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


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The yen's uptrend surge ended in spectacular fashion today as investors become a little braver in stepping out of their comfort zones. This was pretty much confirmed after +6 GMT in the moments following the open of London's forex market. Investors took one look at equites and, without any significant new information to justify the stance, decided to award the Nikkei 6.5%. Why the heck did the exchange drop 4-5 consecutive days in a row in the first place? Oh right - the fear and all that. Silly me to ask.


So are we rational again? If history serves as any indication, and it always does although us young un's hardly indulge in listening to the rants of ye olde experience, then I'll probably see myself going long on the JPY again by the open of business on Monday. Great stuff, this thing called volatility. Keeps me on tippy toes and at the edge of my seat. What good's money if you can't enjoy the thrill of seeing it come and go in a zip? I guess this is just youthful arrogance speaking, but even if I lose my dax in the pits, it'll be worth the ride!


Preparing to exit OZL tomorrow.

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Hi K1,


Do you think the overnight 10% rise inthe US was a one day wonder, or could we be setting up for a meaningful rally into November with a change of President and sentiment?


According to CNBC, the traders at the NYSE were saying the last hour wasn't huge buying, but a lack of sellers as opposed to the previous few days. Maybe all the redemptions and forced hedge fund and mutual fund selling have come to an end for a while?

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Hi Dee ...


One wonders whether the world is going to end with some of the stuff being served as gospel of late. The total and complete panic that has gripped markets has not been even close to rational and fear took over the normal thinking process and hence we had the lows.


Same happens the opposite sides of a rally where the perfection is taken into account and the best possible case which may or may not happen in 5 years is taken into account and priced into already buoyant stocks and the likelihood of the stock actually performing to these inflated expectations is about zero.


When we had the dot com explosion people were pricing things as though the plans were gospel and would happen and things were priced at 200 times sales not profits in expectations one day the profits would reach these levels about 1,000 times the sales at the time they hit their peaks. Total reverse on the main has just occurred with the trashing of some business's where the worst case is taken into account and the fact is right now they make money and lots of money and sure the likely profits looking forward will be down but the extent of the trashing was in a lot of cases to the absurd levels.


So was this the low ? I was unable as I said at 4,400 to call a low this time around ... I went in hammer and tong at 3,960 thinking thats a great level and when it bounced I sold machine gun style back down to 50% ..... as we have gone lower my holdings have crept back up to 96% invested overall. Have to say that because obviously I have a bias here. Metals and miners the spot prices went to levels which frankly ensured complete and total destruction of production capacity and quickly ... not over years but if say nickel stayed around US$4- per lb it would mean that within 6 months 30% of capacity would disappear and even here its likely zero investment goes into the needed HPAL expensive projects from laterite nickel deposits which have to meet the demands post 2015 as the easy to mine Sulphide deposits run out. So on one hand buying something which has virtually zero net operating income down here is risky either one takes a view the world ends and ends with a depression and 25-30% unemployment or the opposite view they are bloody mad and takes a stand well aware of the risks that maybe the thing falls in a heap totally and the share even cherry picking the strongest of the strongest falls into a total heap less than 50% even of the deflated lows right now.


Being able to stand back always at times of irrational exuberance and go your frigging mad or what has been the ride of my 25 year trading career and do the total opposite is not one of the easier tasks one ever has to do .... because at times or these total and complete extremes EVERYONE ELSE IS MAD. Accept it and deal with it and go on from there. The first time I entered the banks was when they all thought they would end and NAB hit $18.60 the bounce which I took the money and ran when they banned short selling over the weekend was a gift .... 37% higher. Round two was the close at 3,960 and buying at $20.80 over 10% higher than the previous lows .... reducing around the same highs for a less spectacular profit but over 20% ... still holding the core mind you and the low yesterday even with a panic driven low was ? $22.90 ... basically the highs despite the overall index being 6% lower ... for many were not breached and clearly the panic had passed.


