Imminent and severe market correction

[Whiskers]

Not surprising (but unexpectedly according to the press) but not good news none the less.

Freddie Mac Losses soar, dividend slashed 80%.

One thing I'm considering at the moment is:

Does economics equate to sharemarket performance?

Anyone have a view on that?

Just a backward looking reminder, but likely to put the US on the back foot a little I suppose, until oil drops again.

But I think those with clear foreward looking economics will continue quietly accumulating now while the masses are still undecided, eg all that money exiting oil and gold and interest bearing accounts.

 

[BentRod]

Cramer's called a bottom.

Clairvoyant??

http://www.youtube.com/watch?v=Udjx0f93Wbk

 

[Uncle Festivus]

Not surprising (but unexpectedly according to the press) but not good news none the less.

Freddie Mac Losses soar, dividend slashed 80%.

Just a backward looking reminder, but likely to put the US on the back foot a little I suppose, until oil drops again.

But I think those with clear foreward looking economics will continue quietly accumulating now while the masses are still undecided, eg all that money exiting oil and gold and interest bearing accounts.

Another classic Whiskers - is your glass half full still - is there really a glass at all??

It's interesting that you mention Freddie then in the same breath say you are buying bargains, I can only assume? What are the 'forward looking economics' that suggest this is the bottom, or at least the time time to start accumulating? My forward looking data suggests that there is still a lot of negative data that has not been marked to market, as in company reporting, and even more behind the scenes money shuffling to prop up FAILING financial institutions.

Make no mistake, there will be some name-brand failures in the next 12 months, some so called "too big to fail".

I agree that there are a lot of 'vapors' chasing the next hot sector, but in the END it will END in tears.

It's now the battle of the depreciating fiat currencies - there is only one currency that will survive?

The sooner the world ditches the $USD the better the world will be.

RENOWNED US investor Jim Rogers says the US dollar is no longer the world's reserve currency, and says America's financial situation will get worse regardless of who wins the upcoming presidential election.
But Mr Rogers struggled to nominate a currency that could replace the US dollar, saying the euro, often named as a potential successor, was a "political" currency that would not exist in 20 years.
Mr Rogers, in Australia for the Investment and Financial Services Association conference in Gold Coast, criticised the "currency debasement" strategies of Federal Reserve chairman Ben Bernanke.

http://business.theage.com.au/business/us-in-trouble-investor-20080806-3r71.html

 

[Sean K]

Just presenting other views.

:couch

07/08/2008

1200 [Dow Jones] Australian jobs data appear "a little bit out of whack", given broader softening trend in employment, says Commonwealth Bank of Australia senior economist John Peters; adds numbers reflect fact there's still steam in economy, which "far from falling off a cliff". Says while economy slowing according to RBA's settings, "this talk of recession is way overdone by some in the media".(SRH)

1221 [Dow Jones] Very recent bearish streak on Australian economy has likely gone too far, Citigroup Director of Economic Research Stephen Halmarick says. Notes while decline in New South Wales jobs is big, strength in Queensland, West Australian labor markets highlights persistent strength in resource rich part of Australian economy. "Maybe the RBA's patience on all this is probably the right strategy." Takes edge off calls for 50bp RBA cut in September. "I suspect some of the extreme bearishness about the Australian economy that has developed over the last week or two may have gone a little bit too far." But adds stronger-than-expected Australian jobs data need to be taken with "grain of salt", given reduction to sampling size of survey.(SRH)

1223 [Dow Jones] Australian June jobs data show labor market "easing glacially" but likely to incur significant weakness through 2H, says UBS Chief Economist Scott Haslem. Yet data still shows economy reasonably resilient with export income likely to provide some cushion; coupled with rising inflation, means RBA easing cycle will be cautious.(EGC)

 

[Whiskers]

Another classic Whiskers...

So, my commentry is going to survive time in memorial???

My forward looking data suggests...

Nah, the data don't exist yet. Forward projections... based on the inevetable collapse of the POO and the flow of funds and realignment of the major currencies around a stronger USD.

It will change the yard-sticks and goal posts somewhat again for awhile... such as reducing the cost of imports to the US, tempering inflation a bit and boosting consumer confidence.

