Is this the crash coming right at us?

[Buffettology]

I have to say ladies and gentlemen, I was a bear a few months ago, but kept taking short positions to try and get in and out as quick as possible so I could avoid a crash (as I beleived one was definately on its way). With the very minor correction lately (we have lost a few hundred points), and with the US falling another 1.5% on Friday, could this coming week see us plummet?

I personally think it looks likely, but just how big will it be? I cant see us sliding below 5500, though worse things have happened...........

Opinions?

On a side note, I reduced 60% of my portfolio in stocks, down to about 40%, so a crash wouldnt be too bad at all. Currently I am only holding JST and EQN and JST performed relatively well last week.

 

[Fab]

I believe it is a welcome correction , I am not too sure about a crash yet but the large drop in recent days is making me a bit nervous.
The reason I think there is still some upside to this market is that August result season is starting next week and broadly results are forecast to be good or very good so that should keep shares on the way up. Also that might be dampen if interest rate goes up.
Miners are not expensive but some industrials are. The problem is the OZ market has followed the US one in its fall and it has been accross the board which I don't think is justify so if the market keeps falling , there will be some very nice bargain

 

[Bushman]

I have to say ladies and gentlemen, I was a bear a few months ago, but kept taking short positions to try and get in and out as quick as possible so I could avoid a crash (as I beleived one was definately on its way). With the very minor correction lately (we have lost a few hundred points), and with the US falling another 1.5% on Friday, could this coming week see us plummet?

I personally think it looks likely, but just how big will it be? I cant see us sliding below 5500, though worse things have happened...........

Opinions?

On a side note, I reduced 60% of my portfolio in stocks, down to about 40%, so a crash wouldnt be too bad at all. Currently I am only holding JST and EQN and JST performed relatively well last week.

What would be your trigger for the plummet? Presumably another big fall on the Dow? What is you recovery timeframe for this? Is the consequence a short term correction, longer term bear market? The Dow fall will be based on (insert useful commentary here).

Based on what I have read it is a shorter term correction taking its lead from the US. It may well be an indicator of longer term issues with the US 'credit bubble' with as yet unspecified consequences but for the moment I am going to focus on the facts that I have read:

1. In the US, they recorded GDP growth for the quarter. The underlying economy is stable and robust and will soldier one for the moment;
2. Various US hedge funds have gone under due to exposure to the sub prime (read high risk) credit market. However I believe there are statements out there from the US Treasurer that the risk is 'contained'. But then again he would say that.
3. There will be a downturn in mergers and acquisitions in the US (and thus presumably in Australia) due to the end of 'cheap debt' in the States. This has taken out a 'takeover' premium in the US (and presumably Australian) market;
4. I believe the Chinese indices were actually up on Friday.
5. There may well be an interest rate rise this week.
6. The Wesfarmers takeover of Coles could fall over if the monthly average Wesfarmers share price falls below $40. This could send a shock through the market that the Aussie takeover season is over.
7. AUD has lost some ground to the USD but this is a good thing for our commodities exports.
8. ?

Otherwise this is all starting to sound like the end of the world is nigh that you hear dishevelled men holding placards shouting from street corners.

 

[Wysiwyg]

I wonder what, if any, effect there will be on base/precious metal prices.If these hold their ground or aren`t effected too much then a correction and not a crash it will be.In my opinion off course.

 

[bean]

I wonder what, if any, effect there will be on base/precious metal prices.If these hold their ground or aren`t effected too much then a correction and not a crash it will be.In my opinion off course.

To begin with they will follow the market. Precious metals will recover the fastest. US Will drop interest rates next meeting. Australia will not raise interest rates.

And the US market next week. Well if Monday is down. Tuesday could be the biggest move of the year...decade!!! The direction ???
Why ??? because if monday is down then all stops will be out to stop a CRASH on Tuesday
Up/down volume will be similar levels to 1987.

Monday if down will be the 3rd day in a row. Crash Protection team will be hard at work at some stage. The Dow however is at another support level will that hold? Then next level probably the magic 13000

 

[wayneL]

US Will drop interest rates next meeting. Australia will not raise interest rates.

I doubt the CBs will be that freakin' stupid. If they do do that, they are opting for eventual financial Armageddon. The best thing they can do is raise. There will be much pain and squawking, but that will be far preferable than trying to prop up the credit bubble, which will have much more dire outcomes.

 

[Smurf1976]

In my opinion the correction will be followed by another round of central bank printing. I won't even start to worry unless the Dow falls more than 10% from its peak.

That said, obviously there are some sectors of the stock and other markets to keep well away from. Anything that is normally bought with large amounts of borrowed money seems likely to become somewhat harder to buy given the debt turmoil.

I bought one stock on Friday and have two buy orders open at the moment. Now all I need is a short, sharp panic to get them filled. These stocks are all long term (several years) investments by the way. I'd be more worried about the market if I were a short term trader.

