Why is our market so down?

[Nyden]

Sure it's irrational! How many rational humans do you know, particularly when greed and fear become involved?

You have two choices really. 1/Trade the irrationality (day and short term trading) or 2/ Take a few steps back, ignore the volatilty, and take long term trends, or buy and hold...

Absolutely agree, & I know that's what I need to do. It's just very hard not peeking at the markets, & becoming a little irrational myself watching it drop every day

I am holding for the long term, still - it's always enjoyable seeing short term gains!

 

[sassa]

And the market can stay irrational longer than some investors can stay solvent.

 

[The Mint Man]

Sigh, base metals up...and commodity stocks? What do you know, down! A long with every blooming other stock. What's todays reason? How can we fall for 7 days straight...it's rubbish. The US hasn't even fallen that hard this week. They go up 60pts, we go down. They go down 25, we go down 36.

We can't just ignore their gains, yet overstep their drops. It's just ridiculous.

Gov should abolish CGT at the 12 month holding period for shares, that would get interest back into the markets

exactly my thoughts for the last couple of weeks... very frustrating, thats for sure

Cheers

 

[Bushman]

Investors (people) are worried at the moment. They are worried, as they have worried before, because participants in capital markets are not very good at disclosing bad news. So the overwhleming perception out there is that there is more bad news to come. When you are worried, self preservation is your over riding concern. When investors are confident again, then they will buy more stocks than are sold and the market will go up again.

A note on Centro. If Centro had been able to 'digest' New Plan as per the business model, $10 would have been a solid price over the longer term horizon. Acquisitions had been working for Centro and Centro investors by providing returns that exceeded that of other participants in the LPT market. However the business model became flawed in that it was not flexible enough to consider the worst case scenario of a prolonged credit crunch and banks sudden aversion to perceived default risk. So $10 in May was not a good price after all because the game changed but the company's debt profile did not change with it. The thing to note is that debt markets will not remain frozen over for eternity. Hence paying $10 for an LPT with US exposure in the future could once again be a good investment option. The key thing to note is that debt, while providing substantial returns when things are good, exposes the investor to liquidity risk when things are bad. Very simple lesson that will be at the forefront of Boards, ASIC and the ASX's thinking in the future. Or at least lets hope it is. That was what Sarbannes Oxley legislation was meant to instill after the Enron debacle.

 

[M34N]

Real1ty: Fair enough, mate. The markets don't always follow the economy, though. I realize inflation is going to rear its head, but would you think the central banks will sit back and watch the markets (including housing) collapse, or fix the problem now by creating the inflation dragon for later? I think they would rather at least now try to create some growth for 2008/09 by lowering rates now, and then eventually raise rates later when inflation starts to get further out of control later on. Maybe its their view that at least we should have some moderate growth if there's going to be inflation anyway, rather than just have inflation and little growth, or possibly even a recession, then stagflation?

What's peculiar is that growth is slowing, but spending by consumers remains relatively strong, and employment remains pretty good. It's mostly just the big banks who took stupid risks and caused this "sub prime" mess in the first place, and companies in the resource, energy and even tech sectors seem to still be doing OK. I think only when you start seeing all sectors of the economy dropping like the financials have, then it's time to get out.

Like you, my (actually 1 cent

 

[dhukka]

And the market can stay irrational longer than some investors can stay solvent.

Sassa, that's a great quote and entirely appropriate for this thread however you may want to quote the source as it could appear as though you are trying to pass it off as your own pearl of wisdom.

You know when the markets are going down because threads like these pop up.
We could put them all together and rename it "I'm confused because reality isn't doing what I expected it to do." Why do people expect the market to act rationally or for the declines in our markets to mirror those of other major indices?

You'll only succeed in doing your head in looking for rationality in an inherently irrational mechanism such as the market.

 

[tronic72]

Here's another one for the bears

Irish growth to hit 15-year low in 2008

DUBLIN (AFP) - Ireland's leading economic think tank on Thursday downgraded its forecast for the country's gross domestic product (GDP) growth next year to 2.3 percent.

In its previous quarterly commentary, the Economic and Social Research Institute (ESRI) had forecast that GDP would drop to 2.7 percent in 2008.

It expects GDP growth this year will be 4.8 percent, up from its September forecast of 4.7 percent.

The institute is also forecasting gross national product (GNP) growth of 2.3 percent next year, down from the September prediction of 2.9 percent.

"This would imply the slowest rate of GNP growth since 1992," the commentary says.

The ESRI's forecast for GNP growth is below the 3.0 percent forecast made by Finance Minister Brian Cowen in his Budget speech earlier this month.

GNP is the Irish government's favoured measure of growth.

It is regarded as a more accurate barometer of the country's economic performance as it strips out substantial repatriated foreign investment profits.

