Opinions vary... An alternative view on the markets

[Boggo]

Instead, the Trader asks "How can I detect sentiment, measure its momentum and direction, and take advantage of it?"
Add vectors; determine price, volume, and duration; then take profit and move on to the next.

And be able to know where there may be be a target level for the current sentiment, or be able to recognise a change in sentiment and what might be the target/duration of the change of sentiment.
Sounds complex but the KISS principle is always the foundation.

 

[Mistagear]

But what causes sentiment? Charts?

Sentiment drives markets, charts show sentiment..

buy it when it stops going down, sell it when it stops going up.
hang on to your winners as long as you can, cut your losers as soon as you can.
When a ladder turns into a snake, get out

What more do you need ?

PS. dont average down !!!!

 

[Julia]

Sentiment drives markets, charts show sentiment..

buy it when it stops going down, sell it when it stops going up.
hang on to your winners as long as you can, cut your losers as soon as you can.
When a ladder turns into a snake, get out

What more do you need ?

PS. dont average down !!!!

Great summary.

 

[kahuna1]

K1, you do a lot of thinking and pondering and whilst it may sound good, its all just a waste of time because sentiment drives markets, not fundamentals.
Keep trading the SPI buddy and stop worrying about the rest.

Haha ...

This is where we never saw eye to eye :}

I agree sentiment drives markets short term. Long term fundamentals always drive markets ... always. If we are both in agreement the thing is a ponzi scheme which we are ... both of us should eventually be 100% cash.

I look at the overall picture as you know and dont focus too much on the charts as you do. If the overall market is going up most stocks actually go up. In a downward market 95% of all stocks will fall. Buying a stock in a market thats running into one of those brick walls I just love and mentioned at the start of this thread might work for a while as the individual momentum takes them higher ... but with odds of 95/5 against you in a falling market even I dont bother.

Top end of the market and we have tried it a few times on the ASX 200 ... 4,350 ... and thought it had some momentum when we got there and possibly to 4,500-4,550. It stopped flat one day just above 4,417 and closed below the magical top 4,353 was the close that day.

Not happy to own stocks up there and whilst we are still supported and dont doubt they have a nibble at the topside even the 4,500-4,550 barriers ... fundamentals have me spooked.

Technically the day the ASX 200 hit the low 3,765 it was an exact point low point and having seen the market try this top a few times 4,350 ... and fail the high is 15% plus below where we went.

Not amused with the news and schemes going on in the EU let alone the UK or USA or Japan. These are fundamentals yep I know. Sad thing is for spec stocks they tend to do about double the overall markets fall when they correct and with most 30-40% off their lows not for me. Even bigger pets of mine the banks not taking a 25% bounce just not my style.

Sadly suspect via fundamentals at some stage we visit lower.

Sentiment and momentum right now quite bullish which is fine and dandy by me.

Some stocks I of course will just hold either way due to income and the fact that getting an effective 10% plus with dividends vs 6% in the bank and likely lower rates as the thing unfolds makes me just have to own them. Not too many in this category but will be I suppose 30% invested when set.

I dont know what the eventual low will be but its always funny it tends to stop at a chart point. the low GFC was an exact point that was a 75 % retracement of the 15 year high low of 6,851 vs 1,814 .... = 3,074 and another very similar support level the 20 year high low and 6,851 vs 1,149 = 3,088 a 66% retracement in that case.

For me big ones support

3,775

3,400 ish

3,075 the old low

And if we visit there they just will not be able to help themselves going for the next one ...

2,550 or an insane 2,100.

I don't know how this unfolds but the pressure on the outside fundamentals again something unseen by me ever. Things not getting better but worse, very much so and personally very happy to take near 6% and see what happens.

Always some idiot calling a crash ... not suggesting we visit the pentultimate lows 2,550 or 2,100 but something has to give and cant see the drivers for a massive rally other than the similar stupid stuff we saw GFC which drove me mad talking 4,000 on a 6,800 market was just that. We had two massive short squeezes on the way down one from 5,200 to 6,000 and then an even bigger one from 5,000 to 6,000 on the ASX 200. It took nearly 12 months for it to hit its pentultimate low but got near there mid November 2008 ... loosing 45% in 6 months.

Of course we are starting at a lot more realisitic level and if we lost 45% from the 4,400 level that magically is the 2,500 scorched earth lows that I cant rule out. No one can realisitcally.

The only true wisdom is knowing that you know nothing." Socrates

Take care

 

[kahuna1]

K1, you do a lot of thinking and pondering and whilst it may sound good, its all just a waste of time because sentiment drives markets, not fundamentals.
Keep trading the SPI buddy and stop worrying about the rest.

Haha ...

This is where we never saw eye to eye :}

I agree sentiment drives markets short term. Long term fundamentals always drive markets ... always. If we are both in agreement the thing is a ponzi scheme which we are ... both of us should eventually be 100% cash.

I look at the overall picture as you know and dont focus too much on the charts as you do. If the overall market is going up most stocks actually go up. In a downward market 95% of all stocks will fall. Buying a stock in a market thats running into one of those brick walls I just love and mentioned at the start of this thread might work for a while as the individual momentum takes them higher ... but with odds of 95/5 against you in a falling market even I dont bother.

Top end of the market and we have tried it a few times on the ASX 200 ... 4,350 ... and thought it had some momentum when we got there and possibly to 4,500-4,550. It stopped flat one day just above 4,417 and closed below the magical top 4,353 was the close that day.

Not happy to own stocks up there and whilst we are still supported and dont doubt they have a nibble at the topside even the 4,500-4,550 barriers ... fundamentals have me spooked.

Technically the day the ASX 200 hit the low 3,765 it was an exact point low point and having seen the market try this top a few times 4,350 ... and fail the high is 15% plus below where we went.

Not amused with the news and schemes going on in the EU let alone the UK or USA or Japan. These are fundamentals yep I know. Sad thing is for spec stocks they tend to do about double the overall markets fall when they correct and with most 30-40% off their lows not for me. Even bigger pets of mine the banks not taking a 25% bounce just not my style.

