Does history repeat itself?

Business Spectator - An old threat to new Europe

Interestingly, here is another article that underlines the current issues in the world and more particularly in Europe. The current situation is very similar to that of pre-world war ones. It is an end of an era, a crisis, and no vision of the future. A transition from one world into another. It could be that Mr.Obama's role will be greater than expected.

In Europe, the rise of nationalism is obvious in difficult time. There is simply no that feeling of common interests among the European nations. And the future development is wide open. Just like sixty years ago, same forces are in play. Hopefully something has changed during that period and the results will not be the same.

Predictions

The Brit Ministry of Defense looks at world’s future - it’s grim. « Fabius Maximus

For example, a decline of confidence in globalized markets is possible and might cause international rivalries to intensify, increasing the risk of inter-state warfare. Therefore, while planning on the basis that major strategic powers have a shared interest in maintaining global economic stability remains reasonable, the need to understand the potential for conflict between them will persist.

Why do predictions about future always include war? That is, probably, our greatest fear. Death, chaos, uncertainty, loss, change, unpredictability... War brings the ultimate challenge. Some accept it, some don't. But they all risk and take chances when involved. And, in the end, some profit other loose.
The above example, listed in the forecasts published between 2006 and 2007, is very close to truth today. And highlights one thing I want to emphasize - how market risks work with other risks and vice versa.

Trade Wars - Isolationism

This title sounds like it belongs to some modern video game rather than reality in which we live. From what I see in the news and comments, what I call the "trade wars", is starting. As John Mauldin writes in his latest newsletter:

Ecuador defaulted on its foreign debt. Since the G20 meeting in Washington in October, five of those countries - Russia, India, Indonesia, Brazil and Argentina - have announced their intentions to raise import tariffs or otherwise restrict trade. Russia has announced plans to raise tariffs on autos; India has already lifted duties on iron, steel and soy; Brazil and Argentina are putting together a case within Mercosur for boosting external tariffs. Vietnam just raised taxes on steel imports to 12% from 8%. The EU said it may reimpose duties of 79% on a paper-binder component in retaliation against China. French President Sarkozy has established a $7.5 bln fund to invest in domestic companies so as to avoid foreign takeovers. China has reinstated export rebates and now we see that US steel, textile and paper markets intend to file complaints against Chinese imports, and did anyone notice that this auto-bailout excludes foreign companies?

It's all about self-preservation.

 

This pretty much describes the beginning of the self-preservation fight among states. No more free trade for some time, obviously. Some brakes will now be artificially applied to economies, as if the slowdown itself was not enough. The scary part is what the political situation will develop into after these steps done in the economy. It is far from over so it will be interesting to watch how things develop in 2009. Fortunately, the consensus among analysts is that there is recovery coming for the US markets in 2009. I assume, seeing that all the markets are so intertwined now, this should push other markets up as well.

If this is the Great Depression II, it is way less scary than some things I've witnessed in Bosnia during civil war. So this pretty much looks like child's play, looking in comparison. Looking forward to recovery later in the year and, in the short term, I wish you happy forthcoming holiday season. I'm also very much looking forward to my Summer/Winter holidays at the end of January.

Trade Wars - Are we on the verge of something far more significant?

RGE - Germany is fighting with Europe. Can China be far behind?

The outlook described in the above article might serve as an introduction into something far more significant and affecting than the current crisis is. Any non-economical friction that exists in the world might be boosted by economical situation in the near future. Soon the priorities for many states might change. Who would care about poverty, pollution, global warming, international issues when there are immediate problems at home. And if those problems are caused or helped by some other countries, quite an isolationist policies might be adopted. Not to mention aggression in certain ways - trade wars or something much more significant.
Anyway... I don't want to be a pessimist. The situation in Australia is probably far better than elsewhere and I can enjoy the time I'm spending here, far away from those "other" problems and issues.

Predictions for 2009

8 really, really scary predictions - Meredith Whitney (7) - FORTUNE

If 2008 was characterized by the market impacting the economy, then 2009 will be about the economy impacting the market.

Some more predictions for 2009, as these are popular at the end of the year. What I see is best described by Ms.Whitney in the article above. Markets went down, real economy followed. Now, it's the other way around. The economy is going down. Markets will either be held low by the pressure or will start recovering slightly.
Obviously, this could be the phase 1. Flat market indices for some time, before the new upward movement. Nouriel Roubini, on the other hand, predicts another 20% fall in the markets. Some other experts agree that P/E ratios could go better, which coincides with the Roubini's view.

