Archive for the 'Market' Category
Who To Blame
Well the Dow has turned down again. Technically it was overbought so this was due to happen, but we are also seeing the rumor mill go into overdrive with everything from “leaks” of the financial stress tests over at the Turner blog, to theories of China trying to escape toxic US debt.
Underlying this is the continual blame for this mess on the credit market meltdown. Well folks you are looking at the car wreck and blaming the telegraph pole. As I began discussing back in Park Bench Mortgages the meltdown in the credit market is a symptom not a cause. You should be asking yourselves why the driver didn’t see the pole in the first place.
The financial meltdown occurred because the pressure came off the housing market resulting in a situation where the value of the assets was not rising enough to cover the loans. All those “Sub Prime” loans were perfectly good as long as the demand for housing kept up. It would not have mattered if our friend on the park bench defaulted. The lender could have sold the property and covered themselves.
The real issue is the fact that demand for housing slowed and no one saw it coming and for that I have to blame the absolutely crappy level of mathematics education amongst our business, economics, banking, financial and political leadership. How many of them have at least two years uni level mathematics – or in fact how many of them have good enough high school mathematics to even get into first year uni math….
To see where I am coming from remember back a bit to all those home improvement shows that swamped TV a few years back during the real estate boom. “Auction Squad”, “Room for Improvement” etc. We were at a period in history in which the Baby Boomers were in the family home and their children where getting married and buying their first homes. Both these groups were competing in the same housing market. Once the after boomers had their new home their minds turned to having families and the demand cooled. At the time you could see the pregnant bellies morph into new mothers turning up at work to show off their latest, which morphed into masses of prams on the sidewalk, then pushers and demand for day care centers.
All of this is was predictable to anyone with even the slightest level of mathematics. Population versus age data is obtained by all the departments of statistics across the western world. All it would have taken to work out that the real estate demand was going to cool off and to adjust lending and risk management appropriately would have been for someone to look at the data.
It would not have been hard to ask “what do people in the twenty to thirty age group do”. “What will the effect on real estate of the baby boomers children themselves settling down be”…
You could literally see it happening around you at the time.
Why the mathematics? Quite simply because the leadership of the western world are mathematically challenged. They can not think in terms of data that is represented by anything more complex than 
. They don’t think first to look at the data and try to understand cause and effect. Statistics to them is a tool to highlight their opinion rather than a tool that should be used to form the opinion in the first place.
This is all compounded by the fact that all these guys have MBA’s. They all have masters level degrees implying a higher level of education. Did they learn anything or was it simply a case of paying their $20k for a ticket to senior management that the universities were happy to take…..
I don’t know about you, but I have known a lot of these guys. They are not smart. Well connected, well spoken and aggressive yes. Some of them are canny and street smart, but you wouldn’t want them in control of anything more complicated than a profit and loss statement for a fish and chip shop.
These guys aren’t good enough. Your lives depend upon their decisions. They make a mistake you get hurt.
Get rid of them – aggressively.
April 21 2009 | Economics and Market and Opinion and Politics | No Comments »
Can’t Find It With Both Hands?
Well the Dow has fallen through the 7500 mark that I was saying would be the critical point. If it found support at that level we could have expected a horizontal move for some months and then a slow recovery, but with the 7500 mark being penetrated then 7500 now forms a new ceiling.
I now have a loose technical target of the DJIA in 5500 to 6000 range. By loose I mean it is not a real strong trend line. For the Australian ASX200 I am seeing 2700 as a floor based on the 2003 low. Again weak, but putting these together is consistent. It means another 20% to 25% fall in the market value moving forward.
When will it end?
Mergers and Acquisitions.
OK all you young guys whose memories of the 1987 crash are non existent, being an old fart has some benefits at times. To understand what will happen and what the signs are that a bottom has formed you need to understand what has happened to the market.