Sadly suspect via fundamentals at some stage we visit lower.

Sentiment and momentum right now quite bullish which is fine and dandy by me.

Some stocks I of course will just hold either way due to income and the fact that getting an effective 10% plus with dividends vs 6% in the bank and likely lower rates as the thing unfolds makes me just have to own them. Not too many in this category but will be I suppose 30% invested when set.

I dont know what the eventual low will be but its always funny it tends to stop at a chart point. the low GFC was an exact point that was a 75 retracement of the 15 year high low of 6,851 vs 1,814 .... = 3,074 and another very simialr support level the 20 year high low and 6,851 vs 1,149 = 3,088 a 66% retracement in that case.

For me big ones support

3,775

3,400 ish

3,075 the old low

And if we visit there they just will not be able to help themselves going for the next one ...

2,550 or an insane 2,100.

I don't know how this unfolds but the pressure on the outside fundamentals again something unseen by me ever. Things not getting better but worse and personally very happy to take near 6% and see what happens.

Always some idiot calling a crash ... not suggesting we visit the pentultimate lows 2,550 or 2,100 but something has to give and cant see the drivers for a massive rally other than the similar stupid stuff we saw GFC which drove me mad talking 4,000 on a 6,800 market was just that. We had two massive short squeezes on the way down one from 5,200 to 6,000 and then an even bigger one from 5,000 to 6,000 on the ASX 200. It took nearly 12 months for it to hit its pentultimate low but got near there mid November 2008 ... loosing 45% in 6 months.

Of course we are starting at a lot more realisitic level and if we lost 45% from the 4,400 level that magically is the 2,500 scorched earth lows that I cant rule out. No one can realisitcally.

The only true wisdom is knowing that you know nothing." Socrates

Take care

 

[Ves]

Sentiment drives markets, charts show sentiment..

You can see sentiment from both a fundamental and a technical standpoint. Charts are not the only way of measuring it.

But, you still haven't answered what causes sentiment.

Whilst I have plenty of time for your approach, the reason why I asked is because I think that sentiment can also be caused (but not limited to) fundamental analysis or events. Everything in finance has its origins in greed or fear. Sentiment is a reaction to something, it is an effect (or symptom) not a cause. The debt crisis is a fundamental issue. However, reactions to this can be both rational and irrational (equally in how people buy and sell).

I agree with everything else you have said.

 

[Mistagear]

You can see sentiment from both a fundamental and a technical standpoint. Charts are not the only way of measuring it.

But, you still haven't answered what causes sentiment.

Whilst I have plenty of time for your approach, the reason why I asked is because I think that sentiment can also be caused (but not limited to) fundamental analysis or events. Everything in finance has its origins in greed or fear. Sentiment is a reaction to something, it is an effect (or symptom) not a cause. The debt crisis is a fundamental issue. However, reactions to this can be both rational and irrational (equally in how people buy and sell).

.

V,
(sorry for late reply, only saw your post tonight).

You answered your own question, sentiment is the collective of fear/greed/fundamentals/lunar cycles/plus whatever, who cares what part is dominant because all parts are present at all times to some degree.
You are correct that sentiment is the effect caused by all of the individual actions, once all contributing components are added together, it is the sum which becomes the sentiment and that is what moves the market.

 

[kahuna1]

Howdy,

first level support being tested. ASX 200 low 3999

Glad I exitied out of the dangerous stuff around the brick wall at 4,350 on the ASX 200.

Despite the market overall being 8 % lower and the stocks certainly cheaper we still have if anything more of the same going on via the debacle in the EU and US. US problem is not even being talked about and they cant even agree on cuts which amount to about 5% of what is needed to even balance the budget looking forward.

Interestingly my scenario about bonds seems to be happeneing at least to some extent in the EU with sharp rises in yields whilst they bicker about what is needed to fix the situation.

Not even close to what I suspect may happen eventually mind you. Should be a wild ride either way with the usual massive short squeezes that normally happen in volatile markets. Problem I have with the whole scenario is the fabric of the money markets and bond markets as well as global fiscal restraian has been thrown out the window. Eventually it will end in tears. Suspect this is just a peck on the cheek and when the mess eventually hits the fan .... the 8% lost in two weeks will look tame.

Certainly a lot of money to be made for those brave enough to venture into this mess. Selling options with the volatility up here has been helping yields along even with safety stocks yielding over 8%. Interestingly these things for the last two years have been at best ignored by the market yet in the case of poor old TLS which I liked $3.30 and lower ... just played the ranges with options as well earning 9% dividend and another 5% for selling the calls over the stock a few times plus the dividend is franked the comparative yield has been 15% or more. APA another pet doing well ... others of course have tried my mettle and ended in the dustheap.

With the USA on thanksgiving holiday and Turkey market in overdrive along with pumkin pie and cranberry sauce nothing is going to happen one might think today despite the very wek futures markets right now.

Next stop the 3,775 old low we had a few months ago .... another around 3,500 likely met if we go that direction.

Might be time for the old relief rally on the other side ... all is well :} The US debacle remains totally off the radar despite the congress and mess the budget is in.

Gotta go catch my turkey !!

 

[kahuna1]

Whoops did this last night ....

Hillarious,

Us basically put on credit watch by a ratings agency for negative outlook .... whats the market do ?

Go up of course.

Same games different tunes as GFC 1. Yesterday it was the IMF and Italy thing actually a negative when the IMF says the package is not worth a pinch of salt ...

Whats the market do ?

Goes up of course.

Not about to argue with these bear squeezes as during the GFC 1 we saw one for 15 % and the market being half 6 months latter and another for well over 10%. ASX 200 went up near 6,000 in a mighty bounce prior to having a cow and going to 3,073.