Keep a bit of space for me behind that couch, kennas... I might need it soon.

 

[dhukka]

Another classic Whiskers - is your glass half full still - is there really a glass at all??

It's interesting that you mention Freddie then in the same breath say you are buying bargains, I can only assume? What are the 'forward looking economics' that suggest this is the bottom, or at least the time time to start accumulating? My forward looking data suggests that there is still a lot of negative data that has not been marked to market, as in company reporting, and even more behind the scenes money shuffling to prop up FAILING financial institutions.

Make no mistake, there will be some name-brand failures in the next 12 months, some so called "too big to fail".

I agree that there are a lot of 'vapors' chasing the next hot sector, but in the END it will END in tears.

It's now the battle of the depreciating fiat currencies - there is only one currency that will survive?

The sooner the world ditches the $USD the better the world will be.

http://business.theage.com.au/business/us-in-trouble-investor-20080806-3r71.html

How about the most current indicator of the health of the US economy - the weekly jobless claims number? In the latest week initial jobless claims came in at 455k, the highest level since March 2002. The 4 week moving average is now at 419.5k, the highest since July 2003. But since that survey was for last week that;s in the past.

Oh yeah there was also AIG losing more than $5billion last quarter but that's all in the past. Also in the past Walmart and Target both missed sales growth estimates in July. But Walmart did offer some 'forward loooking' economic data warning that August Sales were coming in softer than expected. But don't worry August will soon be in the past along with the current US recession.

 

[Sean K]

How about the most current indicator of the health of the US economy - the weekly jobless claims number? In the latest week initial jobless claims came in at 455k, the highest level since March 2002. The 4 week moving average is now at 419.5k, the highest since July 2003. But since that survey was for last week that;s in the past.

Oh yeah there was also AIG losing more than $5billion last quarter but that's all in the past. Also in the past Walmart and Target both missed sales growth estimates in July. But Walmart did offer some 'forward loooking' economic data warning that August Sales were coming in softer than expected. But don't worry August will soon be in the past along with the current US recession.

How does this compare with share market performance?

Can you overlay a DJI/S&P chart on that?

And, probably more relevant is an Australian jobs data v sharemarket performance.

My premise is that at some point in this chart there is a time to buy equities.

 

[explod]

How does this compare with share market performance?

Can you overlay a DJI/S&P chart on that?

And, probably more relevant is an Australian jobs data v sharemarket performance.

My premise is that at some point in this chart there is a time to buy equities.

The market is about what everyone believes or thinks is value. This is derived by very different means and perceptions. All comes down to sentiment.

The United States has been the world economic engine since at least the 2nd World War ending. As long as I have been alive.

If the Dow Jones jumps, everything jumps. I repeat SENTIMENT

It cannot be quantified by overlays or even common sense Kennas. It is a subjective world of individual judgements, no more no less.

I THINK for example that gold has bottommed for the moment (it may not have) I THINK that LGL has been oversold, so today I brought back in, and I THINK it could be a good trade for about 6 months. But it is just my perception of the sentiment made up from the fundamentals and the charts.

 

[Uncle Festivus]

My premise is that at some point in this chart there is a time to buy equities.

I guess that would be the premise in a 'normal' cyclical market as we have become accustomed? But for some reason the emphasise now is on return of capital, not return on capital, and some have gotten burned trying to pick the last bottom, which was proclaimed loudly by the money shufflers to be the end of the credit 'crisis' - a tad premature. Ditto for this little episode?

I don't think we have had a capitulation drop off yet, the DOW is still not 'fair' value on PE ratio's even after all this - it's only 2.5k off it's highs - an investment short, plenty to make on the downside yet?

 

[CanOz]

I guess that would be the premise in a 'normal' cyclical market as we have become accustomed? But for some reason the emphasise now is on return of capital, not return on capital, and some have gotten burned trying to pick the last bottom, which was proclaimed loudly by the money shufflers to be the end of the credit 'crisis' - a tad premature. Ditto for this little episode?

I don't think we have had a capitulation drop off yet, the DOW is still not 'fair' value on PE ratio's even after all this - it's only 2.5k off it's highs - an investment short, plenty to make on the downside yet?

