Imminent and severe market correction

[communique]

Hi uncle, I hear what you say!!!

Most people only learn from experience and until it happens to them it won’t sink in.

It is clear that as you show there will be a correction of magnitude. However, when do you believe it will occur? What will be the trigger. Will it be when interest rates start climbing in the US?

 

[Edwood]

No just double happy to visit again and read the calls of doom from the bears and the cultists.

So are we calling an imminent and severe in 2010 guys? Or is this not the right thread, being a collection of what could go wrong articles and best sellers without necessarily putting money where mouth is?

we'll see another push higher in 2010 before the plug is pulled. It'll be worse than most expect. Be sure to load up on longs on the way down Dongle

 

[Uncle Festivus]

Hi uncle, I hear what you say!!!

Most people only learn from experience and until it happens to them it won’t sink in.

It is clear that as you show there will be a correction of magnitude. However, when do you believe it will occur? What will be the trigger. Will it be when interest rates start climbing in the US?

They will start rising when China, and others, is unable or willing to continue filling the leaking Treasury bucket with purchases of debt $USD's I-owe-you-nothings? I think Bernanke & Geithner have essentially lost control of the interest rate lever in this climate and only manage to keep market forces from taking them higher through continued debt issuance to China etc

Here is an interesting read on the whole global dynamics of how it is all connected, and how it will come apart?

http://www.businessday.com.au/business/the-china-syndrome-and-the-crisis-20091227-lg83.html

 

[wayneL]

(I know you are only flaming here so I will take up your troll, coz you can't be that naive can you - can you????)

Would you like to back your comments up with some facts, which you are continually short of? If you had even the slightest comprehension of economics you would see that there is a huge disparity between what the stock markets are doing and what the underlying economies are doing - the disparity of which is occasionally presented here - and does not, in my case anyway, have anything to do with how I trade. Investing is a different matter though (buy & hold is dead??)

Presenting factual data for discussion has been the point of this thread, and all threads generally, but the majority of your posts are based on your Lemming-like follow-the-herd opinion and rhetoric only. It does however show everyone your psychology for trading/investing, so when the next round begins you will be severely disappointed.

Now, back to some facts. Here is the problem for the USA - increasing debt (previous post) but decreasing income with which to pay it off. Combine that with the fact that a lot of the (manufacturing) jobs lost in this depression will not return, having been exported to China & India, and you have a continuing quantitative easing program by the US Fed & Treasury in order to 'create' more dollars with which to pay for it all, meaning a dilution of existing dollars ei lower living standards and lower consumption. Lower consumption of goods made in China - who's economic management is probably the biggest Government sponsored Ponzi scheme ever seen?

PS if you think Australia is going to ride off into the sunset on the back of China, how about you have a look at the LME metal data every now and then and tell me if there is a shortage of commodities ie the coming glut?

Oh, the FTSE is severely overbought too, considering the basket case they are, even worse than the USA as they can't print their way out of this mess.

What do you think of this chart? Some tin foil hat wearing rantings of the loonatic fringe dwellers who occasionally get the call right? Please enlighten us all with some analysis rather than the usual Pollyanna only-look-at-the-good-news ignorance!

Some people know that I am a VW enthusiast. At many VW events they take a type 4 engine (out of a later model bay window combi for eg), put it on a stand and run it hard, without oil, to see how long before it blows up.

It ALWAYS blows up eventually.
But it ALWAYS runs much longer than anyone expects.

So it is with our pseudo-Keynesian (but actually mongrelized Laissez Faire/Monetarist/Keynesian) economies.

They WILL blow up eventually.
But they WILL run longer than expected.

I think the trick is to drink beer and whoop it up while the type 4 is running at full revs... have a laugh and enjoy the fun while it lasts.

But know when to hide when molten fragments of metal threaten to ventilate several vital organs. There is an art to this and it is better to err on the side of caution than end up in casualty with an exhaust valve embedded in your @ss.

Professionals hedge - Amateurs hope (and ridicule the hedgers).

Conclusion - Be a cowardly bull IMO.

 

[nunthewiser]

Nicely put and well explained ...

avaniceday wayne

 

[Timmy]

Professionals hedge - Amateurs hope (and ridicule the hedgers).

I would suggest a refinement, in that professionals make an effort to know when to hedge. It is expensive to be hedged when a market is tearing along (in either direction).

 

[wayneL]

I would suggest a refinement, in that professionals make an effort to know when to hedge. It is expensive to be hedged when a market is tearing along (in either direction).

A very fine refinement indeed.

As a further refinement for option traders, professionals know what to hedge... sometimes.