Ireland's Celtic Tiger economy is being hit by the international credit crisis and a slowdown in a housing price boom that has reduced activity in the construction industry.

The ESRI now expects house completions next year to slow to 55,000, down from the September forecast of 65,000.

"We have also brought our forecast for consumption growth down to 3.8 percent, from 4.0 percent. The revision for consumption is based in part on a continued weakening in consumer confidence," the commentary said.

"The impact on our GNP forecast of the revisions to our house building and consumption forecasts has been offset by a revision to our forecasts for imports growth.

"We now expect imports to grow by 4.4 percent, down from 5.1 percent in the Autumn quarterly economic commentary. As a result of the slowdown in GNP growth, we expect employment growth to be very modest next year, at below 10,000. We also expect the rate of unemployment to rise to 5.8 percent," the ESRI added."

Yeah I know it's only little old Ireland, but lets add the US's woes which may have got much worse today with the new bill to build cleaner cars (only 20 years late). Germany is complaining because it says their auto industry will suffer.

No much good news around at the moment.

 

[kaleon]

Just on a TA slant on the August correction and what is happening now. If you look at the MACD back around the august lows there was a bullish divergence between the MACD and price action. Not so this time. I would err on the caution. I feel there is a lot more downside to come....

 

[Aussiejeff]

Just on a TA slant on the August correction and what is happening now. If you look at the MACD back around the august lows there was a bullish divergence between the MACD and price action. Not so this time. I would err on the caution. I feel there is a lot more downside to come....

You mean ... Santa might have a nasty surprise lurking in his sack of "goodies"? I have a hunch you might be right.

All this volatility and negativity goes to show that our tiny market is at the whim of demand from international players. As others have stated, we have put almost ALL our eggs into the one big basket (ie: dig and sell or perish). If other economies can find more sources of coal, oil, gas, iron ore, gold or uranium at better mined and transported prices (like out of Africa for instance), we are going to be screwed bigtime - plain and simple. We shouldn't think that for one minute, other nations are happy with our exported prices. If they can source it cheaper from elsewhere, preferably nearer their own back yards, by heck they will! The costs of "the tyranny of distance" still applies to us, floating as we are on an isolated island in the middle of a vast expanse of ocean...

Speaking of things NUKLEAR, the current massive push by OZ uranium miners doesn't give me any confidence either, looking forward. The risk in sinking squillions into that industry seems painfully obvious to me, especially with the change of government and the huge negative sentiment toward nuclear reactors in Australia - but many others seem far more optimistic about the ATOMIC SOLUTION outlook.

The other big earner for OZ is tourism. Not an industry you want to rely on for income if world economies slow down, that's for sure! So, is there any hope? Sure! If the new government can see the predicament we are getting ourselves deeper into, maybe, just maybe, there will be a big push to create wealth out of the emerging renewable and clean energy sectors. If China finds significant alternative sources of coal or iron ore, we at least might be able to stay engaged in processes that help them achieve better pollution or productivity outcomes... that is where I think the future of our economy lies.

It would appear that our markets are capable of racing ahead in the *good* times when world demand is sky high for our resources. But we need a solid alternative when the international demand for stuff from the ground sags when time get tough - like now.


AJ

 

[tronic72]

You mean ... Santa might have a nasty surprise lurking in his sack of "goodies"? I have a hunch you might be right.

All this volatility and negativity goes to show that our tiny market is at the whim of demand from international players. As others have stated, we have put almost ALL our eggs into the one big basket (ie: dig and sell or perish). If other economies can find more sources of coal, oil, gas, iron ore, gold or uranium at better mined and transported prices (like out of Africa for instance), we are going to be screwed bigtime - plain and simple. We shouldn't think that for one minute, other nations are happy with our exported prices. If they can source it cheaper from elsewhere, preferably nearer their own back yards, by heck they will! The costs of "the tyranny of distance" still applies to us, floating as we are on an isolated island in the middle of a vast expanse of ocean...

Speaking of things NUKLEAR, the current massive push by OZ uranium miners doesn't give me any confidence either, looking forward. The risk in sinking squillions into that industry seems painfully obvious to me, especially with the change of government and the huge negative sentiment toward nuclear reactors in Australia - but many others seem far more optimistic about the ATOMIC SOLUTION outlook.

The other big earner for OZ is tourism. Not an industry you want to rely on for income if world economies slow down, that's for sure! So, is there any hope? Sure! If the new government can see the predicament we are getting ourselves deeper into, maybe, just maybe, there will be a big push to create wealth out of the emerging renewable and clean energy sectors. If China finds significant alternative sources of coal or iron ore, we at least might be able to stay engaged in processes that help them achieve better pollution or productivity outcomes... that is where I think the future of our economy lies.

