Imminent and severe market correction

[Kimosabi]

Everyone knows the US debt bill is incredible, however, it is largly debated whether or not this is a long-term problem, most economists from my understanding beleive it is of little concern. If the debt is generating returns in excess of the IR, then its no problem. This is a hugely debated topic though, and you will find numerous articles on the web about it. In the short-term however, or even the medium-term, this will have absolutely no effect on a stock market crash\correction. Infact, any problem due to this debt level would not be seen until the very very distant future.

A private equity deal to flop? What exactly do you mean? Most loan defaults and bank troubles, would come from an increasing IR in the US, and an inability for all the property market mortage holders to pay back the banks. Though, the banks are all backed (the large ones), so a bank collapsing is very seldom seen, and the large banks are partically impossible to collapse.

IR will not go up a lot more, but why would an IR fall induce a bear market? Quiet the opposite.

If the US market crashes, no doubt the Chinese economy will also struggle, and our commodity sector will implode.

Though, from those IMF reports, it appears the world economy is stable for the short-term at least, with only a minor slowdown in growth.

What I mean by a private equity flop, is most Private Equity Deals are highly leveraged. If someone screws up on one of these deals, it could have a severe impact on the Business being bought and the lending institutions.

Considering lending institutions have been stupid enough to lend money to people who shouldn't have money lent to them in a consumer situation, ie subprime mortgages, what's to say the lending institutions aren't going to do something stupid in private equity.

On the interest rate thing, I'll PM you where I got the Interest Rate perspective from.

 

[CanOz]

Asian markets are taking a pounding today...every index is down, and the Japan 225 is down 425 points!

What a pummeling.

 

[professor_frink]

Asian markets are taking a pounding today...every index is down, and the Japan 225 is down 425 points!

What a pummeling.

all of the Asian markets are looking pretty sick today(although the nikkei is staging a recovery as I type).

The 2 main markets I follow(nikkei and Hang Seng) look to be putting in lower highs too

 

[Sean K]

I've started thinning out. Now the market is bound to fly off to 6500 tomorrow.

 

[Uncle Festivus]

Getting close now - China is the key

 

[chops_a_must]

Getting close now - China is the key

How?

Interest rates will be on hold; commodities going on another run; our dollar coming down; China's growth still strong. Our market is flattening, NOT topping, and is still trending incredibly strongly, and in a tight range right now.

As discussed many times over, the China share market has no influence on its own.

A severe and imminent market correction is only inevitable when it breaks out from the trend, and as of now, it is not doing so. It looks to be consolidating for a breakout in my eyes, and that will take it out of the trend, and then it will be likely IMO.

Unless commodities crash, it doesn't look like it will correct on fundamentals. Unless you would care to enlighten me as to how. A few weeks back it was sub-prime, then China... it has had no impact. Unless something fundamentally changes, the worst I can see happening is a technical dip.

 

[wayneL]

A few weeks back it was sub-prime, t

Sub-prime hasn't even played out yet. That game is in the first of nine innings.

 

[Uncle Festivus]

How?

Interest rates will be on hold; commodities going on another run; our dollar coming down; China's growth still strong. Our market is flattening, NOT topping, and is still trending incredibly strongly, and in a tight range right now.

As discussed many times over, the China share market has no influence on its own.

A severe and imminent market correction is only inevitable when it breaks out from the trend, and as of now, it is not doing so. It looks to be consolidating for a breakout in my eyes, and that will take it out of the trend, and then it will be likely IMO.

Unless commodities crash, it doesn't look like it will correct on fundamentals. Unless you would care to enlighten me as to how. A few weeks back it was sub-prime, then China... it has had no impact. Unless something fundamentally changes, the worst I can see happening is a technical dip.

China holds the key at least for Australia, because we have been relying on the commodities rebound to prop up an otherwise ordinary economy.
The China boom isn't based on a very sound financial system, and it is this that will ultimately bring a correction. The Chinese government has tried to organise an orderly reduction in growth but this has failed. They want to cool the economy so be prepared for more interest rate rises in China, maybe at more than a measured pace.

Combine that with the real estate bust in the US, interest rates rising in the Euro countries (& maybe Australia), the Aussie dollar reducing the competitiveness of Australian companies (miners included), rental squeeze & housing affordability in Australia and you have a slow but steady increase in negative factors/sentiment just waiting for an x factor to tip the balance.

 

[CanOz]

How?

Interest rates will be on hold; commodities going on another run; our dollar coming down; China's growth still strong. Our market is flattening, NOT topping, and is still trending incredibly strongly, and in a tight range right now.

As discussed many times over, the China share market has no influence on its own.

A severe and imminent market correction is only inevitable when it breaks out from the trend, and as of now, it is not doing so. It looks to be consolidating for a breakout in my eyes, and that will take it out of the trend, and then it will be likely IMO.

