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The top of this cycle for ASX200, cash is king ?


kahuna1

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Howdy,

 

The US Fed as we all know just raised rates for the seventh time to 2.75% for Fed funds.

 

More importantly the tone of the comments despite the tightening have become even more bearish.

 

This month myself, have become more and more bearish as time goes on.

Today we have seen a small shakeout in the ASX 200.

In reality we still sit only 2% below all time highs.

 

For my own portfolio, sitting right now on 90% cash.

I am after some opposing views to my own position.

 

US market has been going down for the past few weeks and with the Fed's signal of its intentions I feel it can only go one way until at least we see some numbers suggesting they will not be tightening again and more than once in coming months.

 

Already seeing comments of the possibility of next rate rise in the US being 0.5% as opposed to the 0.25% steady increases we have seen.

 

For myself, I expect the US markets to remain under pressure for the next few weeks.

In the face of this and the slowly falling US equity markets in the past 4 weeks whilst our own have gone in the other direction, the chances for ours to have a meaningful correction in this light seem high. Even more so should the US equities be hit another 2-3%.

 

As for our own domestic rates, in light of the US raising yet again, and the spectre of even more rises to come, at some stage this will result possibly in some pressure here on rates.

 

Longer term, I think US raising rates in response to higher core inflation and PPI numbers will halt the US economy in a big way late 2005. Fuel rises and doubling of prices seen by mid 2004 were mainly eaten by producers and margins shrunk as a result. The seeping down effect of rises from 12 months ago in costs is what I feel is driving this current rise in PPI numbers. Tightening and yet again rising fuel costs over and above what they were 12 months ago I feel when they hit will have a double whammy effect and US numbers will fall out of bed as they bite. Both are taking money out of the economy, higher rates and higher fuel costs. Just for the record, I feel we are seeing the fuel cost perculate back in for say a US$40- per barrel, the current US$56- is yet to come.

 

Today the fall has stalled in the ASX 200 as bargain hunters come into our market.

In the past they have been correct to buy on any and every correction.

 

For myself, today it is different.

Just have a strong view from here.

 

Any ideas ?

Opposing views ?

 

Am I mad being 90% cash ?

 

Probably but want to see a meaningful correction before I re invest.

 

Cheers

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Great analysis as always Kahuna.

 

Both technically and fundementally I'm expecting the markets to slow. Though personally I'm not all that bearish.

 

Company P/E ratios are still reasonable and we have yet to see the mass hysteria of 'buy buy buy' you usually see before a market violently turns around.

 

The Aussie market remains strong in nearly all regards... but I do think things have to cool off a little eventually.

 

Keep me updated with your thoughts though, as I find them most interesting and valuable.

 

Regards

Andrew

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Two words, "China" and "resources"

 

Unlike the US, Australia mainly a resources market therefore China currently has a greater effect then the US (people often make the mistake of applying the wrong model to the Australian markets) Watching the resource prices (Oil, Gold etc) is a better key for the Australian markets then watching US inflation and interest rates.

 

Also need to remember that due to the level of debt in both countries, a rising interest rate doesn't mean the money flows out of the market.. If anything it's the opposite, real world now... I personally know of a number of people that are not buying investment properties (due to the rising interest rate and therefore lower ability of making quick capital return) and investing those funds into the market.

 

Both China and high debt levels mean the OLD models of measuring the AUS/US economy are out the window IMO.

 

Cheers

Matt

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QUOTE (dr_dazmo @ Wednesday 23/03/05 11:38am)

Dr Dazmo,

 

Well number now up over 95%.

 

The three remaining tiny illiquid specs.

Not something to shout about any of them.

One buring a hole in my pocket .... but original holding was under 3% ... now under 2% ...

and if I revaulued at current 40% loss .... even lower.

 

One a small gold one slighly up .....

Other very very spec miner ... toally illiquid stock.