In simple terms the economy in the West has contracted. It is smaller. Essentially the growth driven by the baby boomers and their off spring both being in the market and in particular the real estate market at the same time has ended. When they were both competing with each other it created demand that garaunteed an increase in real estate values. This was why the dodgy loans made sense at the time. Even if the lender defaulted the demand in the sector itself garaunteed the loan. So remember that the credit crisis is a symptom of a contracting market, not a cause. If the market pressures had remained then the loans would not have become toxic. It is also why governments are flooding our countries with migrants to try and create artificial demand…
With the concept of a contracting market in mind you need to understand what that implies. In simple terms it means less people buying things, less people making things and a general slow down in activity. The end result will be that when you divide the economic activity up amongst all the market participants there will not be enough work to go around. In that understanding is the solution.
If we had less companies then we can divide the economic activity that is not profitable when divided up amongst say three companies and find it would be profitable when divided up amongst two.
First what we will see is a wave of companies that were on the edge go out of business. That is already happening.
Then we will see a wave of Mergers and Acquisitions such as the Hutchinson and Vodafone one here in Australia, when two companies who would be doing it hard on their own either voluntarily or forcibly in the case of hostile take overs merge.
If you remember the 1987 crash and the heady days of the 1990′s this has happened before. So keep an eye out for M&A notices. When you start hearing about “Corporate Raiders” buying companies, stripping assets and moving on. Hostile takeovers and lots of mergers then we are at the bottom. The end result will be a reduction in the number of participants and an increase in value for those that remain. That increase in value will drive the market up.
There is a way to go yet, but at least I can see a way forward.
February 23 2009 | Economics and Market | No Comments »
Not Good. Those of you who dabble in the market a useful site I find is Kitco. It provides a pile of information on base metals, which from an Australian view is pretty important. The key thing to look at are inventory levels. At the moment production is exceeding demand by a large amount which is causing the massive drop in share prices.
So until the inventory levels drop we have a problem. Interestingly the Shanghai copper inventory is dropping, unfortunately this is not making much of a dent in the London Metal Exchange inventory levels. Shanghai has been dropping consistently for two years and probably simply reflects Chinese growth.
By the way the charts below are pulled from Kitco so I expect them to change with time. Do if you troll back here in a few months, this post may be out of step with the market.
The only good news, which is one I can’t at the moment work out is that Lead inventories are low. I am not sure. Car Batteries? Bullets? I am not sure what is driving the demand. Electric vehicles? A bit weird.
Lead prices are not particularly strong so we have dropping demand and supply. Perhaps a reduction in Copper and Zinc production (where Lead is often found) is causing the drop in inventories, but no demand is keeping the price down. The economics is a little strange here.
December 28 2008 | Economics and Market | No Comments »
Same story as the post below on the ASX200. Posted for comparison. The key things are the Mid Bollinger and the 30 Day MA.
Note also that the 7500 mark I first wrote about in “Park Bench Mortgages” and followed up with “DJIA: Will It Float” is acting as a support line and the flag described in “DJIA: This Is Gonna Hurt” is still hanging around.
There is a Bear In There
December 01 2008 | Market | No Comments »
Just had a quick look at the ASX200. My gut feel is that the dead cat bounce following the bail out Citigroup is over. It is highly likely that it will bounce downward from the 30 day MA and the Mid Bollinger marked with the blue arrow. Things just don’t feel optimistic enough for it to push through and hold.
The Dow futures are also looking weak as of 5:30 am NY time, and the Dragonfly/Hammer on the VIX as well as the proximity of the VIX to a moving average support line tend to support the opinion that the next move of the DOW will be down.
Although that could be me, a lot of negative things are happening around me at the moment that may be affecting my read of sentiment. I would advise caution though. Wait for at least one cycle of it bouncing off the Upper Bollinger and back down before re-entering I would say, unless you are going to short it of course.
