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This action is nothing more than a bull market correction. of course the market is nervous and is (over) reacting as such here are the factors as I see them;

 

Election year - with all of the Iraq fall out it is very possible we may see the ousting of the conservatives from the US and locally, this means a return to a more social gov't, higher spending, and higher taxes which will impact the consumer driven economies. - overall minor negative though could be quicly reversed is current gov'ts are retained.

 

China - a lot of growth has been priced in, yes china will slow it may even go through a number of large swings boom and bust before they get it right, never the less China is clearly on the path to capitalism reforms, India is not far behind. Overall the long term picture for these economies driving world growth is rosy.

 

Terrorism - fear pervades, but it would be hard to say that the markets are any more fearful than they were post Sept 11. There are some major events coming up such as the Olympics, and elections that would present "nice" targets but overall terrorism has been very quiet and really moved to backwater places (Spain excluded). This is either as a result of good intelligence work or a diminished threat through funding drying up and disorganisation. Overall way this is not a negative at the moment.

 

Interest Rate increases - the tightening cycle is here and coming rapidly in the states. For too long companies have enjoyed easy,cheap money we may indeed see some companies go broke under debt pressure. Overall effect on the economy from my view point neutral to negative as currently major economies are burdened by excessive debt and this must be payed for, most likely though it will be socially rather than economically. Overall neutral though company profit growth may be tempered.

 

Oil - now here is a negative, the "hidden" tax, if oil does in fact go much higher than $40US a barrel we will see a lot of company results drastically cut. A return to the 70's oil crisis scenario is highley likely. Overall short-medium term negative

 

Stock Market in flows v's Out flows - Overall flows will be in, gov't legislation is forcing people to invest even though they do not know how or why they are investing. Expect fund inflows to rise steadily till 2010, but after that I prescribe to increasing fund outflows as people retire and take their 401K/IRA and Super contributions as cash payments and a perfect time to be short of every major indicie in the world!!!

 

Corporate governance/directors fees - this is in my opinion one of the biggest threats to equity markets and gov't reform must prevail here as shareholders are to uniformed or do not have enough control over their money to punish company cheifs that continue to raise their salaries despite making huge losses.

 

Overall, there are a couple of short term negatives on the market, I see the correction continuing then sustained bull enviornment will new market highs will be made for several years. If you look at the Dow (as it seesm to have a big influence over most major markets) it could fall all the way to low 9000 before breaching support and techincally breaking it's medium-long term uptrend, so do not worry yet, invest in quality and traders should be loving these times as volatility presents so many opportunities.

 

Cheers

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It looks like tomorrow could continue the ugly run.

 

Dow futures down considerably at the moment. FTSE down. Metals falling, Oil dropping over $1 a barrel. A$ falling to mid 69s vs US$. Not looking good at all. Some kind of mini panic starting to set in.

 

The market is being dominated by those blinded by the potential for increasing interest rates to the point when no other fundamental matters are important. I wonder how low it will go...

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Excellent overview moneyman888 !

 

I think chipping in small amount$ on quality stocks during this weak phase, will be rewarded over the longer term.

The trick is, not to invest money that you will need in the short term.

 

All the best.......................,Tex.

 

 

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good ,another dam spanking http://www.sharescene.com/html/emoticons/devilsmiley.gif

 

, have been picking up AVV, wsf,oxr,kzl over the last day or so..

 

hopefully mirvac has a run up so I can short it .rekon sydney ppty mkt is in for v good correction , all those years that people in sydney have told me their market is different http://www.sharescene.com/html/emoticons/lmaosmiley.gif

 

also looking at shorting WES, looks to have broken down on the charts,

 

I love it when its like this , but dont tell my wife how much money Ive dropped .hhaaa.

 

 

still like KZL/PXS even thought Im down about 20k on KZL, hopefully it will sell off some more so I can pick up more.

 

 

As for interest rates in aussie, i rekon the next move is down and that will be next year.

 

 

As for the states , of course it is going up , just get the first rate rise out of the way and the markets will settle.

 

 

happy punting everyone

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Good read peeps, and I agree patience is needed.

 

I'd rather see an early correction rather than another big bubble.