In the case of Italy ... their bond yields for Italian issued Euro bonds are nearly 5% over those issued by Germany. Of course given the different economies and debt levels there always has been a premium paid by Italy to issue bonds. This said the spread has quadrupled in 8 months.

http://www.bloomberg.com/quote/!IT10:IND

And its all good news :}

No idea or little care where they take this rally ... I suppose the excuse used was the door stop sales reported as being up yesterday and some hope for the US consumer returning to the fray. When I looked closer at the numbers ... as I tend to ... they interviewed 3,800 shoppers to come up with the sales rise of over 6%. Hmmm 3,800 vs 307 million people or 0.00123%. About one in 99,675 people asked.

Doesn't matter market does what it wants to and its as always interesting to me that the US needs to create just over 150,000 jobs each month just to account for population growth ... the participation rate in the US has not changed in 12 months and the average employed each month ... new jobs has fallen well short of this 150k needed ... yet according to the BLS the actual unemplyment in the USA has fallen from 9.7% to 9%. How this works is again unknown to most

Simple logic might tell you if you have 2 million more entering the workforce each year they need to create those 150k jobs or the unemployment rate goes up .... as per usual the fibs are getting bigger. If you look closely at the blue line on this chart it shows correctly that the overall unemployment situation is worse ... not better as reported by the BLS. Hard to actually see .... but it is important if the headline reported rate of unemployment has fallen as suggested by the BLS to 9% when the actual rate of unemployment appears to have risen by around 1% ... the real unemployment rate is well above the 9.7% rate from 12 months ago ... and the under employment rate is also above 20%.

http://www.shadowstats.com/alternate_data/...ployment-charts

I do love statistics especially those produced in the USA as they are better than the big bang theory or modern family.

Enjoy the rally :}

 

[kahuna1]

Off we go again ....

Good news on one front with China actually easing their credit stance by 50 basis points.

This was not the reason for the rally ... overnight. The US is going to stuff the EU central bank full of USD so it can lend to its banks at a lower rate. Again I suppose a good thing but honestly doesnt alleviate these pressures.

So for EU banks they may get cheaper sources of US dollars ... yes helps their balance sheets. So where are the dollars coming from ? The US fed ...

I still eventually come back to a ponzi scheme where the worst balance sheet of the lot is in the USA and by a very large margin.
So at some stage somewhere in the future the market has to look seriously at the US budget and real economy and go ... gee this doesn't make any sense the deficit is 100% of GDP officially and 400% usuing the actual outlooks and real commitments. No matter what they do it will grow to 200 % by 2020 and at an ever increasing rate after this without radical fiscal action. Radical.

But that day like most is some day off in the sunshine and market doesn't care.

We touched that support on the ASX 200 at 4,000 and bounced like a superball.

Here we are and like the Australian market yesterday on the close we saw the usual for a month that stocks are down and with the last trading day of the month ... the close involves a magic rally ... we went up half the range as prices were window dressed for month end. Same going on in the US right now on the close for their month of November and yes the news out overnight supports the rally to some extent .... a 4% rally.

Like I pointed out last time we were in a bear market and we still are ... it wasn't the wicked falls that were strange ... they did happen of course but not until the wheels fell off it was these magic rallies and true to form when things looked shocking at that support of 4,000 on the ASX here we are back 5% higher with momentum looking to take out the other end of the range the 4,350 top on the ASX 200.

Of course the 4,250 ish level we shall start the day at today short of that level ... but as I said I was hoping for some momentum to take out the 4,350 level and possibly the 4,500-4,550 so I could just totally exit everything and sit on my hands. I know this will not make me any money but the sad fact despite this and other magic rallies is that the situation and overall fiscal situation vs what it was 6 months ago is far worse not better.

We in Australia ... like China ... have a lot of room to move to stimulate our economy ... this is both on the monetary side by cutting rates from the 4.5% to zero if needed and the fiscal side same sort of stuff ... going nuts like the USA and running a deficit of 10% of the total GDP is how far they are doing it and as yet the dead horse is still stinky over there. China very much same as us ... so calls yet again for them to fall in a heap totally somewhat silly.

US and EU on the other hand are moving one dead body from one place to another. Sure the cheaper US dollars will help the awful state of EU banks ... but we have problems out of every corner not just the commercial side but goverment fiscal debt and budgets are screaming. I do believe the vanilla business of banks borrowing money and lending it 2% or more higher is very valuable. Sadly these trading schemes and loosing the plot on old fashoin banking have seen banks loose every cent ever made on trading for the last 30 years with a few exceptions and thats the Australian banks which learnt their lesson 20 years ago with the 1980,s and 1990's high flyers.

My concern as always ... is if the market can punish Italian bonds and make them pay 4% above Germans for credit as they should ... the fiscal side of the US to me is even sicker and a 1% rise alone in what is demanded for US bonds would leave the whole ponzi scheme in tatters.

I keep thinking this will happen ... thought it would be the case with GFC 1 ... I could see the ultra poor state of the US banks but thought it eventually caught to the govt side of things. Wrong .... and possibly wrong for some time on this one. I dont know what level the market actually looks at the fiscal situation for the USA and has another cow. THe US senate and goverment is dithering over cuts which equate to about 5% of what is needed. Yes 5% and they still cant even bring themselves to even do this.

Its like watching a slow motion crash .... but as yet ... the focus today is on wrally wrally wrally.

As I typed the US as expected had their window dressing rally and rose over 1% in the last hour of trading.

Shorts must be punished and like the last time if any weakness actually comes into the market there will yet again be calls to ban short selling despite its merits. I fondly remember the US banning short selling GFC 1 in financials and here today we see banks like Citi sitting with a 95% loss vs its high. Pre GFC and spilts the high was over US$550 vs its dismal $28- now .

Yes lets ban short selling Leyhmans a classic ... no you cant go short .... vs 100%.

Only news of merit this week .

China cuts policy stance ... a positive

US to stuff EU central bank full of dollars .... yes a positive ... long term fiscal outlook unchanged

Finch cutting US outlook credit wise ... a negative . For a ratings agency of any sort to downgrade the USA or put a negative outlook on them as was done is virtually impossible. Its akin to being unpatriotic and why we saw banks which basically went under still with investment grade ratings on their bonds.

