When will the market pick up/recover?

[lakemac]

Watch the credit creation/destruction in the country of interest.

Withdraw/destroy the credit - asset prices drop.
Expand/create credit - asset prices go up.

Great Depression - reduction of credit from 1929 to 1933.
Japanese Depression - reduction in credit (window guidance) from 1990.

Oz house price boom - expansion of credit from 2000.

Other examples:
Intrawar Germany - hyperinflation due to massive credit creation.
Zimbabwe - recent times - same hyperinflation thru credit creation.

Germany - recent times - on ice thru credit restriction (so the Chinese could buy German engineering).

The thing to watch closely is the credit creation/destruction in China. When credit is removed (which will happen shortly) China will stop in its tracks as Japan did in 1990.

Question to ask is why does this happen. Answer? Control. In every case credit control is done by the banks. In every case the banks have wanted to control a particular thing. Great Depression - non-Fed ie. independent banks. Japanese depression starting 1990 - BoJ wanted to gain control of interest rates from the government.

The current point of control is in China. Check recent legislative changes there - personal ownership of land. Control the credit and you control the country.

When will be bottom out? Watch for the drop in credit in China. When credit starts to dry up in China watch out - our economy is headed south. The credit will flow again once asset control in China is gained by the banks.

 

[Gundini]

Watch the credit creation/destruction in the country of interest.


The thing to watch closely is the credit creation/destruction in China. When credit is removed (which will happen shortly) China will stop in its tracks as Japan did in 1990.

When will be bottom out? Watch for the drop in credit in China. When credit starts to dry up in China watch out - our economy is headed south. The credit will flow again once asset control in China is gained by the banks.

Prospective tenants have pulled out of Mori's new Shanghai tower.

"It's impossible nowadays to keep financial crises in one area," says Minoru Mori, chief executive of Japan's Mori Building, which just cut the ribbon on the 101-story Shanghai World Financial Center, China's tallest skyscraper. He ought to know: Lehman Brothers (LEH) recently scrapped plans to move into the building, and Morgan Stanley said it would rent only four floors instead of eight.

As lakemac suggested, "when credit starts to dry up in China watch out - our economy is headed south".

I tell you it gets pretty scary when you google some of these key words, like China and credit squeeze...

Full story here http://www.businessweek.com/magazin...7487391.htm?campaign_id=rss_topEmailedStories

 

[rub92me]

Yep lakemac (Steve's) observations are worh a careful read, as are his other articles. Think of a long string of dominoes stacked all the way from the US to China (and India and Brazil and and and....) They started falling in the US about 12 months ago in all directions, and have picked up speed exponentially in falling since. Probably less than 10% of the dominoes have fallen. Global bank and government intervention would be needed to stop this, but we simply don't have that multilateral cooperation to make that very feasible.

 

[lakemac]

nice to know a few people are at least reading what I wrote

right now the last gasp of the credit expansion is going on before our own eyes trying to prop up what ultimately should have fallen further.

be careful buying this bounce is about max 1 month away from the final fall.

anyone say dead cat?

as to china, a good friend of mine (actually my trading mentor who is incredibly good at what he does) reckons china will slow (from 12% pa to about 7% pa) but not stop. I believe it will be even slower (3% pa) which will effectively put china into a recession.

the control of property in china's main cities is what the banks are after. you can only do that with a credit crunch (cf Japan 1990 which was tearing along at 10% pa growth - why did it stop in its tracks in 1990 - google "window guidance japan"). gaining control of property for cents in the dollar (think Lehman collapse) is a wonderful start to controlling a country.

so watch the china syndrome - coming to an economy near you in the next couple of months.

once that credit crunch happens then and only then am I moving my super once again from cash to shares

 

[lakemac]

oh and did you see the lame attempts to prop up share prices by making short selling illegal.

only going to drag out the pain and make the eventual collapse more severe.

you may (or may not) have realised the current upswing is mainly due to short covering and fresh credit going into the system.

ah central bank credit - mainlined straight into the veins of the stock and bond markets. What a high (pun intended ).

interesting question for you guys.
answer this: why is the US dollar rising even when the FED is creating credit at such a rapid rate? Remember credit creation by definition devalues the US dollar as there are more $ around for the same (or less) underlying assets. you would expect the US dollar to fall if more credit is being issued.

and another interesting note for you: in this current credit creation mini-cycle note the money is not being lent for mortgages by member banks but is being issued to governments to bail out failing institutions. Note that kind of money is incredibly liquid - only one place for that. See my comments above about market rises.

got to go - money to be made (also researching another con - the current medical/dietary advice regarding a "balanced diet". Turns out low-carb high fat IS good for you...).