How we got 6% lower than where I made Custer's last stand being simplistic was on the main the resource side being trashed and dragging the whole ball of wax lower. You will note when I sold down to 50% .... I said one thing ... I did not hold a single resource or energy stock .... the lows on the ASX 200 on the 10th Oct of 3,960 which held for 5 tries eventually broke but it was very much in the main the miners which took us to the low of 3,724.8 or 6% overall lower and the low of BHP on that day of $26.98 vs the eventual low yesterday of $23.76 was 13% lower !!! RIO same sort of move and they were the more well behaved ones ... OZL 15% KZL a trash-pot try 66% ... oilers WPL only 5% but others in the energy sector try the old 30% new lows.


I digress ...


Still not a great fan on the commodity side and have cheery picked the strongest of the strong with massive cash and diversification in their outlooks. They commodity prices dont jump back to levels of 6 months ago anytime soon.


These inventories get run down a bit ... growth is slowed and will slow ... but we just visited hell for many of them from oil to coal to iron ore to nickel and all the rest. If you had the ammo to spend its was cherry picking season but not expecting a complete total reversal of fate overnight ... it may of course happen since these things didn't just go to break even production costs for many but went well below it and it is of course possible the super-ball bounce which usually happens goes the other way too far. Having seen the virtual guarantee of destruction of their company at the lows of these prices if and when it bounces I suspect with the AUD down here some actual cover and hedging may go on tempering the rise because the bankers for many of the leveraged ones must have been fretting on the lows.


We shall see ....


Point is the lows for many of the industrials were not yesterday but the day the index hit 3,960 - the 10th of Oct ..... WOW a low of $25- the fist day of panic ... index overall 6% lower and WOW trading 4% higher .


This overnight bounce .... the worst down days are always followed by the biggest rallies and over history if one looks at the massive down days ... always the biggest one day gains are in close proximity to them.


Not reading too much into all of this single day. have been of the belief as I have been saying the panic out there and reacting to the reporting season in the USA is reacting to something which happened 3 months ago not the outlook from here. We all look at the markets all day and for too many its a focus which we believe is the be all or end all of things .... as I said yesterday the set of earnings coming out right now represent when oil was US$135- and nearly 10% of disposable income was going into families fuel tanks ... the shift in where money gets spent TODAY with oil half the price is quite different. markets reacting to shonky earnings reflecting one thing but reality is another.


Who knows ? But added to interest rate cuts and ones actually being passed on and likely more cuts and spending programs the roo which I suspected is up off the side of the road and munching grass the market in its wisdom is convinced their are 20 crows hacking away at the dead body.


For our market the rally long term started in March 2003 from a low on the ASX 200 of 2,693.3 and went to a high of 6,851.5 .... a rally of 4,158.2 points the low yesterday .... of 3,724.8 was perfect ... perfect .... a fall of 3,126.7 points and you know what that is ?

Perfect ... because its one of these levels that has enabled me to pick the highs and the lows except of course the last one .... but its a technical point of great significance .


Why ? the correction ended post Sept 11 in March 2003 we rose 4,158.2 points and we just hit a low 3,126.7 points from that peak and whats that ? 4,148.2 rise divided by 3,126.7 fall in percentage terms ? 75.19% .... these things always seem to end at a Fib point and my thought was 3,960 was it was picking one too early .... didn't hurt me a bit since the industrial side which I was only holding when it broke lower saw its lows on the main prior to this .... just the resources side was the lead weight which took the overall index lower.


So yep ... fingers crossed that was the low ....


Dont expect a 5,000 ASX 200 anytime soon .... or the old highs but sticking to my guns with a view we do not slip into depression .... a mild recession is how I see it and the markets are reflecting something closer to a deep one if not the end of the world.


As to a single days rise ... again not reading too much into it other than the low for our market was perfect from a technical basis and whilst I use 95% fundamental analysis and think devotion to charting with the total exclusion of all else is foolish .... I do like the fact we kissed and bounced after giving back 75% of all gains from the previous lows was an is perfect in terms of these things.


This is said with of course the background of 24 hours being a long time in these markets and often held beliefs smashed on a regular basis of late. If you don't change with the times you end up being married to some mantra which leaves you with a share thats trading at 20% of its old highs.