Nothing basically new ... window dressing on a grand scale and the magic rally as we saldy see.

Hoping for my Christmas present and totally exiting if we go into the 4,450-4,550 on the ASX and I can exit virtually all holdings and sit on my cash for a while. Happy even at 4.5% or term deposit at 5% plus to take a hiatus for 12 months and just see.

Merry Christmas to all ... 25 days till Santa :}

 

[kahuna1]

The Santa Rally.

　

My friend Lizzard and I were having a chat and came up with this.

Lizzard asked ?

QUOTE
Is it November 2007 all over again when we didn’t know why it was being rallied into the face of the storm? Or is it that the market expects a comprehensive dose of amphetamine to be delivered on 10 Dec? Anyway, I’m confused.　

Me too ...

　

The move via the US fed was basically the US fed bailing out the ECB and liquidity. Does this mean we get one global currency ? I doubt it as the Euro is a flop with 20 different governments and tax regimes and loopholes being played like a violin ,,, on off against the other. I am sure the multi nationals operating in Europe have their Greek office making heaps via lax tax system when their German head office makes not much.

In the end ... the demand for credit is growing at an explosive rate driven by the fiscal side of things the deficit and bailout programs gone nuts. Why the bond markets improve and even ignore this is because in the end every move is designed to make it so via the central banks.

If a creditor said that they will only guarantee 20-30% of the face value of bonds now being issued by the EU ... in normal times the interest rate demanded would be 10% plus ... but its less than half that. As for the old USA I do wonder about their accounts and where or when the penny drops. Current projections have the thing at over 200% of GDP by 2020. What I find stunning ... scary and all the rest is that the official debt in 2006 was 8.6 trill its now 15.1 trill.

Simple stuff the number has grown by 40% ... inflation has gone UP ... not down ... yet the cost of these borrowings has gone down. Also the chance of default or partial via haircut is at least 20 times if not 100 times more likely ... and again the cost for the US government of borrowing has gone down.

All three factors ... inflation .. chance of default ... total demand for a product .... have gone one way and should indicate a higher price, or in this case yield demanded to lend, for things yet the actual price as always defying logic.

Since the dawn of time money lenders have always increased the price for any of these three factors and just one normally would send the market into a tailspin let alone all three. I do think the inflation pressures may abate if things fall apart but the fact the US is just printing money and debasing their own currencies value even has me wondering about this.

Chance of default as we look forward is not going to go down, but up, especially for the US as these unfunded government obligations come due and the baby boomers retire in millions pre 2020. The social security system and Medicare and Medicaid as it stands will bankrupt them alone with 100% of all tax receipts being needed to pay out these benefits as they stand in less than 10 years. This is even if the US congress passes the cuts supposedly on the table. They equate to about 10% of the budget each year when these pressures will amount to a 60% increase in obligations. The CBO ... congressional budget office is well aware that the proposals as they stand are at best window dressing.

In some ways its like the bankrupt idiot driving a Porsche to impress the neighbours. Was the US bailing out the ECB just that ? Given their own fiscal state my view is yes.

So just leaves the last factor and chance of default at some stage. Given this and as silly as it sounds for the USA to be at risk of default or demanding a haircut on its bonds ... if Greece can do it ... and the EU obviously thinking of others Italy Spain and other pigs that might and if they are only guaranteeing 30% of the face value of new bonds issued ... anything can go.

As per normal keep looking at the same stuff over and over again and coming up with the same conclusions. In the case of bonds and credit all three factors pointing one way vs the markets direction and central banks intervention forcing it that way. Basically dont like bonds.

Anyhow hoping for that extra 2/3/4/5 % on the ASX 200 and an I wish to 4,350 on the ASX 200 if not the next levels up near 4,500 and exit stage left.

Still thinking of holding some but becoming less amused as the prices rise so two biggest holds TLS and APA massive yielders but APA higher than pre GFC1 and if price of credit goes up it will come down. If market overall peaks same thing. Have a few banks left ... all of them ... but want this all gone if we get there and will just stay cash and wait.

Might be the wrong move but for me ... when I have one factor pointing in one direction its good for a stock say 10% have two its 25% ... have three and its usually 40% if not more. Here we have all three underlying things for bonds pointing to higher yields which will not be good for borrowers ... banks ... leveraged ones .... or stocks ... yet the stock market not worried about the state of affairs.

Will get off my soapbox till something changes.

I do however humbly point out as always .... Over the years I commented on such diverse things as the AUD at 65 cents and it only had one way to go. Oil at US$40- same thing same logic. Uranium at its peak, ASX at 6,800 same thing and same logic all applied. Same results Oil at $130- opposite view .... Been wrong on bonds as the central banks have all ganged up to flood the market with cash but the three factors all perfectly aligned. If its not bonds some release valve is going to totally blow. They cant and will not cut spending or address tax rises needed to try and balance the books ....

When we have demand exploding, supply in reality shrinking due to the fact the demand exceeds total supply by about a factor of two and future demand larger than what can possibly be met. Prices have little choice longer term.

Then again ...

"The only true wisdom is knowing that you know nothing." Socrates

　

Merry Christmas to all.

 

[BradK]

Welcome back Mark. Always good to read your posts.

 

[sptrawler]

Great posta kahuna1, much appreciated.

 

[pixel]

Great posta kahuna1, much appreciated.

+1
Thanks K1

 

[kahuna1]

Hi,

Honestly I thought a factor in all the collapse from GFC 1 ... to where we are now would be the bond side.
It has been ... and it hasn't been.

Strange comment but we have seen the prices demanded to invest in second tier bonds explode in some cases and in the case of Greece fall totally apart. On the other hand the liquidity measures taken by the band leaders the USA and Germany on behalf of the EU have seen the bonds issued by both remain intact. In fact the reality that rates will remin low for some time has seen them rally when others have actually totally fallen out of bed.

