Pessimest!!!!!!! Have faith.
Imminent and severe market correction
- Thread starter Uncle Festivus
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Pessimest!!!!!!! Have faith.
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I'm not a Pessimist, I'm a Realist!!!!
Sean K
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There is a chance of a crash, but a probability of a correction, IMO.
Subprime is going to be contained to the poor bible bashers in backwater USA.
Transfer to the market that really matters will not occur.
The world economy is generally pumping.
Interest rates low, employment high, company profits keep increasing.
BRIC will prop up the world over the next 10-20 years.
We need a decent correction of 10% to keep the markets healthy.
On the other hand, the $US bursting into confetti could be ordinary....buy gold when it settles.
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Maybe your an optimistic pessimist
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Although, would I be correct to say that it is the top end of town who lend the most money? In that case, if the poor don't do well and can't repay their mortgage, everyone else suffers as well?
I'm the realist. Here is why there will only be a short term correction . ( For me at least.)
Chinese and Indian people will want to keep inproving their standard of lining and so my interest in AOE, MGX, SMY, AGM. LYC, FNT, will continue to grow.
The climate change problems, along with a looming oil crisis will help my interest in AOE, AUT, TAS, EDE, VPEO & ESI increase in value regardless of the US housing and mortgage busts.
A few of my speccies may suffer but if they come good it will be because they have great discoveries. e.g. NWR, LAF& PRE
OIL, one of the stocks to rise today, will be in demand more in tough times than good.
I,m not only a realist but an an optimist and I also have confidence ( and 75 years experience)
Sean K
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Yep, you may be right. Might be all by degrees eventually. If company profits keep going up (see reporting season) then the top end of town may be able to pay their bills, less a few who dabbled in the more speculative and inventive financial services products. Bill Gates can pay out the sub prime bill at the moment.....at least!
Really? Even though it has spread to Alt-A and prime mortgages
...and which one would that be?
Employment has peaked, company profits are still increasing but an ever diminishing rate (6% in the latest quarter in the US) The US earnings cycle has almost run it's course, expect earnings growth to flat-line next year.
The US economy accounts for 31% of world GDP. Japan about 14%, the BRIC economies currently contribute 10% of world output. If the US consumer decides to take a vacation the BRIC economies won't be able to prop up the rest of the world.
Sean K
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You've got me Dhukka. As I said, I'm no economist, so thanks for your thoughts. Some points however..
Has it? I haven't got any figures but would be interested to see the % of total mortgages that have being affected. From my reading and recollection of TV interviews and reports it's a blip. I defer to your facts if you have them.
I am not saying that the US is NOT going to go through a slow down, but that doesn't translate to crash, or even SEVERE correction. 10% would be healthy. What is severe anyway? 15%, 20%. A crash might be 20% or more.
As far as Australia goes, we're just responding to the US out of sentiment at the moment, there's nothing really fundamental yet in the effect of a US slow down on us, although, sure, by the time we're feeling the pinch, it'll be too late to act. I do nate that two hedge funds in two weeks -- first Basis Capital then Absolute Capital -- have frozen redemptions from their funds citing an illiquid market, but two funds out of how many?
From a finance company research note I received today:
It's sentiment, and the butterfly wings, that cause a crash, and even severe corrections, and this may just be just another blip in the secular bull for the Australian market.
Having said that, that damn butterfly will get us tomorrow.
Dhukka said:
Has it? I haven't got any figures but would be interested to see the % of total mortgages that have being affected. From my reading and recollection of TV interviews and reports it's a blip. I defer to your facts if you have them.
This would be the US middle and upper class who are the biggest consumers I guess. The ones getting sub prime loans are living on the bread line and can't afford second plasmas for the dunny so they matter less, but I'm not saying are are totally insignificant, just far less.
Has it peaked for the foreseable future? Could it remain at high levels for longer? What is the point where unemployment significantly effects the markets? If employment drops a bit and company earnings ebb, does this create a crash? Earnings growing at 6% or thereabouts isn't even a recession, is it? Didn't GDP growth jump 3.4% last quarter in the US. Hardly the platform for a recession is it? Core inflation did drop sharply I note, but depends on which economist you are as to what's really important, I don't know.
Yes, but the paradigm is shifting. China has just taken over from Germany as the second biggest economy and growing at an incredible rate. Japan is comming out of a 10 year recession and set to grow. Is the US consumer en masse, going to all go on holiday at the same time? A proportion of the 31% might, but how much would created a global crash?
I am not saying that the US is NOT going to go through a slow down, but that doesn't translate to crash, or even SEVERE correction. 10% would be healthy. What is severe anyway? 15%, 20%. A crash might be 20% or more.
As far as Australia goes, we're just responding to the US out of sentiment at the moment, there's nothing really fundamental yet in the effect of a US slow down on us, although, sure, by the time we're feeling the pinch, it'll be too late to act. I do nate that two hedge funds in two weeks -- first Basis Capital then Absolute Capital -- have frozen redemptions from their funds citing an illiquid market, but two funds out of how many?