 

[condog]

Always hedge with some gold / silver or at least some gold / silver miners...

Physical gold is expensive but if you have enough wealth worth preserving its essential to hold some...

Uncle nice graph, but dont ever forget about the time lag effect with tax reciepts and employment.....the dip in that graph is not alarming or belated its normal...of concern will be if its still heading south in 6-12 months with no signs of stabilizing.

I too very much believe some currencies are stuffed, but that does not necesarilys mean the end of the world...there have been, I think its 13 US fiat currency crashes in the past, with the most recent in 1971.....

The US would probably actually like a currency crash to sort this mess out.... bang. Make all private holdings of gold illegal, and issue a new currency. repay debts in the new currency and bang uncle sams back in business........

Its not quiet that simple, cause the little credibility the yanks have left would be squandered and the nutbags around the rest of the world would go into party mode, driving tanks into foreign countries...... but hey they will easily pull through a currency collapse....theyve certainly done it in the past no problems...its the suckers who are dependent on the US or Uro that will be in trouble.

Maybee its Obama's strange way of appreciating the Chinese currency. smash your own with a printing press.

This is over simplistic and inaccurate, tongue in cheek.....but enjoy

 

[Timmy]

Maybee its Obama's strange way of appreciating the Chinese currency. smash your own with a printing press.

The Chinese currency is pegged to the USD, so if the USD gets smashed against other currencies so does the Yuan. Next conspiracy, please

 

[lukeaye]

After a couple of weeks lukeaye, reckon it's a draw, depending on what anyone bought on 27th Nov - Dubai sure freaked a few people out though. Here we are nearly Christmas and no closer to a severe correction. My ASX 5000 prediction during Aug/Oct won't come true, though will be happy if we get around 4750 and Dr Smith at 4000 still has a chance to grab a draw as well.

I'm very bullish for 2010 especially with the miners that have been drifting and in many cases reaching into my pocket for SSPs. Wonder whether the instos decided to just stop buying on market and simply snap up the bargains on the capital raisings, e.g. FMS, PRU, ESG, KGL, ORD, JPR. All have great prospects in the New Year and suspect the resources and energy sector will reignite after the past few months breather, the one we had to have to keep the bears away.

Yes i did it get it wrong. But thats ok, i get it wrong alot.

I did however buy many longs about 1 and a half weeks ago. I bought RIO, STO, CTX, AQP, MPO, SGT and am making fantastic money.

Just because i have a feeling or think something is going to happen, doesnt nessacarily mean i will act on it. For example. If i think the markets are going to roll over, and i have a host of longs, i wont exit the trades. I stick to my plan and if my exits are triggered then i will exit.

I learnt that mistake making my trading diary thread a while back. And its worked up til now, and still working

 

[Donga]

(I know you are only flaming here so I will take up your troll, coz you can't be that naive can you - can you????)

Would you like to back your comments up with some facts, which you are continually short of? If you had even the slightest comprehension of economics you would see that there is a huge disparity between what the stock markets are doing and what the underlying economies are doing - the disparity of which is occasionally presented here - and does not, in my case anyway, have anything to do with how I trade. Investing is a different matter though (buy & hold is dead??)

Presenting factual data for discussion has been the point of this thread, and all threads generally, but the majority of your posts are based on your Lemming-like follow-the-herd opinion and rhetoric only. It does however show everyone your psychology for trading/investing, so when the next round begins you will be severely disappointed.

Now, back to some facts. Here is the problem for the USA - increasing debt (previous post) but decreasing income with which to pay it off. Combine that with the fact that a lot of the (manufacturing) jobs lost in this depression will not return, having been exported to China & India, and you have a continuing quantitative easing program by the US Fed & Treasury in order to 'create' more dollars with which to pay for it all, meaning a dilution of existing dollars ei lower living standards and lower consumption. Lower consumption of goods made in China - who's economic management is probably the biggest Government sponsored Ponzi scheme ever seen?

PS if you think Australia is going to ride off into the sunset on the back of China, how about you have a look at the LME metal data every now and then and tell me if there is a shortage of commodities ie the coming glut?

Oh, the FTSE is severely overbought too, considering the basket case they are, even worse than the USA as they can't print their way out of this mess.

What do you think of this chart? Some tin foil hat wearing rantings of the loonatic fringe dwellers who occasionally get the call right? Please enlighten us all with some analysis rather than the usual Pollyanna only-look-at-the-good-news ignorance!

