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


kahuna1

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Howdy,

 

Christmas is coming and the goose is getting fat ... please put a penny in the ASX's hat ....

 

Its getting a bit like that.

 

And thats it for rhymes ....

 

Yet again we keep lagging behind and for no particular reason other than the market is thin and some lack of momentum added to the fact the US dollar ... yes the dollar has bottomed ... and some of our economic numbers are not really what they appear.

 

On the US front we sit here yet again for about the 10th time closing at a level about 1% below the magical 50% retracement of the high vs the low and its really only a matter of time. I dont fall into the technical trading camp as such ... and rely more on fundamentals to gauge and call these things but the actual stopping point .... is determined not by a human being its a bloody computer loaded with algorithms and technical levels which sadly seems to determine the stopping points on the cycles I have been calling on this thread for a few years now.

 

NY now closed and like Gomer Pyle "surprise surprise surprise" we sit just below the 50% retracement and less than 10 points or under 1% separates it from these levels prior to Christmas. If I was arm twisted and not that I suspect this level is going to mean much in the end ... we break it in these thin markets over the next week. US side is quite content to take things higher and I suspect quite some way higher as the new year unfolds. The economic numbers if the non farm payrolls are anything to go by have been in the oven cooking for so long the smell has gone from pleasant to something awful and when you cook something thats in fact going rotten I dont see the point longer term. Then again grown men must play their games and on the US side its all green lights at least for now.

 

Over here we just keep lagging further and further behind and my comment when the RBA started raising rates was I think they are making a mistake ... sadly seems to be coming true. No real reason as I said to raise rates other than get a little ammo back in the punch but the fact is we already had it and the fact and simple is that we only ever lowered to 3% and it still remained we had 3% further to LOWER rates should all hell break loose again. Same on the fiscal side and our govt compared to the US or UK spent about 15% of what they did so ... both sides we had a great amount of room. My logic for the RBA and why it shouldn't have raised and why I wanted and hoped they would wait I covered a few months ago but it was down to the bottom line that despite not getting into a recession and having negative growth for two quarters in a row ... we were not growing at all ... there was little if any inflation pressure ... and I was worried at the time about the currency going back to its old highs and that was when we were at 75 cents. Oh how times change .... the currency went up to where ? 94 cents was it ? Inflation and imported inflation pressures are in fact deflation pressures ... on the economic front ... our GDP last week was what ? We rose by 0.2% for the quarter and what has the RBA done ? Its just raised by 0.75% in the last quarter.

 

Stand back and slap yourself in the face .... we grew at a rate of 0.2% for the quarter or less than 1% for the year and the RBA actually raised rates by 0.75% . Sure many are going it was needed to drain the excess liquidity and lax stance out of the monetary side ... me ... well I wouldn't have cared if the GDP number rose by 5 times the amount it did ... I likely would have only raised once or at most twice ... instead with pretty weak numbers on that side we raised twice and then a third time and were looking at a fourth ... at least till they woke up. As a result our equity side lag's miles below the US and others on a technical bounce basis and the ASX 200 needs to go 7% higher to hit these levels . Still think we get there but this is the reasoning at to why we lag I suspect rather than any other. The only real worry for me was the Australian housing market and I could accept the RBA moves if it came from this area alone and the fact we hit new ALL TIME HIGHS on average ... but in the recent rate rise decision notes it only got a single line. I agree and accept that unemployment is looking a lot better than expected but so too is the economy overall and the RBA didn't go lower than 3% for this reason when lowering so as to have ammo to keep stimulus possible into the economy. Raising immediately when things dont go as far as expected ? Well GDP at 0.2% is my proof ....

 

Also have some problem with the fact that overseas they quite clearly are not going to raise rates anytime soon ... have no intention and over here ... for business ... the cost of capital has risen and risen again ... if it were a 100 metre swimming race its akin to making all Australians wear a 10kg belt vs the rest before they start.

