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« Lotta Noise, No Point | Main | Bolster the Buck! »

Wednesday, November 11, 2009

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Michael

The NYSE A/D line continues to show strength at a net +800 today. I couldn't care less about the lack of volume. I've seen markets go down on light volume before a bottom is signaled by high volume capitulation, and I suspect that we will see the same characteristics on the way up before this bull move ends.

Lamerok

Yelnick, great job:
http://yelnick.typepad.com/yelnick/2009/01/predictions-2009.html

Did you play for your predictions ?

twitter.com/DrBubb

"Most likely the Dow rolls up to its 50% retrace at 10334 or a bit higher to 10500, and the S&P gets to its 50% at 1121."

We saw a HOD of INDU-10,341.97 on Wednesday.

And SPX-1,105.37

twitter.com/DrBubb

For those who dont want to follow the link:

"A Hope Rally to Dow10500 (SP1100) by this summer. After the type of fall we had, there is always a rebound in the range of 38-62%. Midpoint (50%) is Dow10500."

Very good indeed, Y.!

yelnick

Lamerok - yes, as to my predictions, I played them a bit. I went long in Nov2008 and this post was a continuation of that decision (among other items). Glad you went back and checked. I think my record back then beats EWI! A lot of folk have implored me to stop reporting on what others say and begin saying what I think. Here is a summary of my 2009 predictions for those not willing to click back in time: 

A Hope Rally to Dow10500 (SP1100) by this summer.  A Retest of the Nov Lows (Dow7449, SP741) by Feb.  The Meltdown is delayed to 2010. 2009 will be bad, but not as bad as expected.  Obama's first 100 days will be disappointing. Deflation not hyperinflation arrives, despite the Fed's efforts to reflate.  Oil breaks below $28 in the first few months of 2009.  Housing continues to fall.  It is about halfway down.  The bigger shock will be a collapse in commercial real estate. The Summer of Disillusionment comes next summer (2010).  This is the point of recognition that all the hopes in Obama will be dashed, all the efforts of the Fed will be for naught and all the bailouts cannot put Humpty Dumpty back together again.  The question is not if, but when: whether we lose hope in the summer of 2009 or the summer of 2010.  I suspect the temporary salve of the huge $1T bailout will delay this moment for at least a year. 

The first 6 look good; we are nearing #1 and made #2.  My oil bet (#7) was slightly off - we only got to $31 cash not $28. #8 is happening now. 

twitter.com/DrBubb

"Housing continues to fall. It is about halfway down. The bigger shock will be a collapse in commercial real estate."

I hate the way that the current tax policy (tax credits for home buyers) is encouraging malinvestment, while costing the tax payers money.

The new suburban homes being built today, are going to be an albatross around somebody's neck, all thanks to the "generosity" of the US taxpayer. We would be far better off if those new homes were not built, and the credits were only available where they contribut to SOLVING America's oil addiction, rather than adding to it.

Buffett vs. Soccer Moms: http://financialsense.com/fsu/editorials/2009/1110.html

Hockthefarm

Yelnick:

Great job on your 2009 predictions. Especially so if one can still remember the mindset at the turn of the year.

I've spent a fair bit of time working in Japan and more recently in China. I find that the work force in China has a strong entrepreneurial bent where as the Japanese are much more group think, with a desire to promote the well being of the group. I really enjoy both cultures.

Do you follow these markets? If so, how do you see them fitting in to our great summer of disillusionment in 2010? Would you expect them to follow or lead?

Thanks.

yelnick

Hock, the Chinese culture is much more attuned the entrepreneurial capitalism than the Japanese. There are many admirable qualities of Japanese culture, but individualism is not one of them. The Chinese weakness cultural is a lack of trust, meaning most large Chinese companies are family based - trust is in the family not the organization. In that sense the Chinese trust model is quite different than the Japanese, who are loyal to their company and expect the company to take care of them. This appears to be changing, as we now are seeing Western style large companies emerge with a Western trust model.

In a nutshell, the rise of China is not to be feared but celebrated, as it gives great credence to the future world order of free markets rather than the backsliding towards socialism which has arisen in the West.

Nonetheless, the Chinese account for their GDP and growth differently than the West does. I have written on this previously. The Chinese recovery is part mirage. If it had been Russian, we would have called it a Potemkin Village. They will continue to push stimulus and keept the mirage alive at least through the end of this year, but they will at some point next year begin to hit a wall. Their hope is the West emerges from the slide in time to cover the Chinese mirage, by providing real growth tot he Chinese Potemkin Village before it gets exposed. Who will win or lose that race is unclear.

Since I expect a belly flop W shaped recovery int he US about a year out, I would not be surprised if the CHinese lose the race and their flaws are exposed first. Next summer is the Summer of Disillusionment.

Hockthefarm


And the one-eyed Undertaker,
Blows a fuedal horn.

http://tinyurl.com/yd9p3t4

The above URL speaks to Yelnick's timing in 2010.

twitter.com/DrBubb

"The Chinese recovery is part mirage. If it had been Russian, we would have called it a Potemkin Village."

