Imminent and severe market correction

Trembling Hand said:

Interesting that generally the bears think the troubles coming with another collapse?

When the banana republic of UK just recorded the biggest jump in inflation in 12 years.

Pile in friends asset inflation here we come? And as usual I reckon gold will lag real "assets".

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hi TH - yeah its all very well having the currency off 25% in the hope of lifting exports but unfortunately leads to increased import costs.
Not sure we're going to have another outright collapse, but the levels of complacency are high so can't rule it out.

See GS are bullish on UK to outperform all other majors next year. It can't be too hard after the year they've had. Fingers crossed its a rally in part due to the departure of Gordon Brown

Edwood said:

that'd be a shame the fun is about to begin again

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That chart demonstrates nothing to me. I would love to know how you could possibly use this as part of a trading plan?!

sammy84 said:

That chart demonstrates nothing to me. I would love to know how you could possibly use this as part of a trading plan?!

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You are kidding? If thats not the basis for a long term trading plan I'm a :bunny:

sammy84 said:

That chart demonstrates nothing to me. I would love to know how you could possibly use this as part of a trading plan?!

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Umm..it means the level of bulls sentiment verse bear today is just as high as it were back when the market crashed in the late 2007/early 2008.

Haven't you heard of the famous investment rule?

"When everybody agrees on one thing, the opposite tends to happen"

This contrarian thinking has been the dominate strategy used by some of the most famous and rich investors / entrepreneurs everywhere.

If you want to think like a sheep and agree what the "mainstream" thinks, then go ahead and play the market.

This is a good article on Contrarianism that I subscribe to.

http://www.travismorien.com/FAQ/portfolios/contrarianism.htm

Unfortunately, most people DO NOT have the right "psychological make up" to think like a contrarian. There are simply too much peer pressure and ego gets in the way.

Doomsday prophets like Gary Shiller, Nouriel Roubini, were heavily ridiculed by the mainstream media before the GFC occurred. They believed the housing market in the US would collapse and everybody else think it's impossible. Obviously, they were right at the end.

Of course, these aren't the only examples of how being a contrarian in the investment world may pay off big. It takes advantage of the inherent, irrational herding behavior of human beings. When too much people were on one side of the trade, the opposite tend to happen.

I've already said the US dollar would bounce back several weeks ago when practically almost everybody in the world believe the dollar is doomed. Indeed it has started to happen already and most people still don't understand why.

Of course, the same thing cannot apply to other things in life. i.e. if 9 out of 10 car mechanics say your car is not safe, then you probably shouldn't be driving it!

sammy84 said:

That chart demonstrates nothing to me. I would love to know how you could possibly use this as part of a trading plan?!

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Hi Sammy - like most technical strategies its a matter of finding repeating events that swing the probabilities in your favour. Bulkowski has a good book on chart patterns if you're not familiar with them.
Then its up to you as to how you fit soemthing into your plan

Cheers

>> edit: good post Temjin, sums it up nicely

Here is an article on Gary Shiller's latest predictions for 2010.

http://www.investorsinsight.com/blo...tegies-six-areas-to-buy-11-areas-to-sell.aspx

A summary

Buy

- Buy Treasury Bonds (on the basis of further deflation/deleveraging)
- Buy Income-Producing Securities (dividend plays win)
- Buy Consumer Staples and Foods.
- Buy Small Luxuries.
- Buy The Dollar. (as I have believed, further deflation/deleveraging, shock to market, bull/bear sentiment extreme, temp reverse of carry trade and more short covering would feed the trend)
- Buy Eurodollar Futures.

Sell or avoid

- Sell U.S. Stocks in General.
- Sell Homebuilder and Selected Related Stocks.
- Sell Selected Big-Ticket Consumer Discretionary Equities
- Sell Banks and Other Financial Institutions
- Sell Consumer Lenders' Stocks.
- Sell Many Low and Old Tech Capital Equipment Producers
- If You Plan to Sell Your House, Second Home or Investment Houses Any Time Soon, Do So Yesterday.
- Sell Junk Bonds.
- Sell Commercial Real Estate. (can try selling the index like buying SRS, already brought them a few weeks ago)
- Sell Most Commodities. (Mostly oil/energy/base metals. Surprisingly, this was also my believe as well. I only hold them for the run but never brought more. As for precious metals, he did not mention anything)
- Sell Developing Country Stocks and Bonds.

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Regardless, the article is an excellent read. Apparently, his record for 2009 was perfect.

Temjin said:

I've already said the US dollar would bounce back several weeks ago when practically almost everybody in the world believe the dollar is doomed.

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Kudos on that call Temjin - you had it spot on.

Temjin said:

Umm..it means the level of bulls sentiment verse bear today is just as high as it were back when the market crashed in the late 2007/early 2008.