 

Oh well ... nothing changed much on the views ... still think despite the fact we need 6% or so to get to 4,963 on the ASX we get there eventually ... US side they are just going to eventually blow this 1,121 level on the S+P 500 and go for the next levels . Currency as I mentioned and some time ago the dollar has bottomed at least for now and frankly it cannot keep going in one direction for too long or they will end up with a nuclear implosion at some stage with bond holders and foreign bond holders exposed to the exchange risk jumping ship wholesale and this I suspect cant happen for some time. Of course unless some serious changes to spending via govts and consumers in the USA dont happen within 5 years the only conclusion one can make is that it has to happen and the govt cant spend 200% of its income forever and as such the music stops eventually.

 

Anyhow ... we creep higher on equity index's barring some disaster ... they still cant help themselves ... small chance we play catchup on the ASX vs the S+P 500 . Dollar ho hum .... long term trends still intact but a correction and higher for now at least. AUD same thing but opposite for now we go a bit lower due to the stronger US dollar.

 

Anyhow wishing everyone a very merry Christmas and happy new year ....

 

Take care

 

Mark K

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I have not been paying much attention of late for personal reasons, but another good market synopsis Mark - good because it accords generally with my own views ;) .

 

Here we are, for all intents and purposes, at calendar year end and the market rally I anticipated did not occur. In fact we could see a short profit taking early in the new year as (US) the new fiscal year as generated tax liabilities are not payable for a further ~15 months (I think, or thereabouts). After the S&P 500 1121 level we have about 1225, which is where this bear rally looks to be headed before reversion. Timing seems to be about right - there's time enough to get it there and still present an orderly appearance.

 

The US dollar rally I suspect is partially seasonal and driven by the very computer trading algorithms you alluded to. This is in part unravelling the USD carry trade and may account for the ASX index lag. Attempts at rallying seem to be met with selling pressure (e.g. yesterday) but volumes are seasonally thin so I have to be aware of that too. I have no objective evidence to support this hypothesis, so don't ask!

 

Oh, and the GDP growth of 0.2% should be considered alongside out population growth, which last year was 1.69%, or ~0.42% per quarter. The GDP number that matters to the ordinary Aussie is the GDP per capita, that that shrank by 0.2%. So, RBA take a slap in the face from me too.

 

Happy and safe festive season to all.

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German chancellor Angela Merkel once was asked by then-British prime minister Tony Blair what the secret was of her country's economic success, which includes being the world's largest exporter nation and running substantial trade surpluses. She famously replied: "Mr Blair, we still make things."

 

Two words: Currency Manipulation. It's about beating the trilemma that is: (1) exchange rate, (2) capital flows and (3) monetary policy. Central bankers want it all and, as of consequence, seek to use direct market interventions and active sterilization.

 

In the old days of Bretton Woods - when we had PHYSICALLY IRREFUTABLE commodity money - it was difficult to game the currency markets.

 

When we bought something from China, that resulted in a real physical amount of gold moving from Domestic bank to Foreign bank. This caused the total money supply to shrink in Australia and expand in China.

 

Consequently, as an adjustment in purchasing power parity, it caused domestic deflation and caused inflation in China. If enough people did this it caused a new equilibrium to be formed as the changes in money supply was a countervailing force that helped equalize the trade.

 

In this new world we no longer have money backed by anything, so the RBA has the luxury of tightening domestic monetary policy, thereby increasing foreign capital inflows via the demand for AUD, and soaking up the excess liquidity via CGS issuances (govt debt).

 

So higher interest rates puts a theoretical damper on our overheating property market and foreign capital inflows are kept in check from flooding into equity and RE via the issuing of sovereign debt at a commensurately compensative "risk-free" rate.

 

The price of such action lies in the interest repayments on those outstanding papers held by (mainly foreign) debtholders which must be serviced predominantly via productivity, ie. GDP, growth. This, given the RBA's intention of limiting capital gains on an already inflated fixed asset base.

 

However, as other posters have generously mentioned, our fragile (nominal) GDP growth is being simultaneously thwarted by the concurrent application of higher intrinsic borrowing costs and real population growth. The result is the RBA actively managing to keep our currency perpetually more expensive than it ought to be in reality via the printing press.

 

Overall, it's not as bad as the QE ponzi enacted by the US Fed/Treasury; the differences in analogy being one of context and extent.

The wonders of our fake monopoly money system.