Unless commodities crash, it doesn't look like it will correct on fundamentals. Unless you would care to enlighten me as to how. A few weeks back it was sub-prime, then China... it has had no impact. Unless something fundamentally changes, the worst I can see happening is a technical dip.

Yeah, must say although i feel bearish i don't see any big danger signs so far this week, even the Asian markets recovered well from this mornings lows.

Energy costs could dampen the mining bulls though, and oil is on the move again.

Cheers,

 

[chops_a_must]

China holds the key at least for Australia, because we have been relying on the commodities rebound to prop up an otherwise ordinary economy.
The China boom isn't based on a very sound financial system, and it is this that will ultimately bring a correction. The Chinese government has tried to organise an orderly reduction in growth but this has failed. They want to cool the economy so be prepared for more interest rate rises in China, maybe at more than a measured pace.

Combine that with the real estate bust in the US, interest rates rising in the Euro countries (& maybe Australia), the Aussie dollar reducing the competitiveness of Australian companies (miners included), rental squeeze & housing affordability in Australia and you have a slow but steady increase in negative factors/sentiment just waiting for an x factor to tip the balance.

So what if the China boom isn't based on a financial system? It isn't in their interest to raise rates so fast that it crashes the economy. But the fact remains, they are growing very quickly. When it shows signs of slowing, be worried then, but until such a time there is no reason to panic. I mean, the imports of many commodities into China this year have doubled, but I'm sure that factor will be ignored.

The US housing bust has had no effect on our markets, and it doesn't seem likely it will at all.

The rising dollar has done the job of an interest rate rise. An will do so elsewhere.

Our miners are likely to better expectations despite the rising dollar. Plus, it increases profit margins of importers.

But there is nothing here that isn't in the market already. Yes yes, long term, the financial system in China is a worry, but the fact remains, you haven't given any backing to a claim of an imminent and severe correction. Apart from some unforeseen "x" factor. The least you could have proposed would be a blow off top on the DOJI scaring all other markets. Although, the bears are getting murdered there as well, so maybe it is best to ignore that one.

But come on, "I'm afraid to drive my car because I might die." "I'm afraid to do exercise because I might get injured." Oh noez, I'm crippled by anxiety and afraid of everything unknown! Rarrrrrrrrrr!!! *breaks down in tears*

If you are so afraid of loss as to worry about the unknown to the extent where every single negative factor becomes a reason for a correction/ crash, you could never invest in the market/ shares in the first place.

 

[nizar]

So what if the China boom isn't based on a financial system? It isn't in their interest to raise rates so fast that it crashes the economy. But the fact remains, they are growing very quickly. When it shows signs of slowing, be worried then, but until such a time there is no reason to panic. I mean, the imports of many commodities into China this year have doubled, but I'm sure that factor will be ignored.

The US housing bust has had no effect on our markets, and it doesn't seem likely it will at all.

The rising dollar has done the job of an interest rate rise. An will do so elsewhere.

Our miners are likely to better expectations despite the rising dollar. Plus, it increases profit margins of importers.

But there is nothing here that isn't in the market already. Yes yes, long term, the financial system in China is a worry, but the fact remains, you haven't given any backing to a claim of an imminent and severe correction. Apart from some unforeseen "x" factor. The least you could have proposed would be a blow off top on the DOJI scaring all other markets. Although, the bears are getting murdered there as well, so maybe it is best to ignore that one.

But come on, "I'm afraid to drive my car because I might die." "I'm afraid to do exercise because I might get injured." Oh noez, I'm crippled by anxiety and afraid of everything unknown! Rarrrrrrrrrr!!! *breaks down in tears*

If you are so afraid of loss as to worry about the unknown to the extent where every single negative factor becomes a reason for a correction/ crash, you could never invest in the market/ shares in the first place.

Great post.

Can - about oil, have a look at what happend to oil prices in 2005, and then look at XJO/XAO calendar returns

 

[Uncle Festivus]

But come on, "I'm afraid to drive my car because I might die." "I'm afraid to do exercise because I might get injured." Oh noez, I'm crippled by anxiety and afraid of everything unknown! Rarrrrrrrrrr!!! *breaks down in tears*

If you are so afraid of loss as to worry about the unknown to the extent where every single negative factor becomes a reason for a correction/ crash, you could never invest in the market/ shares in the first place.

Chops, you are reading far too much into the post. I'm still trading both long & short, I'm not afraid, in fact the current market wip-sawing is daytraders heaven.

Simply, you need to make at least 10% on any investment just break even due to monetary inflation, which is both the reason for the current global bull and will be the reason for it's demise; only the severity is in doubt.

The signs of China's approaching day of reckoning are already appearing - wages are rising, interest rates are rising, bad loans are rising, monetary inflation is over 20%, factories and housing are being built & left empty, the environment is a basket case, the health of the Chinese is deteriorating (& the consequent drain on the health system).......