 

[BSD]

Just another transfer of money from the impatient to the patient and from the overleveraged to the liquid.

Syncronised global growth and the third biggest economy growing at 12% per annum.

Look at the real economy instead of the debt market panic in the US. Metals are unchanged over the last three days of panic and RIO and BHP are down 15%from their highs.

Plenty of rubbish deserves to be dumped. But gosh I love being being able to buy high-quality assets at fire sale prices.

Pity the over-leveraged and then buy their assets.

 

[wayneL]

fire sale prices.

LOL Not Yet

 

[BSD]

LOL Not Yet

Not yet for most - but gee we are getting warmer with the SPI down another 80 and the panic merchants running wild.

I love the smell of margin calls in the morning

 

[Enoch]

Wayne,

Printing liquidity is definitely the preferred approach taken by Central Banks around the world.

Things would have to be pretty bad for them to cut interest rates, howver, I wouldn't discount it altogether.

Cutting interest rates was the option preferred by Mr Magoo (Greenspan) after 9/11.

Both strategies will be inflationary and Gold is likely to fly?

However Gold may drop over the short term as it may get caught up in the debacle.

I think central banks are in more of a bind now as Greenspan had the luxury of lower base/precious metals and energy prices so he was able to lower interest rates in a much lower inflationary environment.

Today they don't have that luxury.

Regards
Enoch

 

[wayneL]

Wayne,

Printing liquidity is definitely the preferred approach taken by Central Banks around the world.

Things would have to be pretty bad for them to cut interest rates, howver, I wouldn't discount it altogether.

Cutting interest rates was the option preferred by Mr Magoo (Greenspan) after 9/11.

Both strategies will be inflationary and Gold is likely to fly?

However Gold may drop over the short term as it may get caught up in the debacle.

I think central banks are in more of a bind now as Greenspan had the luxury of lower base/precious metals and energy prices so he was able to lower interest rates in a much lower inflationary environment.

Today they don't have that luxury.

Regards
Enoch

Yes, and that's why I'm so pissed off at Greedscam and the CBs. The economy was cycling into recession (A healthy recession IMO) at that point. Had it been allowed to happen naturally we would now have a solid platform for growth into the next 15 years and importantly no overpriced assets, no credit bubble, no ridiculous and sociologically damaging housing bubble.

In my view they have %$#@ed up big time.

As a result of their actions we face the real possibility of a complete credit implosion and severe recession, if not depression.

Nice work @55holes.

 

[BSD]

http://www.smh.com.au/news/business/everybody-is-guessing/2007/07/27/1185339258962.html

 

[wavepicker]

I find it interesting how the financial press or even various individuals look for "reasons" to justify what the market did a particular day, week or period. Sometimes there are quite obvious reasons that cause minor or macro moves such as event. Other times there is nothing. So what causes the market to do what it did?? Would it have done it anyway over the longer term? For example Sept 11 caused a huge downward move that was actually a capitulation. But the market was trending down anyway before Sept 11, so further along in time would have it kept trending down even if Sep 11 didn't happen?

So one can can only come to one conclusion, the market will do what it wants to when it wants to. The forces that move the market are internal, dynamic and feed upon themselves. However every now again we get these equity events caused by major news such as Sep 11 that cause very sharp, short and furious "pseudo waves"

The economic activity lags the market not leads it. Think this is silly?? The crash of 29 came before the great depression. The crash of 87 came before the the recession of the early 90's. The Nikkei225 in Japan crashed before the economic deflation in Japan. Put simply, the market has the first and the last word, everything else follows.

Cheers

 

[Uncle Festivus]

It is always interesting to see the word 'bargain' and the phrase 'the market always rises' pop up in these 'corrections'. These are both valid presumptions based on historical precedents of capitalism as we know it. What if we were to stand back and have a really good look at the big picture, and try to trace these periods of prosperity & correction to determine precisely what is the driving force, and if it is sustainable indefinatly.

The problem we now face is the fact that the financial lubrication eg currencies in circulation today are in excess of the requirements for sustained & steady growth. This is also compounded by the use of margin & derivatives, which grow exponentially each year to the point where nobody really knows if there is actual 'real' money to back them all, all the while the average dollar in Joe Citizens' wallet is getting worthless every day.

The normal capitalistic purges to 'reset' things have been indefinitly delayed due to either human weakness or political expediancy.

Notice how many charts there are with the blow off top surge formation going around eg share markets, property, antiques, art (Aboriginal dot paintings???) etc

And Japan, the former economic miracle & now world banker supplying zero percent funds to fuel asset bubbles, relegated to the global backwaters for more than a decade now - is this an example of the end game of capitalism, though in isolation? What if it synchronises on a global scale - contagion?

Are we better off now, or are we living to work?

Humans have just gotten too smart for their own good.

It may actually be different this time?

 

[Ken]

If you had have sold everything on the last correction you would have sold stocks at these prices.