Couldn't get out even if I wanted to. Don't want to ... its a micro cap with market cap under 3 mill.

 

Matt,

 

thanks mate.

Yep I hear you.

Different markets and influences. We have moved sharply up and the US flatish.

 

Hmmm food for thought.

 

Today the bagin hunters are stopping the fall in the ASX 200.

 

I agree with you totally long term Matt, being resource rich will put us long term in the driving seat, short term ..... I am nervous ... hence my own stance.

 

Interesting about economic models and cashflows, will have to think more on that one.

 

Thanks.

 

Andrew,

 

Thanks mate, yep probally drastic of me to be so much cash, just nervous short term.

 

P/E and underlying profit umbers are what has driven us higher and the rise unlike most is and has been justified as you correctly point out.

 

Just a feeling we catch a bit of the flu like I see the US market getting ?

 

Thanks again

 

Any more ideas out there ?

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In reply to: mminion on Wednesday 23/03/05 10:34am

From AIR today, recent analysts report on China - "stronger for longer" commodites sector is their take:

 

Don't You Worry About China, GSJB Were Says

March 23 2005 - Australasian Investment Review ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ (AIR)

 

GSJB Were has recently returned from China, with the visit having reinforced the brokerÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s belief that Chinese demand for raw materials remains robust, and that growth in Chinese demand remains sufficient to keep key commodities markets in global deficit.

 

During the last visit (November) the analysts were unsure of the outcome of administrative tightening implemented by the government in April last, but this visit has improved confidence that the economy has stabilised, and that acceleration in growth now exceeds the risk of a slow-down.

 

Of course, an acceleration could spark further action from the government, but Weres does not believe this is of immediate concern. Rather, the visit has reinforced WeresÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ "stronger for longer" commodities theme, such that its overweight resources sector recommendation remains.

 

Turning to commodity specifics, Weres noted that ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s oil storage program has barely begun. Coupling this with the Russian decision to send a pipeline to Japan and not China, increased Chinese future import demand is clear.

 

The steel industry maintains a very positive outlook, the analysts report, despite iron ore price rises. There is confidence that higher prices for steel can be passed on. Wuhan Iron and Steel has a surplus of long products, and will remain an exporter in the short term. However, the company believes China will remain a net importer of hot rolled coil for 2-3 years, and cold rolled steel for 5-10 years.

 

Information collected by the analysts has done little to settle their uncertainty regarding the volume of aluminium exports to be expected from China this year. However, they sense an increasing resolve from the government to curb growth in smelting capacity and metal exports.

 

>50% of copper consumption is going into the power industry, the analysts report, and this will continue to be a major source of growth in demand for copper in 2005. Fabricators, particularly in air-conditioning, are having difficulty passing on higher copper prices, and as such inventories have risen in finished products.

 

The analysts note that power shortages remain a key issue, with the situation little improved. A substantial number of power projects have progressed without government approval, leading to concerns that cancelled projects could have a negative impact on raw materials consumption growth. However, with the national power shortage, the analysts donÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t expect net capacity addition to be reduced.

 

The massive Three Gorges Dam hydro-electric project will take more than a decade to build and fully commission, the analysts report, and then the annual additional capacity will be less than one tenth of ChinaÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s annual power demand growth. The analysts believe coal will be the mainstay for incremental power generation capacity for the foreseeable future.

 

All in all, positive feedback for the resources sector.

 

http://www.aireview.com/index.php?act=view&catid=8&id=1582

 

cheers

marnice

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Hi,

 

It is difficult to fault most of the logic applied in your view except to ask how much of the upward correction did you miss waiting for the downward correction?

 

As you infer, the virtually inevitable rise in interest rates coupled with higher fuel costs will be feeding into total costs and eroding margins. Higher interest rates will demand a higher yield on stocks placing downward presure on SP's.

 

I think the banks have about topped out and I don't think I would buy one this year, even after a correction.