 

[CanOz]

oh and did you see the lame attempts to prop up share prices by making short selling illegal.

only going to drag out the pain and make the eventual collapse more severe.

you may (or may not) have realised the current upswing is mainly due to short covering and fresh credit going into the system.

ah central bank credit - mainlined straight into the veins of the stock and bond markets. What a high (pun intended ).

interesting question for you guys.
answer this: why is the US dollar rising even when the FED is creating credit at such a rapid rate? Remember credit creation by definition devalues the US dollar as there are more $ around for the same (or less) underlying assets. you would expect the US dollar to fall if more credit is being issued.

and another interesting note for you: in this current credit creation mini-cycle note the money is not being lent for mortgages by member banks but is being issued to governments to bail out failing institutions. Note that kind of money is incredibly liquid - only one place for that. See my comments above about market rises.

got to go - money to be made (also researching another con - the current medical/dietary advice regarding a "balanced diet". Turns out low-carb high fat IS good for you...).

The USD is rising? Still? I think the trend has changed now, you agree?

CanOz

 

[lakemac]

Dow theory would have to disagree with you CanOz...

I should have been more specific sorry.
I meant rising against most if not all major currencies.



notice how it started to jump in the months before the fall happened...
Someone knows something.
Chinese credit holds the key...

 

[mayk]

Chinese credit holds the key...

Do you think that the 'powers to be' are in the process of freezing the U.S economy to shift the focus to China?

Or are you of the view that Chinese growth has reached its peak and is now on a steady decline for years to come?

I have read almost all your posts and they make sense. I don't know why you post so little. I guess it is more about quality than quantity... Do you blog?

 

[CanOz]

Dow theory would have to disagree with you CanOz...

I should have been more specific sorry.
I meant rising against most if not all major currencies.



notice how it started to jump in the months before the fall happened...
Someone knows something.
Chinese credit holds the key...

The chart i posted was the US dollar index, the basket of currencies against the buck. The rally IMO was definatly helped by some kind of intervention by the central banks. Like all intervention attempts it can't fight the trend, fundemental or otherwise for forever.

These new attempts at socialsing the losses will only add to dollar weakness over the long term, and higher commodity prices.

Obviously this is from material that i've read recently and its the views of Faber, Rogers, Chuck Butler etc.

The thing i can't get over i that the majority of people chose to believe the mainstream media, and don't seek out unbiased opinions. Bush was so funny the other night trying to say the economy and the markets would be fine blah, blah, blah....its almost sickening to listen to.

The intervention causing the equity markets to rally won't last either and in the end will only make the fall harder i reckon.

Cheers,


CanOz

 

[M34N]

I should have been more specific sorry.
I meant rising against most if not all major currencies.

Well, ever since it became clear that the UK was heading into recession, along with the banking problems there and across all of Europe, it's not a surprise. We have to remember the fall of the US dollar index to its lowest levels (ie. near 70) was before it became apparent the US wasn't the only one with problems.

Plus there was speculation that rates would actually go up, but I highly doubt that at least until the markets start to stabilize.

That's why I believe we may see a drop in the US dollar, people have been factoring in a rate rise there for over a month (since its rally from the lows), and I wonder how many people still think they will raise rates when the government has to actually take $500+ billion worth of debt off the balance sheets of companies to make them survive? And the fact they had to take over Fannie and Freddie, then watched Lehman and Bear Stearns go broke, then Merrill was forced to merge with BoA, then AIG had to become state-controlled...

Maybe the US currency will become exactly that of your avatar :

But anyway over this week, the US dollar hasn't fared as well, and as I posted in the XAO analysis thread, was actually down against the Euro even when the Dow was up 350! A clear sign of short-covering I suspect.

The bear in me suspects this is nowhere near the end of this crisis...

 

[lakemac]

(sorry canoz I didn't check your chart thoroughly - I thought it was just $A/$US - apologies).

My question is why, even in the face of such massive credit injection, the $US going up. That must mean a *massive* conversion of other currency holdings into $US. Minor adjustments of interest rates only waver the market - not seismicly shift it.

My theory - big money is getting ready for the recession in China (also think revaluation of the yuan). Time will tell.

 

[CanOz]

My theory - big money is getting ready for the recession in China (also think revaluation of the yuan). Time will tell.

I don't know, a recession would mean a huge contraction from present growth levels on a scale not seen before. They are investing in infrastrure here too, with massive projects underway. These large projects in all major cities provide lots of jobs and have huge spinoff efftects. You can't imagine it will replace the loss of exports of course, but certainly would help curtail some of the effects.