Just as any good thing is amplified by China, so too will any bad thing, only many times worse. Just be prepared.

Theres also a minor matter of the Japanese Yen carry trade, but we'll leave that for another day....

 

[wayneL]

Chops, you are reading far too much into the post. I'm still trading both long & short, I'm not afraid, in fact the current market wip-sawing is daytraders heaven.

Uncle,

I find that when folks run out of logic, they resort to satire and/or non sequitur, both of which are evident in the post you refer to.

for e.g. Look at what Peter Schiff has to put up with on Bubblevision... same nonsense.

Cheers

 

[Buffettology]

Chops, you are reading far too much into the post. I'm still trading both long & short, I'm not afraid, in fact the current market wip-sawing is daytraders heaven.

Simply, you need to make at least 10% on any investment just break even due to monetary inflation, which is both the reason for the current global bull and will be the reason for it's demise; only the severity is in doubt.

The signs of China's approaching day of reckoning are already appearing - wages are rising, interest rates are rising, bad loans are rising, monetary inflation is over 20%, factories and housing are being built & left empty, the environment is a basket case, the health of the Chinese is deteriorating (& the consequent drain on the health system).......

Just as any good thing is amplified by China, so too will any bad thing, only many times worse. Just be prepared.

Theres also a minor matter of the Japanese Yen carry trade, but we'll leave that for another day....

Just one question, why does the IMF predict further high rates of growth through 2008 in China in their global report?

Bad loans is probably the biggest problem in China. Though, I have not studied their economy in depth. Wages rising, how is that bad, its natural for wages to rise with GDP growth? IR rising, thats to counter inflation, are they rising by an alarming rate? What do you mean by monetary inflation? Are you simply talking about CPI equivelant?

The biggest problem in China I beleive, is their pegged currency, once this is taken off, we are going to see some serious problems!

 

[wayneL]

Just one question, why does the IMF predict further high rates of growth through 2008 in China in their global report?

Bad loans is probably the biggest problem in China. Though, I have not studied their economy in depth. Wages rising, how is that bad? IR rising, thats to counter inflation, are they rising by an alarming amount? What do you mean by monetary inflation? Are you simply talking about CPI equivelant?

The biggest problem in China I beleive, is their pegged currency, once this is taken off, we are going to see some serious problems!

I have a question.

How often is the IMF correct in it's projections? I have no idea of the answer, but the odd time I have taken notice, they are dead wrong. Not to say they mightn't be eventually correct in this instance, just question how much stock can be put in their reports.

 

[nizar]

How often is the IMF correct in it's projections?

They cant be worse than ABARE

 

[Buffettology]

I have a question.

How often is the IMF correct in it's projections? I have no idea of the answer, but the odd time I have taken notice, they are dead wrong. Not to say they mightn't be eventually correct in this instance, just question how much stock can be put in their reports.

I am not doubting Uncles knowledge of the Chinese market, I am simply asking some legitimate questions on his arguement.

As far as the IMF, I am not certain either. I know they have implemented some rediculous policies on economies in the past in which they have lent money too, in times of crisis. Asian economic meltdown for example. But they are a very well established economic organisiation, and I imagine their economic outlook analysts are pretty sound.

 

[Kimosabi]

Well, as far as I'm concerned, it all comes down to how much risk your prepared to take.

If you think the market is overcooked take your money out of the market and stick under your pillow.

What everyone has to understand, is at the moment the world is going through a money/credit expansion phase. What this effectively means, is that the governments of the world are basically printing more and more money at the moment.

Money supplies all over the world are increasing - 10% per annum in the United States, 10% in Europe, 14% in Asia.

http://www.dailyreckoning.com.au/increasing-money-supply-buys-white-bread-and-raw-sewage/2007/04/24/

What this means is the price of everything is going up from food to shares to property, etc.

Now what I haven't quite worked out yet, is why are the governments of the world printing more and more money?

 

[wayneL]

Well, as far as I'm concerned, it all comes down to how much risk your prepared to take.

If you think the market is overcooked take your money out of the market and stick under your pillow.

What everyone has to understand, is at the moment the world is going through a money/credit expansion phase. What this effectively means, is that the governments of the world are basically printing more and more money at the moment.



What this means is the price of everything is going up from food to shares to property, etc.

Now what I haven't quite worked out yet, is why are the governments of the world printing more and more money?

I have two opposing theories.

1/ There is some sinister motive that can only be speculated on when wearing a tin foil hat.

2/ They are not as smart at they, or we, think they are/

I'm not sure which, but I note which economies are in sync on this, and which aren't. Hmmmmmmm

 

[Crafty]

Now what I haven't quite worked out yet, is why are the governments of the world printing more and more money?

There are more and more people. As the population increases so must money supply (unless we all want to be poor. )

Unfortunately the side effect of this is erosion of the value of our currency...