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noticed today that UBank (an NAB mutant) reduced its term deposit rates on 3,6,12mth terms

 

seems that he rate cycle may have reached resistance ( I have said that before ! - Lol)

 

XMAS shopping hasnt exactly been frantic has it ?

 

economy will cry poor and the RBA will hold or drop rates at its Feb 2010 meeting

 

or it could be that it is a sign of banks being able to get their money cheaper so they no longer have to offer such a premium to the RBA cash rate

 

more confidence in our world best banks

 

(or is it a strengthening US$ side effect , as our banks borrow a lot offshore)

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US side they are just going to eventually blow this 1,121 level on the S+P 500 and go for the next levels

 

The Standard & Poor's 500 Index was up 0.2 percent to 1,120.87 at 14:08 p.m. in New York.

 

K1 pretty much there now and slighlty higher again just.

Merry Christmas Ho Ho. V1

 

Bloombergs observations

The Standard & Poor's 500 Index rose 0.3 percent to 1,120.90 at 1:53 p.m. in New York, surpassing 1,120.84, the level marking a 50 percent recovery of losses from the biggest stock-market collapse since the 1930s. The Dow Jones Industrial Average added 7.33 points, or 0.1 percent, to 10,472.26.

 

http://www.bloomberg.com/apps/news?pid=206...17P4k&pos=2

 

 

 

"The path of least resistance will continue to be to the upside," Robert Doll, who helps oversee about $3.2 trillion as chief investment officer for global equities at New York-based BlackRock Inc., said in a Bloomberg Television interview. The economic recovery "means earnings should be somewhat better and liquidity should still be plentiful. That's a recipe for equities moving higher," Doll said.

 

 

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We can forget any real change to the US type financial model - exists for the good of the elites

 

They know they have been on a winner as if it can survive the last 12mths, so interwoven into western society that it cant be disentangled at an acceptable "political" cost

 

"this time it is different" --- hardly, just more of the same , enriching the "few" with some crashes along the way and guaranteed govt bailouts and executive bonuses and incentive rewards in the bad times as well as the Boom

 

they cant lose

 

will the "many" ever be able to change it ?

 

but you still get that underlying feeling that the market's bouncing ball has reached its zenith

 

maybe I/We have lost Faith

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noticed today that UBank (an NAB mutant) reduced its term deposit rates on 3,6,12mth terms

 

Well, a stiff "FFFFFFUUUUUUUUUU" to UBank! :lol: It's a duration matching ruse that's driven by a relaxation in their need to lock in short term FIXED interest from retail investors as opposed to relying on the wholesale funding market. They're much more concerned with say immunizing a 5yr time frame ATM than anything <12mths given the prevailing sentiment on global debt capital financing availability within that range. Long term inflation outlook is increasingly bullish so I'd expect a different story for 2-5yr notes. In the interim, the market for funds is ostentatiously liquid (all that bloody QE is even re-igniting the credit derivative extravaganza; observe the heightened interest in junk bond issuances to get an idea of expanding risk appetite). Conversely, UBank actually ramped up the variable rate for their online saver product. The underlying implication of this pattern of behaviour IMHO is "HEDGE HEDGE HEDGE!" and the suggestion of what's to come on the macro front is, quite frankly, butt ugly :o .

 

FWIW, a here's a much more pertinent outlook on Term Structure.

 

Stag...

 

The shift to longer- maturity debt has raised concern that investors will demand higher yields to offset the risk of inflation as government spending drives the deficit to a record $1.4 trillion.

 

...flation...

 

The gap between yields on Treasuries and so-called TIPS due in 10 years, a measure of the outlook for consumer prices, closed above 225 basis points for four days last week, the longest stretch since August 2008.

 

:(

 

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Merry New Year to all :}

 

Ho Ho Ho and bah humbug :}

 

On at times like this has to laugh out loud and look back at the past year and go ... gee it could have been very very bad.

 

to borrow off DB76's post

 

On July 1, 2005, Bernanke stated without hesitation that we were not experiencing a housing bubble: ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“I think what is more likely is that house prices will slow, maybe stabilise, might slow consumption spending a bit.ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

http://www.financialsense.com/editorials/c.../2009/1223.html

 

Now he is being named times person of the year ?