Haven't you heard of the famous investment rule?

"When everybody agrees on one thing, the opposite tends to happen"

This contrarian thinking has been the dominate strategy used by some of the most famous and rich investors / entrepreneurs everywhere.

If you want to think like a sheep and agree what the "mainstream" thinks, then go ahead and play the market.

This is a good article on Contrarianism that I subscribe to.

http://www.travismorien.com/FAQ/portfolios/contrarianism.htm

Unfortunately, most people DO NOT have the right "psychological make up" to think like a contrarian. There are simply too much peer pressure and ego gets in the way.

Doomsday prophets like Gary Shiller, Nouriel Roubini, were heavily ridiculed by the mainstream media before the GFC occurred. They believed the housing market in the US would collapse and everybody else think it's impossible. Obviously, they were right at the end.

Of course, these aren't the only examples of how being a contrarian in the investment world may pay off big. It takes advantage of the inherent, irrational herding behavior of human beings. When too much people were on one side of the trade, the opposite tend to happen.

I've already said the US dollar would bounce back several weeks ago when practically almost everybody in the world believe the dollar is doomed. Indeed it has started to happen already and most people still don't understand why.

Of course, the same thing cannot apply to other things in life. i.e. if 9 out of 10 car mechanics say your car is not safe, then you probably shouldn't be driving it!

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From what I can see in the bulls/bear difference chart, 2/3 times the chart has reached it's bullish peak, the rally continued, not exactly a robust indicator. One the second chart, 2/4 times the spread was large, yet the rally continued or the market merely consolidated. Hence why I said this chart is of little value. There needs to be some confluence of other indicators pointing towards a larger decline (as opposed to a mere correction!).

Thanks for explaining contrarian thinking to me Temjon, thankfully I am aware of what this concept is. There is also the concept of irrational exuberance and bull market rallies outstretching the fundamentals underpinning them- a lot of money can be lost in this time picking tops.

Not sure about your dominant strategy comment and accusing me of thinking like a sheep. I am admittedly a trend follower, a tactic followed by many others. I am happy to stay this way so long as my trading account balance keeps growing in size.

From memory Nouriel Roubini came out early last year and said he was bullish. Moreover, recently he has maintained his bullish attitude towards China and India. On the one hand we praise him for picking the GFC, yet we now ignore his comments when it doesn’t fit within our own analysis?

sammy84 said:

From what I can see in the bulls/bear difference chart, 2/3 times the chart has reached it's bullish peak, the rally continued, not exactly a robust indicator. One the second chart, 2/4 times the spread was large, yet the rally continued or the market merely consolidated. Hence why I said this chart is of little value. There needs to be some confluence of other indicators pointing towards a larger decline (as opposed to a mere correction!).

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Yes, I agree the chart is of little "tactical" value as it only merely shows the bigger trend but will never predict the actual turning point. No indicators of any kind would have give you a tactical view with 100% certainly.

Strategic wise, I would say the chart is a lot of value depending on how one interprets it.

Based on that, I would say the market is at an irrational high point, not only from a sentiment aspect, but from any traditional fundamental indicators including PE ratio and even the normalised version. Technical indicators are obviously indicating an overbrought market, but not as overbrought yet as the last crash. This is, of course, a longer term look and each traders would have their own "system" for trading it.

Thanks for explaining contrarian thinking to me Temjon, thankfully I am aware of what this concept is. There is also the concept of irrational exuberance and bull market rallies outstretching the fundamentals underpinning them- a lot of money can be lost in this time picking tops.

Not sure about your dominant strategy comment and accusing me of thinking like a sheep. I am admittedly a trend follower, a tactic followed by many others. I am happy to stay this way so long as my trading account balance keeps growing in size.

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Sorry if I had offended you by my claims of "thinking like a sheep". I will take that back. In a better way, you are a trend follower as you have suggested and I would agree with you that most people are that.

But going back to the concept of being a contrarian, does being among the "most" would make you rich in the longer term? If almost every financial planners/economists/friend investors say this is a bull market and everyone should ride it, do you smell something fishy around it?

I don't know why I have this sort of thinking. I tend to look the other way when everyone else is looking the same way. So when we contrarians try to debate our points with those who just can't understand our thinking, we tend to usually just stop and keep it to ourselves.

I guess I wouldn't comment too much on your investment/trading strategy. Like I said, everyone have their own ways. I just take advantage of opportunities "differently".

From memory Nouriel Roubini came out early last year and said he was bullish. Moreover, recently he has maintained his bullish attitude towards China and India. On the one hand we praise him for picking the GFC, yet we now ignore his comments when it doesn’t fit within our own analysis?

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Actually, based on my readings of his analysis, I do not think he is "bullish" on the state of the developed countries' economy. He is still clearly gloom and doom about the US, UK and Europe.