After such a stellar single day rise of course the usual is it gives back some gains the next day and then if its to be the low ... slowly it rises again. World hasn't ended and despite being a market junkie for 25 years now there is a world outside the markets and if you go outside people are still buying things and whilst the market reflected almost a depression overall its hard to discern a difference in people buying things out there.


Have fun



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Gee, what a day.


In some ways revealing.... (i) not a lot of trust around, (ii) the exposure of our economy to global growth and (iii) the weighting our stocks had in the global hedge fund candybag.


I would not be suprised if over the next few years many developed economies will turn inward as the scars heal, I think the chaos in FX markets the last few weeks hints at this as countries are revalued.


This would be a major blow for the world trade (growth) platform we had been progressing.


Ultimately Australia's in-situ raw material reserves, social security and political stability will provide a floor for our relative wealth. Swan has a tough job in front of him to keep the status quo.


I had not expected another commodity boom like what we were in for many decades, I suspect now we will see one sooner then that, small consolation for those who have had their net worth decimated in the interim.


Over the next 18 months watch for the culling/re-incarantion of the mining stock pool and the subsequent new listings, with clean registers, that will take their place. This will point to future growth sectors imo...


As far as the average Joe and the economy.... It goes like this.... Don't give a rat's arse until the paycheck stops, then watch out!


For now we have the insane volatility for the masochists http://www.sharescene.com/html/emoticons/blink.gif



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Well I am off for a few days ....


Yesterday was insane ... DOW and US and Europe seem to feel the correction has ended and we stabilize somewhere round here ... our market .... IDIOTS.


Yes Idiots ... we ended barely up and the still lingering sellers totally ignored any and all good news .... lemmings off a cliff with that cup of cordial from the preacher predicting the end of the world.


Rarely do I comment on the stupidity of the market ... its always right .... just kidding ... I always comment on the direction of one thing vs whats likely to be a reality another way and yet again we have ours doing a tango in one direction and the US outperforming us by 8%. This time I suspect the move is correct.


Over here I suspect the true extent of the leveraged side vs what in reality is a small market has kept the sellers and selling pressure on one side of things ... yet the opposite has occurred and the stare the long hard stare at the brink for now is over. How long this hangover lasts is anyones call but knowing one thing and expecting it to be reflected immediately in the market just does not happen sadly.


Less than a week ago every single Nickle producer was facing ruin and last nights close vs the low is up 40% ....


The fact is with these things even if zero shut their doors the world supply due to mines running out of ore will take an oversupply of 2% to an under-supply of 5% and since no projects are likely to announced in the next 12 months does world demand overall fall by 7% leaving the balance still slightly oversupplied ? I suspect it does if we have deepish recessions and 7% overall demand fall ... but that leaves 2010 with no new projects announced in 2009 is the total world demand going to fall 15% in two year ? I dont think so.


Go to oil and with global production at 85 mmboe same equations go thru my mind OPEC cuts by 1.5 mmboe and it still went down ... up of course overnight but in one fell swoop the oversupply is GONE ... and yep things are slowing ... no doubt about that but eventually what do you think will happen to demand when compared to demand at US$148- per barrel vs a price of US$66- ? If you think it goes down that much you have to just go and drink 3 cups of preachers special cordial and shave your eyebrows and a strip down your head and jump off the cliff.


Eventually the ground hits you .... eventually you get smacked hard and wake up.


Dont expect any of these commodity side things to rally back anywhere near the old highs anytime within the next few years .... but depending on how long we linger with a question mark over the cost of new production and the current spot prices being near them the simple fact is overall production will reduce as mines or oil wells run out till the ground comes and smacks them right in the head and we do the same thing as 2003. Likely its not that bad as surely the producers actually this time take some bloody cover into rallies and temper the rise and take the froth off idiocy. To get a project up and running the profit margin needs to be roughly 100% over production costs to make the investment sane and when even oil down here at US$66- and a deep offshore oil well costs close to US$50- per barrel when one accounts for exploration wells at 30-50 million a single hole and deep offshore production facilities dont come cheap the decision to even explore is not one I suspect that goes on right now.