It would appear that our markets are capable of racing ahead in the *good* times when world demand is sky high for our resources. But we need a solid alternative when the international demand for stuff from the ground sags when time get tough - like now.


AJ

In regards to your comments "The risk in sinking squillions into that industry seems painfully obvious to me, especially with the change of government and the huge negative sentiment toward nuclear reactors in Australia"

If Rudd wants to get our coal dependent emissions down then I think nuclear power is the only current option for "on demand" power. There currently aren't any other types of power that can simply be "turned up" when demand requires it.

my 2c

BTW. I'm not endorsing it or saying we shouldn't go for renewable energy.

 

[huyha123]

Yes but the August crises is what alerted everyone to the issue.
Then from there people expected it to be a short term thing.

"she'll be right mate", that is the attitude people get when the markets have been so good, throw a line and reel in a profit.

Then the effects started to show up in different areas, combined with high inflation, houses with the value of tin sheds and slowing growth.

Then people realised, "****, this thing is bigger than we thought"
"I wonder if this might actually effect us here?"

Bam, enter Centro, Bam enter realisation that it MIGHT actually be more far reaching than we thought and that have we seen the worst of it yet?




I don't think we have when you consider where we have come from.

People have become accustomed to us bouncing back and are not used to the volatility or the extended losses.




They might do that yes, but one of the problems they face is inflation is at high levels already.

As for restoring confidence, imo, that would not be a good thing in the long run.
While it is harsh and while most of us are hurting a bit from the backtracking we are doing, most of us probably need a good slap around the head to knock some sense into us and get us to re evaluate our risk management.

All the above is a very simplistic view, as i am certainly no economic evaluator

Just my 2c
Actually, i shouldn't risk 2, just my 1c

very very newbie here. just want to say thank you and good write for a good read!

 

[explod]

In regards to your comments "The risk in sinking squillions into that industry seems painfully obvious to me, especially with the change of government and the huge negative sentiment toward nuclear reactors in Australia"

If Rudd wants to get our coal dependent emissions down then I think nuclear power is the only current option for "on demand" power. There currently aren't any other types of power that can simply be "turned up" when demand requires it.

my 2c

BTW. I'm not endorsing it or saying we shouldn't go for renewable energy.

My sintiments exactly. I have spoken to my local State member of Parliament on the issue a number of times and find they are just not ready to listen to any part of the arguments yet.

The latest reactors (particularly the French) are very efficient and safe. The problem of destroying the ongoing dangerous waste will also be solved through methods of re-processing or jettisoning into the sun.

It is expensive though, but as a meantime measure needed. This talk about reductions by 2050 is rediculous. The level of pollution now is way beyond the pale. Some say that if all pollution stopped today out planet is still going to suffer chaos for centuries before it can normalise.

 

[Bruza]

It is probably getting of subject here, but feel I must comment on your thoughts on Nuclear.

If Rudd wants to get our coal dependent emissions down then I think nuclear power is the only current option for "on demand" power. There currently aren't any other types of power that can simply be "turned up" when demand requires it

(I realize tronic you said you didn't endorse etc.)


For one thing Kevin Rudd's platform was against nuclear, so I feel that won't be the way Labour want to get coal emissions down.

One thing that is underway in Os, is "clean coal technology", and I have no doubt the Gov will be offering (big) grants for this, as we have so much of it.
However one must think this will bring the cost up near to, or close to, other more expensive power sources, and with what carbon footprint?

"On demand" power could probably be called "base load" power and we certainly need that to give the "Backbone" to other emerging power sources, such as Solar, Wind, Wave (bio fuel deliberately excluded).
Natural Gas has the offering of Base Load power, and it has a far better carbon footprint than coal. Many companies are exploring and producing more of this great resource, it seems.

The other fantastic Base Load power source, that we have in abundance is Geothermal! There are some 16 companies applied for or has leases to drill for this wonderful carbon/pollution free power source. I certainly hope the Gov will give equal opportunity (grants) to help develop this, as Australia could be a world leader.

The latest reactors (particularly the French) are very efficient and safe. The problem of destroying the ongoing dangerous waste will also be solved through methods of re-processing or jettisoning into the sun.

explod,
I enjoy reading your posts (I think I've read them all), but mate!
Could you imagine the devastation if the rocket launching this $#!t to the sun had a mishap?

Any way of trying to get rid of Nuke waste has got to be hazardous, I won't go on about the other hazards of Nuke Plants as everyone knows them.

No offence intended, I just feel there have GOT to be cleaner, greener ways of producing power, in a world facing global warming.
Bruza.

 

[Real1ty]

A couple points.

At this stage the Federal government have no power over the states when it comes to handing out mining licenses for Uranium.
Of course IF they were really opposed to it, i'm sure they could find away around it.