From a finance company research note I received today:
It's sentiment, and the butterfly wings, that cause a crash, and even severe corrections, and this may just be just another blip in the secular bull for the Australian market.
Having said that, that damn butterfly will get us tomorrow.
The percentage of total mortgages affected in each category I don't have. I have some anecdotal evidence such as:
Alliance Bancorp - a residential mortgage lender specializing in Alt-A mortgages based in California filed for bankruptcy.
Last week Citigroup Inc. reported defaults on some Alt A mortgages packaged into bonds last year are now outpacing those from subprime loans.
Check out all the ABX indexes on markit.com Every class has been hit.
Alt-A's are defaulting, these mortgages require some proof of income as opposed to sub-prime. Not your second plasma TV in the dunny crowd but not bread-line either.
I'd say employment has already peaked and is affecting the economy. Here is an article that explains the US employment picture rather succinctly.
The point about earnings in this:
The current US earnings cycle is one of the longest on record. If we count a profit cycle from the point that year-over-year earnings growth turns positive to when it first turns negative, this is the third-longest cycle since 1950. The longest cycle took place during the mid to late 90's, lasting 5 ½ years. A cycle of 4 ¾years ended in 1981. The current cycle is just 3 months shy of that record.
But that also makes the current cycle more than twice as long as the average cycle of just over 2 years. Source
Yes GDP did turn in a solid number. Whilst not terrible read here as to why I believe it wasn't as strong as the headline number suggests
I'd be interested to see your figures on that. I have Japan as still the second largest economy.
Agreed , not everyone is going to take a break at the same time. If there is one thing we know about the American consumer it is that they are a resilient bunch. We do know from the last few months of retail sales data that they are feeling the pinch of higher gas and food prices.
More importantly they have been spending beyond their means since 1999 thanks to asset appreciation. Now that the MEW ATM has been shut off they are turning to credit cards. For how long can that continue? Anyone's guess.
No it doesn't necessarily translate into a crash. I'd say severe is whatever you think it is.
See the article above from Hoisington Investment Management. "U.S. domestic demand leads the domestic demand in the large foreign economies by six to nine months"
The real question which was posed by Kim Ivey, chairman of the Australian Alternative Investment Management Association, which represents 80 of the nation's hedge fund managers. Commenting on the exposure of local hedge funds to the subprime market he said:
"I expect that it will be contained to just a handful.'' "More of a concern is what will happen once the fallout moves from the subprime sector to more senior debt, when many more managers have exposure.''
As we know form the articles above the fallout is spreading.
I'm actually more bullish than the article you cited on the Australian economy. I expect FY07 earnings growth of at least 15% but more likely around 18%.
Do you think the US earnings cycle is now dead? That earnings can keep rising indefinitely?
Every-time the US economy slows so does ours and so do all other major economies, do you think this time will be different?
If you answer yes to to both these questions or even one of them you belong in the "this time is different" crowd and as we now from history that crowd is often if not always wrong.
Sean K
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Thanks for the time you've put into this dhukka, much appreciated.
Yes, typo, I meant China taking over Germany as third.
I have a feeling there will be a gap between the US sliding, and BRIC taking over at the same time as Japan recovering. Hopefully, Japan picks up and then BRIC to make a relatively painless transition. Perhaps I'm just overestimating the American consumer and the reliance of the world on the US $$ still.
Cheers.
Yes, typo, I meant China taking over Germany as third.
Yes, is a big risk. This is just for a proportion of people though. Probably those purchasing in the past 10 years. Perhaps the majority of Yanks still have lot of equity in their property.
My answer is probably to one and maybe for two. It depends how the rest of the world picks up the slack over the next 2-5 years.
I have a feeling there will be a gap between the US sliding, and BRIC taking over at the same time as Japan recovering. Hopefully, Japan picks up and then BRIC to make a relatively painless transition. Perhaps I'm just overestimating the American consumer and the reliance of the world on the US $$ still.
Cheers.
To both of you you have provided some very well researched and poignant arguments. Congratulations!
I would like to add my very humble 2c worth in saying that:
Neither of you really mentioned CHina and it's impact on the global economy. I think this is severely underrated! I'm not taking a stance either way. All I'm trying to point out is that maybe the US economy and its cycles are/will be overshadowed by the Chinese Dragon Economy. Thus business cycles may be being redefined.
Have we ever seen the world do so well as we have in the last 5 years? Thats a genuine question?
Maybe the game is changing/has changed.
Cheers guys and once again good work to both of you!
W
I would like to add my very humble 2c worth in saying that:
Neither of you really mentioned CHina and it's impact on the global economy. I think this is severely underrated! I'm not taking a stance either way. All I'm trying to point out is that maybe the US economy and its cycles are/will be overshadowed by the Chinese Dragon Economy.
Thus business cycles may be being redefined. Have we ever seen the world do so well as we have in the last 5 years? Thats a genuine question?
Maybe the game is changing/has changed.
Cheers guys and once again good work to both of you!
W
To both of you you have provided some very well researched and poignant arguments. Congratulations!
