Imminent and severe market correction

[CanOz]

Overnight - DOW sinks below 10,000.

So, next stop 9,000 (within a few weeks if this IS the breaking of the last straw of resistance)?

Then...?

I think someone mentioned it before and i tend to agree that DJIA at 10k doesn't really mean much. S&P levels seem more relevant lately. Personally i'll get bullish on the S&P again over 1105ish.

I'm expecting that last hammer on the SPY to give a few days reprieve from the big selling before something else big happens.

In the meantime its getting choppy out there so its time to reduce the risk a little until the trend is clearer again.

Cheers,


CanOz

 

[Edwood]

threads very quiet - no-one thinks we're close to a major down move then? have seen a couple of calls for topping out dates aroudd this time >> McHugh and Bradley.
Given how everyone jumped on this thread during the move down from Jan highs but haven't this time makes me assume everyone is a little complacent?

 

[Bushman]

threads very quiet - no-one thinks we're close to a major down move then? have seen a couple of calls for topping out dates aroudd this time >> McHugh and Bradley.
Given how everyone jumped on this thread during the move down from Jan highs but haven't this time makes me assume everyone is a little complacent?

Next debt shoe to drop will be the $700b US commercial property CMBS market. Regional banks are up to their necks in these loans with underlying asset values dropping 30-50% and rental markets hurting. There is stress there and the dollars are big.

Ouch! Question for the market is 'is this priced in?' I would say given reaction to entirely predictable sovereign debt issues, I would say NO!

From Reuters/Credit Suisse:

'NEW YORK (Reuters)””The amount of distressed loans in commercial mortgage-backed securities may more than double to at least $60 billion by year-end, creating a logjam that could hinder the U.S. economic recovery, Credit Suisse said on Monday [Feb. 22].

The increase in troubled loans in the $700 billion CMBS market accelerated to $2.7 billion a month last quarter, compared with about $1.4 billion a month in the first three months of 2009, Credit Suisse analysts said in a report.

A buildup of loans either 90 days delinquent, in foreclosure or bank-owned is overwhelming companies charged with fixing mortgages that are souring due to the economic malaise or as investors hold back on credit, the report said. Loans delinquent at least two months have increased more than ten-fold since the end of 2008, to 5%, it said.'

PS: Aussie CMBS market is only $4b-odd with most commercial exposure held by the Big 4.

 

[Edwood]

cheers Bushman. Saw in todays SMH the story about Chinese property / construction as well, with rail projects costing more than the three gorges and also aiming for 2nd tallest building in the world. Like commercial property loans as you say the impacts will be felt in the future at some point, hard to say when.

However on the technicals there are some interesting parallels between current market action and 2004 - meaning its feasible the next major correction has already started

http://www.safehaven.com/article-15866.htm

 

[wayneL]

threads very quiet - no-one thinks we're close to a major down move then? have seen a couple of calls for topping out dates aroudd this time >> McHugh and Bradley.
Given how everyone jumped on this thread during the move down from Jan highs but haven't this time makes me assume everyone is a little complacent?

I haven't said much, but I'm still a bear. Whether we're close to a major down move I just don't have a clear opinion. The complacency is palpable and that can continue for some time.

... just don't know atm.

 

[Edwood]

I haven't said much, but I'm still a bear. Whether we're close to a major down move I just don't have a clear opinion. The complacency is palpable and that can continue for some time.

... just don't know atm.

PHEW! good to see you're still a bear Wayne
must be nice down the Bay at this time of year.

If you're out here you probably noticed NZD getting spanked against GBP last night - very solid move, often a sign that risk levels are rising. See Vix looks to be putting in a higher low as well...

 

[Edwood]

SPX currently off 1.7%, gapped down at the open. Vix up 8%. Fun & games are underway

 

[Tukker]

Looks like it could be a slaughter today. In the US, all 10 major sectors are down by 1% or more.

Fun times for those in the short.

 

[Edwood]

some have probably already seen this

 

[wayneL]

Ed,

I just hope the world learns what a poison Keynesianism (as currently practised) actually is. If we do get a double dip, it is going to be a very nasty affair with all sorts of unintended consequences arising from the "stimulus".

 

[Tukker]

Excuse my ignorance, but what would this suggest? More confidence in assets vs cash? Not a lot of cash? Sell off expected?

 

[Edwood]

Excuse my ignorance, but what would this suggest? More confidence in assets vs cash? Not a lot of cash? Sell off expected?

mutual funds are fully invested - ie bullish - at tops

 

[Edwood]

Ed,

I just hope the world learns what a poison Keynesianism (as currently practised) actually is. If we do get a double dip, it is going to be a very nasty affair with all sorts of unintended consequences arising from the "stimulus".

hi Wayne - you must be expecting a double dip tho yeah? I can't see how it can be avoided (not being a pessimist just realistic fwiw)

 

[MRC & Co]

I haven't said much, but I'm still a bear. Whether we're close to a major down move I just don't have a clear opinion. The complacency is palpable and that can continue for some time.