 

The fundementals are positive for a few chosen areas for the next few years and fundementals are where you should be looking at the moment rather than TA.

 

Without exception circumstances and election year in more than one big economy, other loosing of monetry policy will come in to place as the power crazy try to hold on to power.

I feel the Bull will continue for a while.

Lets hope the bankers are seeing further ahead.

 

Lots to worries about long term, so stay in gold IMHO.

 

But good luck to you all

 

 

 

 

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Hi Muns

 

I think we are nearing the bottom of the cleanout. The resources sector had got ahead of itself.

 

Put it this way, what would everyone rather have, a US economy with low interest rates with little growth, or a US economy with moderate interest rates and good growth? I think the second will win out fundamentally. What we are talking about is possibly a 2% rise in interest rates in the next 18 months. Considering that interest rates rise to offset inflation we have to consider where that inflation comes from. Low and behold it comes from companies putting up their prices and what do you know margins and therefore profits increase. Therefore, IMO any interest rate rise is a reaction to strong growth dominated by increasing corporate profits which is the real reason to buy a stock.

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well put flash.normal action prior to the inevitable rise.Even if they doubled the rates its still very low.no doubt "everyone" will be surprised that when rates actually go up the market shall likely follow.

 

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Panic on roundabout

From The Times

May 12, 2004

 

JUST when it seemed the global economy was back on its feet, the financial markets appear to be succumbing to one of their periodic nervous breakdowns.

 

The rout in global markets that started in late March accelerated into a full-scale panic with one of the biggest one-day falls on record in last Friday's Wall Street bond trading and an Asian equities meltdown last weekend.

 

This turmoil will doubtless bring back all the cliched phrases about recession, deflation and global economic crisis, which seemed finally to have disappeared from the newspaper headlines only a few weeks ago.

 

For anyone not unduly exposed to financial markets these headlines will be as irrelevant today as they were in many of the previous global "crises" - the dotcom crisis, the hedge fund crisis, the Russian crisis, the Asian crisis, the Mexican crisis and all the way back to the 1987 Wall Street crash.

 

The fact is the financial markets and the real economy often move in opposite directions. And this is just such a time.

 

The world economy is now growing very strongly, at least outside Europe, and continuing expansion is more or less assured, bringing with it rising wages, profits and employment.

 

Ironically this is exactly the reason why financial markets and many financial companies are in for a testing and painful period in the months ahead.

 

The reason for this dichotomy between the financial markets and the "real" economy of non-financial business is quite simple.

 

There is nothing unusual or surprising about some major financial shock hitting the world economy in the early stage of an economic upturn. Far from suggesting that economic recovery is running out of steam or that recession threatens, a sharp fall in financial markets often occurs when the global business cycle moves from a phase of uncertain recovery into strong and sustained expansion.

 

The typical pattern in this stage of the cycle is that interest rates start rising sharply and all financial assets, which had been buoyed by a tide of easy money and excessive borrowing, take a big hit. Investors who overextended themselves, usually relying on money borrowed at unsustainably low interest rates, often get into serious trouble at this stage in the cycle and are forced to liquidate their holdings, selling both good and bad assets indiscriminately in a desperate effort to repay their borrowings by raising cash.

 

This process tends to produce a sharp correction in bond and equity prices and often triggers a financial crisis of some kind. In 1995, for example, Mexico was forced into default at about this stage of the cycle.

 

In the mid-1980s, many energy and commodity producers went bust. But after a period of correction, shares of well-run companies in soundly performing industries typically begin a renewed ascent and this often takes them well above their peaks in the post-recession recovery which preceded the mid-cycle correction. This is exactly the pattern that seems to be unfolding.

 

The weakness of financial markets in the past few weeks should have been no great surprise to anyone familiar with long-standing economic patterns.

 

US monetary policy is normally the main driving force of the global markets and a tightening of US liquidity is exactly the problem today.

 

The fact is that US interest rates, which are still only 1 per cent, have been far too low for too long. Many investors have taken on too much speculative debt, lulled into a false sense of security by repeated assurances from Federal Reserve Board chairman Alan Greenspan that the Fed would keep rates at this ridiculously low level for months or even years ahead.