 

What I did find difficult to reconcile is your regular postings on oil with a 90% cash position. We know that most analysts have not yet plugged in anything like a realistic oil price and stocks like WPL, HDR, ROC etc have tremendous upside if the oil price averages say US$45 over the next few years. I personally find it very hard to believe it won't trade in a range of US$35 to US$70. I won't stop filling my car but I may have a bit less for grog.

 

Will any of this slow the development explosion in China & India. Perhaps a little but not much.

 

I see the next year as a stock and sector picking one but am certainly cautious and expect some correction in the June quarter. Perhaps a combination of buying things like oil and shorting banks could be the ticket?

 

I am pretty fully invested because I am expecting things to happen on most stocks I hold. Even though a correction will push those prices down I can't predict the timing of announcements either.

 

You are punting (on a very informed basis) there will be a major correction but maybe a bit more each way with selected stocks would be more balanced.

 

regards

 

 

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In reply to: itucker on Wednesday 23/03/05 12:18pm

Hi Itucker,

 

Well certainly missed some of the moves over the last 4 weeks.

As the market reaches new highs each time I become more and more nervous.

The cash being over 50% is only since about 4-5 weeks ago.

 

Have been sitting on my hands.

Being honest I like many sold even stocks I loved too early in hindsight over the last 12 months, but just moved onto another stock I liked and waited for a retracement in the one I loved.

 

Going to the extreme has been only the last week or so.

Selling everything including the kitchen sink was only today.

 

 

Yes I am bullish oil longer term.

However whilst I placed a target on it of maybe $64- for 2005 as more and more were calling it above US$60- this move .... I suspected it would fail in this attempt up.

Who knows, still sitting at US$56-.

 

Still of the view some oilers not valued at where they should be.

Not calling for a crash or anything so stupid.

Just the upmove in our market seemed to have stalled. US moving if anything downwards.

Last night just another nail in the coffin. Feel the US remains a bit under pressure for the next month.

 

We on the other hand have moved up as both Matt and Andrew pointed out for very good reasons. One is the resource price boom and the other is demand from this from China. On the P/E side their has been large increases in uderlying profits justifying the rise to date.

 

Long term, expect it to continue, just my own feeling and actions, time for maybe a pullback of more than 100 points from the high. Not a crash, just a bit of a correction.

Bottom pickers out in force this morning at 4,195 when I typed the original piece.

Market fall stalled for a while, but now back to new lows.

 

This is just one day and doesn't mean a thing. market still only off 2.4% from all time highs.

 

I am still looking to buy some of the quality oilers and coalers and other selected stocks, just felt it was time for the correction. Long term energy picture remains unchanged, however felt the US Fed's new stance might cause a harder landing rather than the soft landing all central banks aim for.

 

Looking for a level to buy, even today seeing some long term stocks I like off by more than the overall market and in some cases by a factor of two.

 

Myself wrightly or wrongly still sitting on the cash and not tempted even by todays action.

 

As you have correctly pointed out I may miss this great opportunity to buy on the dip for the correction.

 

Underlying fundamentals have not changed with any of the companies, just my own view rightly or wrongly US market needs a bit of a shakeout and we will see lower prices across the board, and better buying levels for our favourite stocks.

 

If this happenes ... even stocks that I love I find get smacked just as hard and in fact they get smacked hardest of all.

 

On the other hand maybe I am missing the boat again.

 

Thats life ..... been wrong before and very wrong before .... could be the pullback before 4,500 .......

 

Thanks for your thoughts guys ... given me some food for thought.

 

Shall sit pat for now. Patience is a virtue I sometimes lack ...... as I am sure we all do.

 

Best of luck

 

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doesn't look like a major top to me. looks like one of those a swift sell offs typical of bull markets. there's been no indication of any distribution near the last high.

 

our market has been one of the strongest equity markets in the world. yet it has not yet doubled the '87 top. i would expect it to go well past that.

 

 

 

 

 

 

 

 

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