Imminent and severe market correction

[Timmy]

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

Bushman, check out the latest consumer credit figures from the US, showing an expansion.
Releveraging?

 

[Bushman]

Bushman, check out the latest consumer credit figures from the US, showing an expansion.
Releveraging?

Using what as equity? Kidneys, heart, the family dog. Jeepers.

Yet in Australia, the news today is that we are deleveraging.

From The Age today:

'The total value of credit and charge card transactions, including advances, fell by 22 per cent in January, Reserve Bank of Australia figures released today show.

Australians spent $17.18 billion on their credit and charge cards, compared to $22.02 billion in December, according to the figures which are not seasonally adjusted.'

 

[Timmy]

Using what as equity? Kidneys, heart, the family dog. Jeepers.

I don't know ... just reading the data ... & while

29% of all US houses are in negative equity territory, .

that means 71% have positive equity? Also, S&P500 made a new high last night, on this rally from the March 2009 lows, (just barely) ... so going to be equity built up there too. Not saying its all beer and skittles, but its not all bad news either.

 

[moXJO]

Australians spent $17.18 billion on their credit and charge cards, compared to $22.02 billion in December, according to the figures which are not seasonally adjusted.'

That would just be Christmas rush wouldn’t it?

 

[Bushman]

I don't know ... just reading the data ... & while


that means 71% have positive equity? Also, S&P500 made a new high last night, on this rally from the March 2009 lows, (just barely) ... so going to be equity built up there too. Not saying its all beer and skittles, but its not all bad news either.

I guess the issue with this thread is the title. It should be called the 'Risks to the Recovery' thread or some such title. Its not all bad news. But we need to deleverage and stories like Dubai, Greece, US comm, property and the like will keep propping up in the next 1-3 years given we are 1-2 years into this cycle.

That is the way credit busts have operated over time. So there will be hiccups along the way.

Whether this leads to an 'Imminent and Severe' correction depends what is under stress and not yet disclosed and the impact of this.

But the US household will not be the saviour for some time with 10% unemployment and 29% negative equity. So 'imminent and stratospheric' growth might also be some time off for the global economy.

 

[Timmy]

stories like Dubai, Greece, US comm, property and the like will keep propping up in the next 1-3 years .... So there will be hiccups along the way.

Yep, plenty of hiccups & more to come.

But the US household will not be the saviour for some time with 10% unemployment

Agree, the employment situation in the States is terrible ... but at least there have been signs of a slowing in the job losses ... which is a start. Long and bumpy road to come for the US economy ...

 

[Uncle Festivus]

Whether this leads to an 'Imminent and Severe' correction depends what is under stress and not yet disclosed and the impact of this.

Now that you mentioned it....

I think that we may be getting to some sort of 'decision' point in the equity markets, and by extension the global economy - it's make or break time for the Lemmings. There seems to be a number of converging or peaking trends appearing, apart from the usual bi-monthly 'unexpected' issues like sovereign debt debacles, US housing & employment, China overproduction & inflation etc -

- the new bull rally is fully 12 months old and has regained approx 70% or so of what was lost, and the double top is currently being formed and challenged. Now if you combine this with the 3rd qtr reporting season, which will show up the 'flat' market for the last 3 months, then some of the 'profit stars' banking companies will have some trouble showing an improvment from their investing divisions over pcp's. Considering that their other 'real economy' divisions like loans and credit cards are still losing money from housing and now CRE, then they have or are peaking on the profit 'surprise-to-the-upside' scenario?

- the effects of stimulis are wearing off - the 'bringing future consumption forward' policies designed to stimulate did exactly that - a supernova of activity and now that they have finished or are being wound down, so too does economic activity

- China inflation - any question of tightening the rampant money supply in China sends markets into turmoil. Stimulis booms turn into stimulis busts?