BHP $25
OXR $2.70
ZFX $15
COE $.42 cents
RIO $70

Todays prices:

BHP $35
OXR $3.60
ZFX $18
COE 75 cents
RIO $90

 

[nizar]

I find it interesting how the financial press or even various individuals look for "reasons" to justify what the market did a particular day, week or period. Sometimes there are quite obvious reasons that cause minor or macro moves such as event. Other times there is nothing. So what causes the market to do what it did?? Would it have done it anyway over the longer term? For example Sept 11 caused a huge downward move that was actually a capitulation. But the market was trending down anyway before Sept 11, so further along in time would have it kept trending down even if Sep 11 didn't happen?

So one can can only come to one conclusion, the market will do what it wants to when it wants to. The forces that move the market are internal, dynamic and feed upon themselves. However every now again we get these equity events caused by major news such as Sep 11 that cause very sharp, short and furious "pseudo waves"

The economic activity lags the market not leads it. Think this is silly?? The crash of 29 came before the great depression. The crash of 87 came before the the recession of the early 90's. The Nikkei225 in Japan crashed before the economic deflation in Japan. Put simply, the market has the first and the last word, everything else follows.

Cheers

Solid post Wavepicker.
I agree wholly.

Just one point on individuals explaining market movements.

On thursday when the DOW rose about 90pts, the report on marketwatch was that because the oil price rose, that carried Exxon and as a result the market went up.

But when the DOW falls because of the oil price rising (more usual case), its because higher oil prices leads to inflation and higher interst rates.

I got a laugh out of that one! LOL

Gotta love analysts. I remmeber one bloke was calling for a US correction since October 2006, it never happened, so month after month, he would give his reasons. Then after what happend in late Feb, the same guy came on CNBC beating his chest, saying he had been expecting this for months. He wasnt wrong of course, he was just early

I seriously hope these guys dont trade off their analysis

 

[Bushman]

If you had have sold everything on the last correction you would have sold stocks at these prices.

BHP $25
OXR $2.70
ZFX $15
COE $.42 cents
RIO $70

Todays prices:

BHP $35
OXR $3.60
ZFX $18
COE 75 cents
RIO $90

It is a good point Ken and one I have been grappling with for the last few days. I am meant to be studying for my FINSIA Finance course so writing my musings on the global capital markets is a great way to procrastinate!

Everyone needs to ask themselves three questions:
1. What is the time horizon for my investment? Some people invest for retirment, some for 5 year horizons, some for 1 year horizons and some trade on a day to day basis. If you are a day trader, a correction is a big deal. If you are in it for the longer haul, the events of the last few days should not cause you any concern. I know it gets trotted out a lot, but share prices are listed in on a real time basis vs property which is not. Hence shares have a perception of volatility on a short term basis when in fact the longer term trend is growth. Anyone charting their share portfolio on a +12 month basis should still be in a healthy position.
2. Is your asset portfolio sufficiently diversified to allow for your individual tolerance of risk? From the sounds of it on this forum, there has been a flight back to cash in the short term due to a perceived riskier equities market.
3. What is your outlook for the global economy? It is a global economy now due to the increasing acceptance of capitalisation as being the dominant system for wealth distribution. But the point is, as of today, the US is still a dominant part of the global economy and the behaviour of the US consumer is the key barometer of the health of the dominant economy.

It is an interesting period of time this. It has been a great learning experience as well. Up to this point I have focused solely in the first two questions without focusing too much on the third question apart from accepting as a given that China is booming so commodities are in demand. Too simplistic a view.

I will re-assess my position when the next round of US GDP and housing indices come out.

I think you definitely learn a heck of a lot more when your portfolio is read opposed to green. Fear can be a good thing as well.

Thanks for all the great contributions by the way. It has helped immeasurably to answer my key questions.

Now back to studying about 'Property Market Sectors'. Groan...

 

[professor_frink]

Everyone needs to ask themselves three questions:
1. What is the time horizon for my investment? Some people invest for retirment, some for 5 year horizons, some for 1 year horizons and some trade on a day to day basis. If you are a day trader, a correction is a big deal.

yes, the past week has been a pretty big deal for me. The volatility the past week has been huge. Opportunities like this don't come around too often in a bullmarket

 

[YOUNG_TRADER]

I know this will sound strange,

But I just updated my portfolio value as of close Friday and its actually up 25% since last Friday!

Thankyou CUL and RMI

Aren't corporate profits still good?

Isn't the world still expected to have excellent GDP growth?

Isn't China, India and the rest of Asia's demand for raw commodities still there?

If anything this shake up has only helped the resources sector, why?

Well fundamentally its the banks/lenders etc that should feel the brunt of this as the concerns are to do with subprime woes and the ability to do deals, raise debt etc, so if I were an Insto I'd be cashing out of these sectors and looking at the sector whose fundamentals haven't changed since last week ...........

You know the one which is struggling to keep up with demand, the one which is experiencing set back after setback in bringing production online

But then thats just me