... just don't know atm.

Yeh agreed there.

From what I've seen of quantatative, forward looking models which predict trends in figures and estimates well, the results are still to the upside, so, along with the charts, at this moment, I think we will probably get back up through the highs of this rally in most 'risk assets'.

However, a few correlations are breaking down at the moment so it is becoming a bit more muddy as opposed to the previous 'risk on, risk off' trade. Europe could definately act as a drag, but so far, the rest of the world is trying to break free and 'decouple' from the problems there in some parts.

No doubt though, there well and truly could be a nasty double dip coming in the next year or so, perhaps after one more surge through the previous swing high this year........this may coincide with the 'multiplier' effect of this stimulus running out........

 

[MACCA350]

Thought it might be time to throw this graph back in:

They also have this one:

cheers

 

[drsmith]

The inflation adjusted DJIA bear from the late 60's to the early 80's should also be on the second graph. That was a fall in real terms of ~75%.

http://home.earthlink.net/~intelligentbear/com-dj-infl.htm

The 30's, 70's and current DJIA crrections also conicide with major corrections in the DJIA/gold ratio.

http://home.earthlink.net/~intelligentbear/com-dow-au.htm

If in real terms we have seen the bottom of the current mega-bear then it will be the mildest of the three.

 

[Bushman]

Gotliebsen in today's Eureka has outlined four threats to a global recovery and good old Aussie 'baby boomer' wealth (or what is left of it).

1. Chinese commercial property bubble causing stress on the fledgling banking system (i.e. like Malaysia in the '90s post Petronas Towers and Dubai now). To quote the report, there is now '30 billion square feet now under construction – that’s 23 square feet for every man, woman and child in China.'

2. Higher cost of capital (and permanently so it would seem).

3. The old chestnuts of inlfation and another oil crises.

The hedge he suggested were all listed stocks or hybrid bank securities which I thought was a bit old school.

Hedges:
1. CSL, Resmed etc
2. Bank hybrids
3. Resource plays.

The Chinese shock would wipe Australia out initially but the devaluation in our dollar can only be healthy for our manufacturing base and aide diversification of our GDP.

One thing Gottie didn't mention about the China bubble is the massive amounts of foreign currency reserves the Chinese autocracy holds. So they would most probably be able to prop up the banks to a degree. But, as we have seen elsewhere, rampant property speculation, while delivering fat short-term profits for the builders/developers/bankers, always ends in tears!

 

[Aussiejeff]

Gotliebsen in today's Eureka has outlined four threats to a global recovery and good old Aussie 'baby boomer' wealth (or what is left of it).

1. Chinese commercial property bubble causing stress on the fledgling banking system (i.e. like Malaysia in the '90s post Petronas Towers and Dubai now). To quote the report, there is now '30 billion square feet now under construction – that’s 23 square feet for every man, woman and child in China.'

2. Higher cost of capital (and permanently so it would seem).

3. The old chestnuts of inlfation and another oil crises.

The hedge he suggested were all listed stocks or hybrid bank securities which I thought was a bit old school.

Hedges:
1. CSL, Resmed etc
2. Bank hybrids
3. Resource plays.

The Chinese shock would wipe Australia out initially but the devaluation in our dollar can only be healthy for our manufacturing base and aide diversification of our GDP.

One thing Gottie didn't mention about the China bubble is the massive amounts of foreign currency reserves the Chinese autocracy holds. So they would most probably be able to prop up the banks to a degree. But, as we have seen elsewhere, rampant property speculation, while delivering fat short-term profits for the builders/developers/bankers, always ends in tears!

Then again, as Saviour Of The Financial World As We Know It, China has become "too big to fail".

The Rest Of The World will have to band together and go into hock with each other to bail out the Chinese Communist Part.. errr.. Government when the inevitable time comes.

Won't THAT be interesting?

After that....?? *coff*

 

[Trader Paul]

Hi folks,

Using some astoanalysis, the time cycles suggest, that we should be
expecting the European mess to continue throughout 2010, with some
particularly nasty stuff, around:

... 03082010
... 10082010 (currencies ... UK???)
... 13-31082010 (a very critical period for Europe)
... September 2010 ..... 24-27092010
and October ... more negative news, about 04102010 ...

.... and, if you think it is over in USA ... just wait,
until December 2010 and again, in March-April 2011 .....
some seriously negative stuff expected, during those
periods, unfortunately .....

have a great day

paul



=====

 

[Bushman]

29% of all US houses are in negative equity territory, with nearly 13% showing negative equity of negative 25% (of the mortgage value). This is important as it is a key indicator of future foreclosure.

View attachment Neg Equity total.bmp
Source: First American CoreLogic 4th Quarter Survey of Negative Equity. See www.loanperformance.com

Deleveraging of the US consumer still has some way to go!

In terms of the basket cases (% mortgages >-25% negative equity), the top 5 are:
Nevada @ 53%
Arizona @ 32%
Florida @ 29%
California @ 20%
Michigan @ 16%.