Does the next leg down if it happens ... get driven by a bond yield rising driving up the cost of borrowing ? Given they have held it together till now ... I don't know. Personally and its a personal observation ... when goverments are demanding more and more of the total free capital ... the value of paper money is falling due to the fact that the central banks are just priniting it to keep the market awash ... I thought it would have happened prior to now. During GFC 1 ... things went very close to total shutdown with everyone refusing to lend to each other and only the drastic action of central banks doing what their primary function is at times like this is ... be the lender of last resort stopped a total meldown in 2007/8/9. I suppose they will be able to avert this yet again ... but this said the reality for borrowers outside the central bank cabal is they are facing increased costs. If one actually notes recent moves via rating agencies even goverments are being downgraded and the USA itself put on negative credit watch.

When we have these goverments demanding 80% of the free capital then 90% then 100% then 110% ... eventually it will become a competition for funds ... or so I thought ... until they all just went lets print money out of thin air.

This does nothing other than relieve maybe the liquidity but still the debts created remain and at some stage need to be repaid.

In many ways the whole thing is a dirty little game. The US is and has been without a doubt playing with statistics and understating its unemployment by a serious factor. When you have population growth of 2 million a year they need to employ 150k plus new people each and every month just to keep unemployment stable. The numbers fall well short of this and still we see the reported headline unemployment fall. yes last number the participation rate fell .... but not by much. I doubt having looked hard the real unemplyment situation in the USA has changed one iota in the past 2 years.

Next we see the same with inflation over there and whilst house prices remain mushy the cost of living via every measure has been rising as the low value of the USD has hit import prices and energy prices eventually have caught up with the rises seen 2004-2009 and on top of this some local charges have risen to try and balance budgets on a local govt side and state side. Yet despite this the same is going on as was the case pre GFC and the real inflation was understated by around 2.5% a year. If they can keep doing this the real debt will be debased over a period of time. Doesn't help the 80 million Americans ... baby boomers about to retire and go onto inflation linked payments via social security or pensions.

Understating the inflation side ... overstates the GDP by a similar amount and the real GDP growth is negative I suspect not postive.

Add to the mix the debt side is frankly out fo control and growing over there ... overspending 10% of their GDP in a federal budget deficit ...

To me there are so many factors longer term that just do not add up.

Dont add up at all.

Sure we may very well have some sort of a rally .... but with not one ... not two but 5 different factors pointing one way and only one saving grace the other side ... or two ... goverment overspending and ultra low rates ... both of which eventually have to halt ... any rally for me is eventually going to peter out.

The scope of the fiscal side measures needed ... and yes this is fundamental mumbo jumbo that may or may not take hold ... eventually it will ... it has to. A house with an income of 20k which owes officially 140k on credit cards and is really owing 400k on credit cards ... which instead of spending less than its official income of 20k is adding to its overall debt at the rate of another 18k each year doesn't sound like much but where does it end ?

In simple terms the tax raised by the US federal system needs to rise from 2 trillion to near 3 trillion or by nearly 50% from the low levels charged right now. Spending needs to fall from the 3.8 trillion or 1.8 trillion deficit to something like 2.5 trillion or less to meet the deficit ... so right now ... taxes need to be raised by about 40% .... 40% and spending needs to be slashed by 40% ...

Both sides ...

Draconian measures are needed to be taken. None of which is about to happen ... the measures which have been dillied and dallied and fought over tooth and nail in the US congress and senate account for 5% of a very much needed 80% change and they cant even do that let alone something that is needed on ascale at least 10 times if not 15 times larger.

The goverments by playing with inflation numbers understating them and overstating GDP ... may hope they can via deflating the real value of the debt by understaing inflation by 2-3% a year make the debt pile dissapear. Saldy it would take 10 or 20 years to make this meaningful and it will not hold together that long. This also is if they take stern fiscal measures to balance budgets looking forward. The EU has been forced to take some of these measures and will have very slow and low GDP for some years. The US has taken none of these measures.

Cracks already appearing in the picture as I said with ratings agencies downgrading everyone and everyone ... from countries to banks. This will force up the price of money longer term as it should. Banks which are solvent over here are being squeezed on their margins as they have to pay a higher price to borrow and as such pass it on to the borrowers. Ratings agencies were made to look worthless and idiots GFC1 with some having banks with investment grade ratings which went insolvent and broke days latter. The ratings agencies are paid not by govements but by banks and investment houses so its always a catch 22 as to having the fox looking after the henhouse. Whilst a goverment of a nation always should have a higher investment rating than individual companies within that nation .... so a bank in the USA cannot have a higher rating than the goverment ... I am wondering if this is even correct given the fiscal debacle overseas. The goverment of Greece just handed out a 50% haircut to bondholders but I am very sure a lot of Greek based companies were and did not do the same with their debt. Perverse thing is each of these companies which will presumably repay their debt vs the 50% written off by the goverment ... actually every one fo them had a lower credit rating than the goverment of Greece.

Does this fallacy continue ? I dont know but not sure that the credit rating of Australian banks should have been cut of late vs the overseas ones. We are a pimple in the overall equation and if ... if the resource side falls apart ... it will be a very interesting ride.

Having commented last year when the RBA raised the rates Melbourne cup day I thought the last rise was a big mistake ... from 4.5% to 4.75% ... we sat there for 12 months ... now the RBA is in retreat mode and two cuts in two months ... and market pricing in a few more in 2012 .... we have so much room to move in that area vs the US or EU its a joke. We could cut 13 more times !! And on the fiscal side the goverment is still talking balancing the budget in 2012/13 .... vs the US spending about 10% of their total GDP over and above reciepts. If our govt only did half of this if it was needed ... and went to a 60 billion deficit ... it would be about $2,800 for every man woman and child spent. Our overall debt situaion with no nasty hidden debt it really is insane the ratings agencies and their actions downgrading us of late.