Ouch - hit a few nerves Learn't much of this stuff at college and a stint at Harvard so pls spare me Economics 101. The chart shows declines in income and tax receipts though don't need a chart to understand that, especially one where the axis is out of scale and exaggerates accordingly. Uncle - the US went into a deep recession, a pretty bad one, some could say it hasn't come out yet. Lot's of unemployed people, really bad crime. I try to avoid the place after living there a few years in the 90's. Could have told you then it's halycon days were coming to an end.

Also lived in Africa, Canada and Asia a couple of times. Have worked in a number of reasonably senior roles in Finance and General Management so been around a while, learnt a bit and won't be working much longer. Though will be one or two years longer if I get spooked about that VW running without any oil

If the good people in here want to swap spooky stories that's fine. Just don't want the youngsters to have any nightmares and take their "play" money out of the Australian mining industry which probably leads the world today in terms of skills, access to capital, offshore experiences and opportunities.

The end will come for the US just as it did for Great Britain and there will be another major economic crisis. Now if you wish to discuss what may happen around the world in the next ten years that will have a part in that crisis and explore the events and timing that could be interesting. Better than the articles and books which tend to portray events closer and more dramatically to compete for attention. And let's leave the graphs at school.

 

[Uncle Festivus]

The end will come for the US just as it did for Great Britain and there will be another major economic crisis. Now if you wish to discuss what may happen around the world in the next ten years that will have a part in that crisis and explore the events and timing that could be interesting. Better than the articles and books which tend to portray events closer and more dramatically to compete for attention. And let's leave the graphs at school.

Now we are talking, but why does your time frame go out to 10 years for the next big crisis? Any company with a problem with cash flow out being more than cash flow in doesn't last long, unless it get's funding from a sympathetic creditor? Extrapolate that several magnitudes to a national level and you have what's happening around the globe?

The recovery talk is presaged on the credit/debt cycle repeating itself as in the past ie boom/bust/boom. As in employment suddenly going back to pre-recession levels. Only this time some countries are so indebted they might be beyond the point of no return without some major intervention.

China has given the world the toxic gift of limitless cheap labour, and in so doing is & will slowly lower the living standards of the established 'developed' economies by exporting employment from these countries. So you get a polarising of wealth - the haves and have not's. Or, the people who shuffle money for a living and the people who work and create real things for a living? What do we manufacture anymore?

Graphs? Straight form the horses mouth those are - ALFRED. Find one that shouts out 'Recovery is imminent'

Recovery - return to an original state. Not there just yet - perhaps we could say, in the words of Man Of The Year Bernanke, that the recession is "contained"

 

[condog]

The Chinese currency is pegged to the USD, so if the USD gets smashed against other currencies so does the Yuan. Next conspiracy, please

Really...........I never new (not) LOL ...........Hence the word strange.....and the tongue in cheek .....

 

[Donga]

Now we are talking, but why does your time frame go out to 10 years for the next big crisis?

On my run thought about ten years and yes, it's probably too far out. Willing to consider three to five, however unsure of the extent.

Various initiatives may soften the blow, e.g. US & China form strategic & economic alliance, or Middle East debacle is sorted out leading to new economies as well as oil security while new energy sources are patented out of MIT and HUST (Huazhong University of Science and Technology).

Recall Prof George Lodge in 1995 telling the class how Japan would lead the world in the late 90's, into the new millenium and he was utterly convinced the US economy was heading for a major crisis before 2000. Even used those graphs . Within 2 years Japan crashed and the US like the movies lived to fight another day. At same time, bright economist Michael Porter advised us Russia was a basket case and would take generations to recover, maybe half right. Have some faith in good economists, little with those selling something.

Will poke my head in here every now and then to ensure you and your tribe aren't overly spooking the youngsters. May even consider starting a new thread along the lines of Fanciful Forecasts - events leading to the next economic crisis. But that may contradict one of my resolutions to reduce time on shares blogs

 

[Uncle Festivus]

Will poke my head in here every now and then to ensure you and your tribe aren't overly spooking the youngsters. May even consider starting a new thread along the lines of Fanciful Forecasts - events leading to the next economic crisis. But that may contradict one of my resolutions to reduce time on shares blogs

So it's looking like it's a timing thing then before :fan?? Your problem is that it might not be 'imminent'? The X axis keeps contracting though in these times?

I'd like to think that what is presented is an alternative to the vested interests cheering the market up. I think the 'enlightened age' is around 40'ish or so - the last real recession - so most of those youngsters have only ever known prosperity based on credit and living beyond their means ie 'everything always goes up' mentality.