Also, remember to that the Chinese middle class were and still are good savers, and that money is now being spent as consumption increases here. Our economies rely much more on consumtion than the Asian's.

Can the combination of the infrastructure investment and an increase in consumption, to do some degree fueled by credit expansion, help keep the growth rate positive? I tend to think so, but time will tell, with other factors like global inflation having the opposite effect on growth too.

Cheers,


CanOz

 

[lakemac]

"a recession would mean a huge contraction from present growth levels on a scale not seen before"...

canoz go back in recent history.
In the 1980's Japan was in a similar position. It was buying/building/making everything. At school I remember we were told to learn Japanese.
What happened?
Credit in 1990 got turned off - completely (see Richard Werner's "Princes of the Yen" excellent reference book for this plus the German connection).
Japan stopped in its tracks.
All it took was one year and they were moribund.

Same thing in the US. Ever heard of the term the "roaring twenties". The US was enjoying unprecedented economic growth. Within 1 year they were in the throws of the largest economic downturn in the world. Credit got turned off.

By the way I have the raw money supply data prepared by the US Comptroller from that era if anyone (including the doubters) is interested.

Go back into English history, German, French - all had moments of economic booms that came to a crashing halt - all because of a drop in credit. In each case you will find one or two families involved with the central banks set up in those countries prior to the boom and crash (See Nial Kelly's book on the Rothschild dynasty - two volumes - very heavy going and not for the feint hearted) (ok who pinched my copy - missing volume 2 in my bookshelf).

I don't have data on the Chinese savings ratios (anyone got a source of raw data? I am interested.). However, I would point out the old Pareto rule - 80% vs 20%. Remember the ratio of savings to credit is at least 100 to 1. So even if the Chinese are good savers it is not going to help if the credit is turned off.
The Japanese in the 1980's were good savers too. Didn't help them one bit.

 

[sparc]

Hi Lakemac...

I understand what you are saying.

one question, perhaps a silly one, what about the chinese soverign funds, would this not be enough...?

also would it not be difficult for the bankers to get hold of assets in china, i am not sure how much the rules are for foreign ownership has changed considering the government is communist.

regards.

 

[OzWaveGuy]

Hi guys,
I am only a beginner at this - but I was wondering if someone could explain to me how if, St George and Bendigo Banks have a 40-50% increase in profits and CBA has a 7% increase to $4Billion-ish dollars, our banking system is in crisis???

It seems to me that the whole American disaster is simply superimposed onto our banking system.

I am constantly confused by conflicting media reports of imminent recession, Vs the RBA needing to slow down our rampant economy? Can someone tell me which is it? Is our economy so rampant that it needs slowing or are we in a recession?

John the confused!

Don't be confused! Whilst News has an impact on the market to some degree - mainly when correcting, the reality is that people drive the market eg Social Mood. In a bull market, even the bad news is good news a lot of the time.

A majority of the analyst are "repeaters" who don't understand the market but are very good at explaining how an event caused the market after the fact.

As an example, I was looking at CNN money when the US left interest rates on hold on Sep 16th and the title of the morning was "Stocks slip as Fed doesn't budge", however since the article went up, stocks did a 180 degree turn and the DJI was up 110points. So the headline should have read "Stocks slip (then gain) as Fed doesn't budge".

Plenty of examples from the so called "experts" where they describe an increase in interest rates is good for stocks, then the following month it's bad for stocks.

It would be very unlikely for people to make money if you knew tomorrow's headlines today. eg 911 was a good example - you could have successfully shorted the market for a week, before being overrun by a bull leg that would take the DJI to a new high - who would have thought? The shooting of JFK is another. In individual stocks, news CAN make a difference eg, massive Profit/Loss etc, but very few stocks can swim against the current and will get swept away with the market (bull or bear).

Hope this gives some insight.

 

[burglar]

Hi guys,
... I am constantly confused by conflicting media reports of imminent recession, ...
John the confused!

jono_oz,

I am constantly confused by conflicting media reports.

I make up my own mind!
Decided the Chinese Commodity Boom was strong enough to eclipse the GFC.

Second biggest mistake in my life.

To get on topic, show me the chart in 6 months time, I'll show you when the market pick ups.

 

[Sean K]

Decided the Chinese Commodity Boom was strong enough to eclipse the GFC.

It still might be in the scheme of things.

Add India and Brazil.

We wont know for a few years.

One day it will be Africa's turn.