 

But in the past few weeks, Greenspan's reassurances have been rendered worthless by a relentless flow of good news. The first seeds of doubt were sowed by the very strong March employment statistics, which suggested the run of weak figures was due to statistical distortions. US monthly job figures tend to miss new business formation and self-employment. Thus they were understating the strength of economic growth.

 

Not surprisingly, the strong March employment figures triggered a major shift in interest rate expectations, as investors realised that the Fed's reassurances could not be trusted. Then came the final blow to the myth of a jobless recovery and hence to the expectation that the Fed would wait for many months, or maybe even years, before raising US interest rates. This was the publication of April employment figures last Friday.

 

After the April job figures, it is now undeniable that the US economy is firing on all cylinders and an increase in interest rates cannot be delayed much longer. It is now clear that the Fed will have to start raising interest rates very soon and will move them up with an urgency that conventional wisdom deemed impossible even a few days ago.

 

Within minutes of the Labour Department announcing the April job figures, interest rate futures plunged by a near record 26 points, implying a 100 per cent certainty that the Fed will increase interest rates at its next policy-making meeting on June 30.

 

Looking further ahead, the markets now assume another half-point of tightening by September, and a further half-point before the end of the year, resulting in a Fed funds rate of 2.25 per cent by Christmas. That would still be very low for an economy expanding by 6 to 7 per cent in nominal terms, but it would be more than double the interest rate investors assumed would hold six weeks ago.

 

With interest rate expectations rising and bond prices plunging, equity markets around the world have naturally had a hard time. The Dow Jones industrial average fell 100 points on Friday alone and is now 6 per cent below its March high, while the more speculative markets around the world, ranging from Brazil and South Africa to China and Russia, are down much more - typically by 20 per cent or more.

 

In the past few months, large fortunes have been made by investors who use cheap short-term borrowings in US dollars to make leveraged investments in soaring assets around the world, whether copper and oil futures or Japanese equities and the US Government's own long-term bonds.

 

In the past few weeks, some of these leveraged investors must already have suffered enormous losses. But the worst is probably still to come, given that the Fed is sure to raise interest rates much further and faster than the market's present expectations, which point to a Fed funds rate of around 4 per cent by the end of 2005.

 

For bond investors, therefore, it is hard to see any cause for optimism in the present global outlook. But for equity investors there is a silver lining. The increase in US interest rates should have little effect on economic growth, since companies are flush with cash and US consumers are mostly protected by fixed-rate mortgages.

 

The best news is that rapid employment growth is now generating additional incomes for consumers and these will outweigh any losses they suffer from falling stock markets and bonds.

 

That is why economic expansions usually run for many years once they become self-sustaining, even as interest rates rise and financial markets become increasingly volatile. This is precisely the self-sustaining stage now reached by the US (and British) economic expansions. In sum, what is bad news for bond markets and leveraged investors, is good news for almost everybody else.

 

from http://www.theaustralian.news.com.au/commo...255E643,00.html

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US stocks creep higher

From correspondents in New York

May 12, 2004

US STOCKS rebounded tentatively today as investors sought bargains and adjusted their portfolios to reduce their risk after the market's three-session plunge.

 

Healthcare and consumer staples were expected to lead buying, with financials and other interest rate-sensitive stocks still vulnerable amid the growing expectation that the Federal Reserve will raise rates as early as next month.

 

In the first hour of trading, the Dow Jones industrial average rose above 10,000, gaining 28.67, or 0.3 per cent, to 10,018.69.

 

Yesterday the Dow fell below 10,000 for the first time since December.

 

Broader stock indicators were moderately higher. The Standard & Poor's 500 index was up 5.04, or 0.5 per cent, at 1092.16, and the Nasdaq composite index gained 22.15, or 1.2 per cent, to 1918.22 after dipping below the 1900 mark at yesterday's close.

 

The major indices suffered losses of more than three percent over the previous three sessions as investors worried that rising rates would erode corporate profits.

 

The Russell 2000 index of smaller companies was up 4.70, or 0.9 per cent, at 542.56

 

http://www.theaustralian.news.com.au/commo...255E462,00.html

 

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