2010 will be interesting for the Oz markets because it will be the first wave of baby boomers retiring - drawing down their super, putting pressure on funds who will have to redeem out of shares into cash? The weight of super money crutch just got taken away from the Oz bourse?

AUSTRALIA is on the crest of a demographic tsunami, with the first wave of 5.3 million baby boomers eligible for the age pension from next week.
The country's money box faces the double whammy of paying for older Australians who need extra care and for workers who are retiring in greater numbers than ever before.

http://www.news.com.au/couriermail/story/0,1,26530549-952,00.html

 

[haunting]

Recall Prof George Lodge in 1995 telling the class how Japan would lead the world in the late 90's, into the new millenium and he was utterly convinced the US economy was heading for a major crisis before 2000. Even used those graphs . Within 2 years Japan crashed and the US like the movies lived to fight another day.

In hindsight, Japan's biggest mistake was to adopt a free and open currency exchange regime which in effect had subjected her monetary policy and the whole economy open to foreign currency manipulation, allowing hot money to speculate without control, resulting in an overheated economy, with extreme bubble forming in the property sector amidst wild and runaway consumption; with an ultimate and unavoidable outcome, that is, Japan through her open currency exchange regime has effectively allowed the USA to "rebalance" its deficit economy through its control of US$, the defacto global reserve currency.

This time around, things are different, China has learned from Japan and she is doing what is necessary for her self preservation, by pegging her currency to the US$ and by doing so has effectively removed the "leverage" used by the USA in the past to "rebalance" her deficit economy through her export of the US$. Do you still reckon the USA will recover as in the past few instances if China as of today is still maintaining a fixed currency regime?

With the Chinese government emphasising there will not be drastic changes to their currency policy into the future, do you reckon the US recovery as it stands, financed totally through excessive debts, and with bulk of the debts paid for by the Chinese and not through their own internal means and funding (like increasing taxes), is still achievable without the US$ leverage and without the Chinese help?

Comparing Japan with China and quoting Japan's experience against what China is facing currently, and assuming a similar outcome, I reckon is a big mistake considering the vast differences in terms of financial capital, human, material, mineral and other natural resources. Like it or not, the USA is facing a similar "lost decade" the Japan was facing back in the 80's and chances are quite high that the "rebalance" they have got so used to as in the past few instances would not come about without they, the Americans themselves begin to spend the next two decades overhauling their economy inside out.

 

[grace]

I think the 'enlightened age' is around 40'ish or so - the last real recession - so most of those youngsters have only ever known prosperity based on credit and living beyond their means ie 'everything always goes up' mentality.

Yep, agree with this. My friends who are about 35 think everything goes up in a straight line. Please don't think I'm referring to those on this site, you are all here because you are interested in the markets. A lot of people are not.

My friends who are about 40 do remember. They are slightly more cautious. They remember having to wait 10 years for their first home to go up in value.

 

[lasty]

Japan under cut the west and wins. China undercuts Japan and wins.
It's that simple.

 

[Donga]

Comparing Japan with China and quoting Japan's experience against what China is facing currently, and assuming a similar outcome, I reckon is a big mistake considering the vast differences in terms of financial capital, human, material, mineral and other natural resources.

My reference to Japan in the 90's was to illustrate how a leading economics Professor who was so convincing with his data and got it so terribly wrong, not with any comparison with China in mind.

Uncle - not sure about timing nor severity as will depend on how effective US is in addressing their fundamental problems of debt, spending and income.

Their Administration would have taken some lessons from GFC which may soften the next crisis. US has incredible R&D capacity to partly compensate for their high labour rate and they are not afraid of legislating for changes to their system once they run the gauntlet of their lobbyists. No denying US has serious challenges with their existing debt as well as pension and medical obligations, I'm just not convinced the next crisis will be as severe as what they're going through now. By which time would expect our economy to be even less depedent on the US as it is now.

This is the rub - how enlightened will their government be in addressing their challenges? The outcomes from their current medical system overhaul may give us some clues.

 

[jonojpsg]

The US is essentially bankrupt - their obligations into the future (pension, health, debt) are far greater than their capacity to pay, at least at current projections of income and expenditure.

Sure they can try reining in spending, but then they'd have to stop going to war to do that, and they've just embarked on spending a lot more with the new health system, so can't see it happening.

Going to be a REALLY interesting decade IMO.

Oh and I'm only 37 so can only remember 90-91 recession here, although that was pretty ordinary from what I can recall. Tassie was a bit worse than the rest though, house prices went backwards/sideways for about 3-4 years in early mid 90s. Just spewing I didn't borrow to the hilt and buy a couple of streets worth at $50k a house!!