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


kahuna1

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QUOTE (mme @ Saturday 04/08/07 12:28pm)

But US foreign debt is not in $US is it? To repay that debt, or just servicing the debt as the currency drops, costs more, which blows out the debt further. Raising interest rates props the currency up to avoid this, but hurts balance of trade. So becomes a catch22.

 

Same problem we had back in the late 80's i think. Wasn't that part of the recession we had to have? Curb demand, curb imports, curb inflation, reduce govt spending to repay debt, etc.

 

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Because the US dollar is the worlds reserve currency at the moment you will find almost all their debt would be priced in US$.

 

A falling A$ would hurt Australia's ability to service foreign debt as most of our debt would be priced in US$

 

So in theory 'Helicopter Ben' could just print a massive amount of US$ which would repay all of the US's foreign debt. But such a move would cause a collapse in the US$ and high inflation. And other countries would quickly lose confidence in the US$ and demand payment in more stable currencies. The US does not want that to happen.

 

For as long as the US$ is the world's reserve currency the yanks will get by. But if the Middle East gets its wish of selling oil in Euros the US will be stuffed in my view.

 

cheers

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In reply to: One Up on Saturday 04/08/07 11:52am

Hi One Up.

Point taken on the debt being in US dollar terms.

 

A devaluing US Dollar in the Long Term is good for Exports and Bad for imports.

 

In the Short Term, before domestic buying patterns change and US Exporters sign contracts and start exporting again. It can have a damaging effect on the Current Account.

This can make things look a whole lot worse than they really are.

 

The major problem as a see it is not so much the failure of some sub prime lenders.

It will be the changes that these failures cause and the tightening of credit to all as a result.

If the restricted flow of money has a flow on effect into the local US Economy.... thats when the real problems will start.

 

I just feel we are in for some rocky times ahead and this debt crisis maybe enough to spook the markets for a few months or more.

 

I can't see it putting a major long term dent in world growth. So more than likely whatever blip we see will be short lived and our super funds will be intact in a couple years.

 

Short term it has the capability of getting ugly.

Next week could be very interesting.

 

If you have cash on the sidelines, get ready.

 

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5641 (low of the March 2007 correction) on the ASX200 looks like it is the key support level.

 

If we can stay above for this movement, we should be able to (short-medium term) get another crack at an all time high.

 

However, if this level is broken, I would assume that we may see a sustained correction for the next period of time, and a long way off seeing another all-time high.

 

SFE had Sep07 SPI contract at close of 5853 (-123 pts) as of last night.

 

DYOR.

 

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www.GannGlobal.com/v/stock-market/08

 

food for thought http://www.sharescene.com/html/emoticons/unsure.gif

 

cheers PC

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In reply to: Brierley on Saturday 04/08/07 10:53am

Hi Brierley,

 

I'm not denying that fixed interest may be a good idea while the stock market is correcting. But I think that people may soon seek other investments, either:

 

a) To offset inflationary effects and the risk of currency collapses, in which case precious metals would be my bet, or

 

b) To re-invest in global growth, in which case prized commodities such as oil should do well.

 

In the short term, a massive contraction of liquidity, of the kind in prospect if the carry trades are reversed and the stockmarkets crash, would be a global deflationary disaster. Thus, if this becomes more of a threat, there is a likelihood, IMO, of a surprise capitulation to inflation by central banks. This would take the form of lowered interest rates and even faster rates of money creation. Currencies would then devalue rapidly relative to gold. With that possibility in mind, I'm torn as to whether to wholly divest myself of precious metal stocks. IMO it's possible that, if I do sell all, my re-entry points later - even over the short term - will be at higher gold and gold stock prices.

 

Gold prices cannot continue to stagnate indefinitely while currencies continue to be debased.

 

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*** SOMETHING TO CONSIDER ***

FROM 1993 TO 2000 AVERAGE YEARLY R/TURN 34%

FROM 2000 TO 2007 AVERAGE YEARLY R/TURN 3.5%

 

HAVE WE REALLY HAD A BULL RUN, OR IS IT AN ILLUSION.

DJI (Dow Jones) Average R/Turns Will Have You Thinking.

_______________________________________________

 

Jan 03 2000 DJI was at a High 11,357 points

 

July 19 2007 DJI Record High of 14,121 points

 

7 YEAR RETURN OF 24.5%

AT AN AVERAGE YEAR RETURN OF 3.5%

(NOT AT ALL COULD YOU CALL THIS A BULL MARKET)

________________________________________________

 

***** COMPARE THIS FROM 1993 TO 2000 *****

 

Jan 04 1993 DJI At 3309 points

 

Jan 03 2000 DJI Closed at 11,357

 

7 YEAR RETURN OF 243%

AT AN AVERAGE RETURN OF 34%

 

*****NOW THATS A BULL MARKET*****

________________________________________________

 

S&P 500

 

S&P 500 7 Year Average R/Turns From 2000 To 2007 = DISMAL.

March 15 2000 S&P at 1,502 points

July 17 2007 S&P Reached Record High 1,555 points

 

Cheers http://www.sharescene.com/html/emoticons/smile.gif

 

 

 

 

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