- the UK is an economic basket case - the stats speak for themselves, despite what some people would like to think is happening over there...the Emporor is nude...the tide is out etc

• Index of production - 1.5% annual fall
• Factory gate inflation up 4.1%
• GDP up by 0.3% last qtr
• Index of services - down 1.4%
• Business investment down 5.8%
• The structural deficit - To paraphrase the Sage of Omaha, Warren Buffet, this is the deficit left behind when the economic tide goes out. According to the Organisation of Economic Development and Cooperation, the UK will be running the largest structural deficit of all the major economies by 2011. The financial crisis and the recession added GBP 73 billion, or 5.2% of GDP to the structural deficit.
• if the credit ratings agencies were themselves creditable then they would be taking a good look at a credit downgrade for the UK, and all the negative effects that would entail re paying back debt

In summary, the Fed & central banks know that the current resistance levels need to be convincingly broken for the next leg of the 'recovery' to continue? Failure will mean, in the best case, a trending sideways ranging market. Worst case would be a resumption of the underlying structural bear.....at least the Poms are trying to get over the line but the Yanks are not playing the game......insider sales have exploded the last few weeks....what do they know?

 

[Timmy]

Deleveraging of the US consumer

Bushman - more on deleveraging, this time from a WSJ article (12MAR10):

http://online.wsj.com/article/SB10001424052748703625304575115672827553404.html

Total U.S. household debt, including mortgages and credit-card balances, fell 1.7% in 2009 ...
The drop reflects the extent to which job losses and a moribund housing market are forcing people to default on mortgages and other obligations...
At the same time, the defaults are leaving many people with more cash to spend and save, jump-starting the financial rehabilitation, or "deleveraging," that economists see as a crucial prerequisite to robust growth.

 

[Whiskers]

Interesting article: http://finance.yahoo.com/banking-budgeting/article/109184/five-suggestions-for-banking-reform

My highlights.

Five Suggestions for Banking Reform
by Peter Atwater
Friday, March 26, 2010

First, as much as I admire Mr. Volcker and the noble intentions of the "Volcker Rule," I'm afraid that attempting to re-silo the financial services industry is akin to trying to unscramble an egg. In fact, with all due respect to the myriad of regulators currently in place, I think our existing silo'ed regulation contributed mightily to our crisis. How can it be that no single regulator had a full grasp of the "too entangled to fail" world of OTC derivatives along with the authority to deal with it?

As is most, but if you have the power to make the rules and don't really want transparent compliance, then I guess it won't happen.

Second, and at the risk of being bold, I believe the time has come to eliminate FDIC insurance. When the FDIC was created in the 1930s, it was intended to be a temporary solution. Today, it puts the US taxpayer on the hook for more than $7 trillion in bank liabilities. But as a consequence, depositor due diligence is non-existent. And putting Wall Street aside, this crisis has shown, even with specific oversight, hundreds of now-failed banks took excessive risk in their traditional banking businesses and their insured depositors neither cared nor were adversely impacted. Their risk was borne by the government, while they earned returns far in excess of comparable US Treasuries. If we're truly going to eliminate "moral hazard"/"too big to fail" we must eliminate deposit insurance in the process.

Dangerous move imo... unless the trading divisions are completely seperated from the investment arm's and run by different rules.

Third, we must demand that the rating agencies disregard "systemic support" when ascribing debt ratings. The fact that we still have some financial institutions receiving "uplifts" of as many as five ratings levels because of their systemic importance is unacceptable and I believe currently poses one of the greatest financial risks to our nation.

Why uplifts, if they are systemically important it seems logical they would/should incur a handicap.

Fourth, we must repeal the "Levitt Rule." In good times, loan loss reserves must be built in anticipation of bad times. And, should FDIC deposit insurance not be repealed, as I recommend, fund premiums must also adopt a countercyclical methodology. That banks were releasing reserves and the FDIC was reducing/eliminating premiums at the top of the market defies basic logic.

Finally, our regulators must act courageously. This past week Moody's wrote:

" we believe that the benefits of a revamped regulatory regime will depend more upon how regulators implement and execute the law -- rather than depend on the words of the law itself -- because the proposed regulatory framework doesn't appear to be significantly different from what exists today."

That's going to be the proof in the pudding.