I live in Hong Kong, and I cannot really quarrel with this,but from what I see, the Mirage economy in HK and China is more strongly supported than the mirage economy of the USA. They are both based upon debt and some degree of state-mandated spending, but there's a huge difference at the level of the individual household. Most American households are mired in debt, which many Chinese families in HK and in China have a high level of savings. This is partly due to lower effective tax rates, especially in HK.

As a very relevant comparison, the average debt level in relation to house prices here is just over 30%, versus about double than in the USA. And the HK economy as a whole has enough holdings of liquid assets, held by individuals, to payoff ALL the mortgage debt.

In the US, many families have borrowed against their home equity of 3-5 years ago to buy things they really did not need, and now with real estate falling, many find themselves in negative equity.

HK had its own property crash in the 5-6 years after the 1997 peak, and they learned their lessons. Banks here as a rule do not lend more than 70% of a home's value. And that's a rule that should be adopted in the USA. If that put some homebuilders out of business, it might be a good thing.

joe

A hundred years ago China'a share of world GDP was 10% - a hundred years later 10% and a hundred years from now is likely to still be 10%.

This "rise of China" stuff is purely fictional to me.

Joe

joe

When I last looked at the dxy last night it was down about 20 pts - I looked this morning and it had reversed and is cuurently up 17 pts.

And there is a story about Russian, Korean and Taiwan central banks buying dollars here.

Moreover, there is a big gap in the dxy chart at about 75.75 and it looks like it is going to fill it shortly, to me.

SO -did the dollar finally find a bottom?

Joe

cloudslicer

Does anybody know were I can find data regarding the size of the US Dollar carry trade?

All I see are estimates from anonymous sources. These 'estimates' are 2 trillion dollars. I don't see any data so I have no way of knowing to what extent this is a driver for the markets.

Thanks

twitter.com/LeChffre

I'm living in Tokyo, and I agree with the relative lack of entreprenurial spirit playing a part in the never-ending sluggishness over here (the group-oriented society did work wonders in building up the nation after the war, though).

The prolonged deflationary pressures are a more important factor though, and that's all that people under 30 can relate to, anyway. It would have been awesome to be here during the bubble era instead!

I just hope that the US can avoid Japan's fate..somehow. Remains to be seen whether Bernankes' helicopters will do the trick.

joe

I have heard the same numbers you heard cloudslicer.

Brazil looks like they jumped on the dollar bandwagon here too.

The dollar is pretty close to filling that 75.75 gap now. What a reversal!

Joe

Greg

Joe, I hope you are right but my sense is that central banks are managing the slide. I don't see any change in the recipe. Actually my read on yuan story is negative for the dollar since it will release pressure on majors' central banks to support usd.

joe

You could be right Greg.
Or it could be that some central banks just put a floor under it. If this was some kind of dressing they put on it - it was an awful dramatic way to do it.

Its about 75.65 now - that gap is almost closed. Last night it was a very different story. "Somebody" did an awful lot of dollar buying in the past few hours.

And I'll say this too - if this continues a little bit longer we could see a hell of a squeeze in USD short positions. At least I hope so.

Joe

Joe

Michael

"This "rise of China" stuff is purely fictional to me."
--- Joe

If that's the case, then why is China building two 500-megawatt power plants every week? I gather that you are also unaware that China is a net-importer of coal this year for the first time.

joe

It was 10% of GDP, it is now and it probably always will be.

It just its history Michael.

Joe

Bird

Joe, I like your long-term perspective. But you leave out Genghis Khan and Confucius. Why so doubtful about China's prospects?

joe

I think a hundred years is a reasonable perspective, considering just how stagnant its share of GDP has been.

Truthfully - I think China is heading for some kind of internal rebellion. Perhaps some kind of civil war. The have and have nots in that country are very extreme and the interests of its inland provinces seem to be diametically opposed to its costal provinces.

If they cannot maintain a very high growth rate, I think they will implode. There was a good article in the Economist about a year ago that made that same point. I think they calculated that confligration point at about 7% - that if they could not maintain that growth rate they would be in serious trouble.

Joe

Mamma Boom Boom

joe, you seem to have some knowledge in this field, give us a little background. Ok?

joe

I am an accountant - and I do have a fairly strong backgound in securities. Like most of you guys here have traded for a long time.

When I hit my "mid-life crisis" I went back to grad school and studied military history. I wanted to know how war really worked, I guess. Most of my family did one war or another.

What else do you want to know Ned?

Mamma Boom Boom

joe, how you knew so much about China?

Wavist

If that's the case, then why is China building two 500-megawatt power plants every week? I gather that you are also unaware that China is a net-importer of coal this year for the first time.

The exact same was true of Soviet Russia and what history has shown is the faster they go up the faster they come back down. Which is not to say that China will not become a significant world power and grow in wealth, power, and status for many years to come, merely that after slowing to Western rates of growth for a while and maturing socially its political structure will lose its grip, thereby enabling events to cause its collapse which will halve its economy in the process.

joe

I try and read everything I can about China - it is a facinating country. In school some years ago I worked on a paper about national wars and the situation in the country - that it seemed to be heading toward one.