QUOTE
The Gross Australian federal debt as at 30 September 2011 was AUD$208.992 billion, with a net debt position of $80 billion, or 6% of GDP
http://en.wikipedia.org/wiki/Australian_national_debt

This compares with the USA offical one at 110% of GDP and with unreported contingent liabilities ... real ones via social security and medicaide and medicare making it 300% of GDP or 50 times our size.

I scratch my head at times like this and wonder. Anything and I mean anything can and will happen.

Cant rule anything out on the fundamental sice as it is frankly totally insane.

Something somewhere has to give one might think.

Is this going to lead to some magic rally ? These sorts of overseas inspired pressures ? I am not sure it does. Eventually lenders to these out of control debts have to demand higher yields to lend as the size increases as does the risk of non repayment.

Only time will tell .

Marry christmas and good luck for 2012

 

[notting]

Mr. Obama sees retaining the stability of markets and the confidence of investors as a primary goal of government and a prerequisite for achieving any major changes in public policy. Mrs. Merkel views the financial industry with profound skepticism and argues, in almost moralistic fashion, that real change is impossible unless lenders and borrowers pay a high price for their mistakes. http://www.cnbc.com/id/45630431

Short term or long term? That is the question.

Markets will force a short term move that will be required to prevent collapse.
ECB will have to print, whether they do it in a dramatic move to inspire markets or just do it on the sly as has been done a little to date is also a possible uninspiring bumbling along possibility.

 

[kahuna1]

Well its almost time for Santa.

Market yet again stalled at the 4,350 level and flopped as the Euro plan was rubbished.

As per normal the games played out in the market still controlled not by humans but the old high frequency trading programs. RBA cuts rates here again second time in two months ... What does the market do ? Goes down of course. Same thing happened last month at the widely expected cut the market closed on its lows.

Out comes a terrible number ... Take your pick ... Consumer sentiment in the toilet the other day and what does the market do rally.

Just an observation and as a trader for institutions for over 20 years its bonus time. Benchmark is the ASX and if you look back last 10 years there almost always is a rally and it seems to close the month of December near or close to a high. Of course exceptions but too many times out of 10 it closes near the very top. Means little longer term but sitting here in the bottom end of the months range for the ASX 200 ... 4,335 vs low of 4,050 ... At 4,100 if they can manage a magic rally in December they will certainly give it a shot. Markets will be incredibly thin post 25 Dec and despite looking and feeling skittish from leads overseas they usually have a taste of the bottom ... Shake all the longs followed by a short squeeze irrelevant of any overseas factors.

Classic of this was Dec 07 they managed to halt the slide for a month ... Only to see the index shredded for 12% in Jan 2008.

Not much to report on besides I think the EU plan will keep things in mud for years.

Domestically was interested to see the govt is thinking about finally a policy of use it or loose it in regards to offshore oil and gas finds. Some were discovered over 40 years ago !! Gorgon which finally is set to go had a series of proposals to develop which fell through over 10 years ago. WPL's Browse deposit I think discovered in 1974 always stuck out to me. Certainly difficult to develop due to location but always some excuse was used until hey presto Shell gets out of the picture and having tried to take them over twice, and failed ... Asked if it could again and told NO ... The real deposit is actually going to get developed. Also some other deposits that have sat for 15 years idle magically now are moving. About time.



Meanwhile back at the ranch some worrying signs coming from China of things slowing. Given the like us have their rates high ... Not so worried about this longer term as they can and will lower their rates and reserve requirements at will. Something the EU or US or UK has zero room to move in that direction. So too government spending China can and will boost things via this direction if needed. Again EU and US ... Cant and moving the opposite direction ... Well the EU at least ... Eventually the US follows one way or another.

Still believe top end of things 4,350 ... And maybe if Santa is good 4,500 early new year . Above this levels 4,765 and old highs around 5,000.

BEING REALISTIC ... Some of the reported profit downgrades make any decent rally on the back of fundamentals hard for me to see. Other side of the coin is what I call bulldozing and what we just saw was the overseas market fall 5% and our own go down nearly 7% so any long was bulldozed out of the way. The converse applies and with all longs now either stopped or looking to pull the sell trigger ...its time to whipsaw things the other side ?

May or may not happen ... But I can smell the dealers bonus's and nothing in December should be ruled out :}

Long term given the mess and clear signs of slowing EU and likely to spread ... Not able to see some massive rally myself. Lower end 4,000 support ASX 200 followed by 3,750 ... 3,450 minor 3,070 Big then 2,500 and 2,210.

On one hand we have lots of room to move monetary policy via the RBA from 4.25% to wherever .. 1% .. . Same govt spending side ... Currency not even a concern still up above $1-. China same scenario if needed. I do wonder what EU and US pull out if needed ? If the EU is going to tighten on the fiscal side as they have said ... Ease on the monetary side as they have done ... Leaves a net zero change to the already shaky state of the economies.

A week ago RBA deputy warns the EU problems severe and likely spread and what does the market do ? Up of course. On the day !! The market obviously slammed via overseas stuff since then. He even went and said its likely even to impact our largest trading partners China and the rest of Asia and they will need to commit money to buy EU bonds .... Not a pretty picture pained by the nations number two banker and still it rallied. Just over 0.5% in an hour. Not much but shows who or what is actually running the trading and its not human :} Being an old fart I remember the times from 20 years ago when a similar comment would have sent markets and currencies into a tailspin. AUD barely moved in response.

Of course this did happen the last week ... But its almost a case of do the opposite on the day.

Despite an ordinary outlook and vast storms on the horizon ... I can feel the rally in my bones taking us closer to the highs this month vs the lows. Only thing that matters is my bonus for 2011 and I will do everything I can to make it as big as possible :}

Anyhow we shall see if the Christmas window dressing ensues.

Long term still very concerned about the overseas factors and see NO way out of them which eventually leads to one of those large corrections. Short term ... Given its bonus time and they even managed to stave the slide off in 2007 ... When it fell 12% the next month ... A nice rally over the next 10 days might be in order.

Merry Christmas

 

[kahuna1]

Cont ...

