Pity I didn’t have any cash in the market to trade it. Anyway a picture is worth a thousand words. The 7500 support line has been broken, and going by the Dow’s 3.4% fall last night I figure I wasn’t the only person with a mental checkpoint at 7500.
It is still very bearish going by the MACD which has not been this negative on the DOW ever in the range of my data (1980 onwards). The possible light at the end of the tunnel is the Volatility index, the VIX that shows that volatility is decreasing in the short term. The medium term weekly view is still ugly. In fact with a pennon forming which is a very bearish pattern.
A Pennon forms when there is a large move (the flag pole) followed by consolidation. The range of the indicator narrows in a triangular manner to a point after which it can get no narrower and has no choice but to break up or down. (The alternative would be sideways meaning no trade) Generally it breaks in the direction of the trend, which in this case would be upward implying an increase in volatility – hence downward price motion.
Perhaps we will get a bit of a breather for a few weeks before it takes off – downward again.
With that said, until people start seeing value in the market and we start getting a lot of M&A (Merger and Acquisition) activity I will leave my target for the Dow in the 5500 range +/- about 500 each way.
The M&A activity is warming up by the way. It is starting to get the occasional mention in the media as the only area in banking that is actually hiring. But early days yet, deals would only just have been tabled and it will take a while from them to work through board rooms and get closed. Once they do then I will take off my rather uncomfortable Bear suite and see if I can find the old horny Bull costume in the back of the wardrobe.
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.
Needless to say I have been following job market pretty closely not currently having one, and have noticed a trend I never thought I would see. Melbourne consistently has more project management jobs on offer than Sydney, about 30% higher in fact.
Now what that means is significant. Being a project manager I rely on new capital development. By definition projects are one off capital development things rather than on-going operational opex things.
No capital development No project management.
This reduction in PM positions means that capital development in Sydney has ground to an effective halt. Melbourne has also been hit, but to a far lower extent.
Whether this is Telstra and related companies I am not sure. Optus no longer uses Australian companies if it can help it so we don’t have all the little companies that used to feed Optus recruiting anymore, but that component of the market has been dead ever since Singtel implemented their systems throughout Optus, moved back office activities to China and SE Asia and positioned Optus as the Australian Sales and Marketing arm of Singtel.
Perhaps it is the Melbourne banking sector fixing their financial systems that is keeping it’s market alive. I really don’t know.
In any case this reduction in capital development and capital development by Sydney based companies does not bode well for NSW. While the harbour city may have a larger population I think it is at serious risk of loosing it’s economic capital of Australia hat to it’s Southern neighbor.
The Hutchinson Vodafone merger may create some work, but that will be general job reduction as duplicate positions are removed. There is some government capital spend in NSW, but not a lot. In fact I can’t think of any new development, growth etc at all in NSW.
Perhaps being the old “Economic Capital” means that Sydney was also over leveraged to a larger extent than Melbourne, despite Melbourne being the banking capital. If that turns out to be the case then NSW will have serious problems.
As I have been discussing for some months now the target for the DOW has been 7500. This is a point that corresponds to intersection of the low that followed Sept 11 and tthe Iraq Invasion and a 25 year long term trend.
It is critical now is that this point holds. It is an extremely strong floor and if it breaks then that is a very bearish sign. Late Edit. It broke……..
It was tested back in November, but now it has fallen to this point in it’s own right. If it breaks then we are looking at the 5000′s. From the chart above you can see that the 200 month moving average has already been broken. Perhaps it would have been better if things had fallen more decisively earlier rather than dribbling down.
The pro globalisation cheer squad as well as contemporary economic theory decry protectionism. The argument is that protectionism leads to further economic troubles and in fact tends to precede wars.
They are correct in a sense, but it is an associated symptom not a causal one. At times of economic crisis governments tend towards protectionism and at times of economic crisis wars are far more likely. Protectionism does not lead to war. It is
not
That though is another topic.
Protectionism is when you put in place barriers such as tariffs and taxes or explicit rules to limit foreign trade. Effectively it is a burden on foreign goods. The reverse and this is an important point is called reverse protectionism, This is when you place a burden on your local goods causing you to buy foreign goods.