Something too, to keep in mind is that one does not get too bearish...not that anyone is too bearish yet...but if you remember how the herd thinks when its a bull market, the "this bull is different" change of paradigm thing...although this one may be different, the phase where equities get accumulated should not be should it?

Cheers,



CanOz

 

[Uncle Festivus]

CanOz, this time might be different because the old formula of incessant issuing of vapor notes to keep the system primed for inflation isn't working, if it was they would be raising rates from the effective zero level it's at now, and all would be back to 'normal', cycle continues etc. Instead they are sh*tscared of deflation.

At the moment we have stagflation, next step recession (if not already?), then worst case a deflationary depression?

 

[CanOz]

CanOz, this time might be different because the old formula of incessant issuing of vapor notes to keep the system primed for inflation isn't working, if it was they would be raising rates from the effective zero level it's at now, and all would be back to 'normal', cycle continues etc. Instead they are sh*tscared of deflation.

At the moment we have stagflation, next step recession (if not already?), then worst case a deflationary depression?

LOL! Vapor notes....are you referring to treasury notes?

Well i couldn't agree with you more, but that may not stop an accumulation in equities at some stage.

By the way, have you seen IOUSA yet? Can't wait for it!

CanOz

 

[davo8]

I don't think we have had a capitulation drop off yet, the DOW is still not 'fair' value on PE ratio's even after all this - it's only 2.5k off it's highs - an investment short, plenty to make on the downside yet?

Correct. I think some people here are having difficulty recognising a [market] bottom, perhaps because they've never seen one before. David Merkel has a pretty good summary.

http://alephblog.com/2008/08/07/the-fundamentals-of-market-bottoms/

1) The Investor Base Becomes Fundamentally-Driven. Now, by fundamentally-driven, I don’t mean that you are just going to read lots of articles telling how cheap certain companies are. There will be a lot of articles telling you to stay away from all stocks because of the negative macroeconomic environment, and, they will be shrill.

2) Fundamental investors are quiet, and valuation-oriented. They start quietly buying shares when prices fall beneath their threshold levels, coming up to full positions at prices that they think are bargains for any environment.

3) But at the bottom, even long-term fundamental investors are questioning their sanity. Investors with short time horizons have long since left the scene, and investor with intermediate time horizons are selling. In one sense investors with short time horizons tend to predominate at tops, and investors with long time horizons dominate at bottoms.

4) The market pays a lot of attention to shorts, attributing to them powers far beyond the capital that they control.

5) Managers that ignored credit quality have gotten killed, or at least, their asset under management are much reduced.

6) At bottoms, you can take a lot of well financed companies private, and make a lot of money in the process, but no one will offer financing then. M&A volumes are small.

7) Long-term fundamental investors who have the freedom to go to cash begin deploying cash into equities, at least, those few that haven’t morphed into permabears.

8 ) Value managers tend to outperform growth managers at bottoms, though in today’s context, where financials are doing so badly, I would expect growth managers to do better than value managers.

9) On CNBC, and other media outlets, you tend to hear from the “adults” more often. By adults, I mean those who say “You should have seen this coming. Our nation has been irresponsible, yada, yada, yada.” When you get used to seeing the faces of David Tice and James Grant, we are likely near a bottom. The “chrome dome count” shows more older investors on the tube is another sign of a bottom.

10) Defined benefit plans are net buyers of stock, as they rebalance to their target weights for equities.

11) Value investors find no lack of promising ideas, only a lack of capital.

12) Well-capitalized investors that rarely borrow, do so to take advantage of bargains. They also buy sectors that rarely attractive to them, but figure that if they buy and hold for ten years, they will end up with something better.

13) Neophyte investors leave the game, alleging the the stock market is rigged, and put their money in something that they understand that is presently hot ”” e.g. money market funds, collectibles, gold, real estate ”” they chase the next trend in search of easy money.

14) Short interest reaches high levels; interest in hedged strategies reaches manic levels.

If you go through that checklist, you'll find a couple but you'd have to agree that (repeat after me): this is not the bottom.

 

[Whiskers]

Correct. I think some people here are having difficulty recognising a [market] bottom, perhaps because they've never seen one before. David Merkel has a pretty good summary.

http://alephblog.com/2008/08/07/the-fundamentals-of-market-bottoms/



If you go through that checklist, you'll find a couple but you'd have to agree that (repeat after me): this is not the bottom.