Things start slowing down ... Its only going to get worse sadly. Sadly despite thinking they were mad at the time, this scenario has played out time and time again. Asian financial crisis and well run countries held to ransom play forward 15 years and they are the ones who are in great shape. Always if being attacked or things are grim attack someone else !!! Accuse them of something idiotic to delay any reaction. EU and US and Japan are in a hole. It speads and I know without even thinking which markets will be attacked vs the ones that should be. US according to them doesn't even have a budget or debt problem :}

Anyhow convoluted rambling as per normal. Back to that question about house prices and when its the best time to buy ? Well 10% unemployment and 12% interest rates. I suspect house prices will be under 5 times average salary vs buying when we have 5% unemployment and 4.25% interest rates and we see right now the debt ratio having tripled in 15 years . Sure some things keep it afloat and one is the massive population growth here compared to overseas ... Immigrants add a lot to this but when and if things slow a bit so to will this. Oh and the latest Sydney average at $ 600,000- plus and it ranges from 623k via one to 673k on another. Lots of areas well over the $1- million average ? Sound like my wondering about Miami or areas of San Fran or Vegas ? It should. Different dynamics but if you want to suggest unemployment is going to remain at 5% forever and rates at 4% go right ahead.

Back to the markets ... I still keep being too greedy feeling they have these magic pudding rallies and yet again still have stocks left which I just don't want in 2012 and hoping for the index to have a lovely window dressing of 3/4/5% to take us nearer the 4,350 level vs the low this month which we are a mere 2% away from that and 4% from the highs. I j can just see the instos rubbing their hands over the new Porsche they want and if only we can get the index up a few more %%. Longs were just crushed with out index whipsawed and under performing overseas by 2% on Monday and Tuesday as they trod on the longs throats. They have this still to play with on the upside and if they can swing it 2% one way over and above the overseas lead they certainly can the other side.

I want the red Porsche please ... Yes all the extras :}

Longer term I am hoping for this push and just to exit. Even if wrong on one or two or three of the above factors it still leaves two which alone will provide one of those periodic corrections and a chance to enter the market again. Cycles ...

My own for 2012

Current interest rate one here is DOWN two or three more needed to 3-3.5% ...

Long term bond rates I believe have BOTTOMED in yield and only one way to go UP

Aussie ... Not so bullish in 2012 but still very long term supported unless the globe doesn't have 7 billion souls. Buy if they go idiotic like GFC 1. Buy 80 cents and slowly below.

House prices ... Well not a big fan of this longer term up here.

Equities ... Same old same old ... But still feel chances of a big washout more than likely. Don't like the storm clouds at all. Range big range 4,650 top vs that low 3,750. Sounds large but when it went 600 points in a week in August ... You get the drift. Chances of old GFC 1 low 3,070 being tested in 2012 a lot higher than the 4,650 being taken out. Chances of two supports below this being taken or tested at 2,500 or 2,200 higher than 5,000. Again not much of a prediction but one is an 850 point rise vs a 1,600 fall and I rate the lower end TWICE as likely as the top end. For me happy to stand aside at 4,300-4,400 if the Porsche eventuates !!

EU and US economies obviously awful and can only improve but very slowly with massive cuts in spending and tax raises ahead ... Very very slowly. US crisis likely as time ticks away.

China and Other tigers ... Chances of slowing I think very high but not by much. China maybe to 6% if EU and US falter.

Energy ... Not a great fan of this as alternatives, shale gas, CSG, LNG fast replacing traditional means. Some renewables on the cusp of quantum leaps.

Metals non precious ... Again rough ride and long term LONG term the demand is going to be there even if China slows and we get trashed. BUY BUY BUY but not till we see them squeal. That day in Aug some fell 25% in two days only to rise 50% in a week.

Wishing everyone all the best for 2012.

 

[kahuna1]

Howdy ... And merry Christmas to everyone !!!

Well the markets still stuck in mud and the possibility of the old bonus rally still alive and well. We bottomed on the ASX 200 at 4,050 ish but still in reality not too far out of danger despite what is a positive lead via the overseas guys and likely one third up the range for the month.

Still feel the old magic pudding rally could happen as the traders window dress for their bonus and an ultra thin market for the rest of the year could honestly send it anywhere. As I noted the market end of year tends to have a magic rally even in 2007 so that's the very short term tone. Long term things one hand on the improve in the EU with their funding but totally unaltered on the fiscal side as govts cut spending and raise taxes. Bottom line its going to be long and slow out of this mire for the EU. US still totally mad and talk of extending tax breaks on the already broke social security system I look on as madness. Other side of the coin the tax break if not extended does exactly what I think is needed and takes money to slow the deficit down but slows the US economy. Again a big mess which will take YEARS not weeks or months to repair and any rally no matter how convincing is hard for me to join into.

Same levels on the top and still having a few stocks left for Santa an I wish the old brick wall of 4,350 on the ASX 200. Above that 4,500 and I do think this should stop any madness. Bottom side same old same old 4,000 then 3,750 a few minor ones prior to the GFC 1 low of 3,070 and then major stops below this a nutty 2,500 and then 2,200.

Where we head next two weeks is anyone's call with things thin ... But the tone is certainly a recovery and since liquidity will be ultra thin this could fall in a heap any day. Other side being illiquid we could find ourselves pushed back like the magic rally in October where we gained nearly 8% in a week. Hit my old magic brick wall at 4,350 and poof back to the lower support at 4,000.

Finally the RBA is seeing sense and my old mate John Edwards on the board and whilst not usually a fan of economists this guy is the smartest man in the room. Commented the rate rise in 2010 on Melbourne cup I thought was a big mistake and frankly it was. Suspect they have waited a bit too long to go the other way and lowering them as well. Our GDP growth in the last 12 months frankly sucked. Inflation was not really an issue whilst some things went nuts others fell out of bed. Being able to buy a TV a 60 inch for half what it was 2 years ago helps vs the price of Electricity giving us a shock ever bloody time we get the bill !!