Joe

Michael

I think that there are an awful lot of people here that terribly underestimate the amount of DEMAND for natural resources and basic materials coming from China and India as their economies evolve from agrarian to industrialized.

Wavist

Its easy to link China with Japan given their geographical proximity but their political structures make them virtual opposites. Whilst China is SU #2 Japan has just experienced a giant boom and bust, as with all trends price just got way ahead of itself - and still is - and is experiencing a correction back to sensible levels after which it's anyone's guess as to whether it settles down like the West or has another big boom and does it all again.

Wavist

I think that there are an awful lot of people here that terribly underestimate the amount of DEMAND for natural resources and basic materials coming from Russia as its economy evolves from agrarian to industrialized.

Wavist

Come to think of it the same was said a century ago about the Russian Empire too.

Wavist

Mind you it might have worked there if not the intervention of WWI. Although Imperial Russia was politically exhausted by that point, which is really why the war happened in the first place. The Soviets were perhaps then a better example.

joe

Come to think of it the same was said a century ago about the Russian Empire too.

You are a history student wavist.

Joe

Michael

Comparing Russia with China in this current day and age is like comparing apples and oranges.

joe

Is it really Michael??

On an actual market note - there is another gap in that dollar chart from last week at about 76.25.

I make the following thesis - if I was short dollars today I "got a wake up call" - if I remained short I would get very very nervous if it hit that 2nd gap.
It may do so in the next few days, IMO.

Joe

Wavist

Good guess Joe, actually like you my historical studies began later (I was philosophy at university). Although I never did any military history. Sounds a fascinating area.

Wavist

Michael I wasn't comparing current day Russia with China, I was pointing out that exactly the same words were spoken about agrarian Russia a hundred years ago (and caused many concerns amongst the German High Command come to think of it).

Michael

Understood.

But if anyone has been SHORT the natural resource and basic material and commodity stock sector from coal, to copper, to iron ore betting that the "Rise of China" is purely fictional, they've gotten totally crushed this year.

joe

Well, I always like reading about wars. I always thought that the wars a society fought best defined the nature of the society. By the time I was done in that grad school I was SO disillustioned. We had to study western war (as if it were distinct from other war). It was largely based on the writtings of Hanson - and it was quite clear, he would bend history at his whim to make it fit his theory. I spent the entire semester in that school shredding every single exaggeration Hanson got published. I concluded in the end there were two types of people in the program - revisionists that would choose publication over anything and the facts be damned - and the actual historians, who usually don't get published because they choose to get the facts right first.

Joe

Wavist

Well no arguments there, betting on the markets based upon Austrianish economic theories would seem a little doubtful, and waiting for China to collapse might lead to somewhat of a margin call.

joe

You have a good sense of humor wavist.

Joe

Wavist

Well thank you Joe it is probably a majority of occasions on which I am actually taken quite seriously, which can make for some rather unusual conversations every now and then. And what gets published tends to be that which makes for the most satisfying read. Such is the way of the markets I suppose. Many works of history could be seen as political polemics in disguise, certainly it is rare to find a publication where the author simply presents facts throughout. Commenting on the significance of particular events does after all tend to require politically inspired interpretation.

joe

Well, I do take you seriously wavist. And certainly what you say about making the reading "satisfying" is true.

It hit me very hard at the time that history books themselves had to be examined for bias before they should be accepted. It never occured to me that history could be slanted in such a fashion that it truly distorted the actual event. Certainly not to just get a paper published, a book sold.

I went through business schools and "history" school - business school is a lot more honest.

I hope all is well with you and I look forward to reading your posts.

Joe

joe

Hey - the dollar just filled the gap on the close!!

Wow.

Joe

Wavist

Thank you although the circumstance to which I was referring was being taken seriously by having remarks taken at face value whilst joking dry humour being somewhat prone to that sort of thing. Which can lead to amusement of its own just not in the way intended. Nice job with Hanson it is unusual to come across someone with the intellectual capacity let alone integrity to deal with such work in that manner. Likewise I wish you all the best in the coming turbulent year ahead.

Wavist

On the subject of historical knowledge I've just read a survey that showed 1 in 6 British pupils to believe Auschwitz to be a WWII era amusement park, whilst 1 in 20 were of the view that Adolf Hitler coached Germany's football team with a further 1 in 20 believing he was the manager.

joe

I wasn't alone in my class about the Hanson writtings. When we hit the battle of Leptano (wherein he totally lied) about half that class called bullshit. By the time we hit his 9th or 10th most important battle in western civilizatin(Roarkes Drift) most of the class just laughed out loud at his take.

So I wasn't that brave - and you do have a good sense of sarcasm.

Joe

yelnick

funny. Great movie came out of his 10th battle - Zulu! - the debut of Michael Caine.

joe

It was a good movie - and a hell of a lot more accurate than he ever was.

Joe

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