All besides the point in some ways ... this is long term stuff ...


Right Now ... the US Fed cut by 50 basis points ... China cut again by 27 basis points ... others I expect to follow ... Australia of the view its a wait and see thing since the idiots forced the RBA into the public arena for the first time since it was selling up around 95 cents and quite the contrast ... sell at 97 cents buy at 62 cents and lower. Gee I love our RBA they are the best .... taking them on is like talking to a brick wall and with so much ammo and ZERO foreign debt on the govt side its hard to see them EVER being taken out on the downside.


All these things add to the growing piles of positives and likely less deep recession or slowdown ... but yep we shall have a slowdown and the current market at least here in Australia is reflecting a very very deep one which I think is just not likely.


At some stage we play catchup with the recent US and UK and Japanese corrections and this base the technical one which represented 75% of all the rally being given back at the 3,724 low for the ASX 200 .... I do hope it holds but this leveraging and what I suspect is margin selling from leveraged positions just kept going yesterday and saw the market open fairly strongly and looking like being up 6% on the open to slump to a close less than 2% up by the end of the day. Nothing like a nice quite day :}


Next 7 days I suppose will see the answer to the question but for me .... the amounts being added to the positives of the global economies just keep getting more and more and the likely not accounted for negatives less and less ... doesn't mean we have more of the same sort of cascading stop losses where buyers on credit or leverage as the price falls hit stops and they drive prices lower and lower and lower and the amount of companies with more cash in the bank than their market cap is astounding and some with business's that are making money on top of this and then other assets besides cash makes the changes in sentiment in recent times even more interesting. When you have a company with a market cap of 140 mio but its got 150 mio in cash is interesting and when you add even at current price sits likely to make NPAT of 25 mio and has another asset worth 100 plus mio on top of this if not closer to 150 mio ....


Interesting times.


Oh well better go pack and get ready for the road trip :}


Just like the movie ... not about to order French toast mind you !!


Oh and 98% invested either way so I am biased on my views ....



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In reply to: kahuna1 on Thursday 30/10/08 08:36am

G'day Kahuna.

I'm not into T/A, although I have learnt to take note of it, as it has over time continually hit its projected targets as with the 75% on the ASX.

What I do know is our market matters diddly squat in the global scene. So what are those %'s on the Dow, S&P 500. Do they also need to give back 75% or will they halt at some other point? We move differently to the US markets occassionally, but overall we follow them.


enjoy the road trip. after lunch with a good mate, I'm off down the coast for a loooong weekend.





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In reply to: kahuna1 on Thursday 30/10/08 09:36am

Apparently the first baby boomer in the US has just gone onto the equivalent of the aged pension - and only 78m more to go...


I know the big K has taken some time off but anyway here is an article about one of the things about the US that he has highlighted many times: unfunded medicare and social security.


What's more it is written by David Walker, about the only Bush era civil servant who kept his eye on the ball.




And State Street reckon that the Aussie could drop to as low as 40c against the greenback in the next 12 months?!?!? I thought when a country goes bust its currency does as well?

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In reply to: triage on Saturday 01/11/08 08:12pm

Good article. Looks like George W Bush has not been preparing for the coming winter. At least our Govnt have got future fund, compulsory super, low debt and budget surplus to meet the challenges of our retiring boomers. Makes them look like geniusses relative to US.


The other problem with retiring US boomers is they will be retiring at a faster rate than they are being replaced. This will lead to lower economic growth as consumer demand wanes for many years, just like we have seen for over a decade in Japan.


I suspect the US will make some sort of weak recovery following this current crisis before doing a Japan for the next 15 to 20 years.

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"..... the true message of the bond market right now is that inflation would average around 1.4% year over the next decade.

That's still incredibly low, given that the CPI over the past 12 months was up 4.9%. It's unlikely that the CPI can start at nearly 5% and nevertheless average 1.4% over the next decade without it actually turning negative along the way.

And that in effect means the bond market is betting on deflation ...."





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