Everything I hear about China and India so far has been bullish in the "very" long term. (talking about decades here) The only diverging view was of the shorter term where the Chinese growth story wouldn't be one straight line up, and they will certainly face more trouble along the way that would certainly affect one's investment portfolio. (i.e. someone buys the China story and start leveraging like crazy on their stock market, etc.)

On the last part, I admit I have a confirmation bias on the whole doom and gloom thing. (more like I'm a deflationist who is still a bull in gold) But seriously, who doesn't have that bias here? It's impossible.

Timmy said:

Kudos on that call Temjin - you had it spot on.

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Heh thanks, but not on the timing, I was too early.

My next prediction would be that the trend reversal in US dollar may see it go higher than most would expect and surprise a lot of people. That is, until the Federal Reserve decide to halt their planned liquidity withdrawal in March and start dropping dollars from REAL helicopters.

Sold another few k of AUD for HKD for my trip back to Hong Kong in March. It's a good time to spend it all!

Temjin said:

That is, until the Federal Reserve decide to halt their planned liquidity withdrawal in March and start dropping dollars from REAL helicopters.

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HE he he yes :

Credit Suisse report suggest SELL, SELL, SELL for gold holders

Credit Suisse: There's A Huge Gold Oversupply, Time To Sell

A report from Credit Suisse (via ZeroHedge) argues against all this peak gold nonsense, and claims the price of the yellow metal will collapse amidst a downdraft in investor demand and a huge oversupply.

http://www.businessinsider.com/credit-suisse-theres-a-huge-gold-oversupply-time-to-sell-2010-1

Soon enough pigs might be flying those helicopters. What do you think Temjin?

Beej said:

Is it perhaps time to close this particular thread???

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talking of contrarian indicators....

GumbyLearner said:

HE he he yes :

Credit Suisse report suggest SELL, SELL, SELL for gold holders

Credit Suisse: There's A Huge Gold Oversupply, Time To Sell

A report from Credit Suisse (via ZeroHedge) argues against all this peak gold nonsense, and claims the price of the yellow metal will collapse amidst a downdraft in investor demand and a huge oversupply.

http://www.businessinsider.com/credit-suisse-theres-a-huge-gold-oversupply-time-to-sell-2010-1

Soon enough pigs might be flying those helicopters. What do you think Temjin?

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Haha Seriously, sentiment wise, I am not all that comfortable with gold right now.

The bullish sentiment is certainly much higher than it was when I first invested it, but it is still not as "extreme" (and volatile!) for the equity market.

Jim Rogers and alike have been talking about the potential for gold to go below $1000 as the next dip in the economy begins to become more apparent. (or the pigs realise things isn't seem to be as good as they thought to be)

Gold prices could possibly go lower as the speculative (or weak) positions are taken out en mass in the next leg down.

Fundamental wise, I'm still quite bullish with gold in the longer term as it seem to be a win-win hedge against either inflation (lost of faith with fiat money) or deflation (lost of faith with banking system/certain sovereigns to maintain solvency).

Until my fellow taxi driver or administration staff start advising me to buy gold, I may just keep them a little longer.

Do note that Credit Suisse seem to be quite bullish on the global economy and certainly believes the worst is behind us as the stimulus packages had worked its "magic". What if their assumptions are wrong? And I wondered if they have took the Chinese government's strategy into account? Forgot where the article was, but part of their strategy was to allow everyone in their China to accumulate hard assets in full anticipation of future devaluation of US dollars. This is why the Chinese government have encouraged private investment in gold. You don't see that in the US publicly (or Australia), do you?

Edwood said:

talking of contrarian indicators....

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Heh, I saw that. I just didn't want to comment on it.

Edwood said:

talking of contrarian indicators....

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No not at all - I made/make no prediction about what the markets are likely to do from here (especially in the short term). I was merely pointing out that the original point of this thread has clearly been and gone.

If you are confident of a *new* impending and severe correction, by all means please start a new thread and outline your rationale and then we can all discuss it. This particular thread just does not seem useful anymore as it has no real point other then being a general "air my bearish view" thread? It is not about anything specific, which it was when it began.

Temjin said:

Heh, I saw that. I just didn't want to comment on it.

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Same goes for you Temjin!! Showing your own "confirmation bias" a bit there by presuming what my views are. Why don't you actually read my post again and see if I really wrote what you seem to think I wrote?