That is where we are now. Because the third world economies offer far less in the way of what we would call the infrastructure of civilization. Things such as medicine, roads, schools etc. The cost of their goods is not burdened by the costs we carry ourselves. The end result is that first world manufactured items carry a burden that is not carried by third world economies. We have in effect put in place reverse protectionism.
Where it gets worse is that the cost of government is constant. When the manufacturing of something moves offshore, then the tax that would have been recovered as income tax on the worker, company taxes and goods and services tax on the workers spend is lost. As governments have what amounts to a fixed cost of business, they have to increase the burden on the remaining items which in turn further protects foreign markets.
And where it gets really really bad is that the buckets of money being thrown out as stimulus packages is flowing straight out of the economy because it is occurring in an unfair trade environment and will have to be repaid from economic activity we don’t have….
Guys; if protectionism is bad, then so is reverse protectionism. Reverse protectionism is protectionism. It just protects the competitor. This means that as it is currently formulated Free Trade does not work.
We have been conned by the eloquent although uninformed into off shoring our jobs, our manufacturing, our software development, our industry, our services all in the name of free trade. We no longer have anything for economic stimulus packages to work with. Putting money into the pockets of consumers is not going to result in more of our people making TV’s, cars, stereos etc etc…
What has been forgotten is the word “Fair”.
What we need is the concept of Fair Trade where foreign goods carry the same burden as local goods. Either foreign governments burden up their goods with the cost of the infrastructure of civilization so that we have a level playing field. That is they impose the costs of schooling, medicine, roads, infrastructure etc to the same level that the West carries, or the West puts in place tariffs on imported goods to level the playing field for them.
In the former case they keep the money, in the latter we keep it which would encourage them to do something about their own levels of poverty.
We need Free and Fair Trade. We need Free and Fair Trade Agreements etc etc. I want to see that word FAIR used in relation with the word Free.
The alternative is a disaster for Western economies. It is one thing to try and be fair to our competitors, but they need to be equally fair to us.
This is an actual letter sent to the then DFAT Minster, The Hon Alexander Downer and the then Immigration, The Hon Minister Amanda Vanstone. The Government tried in desperation to censure the author, but got nowhere because every legal person who read it nearly wet themselves laughing!
Dear Mr. Minister,
I’m in the process of renewing my passport, and still cannot believe this. How is it that K-Mart has my address and telephone number, and knows that I bought a Television Set and Golf Clubs from them back in 1997, and yet, the Federal Government is still asking me where I was born and on what date. For Christ sakes, do you guys do this by hand? My birth date you have in my Medicare information, and it is on all the income tax forms I’ve filed for the past 40 years. It is on my driver’s license, on the last eight passports I’ve ever had, on all those stupid customs declaration forms I’ve had to fill out before being allowed off the planes over the last 30 years, and all those insufferable census forms that I’ve filled out every 5 years since 1966. Also would somebody please take note, once and for all, that my mother’s name is Audrey, my Father’s name is Jack, and I’d be absolutely fucking astounded if that ever changed between now and when I drop dead!!!…
SHIT!
I apologize, Mr. Minister. But I’m really pissed off this morning. Between you an’ me, I’ve had enough of all this bullshit! You send the application to my house, then you ask me for my fucking address!! What the hell is going on with your mob? Have you got a gang of mindless Neanderthal arseholes workin’ there! And another thing, look at my damn picture. Do I look like Bin Laden? I can’t even grow a beard for God’s sakes. I just want to go to New Zealand and see my new granddaughter. (Yes, my son interbred with a Kiwi girl). And would someone please tell me, why would you give a shit whether I plan on visiting a farm in the next 15 days? If I ever got the urge to do something weird to a sheep or a horse, believe you me, I’d sure as hell not want to tell anyone! Well, I have to go now, ’cause I have to go to the other end of the city, and get another fucking copy of my birth certificate, and to part with another $80 for the privilege of accessing MY OWN INFORMATION! Would it be so complicated to have all the services in the same spot, to assist in the issuance of a new passport on the same day?? Nooooo.. That’d be too fucking easy and makes far too much sense. You would much prefer to have us running all over the place like chickens with our fucking heads cut off, and then having to find some high society wanker to confirm that it’s really me in the goddamn photo! You know the photo.the one where we’re not allowed to smile?! …you fucking morons
Signed – An Irate Australian Citizen.