 

Well If I cast my mind back to that point in time 2005 I was of course still bullish on things and with good reason ... markets were taking off and commodities clearly were being hoarded and short term rates were just about to rise in the USA. I suppose back mid 2005 the US house side was not in fact too bad it was of GREAT concern and this call by Bernanke was a terrible one with two very sharp years of rises after this comment that led to the BUBBLE that he and Greenspan didn't see but created. Being blunt hindsight is great but in hindsight the US fed with two 10% plus house rises for the years 2005 and 2006 .... should have stomped on the whole thing a lot harder and RAISED rates there twice the pace they did if not three times.

 

Not sure any of this would have changed the outcome. The causes of the Global financial crisis were set in stone and concreted by mid 2006 and the harder I looked mid to late 2007 the more scared I got so the comments after this as 2006 went on and 2007 and then 2008 continued were frankly so far out of touch with reality it was an absurdity. Obviously my own views changed about 60 points form the absolute peak back in 2007 and in November 2007 I was positively bearish and even at 6,500 on the ASX 200 mumbling I dont know how bad this will be bit bloody hell I think 4,300 is a chance . Of course this changed when we got there and lower it went as the wheels fell off.

 

Right now I just am not too sure how in touch they are over on the US federal reserve ... if at all. Things in 2010 will of course look good but after the worst recession in 30 years and basically loosing more jobs than all the past three recessions totalled ... even if the US headline GDP goes up 5% this year its likely headline Unemployment remains about 9.5% and those underemployed at 15% plus currently the wider measure is at 17% or if they used the same methods as 1990 is a gob-smacking 22%.

 

So 2010 will be an interesting one.

 

I do believe the RBA here jumped the gun and the almost dead GDP number of 0.2% for the last quarter is absurd to have raised rates by 0.75% ... just insane. But the RBA here is actually aware we may have a housing bubble appear unless stomped on hard in its infancy and with record average prices reaching a new ALL time record one has to wonder if anyone took note of what happened in the USA. its not just a one way street as they seem to think. Nothing new in this other than to point out our house prices have risen MORE than the USA where we sit right now in the last 15 years. If thats not sobering not sure what is.

 

Markets ... yep as suspected we play with this 50% retracement of the high vs the lows for overseas and the close for the US S+P 500 a classic last night right on the money. US side with zero rates and not a chance they raise for many many months its going to provide some impetus to the market in the first half of 2010. I am worried however about some of the corporate earnings but the analysts calls after being so insanely wrong for the last 18 months are at a very low base ... very low so not too worried the first set of earnings out early Feb but the ones 3 months latter in May when people start going ge ..... a P/E of 20 isn't any good. I suppose it is compared to a zero or 2% interest rate but thats artificial and not likely to last for the very long term .

 

Happy happy merry new year .... sound like the Christmas Grinch but nothing new there.

 

We follow the US upwards like a lobotomised computer system ... nothing much changes or so it seems with a computer chip and some algorithm at the helm other than the most powerful system around ... the 3 kg of stuff sitting on your shoulders :}

 

Should be a game of picking the top as we enter the 2010 period and our market did play a slight game of catchup today vs the US but we are still around 4% under them in relative technical terms ... likely due to our raising rates other than anything else. Suspect the yanks being so big on Christmas take it there and over the 50% tonight ... other words it ends up tonight ... anything else would be seen as a bad Christmas omen .... or big time Grinch and the next levels are so far away for now ... another 6% for the USA I am not going to jump the gun and say they get there till we clear this hurdle but ... suspect they take it well past where we are especially with ultra thin trading for the next few weeks and not much to topple the apple cart.

 

Famous last words those .... but barring something totally out of left field they have all cemented their bonus's and should be irresistible to creep it higher when no one is looking.

 

Wishing everyone again a Merry Christmas and prosperous new year ... spend it with loved ones and give someone you love a kiss from me and tell them you love them. Some times there are more important things than markets .... basically all the time !! Hope all the kids love their prissies and its what this time is all about ... the kids. Being just a big one myself ... I cant wait for Santa !!!

 

take care all

 

Mark

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