Remember if all else fails, there is always the Hokey Pokey
December 01 2008 | Market | No Comments »
Darryl Guppy: A Must Read
I said I would stay away from market related discussion for a while which is easier said than done. Particularly when you come across an article like this one from Darryl Guppy that I consider a must read.
It was written back in on about the 12th of October in which he discusses what happens as a market moves towards a bottom.
Following on from his discussion we are not there yet. So if you are in the market, or contemplating a re-entry, please have a read of this article.
The important thing to note is that markets do not fall straight down and then bounce straight back up. They go down and then trend sideways for a while. It is this sideways trend that you need to look for.
When the lows are no longer lower than the previous lows and the market seems to be bouncing along sideways, that is when you reenter. Choose an entry at or near the floor and perhaps exit at or near the recent highs and simply trade the bollinger bands as the market trends sideways.
November 27 2008 | Market | No Comments »
Warning Warning Will Robinson
Another statement of the bleeding obvious perhaps, but I just had a gander at the VIX Volatility Index from Stockcharts and technically it is also not pretty. The cross on the Price Percentage Oscillator (PPO) indicates an increase in volatility is extremely likely and will continue upward for a few more weeks. So putting that together with this mornings post and again I get a very bad feeling.
Post Script
I might chill on the share market posts for a while unless there is a noticeable change in market conditions, we find a floor, or something else occurs worth reporting. I think we all know where it is headed and perhaps even why.
It was never my intent for this blog to become a share market forum, although I must admit that historically these are “Interesting Times” and as such happenings in the market are worthy of comment even if only for me or someone else with an interest in history as it occurred to be able to look back one day and wonder “WTF was I thinking”.
Captains Log: Star Date 16.6.63
November 20 2008 | Market | No Comments »
Something to cheer up a lousy day
If you have anything left after the events here, are fool enough to be long or even have “Balls of Steel” now is a good time to take note of these kids (and take your money out) to the tune of this.
The Stock Market Hokey Pokey
You put all your money in,
You pull all your money out;
You put all your money in,
And you move it all about.
You do the Hokey-Pokey,
And you turn yourself around.
That’s what it’s all about!
You put your margin loan in,
You pull your margin loan out;
You put your margin loan in,
And you move it all about.
You do the Hokey-Pokey,
And you turn yourself around.
That’s what it’s all about!
You put your stops in,
You pull your stops out;
You put your stops in,
And you move em all about.
You do the Hokey-Pokey,
And you turn yourself around.
That’s what it’s all about!
You put your shorts in,
You close your shorts out;
You put your shorts in,
And you move em all about.
You do the Hokey-Pokey,
And you turn yourself around.
That’s what it’s all about!
Just another twit of wit.
November 20 2008 | Humour and Market | No Comments »
Thats It Guys, Everybody Out!!!
The bad news is I am seeing a downward indicating Pennon/Flag forming on the Dow. And that is without last nights fall to 8000 thereabouts that is occurring as I write. Late update, it’s now 7991 and falling
Best of Luck All.
November 20 2008 | Market | No Comments »
Still Doubt It
Well my less than optimistic prediction of a fall to 7500 in the last couple of weeks of last month didn’t occur. But I am still seeing 7500 as the mark to start thinking about whether we have a floor or a ceiling to the current market. As mentioned in the ASX200 post we have the looming bankruptcy of GM and/or Ford to worry about. Until that issue and all the related uncertainty is resolved I can’t see buyers coming back.
Layoffs, capital equipment belt tightening and companies here in Australia such as Allco, ABC Learning, not to mention numerous tiddlers going into liquidation has only just started.
I am starting to agree with the longer term fall to around the 5500 mark.
Come on governments, we need ambitious, growth developing, exciting, enlightening capital spending plans. Someone needs to fire the imagination of the markets and the world. We need direction. Lets do something great, lets go to Mars, lets mine Titan for methane, lets spend lots of money in such a way that it will build a better world. And lets do it today!
Sic ‘Em Rex
November 19 2008 | Market | No Comments »
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