Hi davo8. I'm looking to stock up on Xmas cheer. I've got one carton com'n when oil stays below 100 for more than a week. I'll wager ya another one this is the bottom.

Have ya done any maths on how company balance sheets and profits alone, (without considering the overall US economy) will dramatically change as oil goes under 100 again, the USD gains 5 to 10% on many other currencies and will probably start raising interest rates again before most others or as others are lowering?

After all it was the demise of the USD and rampant oil that compounded the subprime/credit crunch problem.

 

[explod]

After all it was the demise of the USD and rampant oil that compounded the subprime/credit crunch problem.

The subprime was a problem long before the rise in oil and the US dollar has been in a down trend since 02.

Oil was under $US60 2 years ago. They are very bad and seperate problems

 

[bean]

This is not a bottom but a bear market rally in the US markets
DJIA could get to 12000 in next week or so before continuing back down.
As for oil it topped on july 15th 2006 Had a large correction 35%
before it started back up
Topped 15th july 2008 and we've only had a 20% correction


As for other commodities some are in demand/short supply.
Fundamentals will eventually control the price not panic selling

 

[explod]

This bit from Jim Sinclair's site took my fancy as it is easy to forget the real numbers sometimes:-

Posted On: Thursday, August 07, 2008, 9:12:00 PM EST

Sleep Well Dollar Holders

Author: Jim Sinclair

Sleep well all you dollar holders in the belief that public funds will solve everything. The next time you hear a politician use the word "billion" in a casual manner think about whether you want them spending YOUR tax money. A billion is a difficult number to comprehend but one advertising agency did a good job of putting that figure into perspective. Here it is:

A.

A billion seconds ago it was 1959.

B.

A billion minutes ago Jesus was alive.

C.

A billion hours ago our ancestors were living in the Stone Age.

D.

A billion days ago no-one walked on the earth on two feet.

E.

A billion dollars ago was only 8 hours and 20 minutes at the rate our government is spending it.

Now think about the size of the notional value of the mountain of all derivative of which 95% are OTC Derivatives: One Quadrillion, one thousand one hundred and forty four trillion.(Source: The Bank for International settlements).

Many people out there are resting assured that all financial problems have been solved by the use of public funds to sustain those that created these problems in the first place. If you can sleep soundly with such a brew boiling while believing there are no CONSEQUENCES, you are taking some heavy duty sleep medication. Public money will not solve all problems and if there isn't enough we will simply print more. That's a recipe for disaster.

 

[Macquack]

This bit from Jim Sinclair's site took my fancy as it is easy to forget the real numbers sometimes:-

Good stuff, Expod. Puts the number 1 Billion into perspective.

These days, if a company doesn't make a billion dollar profit or loss, nobody takes any notice.

May be its time to invest in wheel barrow manufacturing!

BTW Explod, what happened to your avatar
Also not sure about the mathematics, I make 1 Bill seconds ago to be 1976.

 

[GreatPig]

I make 1 Bill seconds ago to be 1976.

Yeah. If 1 billion seconds ago was 1959, then Jesus lived about 3000 years ago...

GP

 

[davo8]

Hi davo8. I'm looking to stock up on Xmas cheer. I've got one carton com'n when oil stays below 100 for more than a week. I'll wager ya another one this is the bottom.

I wouldn't take the first one either way. My take is that a world recession will drive commodity prices down for a while, and oil could be anywhere from 90-110 or so. Until it starts going up again, which it most certainly will.

Equities have some way to go yet. I've already listed the things that haven't happened yet, and that's without even thinking about the odd black swan.

Have ya done any maths on how company balance sheets and profits alone, (without considering the overall US economy) will dramatically change as oil goes under 100 again, the USD gains 5 to 10% on many other currencies and will probably start raising interest rates again before most others or as others are lowering?

After all it was the demise of the USD and rampant oil that compounded the subprime/credit crunch problem.

I'm not making a call on the USD yet. Profit reporting will be bad. The Fed is not going to raise interest rates any time soon. The credit crunch is far from over, and the next really bad period should be Sep/Oct (but around Aug 25th should be interesting).