Cheers,

Beej

Beej said:

No not at all - I made/make no prediction about what the markets are likely to do from here (especially in the short term). I was merely pointing out that the original point of this thread has clearly been and gone.
Beej

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Hi Beej - no offence intended mate, twas the fact that folk are suggesting we shut this thread just at a time when markets are threatening to roll over that made me smile. Didn't realise you was a 'Mod'

I don't mind if the thread shuts tbh if thats what the ASF community wants. Happy to continue to talk to myself on the International Index thread

Edwood said:

Hi Beej - no offence intended mate, twas the fact that folk are suggesting we shut this thread just at a time when markets are threatening to roll over that made me smile. Didn't realise you was a 'Mod'

I don't mind if the thread shuts tbh if thats what the ASF community wants. Happy to continue to talk to myself on the International Index thread

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PS -No offense taken! And I'm not a "mod" BTW I'm just saying, if you think the next big roll over is coming that's fine - I'm just expressing the personal opinion that I'd rather see a discussion of that possibility on a new thread, rather than out of context here on this old one. So please start one and outline why you see the next big correction as imminent?

Cheers,

Beej

Beej said:

PS -No offense taken! And I'm not a "mod" BTW I'm just saying, if you think the next big roll over is coming that's fine - I'm just expressing the personal opinion that I'd rather see a discussion of that possibility on a new thread, rather than out of context here on this old one. So please start one and outline why you see the next big correction as imminent?

Cheers,

Beej

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oke-doke - thing is I like to trade reversals so maybe it'd be better to start a "reversals" thread, which will have some longevity - i.e., won't matter if there's an imminent crash or an imminent bounce it can be used for either. And they may not be 'severe' for that matter.

Also I'm not an uber-bear so maybe its just as well to leave them to it over here (altho they seem to enjoy some of the bear-pr0n I dig out every now & then )

Beej said:

PS -No offense taken! And I'm not a "mod" BTW I'm just saying, if you think the next big roll over is coming that's fine - I'm just expressing the personal opinion that I'd rather see a discussion of that possibility on a new thread, rather than out of context here on this old one. So please start one and outline why you see the next big correction as imminent?

Cheers,

Beej

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I suppose it's all a matter of context Beej. Most bears don't really see this current rally as a new multi year bull market, and that the problems that caused the bear market in the first place are still in play for further economic trouble down the track, which would explain why this thread still gets some regular posts.

Beej said:

Same goes for you Temjin!! Showing your own "confirmation bias" a bit there by presuming what my views are. Why don't you actually read my post again and see if I really wrote what you seem to think I wrote?

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I'm sorry then for not reading your post before commenting on it.

Like I said, I am not afraid to admit that any of my opinions is completely free from confirmation bias.

Back to your suggestion, I can understand where you are coming from.

However, I also agree with professor_frink, it is all a matter of context. Where do we draw the line in closing off this thread? When the market has rallied 30%? Or it has not crashed (by how much too) after how many months? Or when the mainstream economists suggest that there is no risk of another crash?

In practice, a crash could happen to the market at any time regardless of the economic circumstances. So the thread title is applicable at any time of the history. There will be reasons to suggest that an imminent market correction is coming. (technical or fundamentals factors, black swan events, etc)

Hmm....we might just have got the straw that broke the Gold Camel's back...

Jan. 21 (Bloomberg) -- President Barack Obama, tapping into voter anger over bank bailouts, called for limiting the size and trading activities of financial institutions as a way to reduce risk-taking and prevent another financial crisis.

The proposals, to be added to an overhaul of regulations being considered by Congress, would prohibit banks from running proprietary trading operations solely for their own profit and sponsoring hedge funds and private equity funds. He also proposes expanding a 10 percent market-share cap on deposits to include other liabilities such as non-deposit funding to restrict growth and consolidation.

“While the financial system is far stronger today than it was one year ago, it’s still operating under the same rules that led to its near collapse,” Obama said at the White House after meeting with former Federal Reserve Chairman Paul Volcker, who has been an advocate of taking such steps. “Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

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http://www.bloomberg.com/apps/news?pid=20601087&sid=aGwoMdcKbVFk&pos=1

.... and this from the same article...

The new rules, Obama said, would close loopholes that allow big financial firms to trade products like credit-default swaps and other derivatives without oversight and while benefiting from Federal Reserve lending programs and taxpayer insurance of consumer deposits.

“When banks benefit from the safety net that taxpayers provide,” Obama said, “it is not appropriate for them to turn around and use that cheap money to trade for profit.”

Additionally, Obama said caps on deposits that prevent too much risk from being concentrated in a single bank will be applied to other types of funding to prevent firms from growing too large.

“The American people will not be served by a financial system that comprises just a few massive firms,” Obama said.

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Oh yeah? And who pray tell HELPED create these Too Big Too Fail Behemoths during the recent fracas by handing out $USTrillions of taxpayers hard-earned rather than make 'em take some nasty medicine? Is this the Obama Way? To help create Financial & Commercial Monsters then be seen to be "The Champion Who Saved The Sheeple" by slaying these same Monsters?

Madness......

Maybe fellow Chairman KRudd can talk some sense into him?