Cycles and always cycles hence the title of this thread. Something with some I have failed totally with. FAILED ... Everything has a cycle and the time to buy is when everyone hates things and time to sell is when everyone loves things and entering or playing in between these medium term cycle highs and lows should only be window dressing.

Medium term being something usually 3 months where things hit one or the other end of a barrier but in these times post GFC2 it can and is sometimes days. In August we hit a strategic low I blabbed about for a long time at 3,750 and holy moly a week latter we were hitting near the magic 4,350. Getting set at the bottom was a chase all the way with the index rising an insane amount on the day. Since then we have been dancing in this range with the low well protected and only one decent sniff at that end and 3 different tries at the top end.

Pick a commodity or a stock or anything and its the same. Having been on the back of the oil rise but missed the gold ... Was sceptical of Uranium in the extreme until Cigar Lake flooded but then only involved for two plays .... Nickel played that one till I worked out it was being squeezed by two investment houses cornering the market. Same game different name.

Houses ... We all have an interest. When is the best time to buy a house ? Having been a trader back in the Japanese heyday and watched the UK and HK markets do the same and then followed by the US insanity of late its a decent question for Christmas. When is the best time to buy a house ? For those who followed pre GFC 1 the harder I looked the more I got scared of the US side and simple maths when you have an average income of 50k and an average house price of $1- million in some areas it was nuts. Having large sections with house prices in the 600-700k region about 12-14 times salary ... Madness. I look with trepidation at some Sydney areas and go ... What the !!

My answer to the above is the best time to buy a house is when interest rates are 12% and unemployment is 12%. If one thinks our unemployment rate is going to stay at 5% forever I wish them luck and same for interest rates. The interest rate side is breaking every rule in the book right now since the dawn of time. Not ours, but overseas. The risk of total default is about 10 times what it was 5 years ago. Inflation is higher ... Not lower ... Higher yet interest rates and what should be demanded for lending to reflect the risk along with inflation is LOWER. Makes sense to me ... NOT. Might take weeks for the ponzi scheme to tumble and may take years but it defies logic.

Back to house prices if you look at the US or EU it only takes one of them to falter and overall unemployment of 10% has sent prices back down into the toilet over there. Our market is not great value at these levels if one looks at it from this perspective. Just an opinion but if you don't expect rates at some stage in the next 15 years to be double what they are now at say 8.5% or unemployment to be close to 10% ... I am not sure you have any idea about economics. Sometimes I do wonder myself if I do :}

Market, well we certainly are not at the same end of the cycle as we were pre GFC1 and the market at 4,100 vs 6,850 is a trillion gazillion miles away from the high. Where is the low ? That's the 99 billion dollar question and whilst it could very well have been seen the reality for me is I suspect we haven't seen it. With the fundamental screws on the fiscal side overseas and the interest rate market totally defying the logic of lending that has been in place for 3,000 years these factors have YET to peter down to company profits. They may and have done a good job on the banks adding liquidity but simple fact is that it doesn't matter. The raft of downgrades on profits seen on the retail side and hoping for things to improve domestically will and always does have a peter down effect. Same being played overseas but even harder environment if possible.

The linchpin of our domestic index is what ? Banks and the woes overseas have seen a few emerge out the other side like JPM shedding only half of their pre GFC highs vs the normal like BA down about 90% ... Let alone others exited stage left. Any escalation of problems and serious downturn overseas will hit the banks like a ton of bricks. Having played the banks value game the last few years buying ANZ when it has a $20- in front of it and selling it 15-25% higher worked but now wondering about the wisdom of this looking forward. Great dividends and great returns and it was patience and entering and cutting hard that saved the day but I am beginning to wonder longer term.

Does the EU slow some more ? RBA certainly thinks so. The US which is my own pet domain is trying to stay afloat with concrete shoes on. China and the other tigers can and will continue I suspect on their merry way as they did GFC 1. China not even pausing for breath ! Our market gets spooked when it only grows 9% and might fall to 8%. Compound that for 5 years and they will be nearly 50% bigger ... 9 years double. Indonesia which had 5.5% GDP growth during the GFC same thing along with a lot of others which themselves as a block make another China. Some in this second block are India Vietnam Philippines Brazil Indonesia and so on. So we in fact have two sets of backups not just China growing vs muck from the EU and US and Japan a basket case.

Chances of say China and its GDP going up 2% from here vs it falling back to even 6% for a year or two if the EU and US have to curtail things is very possible. Chances of at some stage our own blissful employment scenario not going so well again very possible some time in the future. Chances whilst at this stage not yet to happen of borrowers being actually charged the correct premium via higher interest rates to borrow funds is a very real one. Chances of the actual value of real money in the EU and US falling already happening as they print money out of thin air. Bottom line inflation but with slow real growth if not negative growth and as such stagflation. Of course official CPI numbers especially in the US being played with to the tune of about 3% vs reality. Lets remove that from the CPI because it shouldn't be there. I did love the price of oil doubling and price to the consumer at the USA petrol pump doubling in 2006-2007 yet only 20% of the 100% rise made it to the CPI.

What does this any of this possibly do to the linchpin of our index ? Banks ? Nothing good and a lot not being old enough cant remember the fiasco the late 1980's and early 1990's saw with out banks. Not suggesting we go there again as we saw GFC1 our prudential system via APRA and more so the RBA had our banks held in very good stead. That was then and this is NOW. Unemployment here did not spike, nor did interest rates GFC 1.

Given the long term economic cycles and pressures at present the chances of us having unemployment rise 3% vs it fall the same amount are 100% . Basically we are at full employment at 5% unemployed. Chances of rates falling 3% for any length of time vs them rising 3% again about 100%. Only idiots lend money below the inflation rate ... Or below the risk of default and that's exactly what is happening right now.

 

[kahuna1]

Just did something if anyone is interested,

its long and detailed and in the PDF.

About US debt bubble and history of the Dow and valuations since 1895.


Take care

Mark M

View attachment August 2013 Opinion.pdf