P.S Remember what I said above about the picture, and getting someone in high-society to confirm that it’s me? Well, my family has been in this country since before 1850! In 1856, one of my forefathers took up arms with Peter Lalor. (You do remember the Eureka Stockade!!) I have also served in both the CMF and regular Army something over 30 years (I went to Vietnam in 1967), and still have high security clearances. I’m also a personal friend of the president of the RSL.. And Lt General Peter Cosgrove sends me a Christmas card each year.
However, your rules require that I have to get someone ‘important’ to verify who I am; You know.. Someone like my doctor; WHO WAS BORN AND RAISED IN FUCKING PAKISTAN!!!……a country where they either assassinate or hang their ex-Prime Ministers, and are suspended from the commonwealth for not having the ‘right sort of government.’ You are all Fucking idiots.
The current government down here in Oz is about to spend 42 odd Billion dollars on the economy. Not a bad thing indeed given the current crisis, but why is it they take what would otherwise be a good idea and then right royally tell it to grab it’s own ankles while they apply liberal amounts of grease.
The problem is the difference between pouring water into a saucepan or a colander. That the economy needs the heat turned up and a good stir is obvious. But these guys are just about to shoot themselves, ourselves and our children in the foot, and there is nothing that can be done about it.
The economy is in recession/depression. What that means is that money is receding, literally. The amount of money and activity in the economy is slowing down. To keep us all working we need massive injections of cash and investment. No argument there.
The problem is that if the money is spent in such a way that it only changes hands a couple of times before flowing out of the country as purchases on imports then we have a massive issue. Not only will we now have a massive state debt to go with our massive personal debt, but we won’t have the internal industry to repay it.
It is the same reason that we have cash problems now. We spent money that flowed out of our economies that was not used to develop the infrastructure needed to pay it back.
It is exactly the same as lending money to someone who could either buy some machinery and make something with it, or spend the borrowed money on beer and pizza. We are the guys with a credit card debt, no job and a pile of pizza trays and beer bottles around us.
The money needs to be spent in such a way that it remains within our economies and develops infrastructure that itself will generate industry. In simple terms that money needs to be spent in such a way that it will enable us to make products we can sell to foreign markets and not spent in such a way that results in us owing even more money to foreign suppliers.
And don’t believe that “well the foreign markets will buy ore”. Yes they will buy some, but the globalisation argument that our money will flow out to foreign markets and will in turn flow back with interest has not worked. The money flowed out and stayed there. Look at our national personal and government debt to see that. We borrowed against the money that flowed back and sent it out again increasing our net exposure.
We are paying for third world development and getting nothing in return except cheap pleasures and they are holding worthless script.
We sent our money and our industry offshore and now have lost the ability to manufacture the goods and provide the services in order to raise the money to pay the debt. In simple terms we need to provide goods and services to the people we owe money to. But we haven’t got any industry left for fucks sake, so what are we going to trade with these guys to pay off the debt?
“Principal of Fair Exchange” guys.
The value of any transaction must be fair and balanced for both parties in order to ensure circulation without a net loss or gain. It must represent a circulation. The alternative is that the transaction is imbalanced which means that one side or the other “got ripped off” which apart from the obvious damage to one party or another also introduces inflation. In simple terms you spent a certain amount of money on bread and got less bread for it.
More technically inbalanced transactions result in nasty sources and sinks within the economy which represent concentrations of wealth/debt at very few points.
Increases in wealth or the amount of money in an economic region must come from increases in economic activity. That is by increases in circulation, not from hoarding/lending. The money itself is only a medium of exchange. They are only tokens. If you charge someone double the amount for the same loaf of bread you may think you are wealthier, but it is an illusion. The same single loaf was exchanged and what you have done is devalued the money.
