market action looked like a major Wall Street insiders push to break the traders/funds who were playing the long oil-long metals - short dollar-short financials cross trades. They were leaning awfully hard on them

http://www.jessescrossroadscafe.blogspot.com/

 

[white_goodman]

way back at post #2659

spot on AJ - I shudda listened to you lol.

all you need now is a delorian and gun it to 88

 

[Whiskers]

How was the sponge Whiskers?Any cream on it for a follow up in the good old U.S.of A tonight?Volume was mediocre for a substantial increase.Selloff tonight?Constipated movement?


http://www.jessescrossroadscafe.blogspot.com/

Yes well, it finished baking nicely, sassa.

Lower oil will be the sweet icing I think... so long as it's whipped up before the cake goes too stale.

But then you mention that other 'dirty word' of the moment (after oil speculaters) ie Wall Street insiders. So cautiously optermistic.