I think that we are going to be left with no choice other than Uranium one day and if Labour were in then, i'm sure they wouldn't find a way around it and would let the State governments hand out the licenses while still maintaining their position

All these alternative fuel sources are great and we certainly need to look at them but they will never be anywhere near ready or provide enough fuel for what we will need, imo.

I'm of the belief that we are in far worse shape, global warming wise than anyone knows and that countries will eventually be forced (By some form of worlwide governing body) to turn to an alternative and none will be acceptable or ready other than U.

 

[Wysiwyg]

A couple points
I think that we are going to be left with no choice other than Uranium one day and if Labour were in then, i'm sure they wouldn't find a way around it and would let the State governments hand out the licenses while still maintaining their position

All these alternative fuel sources are great and we certainly need to look at them but they will never be anywhere near ready or provide enough fuel for what we will need, imo.

Queensland has the bulk of coal reserves in Australia.The present day prime minister was born in Queensland.Port expansion is ongoing to accomodate the growing coal mine production.
I don`t see nuclear power plants in Australia for another 30 years.

 

[ithatheekret]

I was thinking that the main cause of the markets retreat was , firstly linked to the financials and a couple of other sector retreaters , some even dropped their colours . Then we had the end of year book squaring , couple of events had portfolios reshuffling , the FMG split ( FMGDA ) 10:1 and the Centro chaos factor that spread across property trusts as is the norm , even good trusts copped it . The fall back in RIO and ZFX which has slowly coming back , and last but not least ........ banks .

............ and SGB IMHO has a major bonus if it can swoop on all those malls for $1.6B , that would be the property deal of the decade , but commentators etc., see it and push the fact in a negative bias .

That's why it always pays to have a small percentage in cash I suppose , some smart traders would have been out sitting back waiting to pounce , many of them here on ASF .

Good on 'em , dilegence and research backed up effort which can be time consuming , would have paid off nicely for them .

My hats off too 'em .

PS... not a dig , but we did see 6200 tested .

 

[kaleon]

Just on a TA slant on the August correction and what is happening now. If you look at the MACD back around the august lows there was a bullish divergence between the MACD and price action. Not so this time. I would err on the caution. I feel there is a lot more downside to come....

Following on from the above statement,there now appears to be a bullish divergence between the MACD and price action. So I would expect some short term rally in the next few days possibly up to the 6200 level. From there I expect a test of the 5600 level. The market is in a clear downtrend now.....

 

[Aussie2Aussie]

There a number of reasons for the market being in a poor condition. The most significant are:

1. The obvious - subprime (this will be know as the Year of the Subprime). It will take between 12 - 18 months for it to wash its way through the system. There is up to $500 trillion that will not be available to businesses wanting to expand, buy Centro and help people wanting to buy a house.

2. Increasing oil and commodity prices at its impact on world growth. See point 3.

3. Chinas growth will soon begin to affect the world growth. China is fighting rampant inflation because of greed, wage blowouts and commodity prices, this will soon be exported to its trading partners. That packet of noodles will soon cost 60c, not 50c and that hammer $7.00 instead of $6.20. The world is now more reliant on Chinas GDP than the USAs.

There are others but I see these as the most pressing and of greatest concern.

 

[Julia]

To me, this sounds like a buying opportunity, a lot of people who are bailing are the same nervous folk who bailed during the August "crisis". But only time will tell whether I'm right, or wrong. But who knows, we've fallen very hard very fast lately so I'm cautiously investing in this market.

In August there was little indication of the extent of the ramifications of the sub prime mess. We are now daily becoming aware of just how far it has spread, e.g. in August we had no idea that all of our big banks were actually involved themselves.

I personally believe if things get much worse, the central banks across the world will be forced to lower rates again, probably more fiercely, and hopefully that will help restore confidence again. This is the main reason why I still believe in the market now, otherwise I wouldn't put a cent in and put it into some term deposit account.

I suspect the fear factor has now become so great that it is outweighing any benefit which could occur as a result of yet more interest rate cuts:
Mr Bernanke yesterday made pretty clear that he would move to cut as much as .5% at the 29/30 January meeting. but our market has been unimpressed.

I've always been a long term investor, but I've now sold off more than half my portfolio. Will be happy to re-enter when it's all sorted but believe that will be some time from now.

Incidentally, re term deposit rates: I did some phoning around to check rates.
Then went into my ANZ Branch and was offered .5% more than quoted on the phone for the same amount/same term.

 

[Lucky_Country]

Volatility creating nervousness causing people too sell shares they really should hold onto.
People not entering the market because of volatility and uncertainty over shares that may or may not be affected by the sub prime fiasco.
Fear and greed rule the market up and down