This flow of wealth out of the West doesn’t work for the developing world either. They are owed money that they are never going to see. The Chinese buying Western banks and factories doesn’t help the Chinese if those banks and factories are worthless. And having us buy more Chinese goods with borrowed money exacerbates the situation.
The development of the Chinese economy has to come from within the Chinese economy by having Chinese provide goods and services to Chinese without a reliance on the West. The recovery of the Western economies has to come from the Western economies by having the West provide goods and services to Westerners.
Where there is an exchange between East and West, the “Principal of Fair Exchange” must apply. The West must not profiteer from the East and the East must not profiteer from the West. We mustmustmust learn to manage our foreign debt exposure.
The East and the West must not be critically dependent upon each other. The impact a collapse in either the East or the West would have on the other must be minimized.
Who the fuck the globalisation cheer squad are I don’t know, but they need to be trodden on heavily. It might be worth looking to see who has been expounding the globalisation policies and what they are getting out of it. By any chance would they be the guys lending the money and creaming off the interest….
Their model of outsourcing western manufacturing and services to bring in money that we use to buy goods and services from elsewhere does not work. At some point in the process the West must add some value. We can’t just “own” foreign labor and cream off their effort. Sooner or later those “foreigners” are going to say “bugger off white man” and demand to own their own labor and we will be left with nothing.
The value of an economy when it is all balanced out is the value added by all the participants of the economy. You value add raw materials by taking them out of the ground, you value add materials by making simple items, you value add simple items by combining them into complex products, you add value to complex products by distributing them. The net wealth in an economy is in fact the sum of those individual value add steps. The “Fair Exchange” is the value of the original items, plus the value you have added.
Where the hell these guys learned their math is beyond me. Ummmm perhaps they should all head back to uni and do a little mathematics. Things like Sources, Sinks, Divergences, Circulation, Integration, Differentiation, Large Sparse Matrices etc etc. The economy is simple. It is just a collection of tokens that move around and the same rules apply to the motion of monetary tokens that apply to the motion of electrons, that apply to the motion of fluid particles that apply to the motion of population groups and it was all worked out a century or so ago.
So go back to uni and learn a little about flows and circulation and get a working picture into your mind of what an economy is before making decisions about it.
I figure I would amuse myself with these for a while just to annoy those of you Anglo Saxon European types whose source of truth lore and history is the book of tales from the middle east.
Missed that one eh? Lets put it another way. How is it that someone of European origins can recite the religious rules and names of the leaders of the Semitic tribes going back thousands of years, but you probably have never heard of the Gothic migrations, have no memory of your own cultures oral history, and haven’t a clue what the images below are….
Anyway while you ponder that, the first image is of the Pictish Hilton of Cadboll Stone . This stone has christian motifs on the side facing outward over a coast, while the landward facing side has images that were interpreted as being secular. What is interesting is that to a heathen like me it’s glaringly obvious that the side the christian scholars think is secular isn’t. It’s a visual pun, a play on words, a story hidden in plain sight.
The story looks like a variation on “The Tail Of the Dragon” motif you will see more of below, but the positioning of the stone probably also tells a story. Imagine that you have just commissioned an expensive work of art. Which side would you want facing the most viewers. The landward side or the side facing over the sea?
Before the christians imposed middle eastern interpretations on everything, the pagan artists commonly used visual puns. Perhaps to hide something, but more likely the artists were simply showing off how clever they are. There is status associated with a clever image. They would take an image and hide it inside another image so that you could see two things at once. Commonly faces it seems. You look at a design and suddenly see face staring out at you.
To my eye the secret is in the helmet that isn’t a helmet that if you look twice looks like a face, and if you look again could be a “T”. It’s a clever play on images. If you described it in words you would say it is an image with a warhammer “T” at the top and intertwined beasts around the border. These guys didn’t actually have the letter “T” by the way so I tend to think warhammer, ie Thor’s hammer.
Where this gets interesting is the images of Nordic stones below where you will see in content the same thing.
The interpretation the christians have of the border design in the above is of birds in brambles or thorns. The trouble is these birds have four legs and wings, so they probably aren’t birds at all. In fact they seem to be intertwined variations on pictish beasts.
No project management.