I would like to add my very humble 2c worth in saying that:
Neither of you really mentioned CHina and it's impact on the global economy. I think this is severely underrated! I'm not taking a stance either way. All I'm trying to point out is that maybe the US economy and its cycles are/will be overshadowed by the Chinese Dragon Economy.
Have we ever seen the world do so well as we have in the last 5 years? Thats a genuine question?
Maybe the game is changing/has changed.
Cheers guys and once again good work to both of you!
W
On the contrary I think it is one of kennas' main points - that is that the baton of world growth is being passed to China. I also linked an article in my original post which mentions the impact of China.
No doubt China is becoming a major economic force but I think it's effect on global growth is overestimated. The US economy is still 5 times the size of China.
The US economy accounts for 30% of world GDP. The US consumer is responsible for 2/3 of the US economy. 2/3 of 30% is 20%. Thus 20% of world GDP is driven by the US consumer. China currently contributes just less than 6% of world GDP.
In addition, one of the main sources of Chinese growth is their huge trade surplus - most of which is with the US. This has been a major driver of Chinese growth. A downturn in US consumption will be felt in China and the rest of the world.
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In the short term I'm not convinced China or BRIC can 'take up the slack', partly because their financial systems are not up to world standards yet, partly because their manufacturing base is a sham and mostly because of the incestuous relationship it has with the US. It's basically just a massive US dollar recycling machine. If the US consumer pikes it, China takes a big hit, then dominoes down the line.
Hi U.C. - some salient points there, but from just watching the news I have come to realise that there is growing demand from China itself for all it produces. These people want to join the western world and own all the goodies of modern civilisation - so I suspect very soon China's export market will turn around to satisfy home demand. They've also got a very educated elite in power across the board whose reading material no longer includes the little red book by Mao, but who have engineering, economics and management degrees.
I would not be surprised to find that very soon the economic engine of China will begin to supply its own people, quite apart from the fact that Chinese goods are available everywhere, not just in the U.S.
Cheers
Taurisk
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I think the above two posts have looked at it one direction only. Indeed it's an interative process with US sourcing its basic products manufacturing from China and the latter also demands goods from the US. Nobody will doubt the influence that the development of China has brought to the world. Look at the growth of BHP for one snapshot.
As Young_Trader puts it, domestic developments in BRIC desire resources, although the export to the US might decrease to some extend, the internal demand will keep going on and on rising (short, medium and long term), not without slight retracing though. It takes time for the rippling effects of the downturn in the US move onto these countries.
In analysing the impacts of this correction onto the workd stockmarket some people have failed to realise the era when US or EU single handedly manipulate the world stock market is gradually fading. It doesn't need much indepth research into complicated finance or economy. The proof is that when people make decision in buying/selling, although they take into account of the world economy (but on earth who has a transparent understanding of it? or who can predict?)they often focus more on evaluating the fundamentals (resource and demand) of this particular company. The micro-level behaviour will eventually accumulate to form a macro trend.
excuse the english - not my mother tongue
As Young_Trader puts it, domestic developments in BRIC desire resources, although the export to the US might decrease to some extend, the internal demand will keep going on and on rising (short, medium and long term), not without slight retracing though. It takes time for the rippling effects of the downturn in the US move onto these countries.
In analysing the impacts of this correction onto the workd stockmarket some people have failed to realise the era when US or EU single handedly manipulate the world stock market is gradually fading. It doesn't need much indepth research into complicated finance or economy. The proof is that when people make decision in buying/selling, although they take into account of the world economy (but on earth who has a transparent understanding of it? or who can predict?)they often focus more on evaluating the fundamentals (resource and demand) of this particular company. The micro-level behaviour will eventually accumulate to form a macro trend.
excuse the english - not my mother tongue
Wysiwyg
Everyone wants money
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I suppose the American ego won`t be too happy when China becomes a dominant world power.
Two very different social structures and we know those yanks love to fight.
Two very different social structures and we know those yanks love to fight.
Why should we expect a market correction? There is a severe problem for the lenders of low doc loans and the like. The mortgage funds are in trouble. That should be a good thing for the stock market as money taken out of the troubled sector has to find a home somewhere.
Therehas been a lot of discussion lately on these forums regarding property vs shares. If money leaves one it usually goes to the other.
Long live the bulls.
Therehas been a lot of discussion lately on these forums regarding property vs shares. If money leaves one it usually goes to the other.
Long live the bulls.
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Definitely, I do agree even if looking at monetary market. I believe the bull market for resources will be going on for at least another 10 years.
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This is part of a text from the man who called this correction, which may or may not have further to 'correct'.
Pimco's Bill Gross
Some wonder what squelched the hunger of potential lenders so abruptly, while in the same breath suggesting that the subprime crisis is "isolated" and not contagious to other markets or even the overall economy. Not so, and the sudden liquidity crisis in the high yield debt market is just the latest sign that there is a connection, a chain that links all markets and ultimately their prices and yields to the fate of the U.S. economy.
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+August+2007.htm
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