 

[Bushman]

I guess the issue with this thread is the title. It should be called the 'Risks to the Recovery' thread or some such title. Its not all bad news. But we need to deleverage and stories like Dubai, Greece, US comm, property and the like will keep propping up in the next 1-3 years given we are 1-2 years into this cycle.

That is the way credit busts have operated over time. So there will be hiccups along the way.

Whether this leads to an 'Imminent and Severe' correction depends what is under stress and not yet disclosed and the impact of this.

But the US household will not be the saviour for some time with 10% unemployment and 29% negative equity. So 'imminent and stratospheric' growth might also be some time off for the global economy.

The answer is contagion to the rest of Europe has not been priced in. This at a time when there are starting to be signs of a mild recovery in US industrials.

Down we go. What a day for a trader to make a trading error (Proctor and Gamble was down 23% at one stage). Lol; err there is the exit door my friend.

Greece is to big to fail as all the EU countries have been lending heavily to each other. It will be interesting to see the impact on European society. Austerity packages and European society to not mix well, the treaty of Versaille being to most obvious example of this.

 

[Temjin]

I clearly remember someone once posted on this thread stating it should be closed because the subject title is no longer relevant as they do not "believe" it will happen anytime soon.

A typical contrarian signal at market tops.

Trading error or not, the confidence level is already crushed.

 

[Uncle Festivus]

Well it's a correction, and it looks severe, so off we go again.....

Where's all the permabulls gone?

 

[nomore4s]

Well it's a correction, and it looks severe, so off we go again.....

Where's all the permabulls gone?

Probably the same place all the Doom & Gloomers have been hanging out since March.

 

[Whiskers]

Just on the point of uptomism (or pessimism) and conspiracy theories... for those who are moved predominately by the 'News'... interesting how the headlines of the day tend to make (or mimic) the market moves with so much volitility around again.

Maybe it's just me, but often I see a headline or story as a narative, of sentiment or the days data releases etc, but wonder how many interpret it more as a still unfolding (selffulling) prediction.

I'm not convinced the Bull is dead just yet. It seems to me there could be further rises in inyernational markets once the Greece bailout is put to bed.

The real test will come a bit later yet, when it's seen whether or not the other debt laden countries do something substantial on their own initiative to increase taxes and cut services, or whether they keep putting it off.

Then there's the corporate regulation improvement issues that have been floundering along a bit too much that Angela Merkel is trying to kick along. If they also don't come to a meaningful fruition, that will no doubt be the fodder for the mother of all market corrections down the track.

But for the time being, I'm not quite sure this little bull run is over yet.

 

[Aussiejeff]

But for the time being, I'm not quite sure this little bull run is over yet.

US market rockets 150+pts in last 1/2 hour of trading???

You win today's bottle of Champers, sir!!!

 

[lesm]

Well it's a correction, and it looks severe, so off we go again.....

Where's all the permabulls gone?

Possibly on the run from the Bear Cavalry

 

[Whiskers]

US market rockets 150+pts in last 1/2 hour of trading???

You win today's bottle of Champers, sir!!!

Bit early to celebrate yet Aussiejeff... but, I'll keep the bottle of Champers for later, anyway.

 

[explod]

US market rockets 150+pts in last 1/2 hour of trading???

You win today's bottle of Champers, sir!!!

Yep, they are doing a good job of holding fundamentally hot air together and looks like the attemp to regulate the bad guys has not a hope of getting through the Senate. Then we could have a Presidential decree I suppose.

Anyhow, good luck with the charting but gravity pulls down hard.

 

[Aussiejeff]

Yep, they are doing a good job of holding fundamentally hot air together and looks like the attemp to regulate the bad guys has not a hope of getting through the Senate. Then we could have a Presidential decree I suppose.

Anyhow, good luck with the charting but gravity pulls down hard.

Looks like the "gravity" of the appalling US jobs data + Eurozone suddenly punch drunk from Hungary's left hook to their glass jaw wins this round!

Wot?

No Phatt Phinga$ this time?

Oh, maybe $ticky Fingaz??

Or Oily Finga$???

 

[dutchie]

You can tell which way the market is headed by the number of name calling, nasty posts etc that is happening now.