Forecast for 2009

Business Spectator - Global economy to contract slightly in 2009, says IIF

There is, generally, a consensus in the analysts’ forecasts for the 2009. Most of them see a recovery starting in the second half of 2009. The world economy will contract slightly. The forecast is that the contraction will wipe out this year’s gains. In the third quarter of 2009 the recovery should start in the US and a quarter later in the EU. These opinions are probably keeping the markets at the level.

The ASX S&P 200 has not made any significant changes since the latest bottom in November. It has been oscillating between 3500-3600 for the past month.

ASX S&P200 at 3660

The Australian indices are following the Wall Street lead from Friday session. The ASX S&P 200 opened higher – just a bit above 3500 - and is skyrocketing upwards today. At 11:45 it is nearing 3670 and has been on the upwards move since opening.

The market recovery acts just as Buffet said. The expectations are for the economy to start recovering in mid 2009 so it is reasonable to see the bottom in the stock market about now. Or, in the November 2008 lows.

Some expect further downward pressure in the next quarter. Considering there will be the new US president and a whole lot of changes and actions coming up, I don’t think that would move the markets downward. Especially considering that Democrats want to bail out the US auto industry. There are other stimuli packages being announced by other governments worldwide, including the EU. This should prop up the commodity prices a bit by pushing the demand. Hopefully it will not be beating the dead horse.

Oil and the Changing Political Climate

Falling price of oil will have an effect on the world political climate. Perhaps more than economical. Looking at the numbers below, that show what the price of oil should be if these countries want to balance their budgets, can lead to some staggering conclusions.

Russia is missing from the list. Their value for '09 is $70. It means that the price of oil should be at $70 per barrel, with the same production output, to balance their national balance sheet.

Since OPEC countries are not effectively reducing production, for they need any cash they can get, the oil price might go even lower - towards $30 per barrel. If that scenario goes on, the political unrest in the above, already fragile, countries, will develop in some interesting ways.

After all this (the financial and economic crisis) is done, there will be conspiracy theories stating that the Western countries' only way to bring the rising powers of Russian, China, India, Brasil, etc. was to cause an economic collapse. Which happens to make more damage do those fast-developing countries than to the already developed ones.

Oh, and yes, the auto industry is changing rapidly. It is about time, considering it is the end of the year 2008 and the era of the car as we know it is, obviously, over.

S&P Downgrades Russia to BBB with Negative Outlook

RGE analysts write:

S&P downgraded Russia's sovereign bonds to BBB, the second lowest investment grade ranking from BBB+ citing the rapid depletion of Russia's reserves which have fallen 25% since early August and high levels of fiscal spending. It suggested Russia's current account would be in deficit of 2.6% of gross domestic product in 2009, compared with a surplus of 5 percent in 2008 as its terms of trade deteriorate. Other ratings agencies will likely follow suit

Economists' forecast for Australia in 2009 and 2010

Business Spectator - Recession cloud forming

Committee of Australian Business Economists forecasts the economic environment in Australia in the coming period. The topics include GDP, growth, exports, Dollar, interest rates...
The recovery, in their view, is mid 2010 rather than 2009. The interest rates are to through at 3.5 percent. The Australian Dollar is to median at 0.60 US Dollars in 2009.

Buy low sell high

John Hussman: Buying Near the Bottom - Seeking Alpha

An article that reinstates some of what I wrote this morning. The majority of opinions are definitely bearish while the indexes are pretty low. While the markets are holding up at the support level, the investors aren't interested in buying. To me it sounds as the school-book definition of a market bottom.
US S&P 500 is already 20% up from the November lows. In a month or two we could look back and say: "Yes, that was the bottom and that was the come-back rally right there." By then it might be too late to restore some of the losses made throughout the year. :S

Russia's changed role

Business Spectator - Reassessing Russia

One more sign how the current economic situation changes the geo-political shape of the world. Falling prices of raw materials and energy caused diminishing of power of Russia on the world scene.
Bad economic, health, and demographic conditions will cause its population to decrease by one third by 2050, from 143 million to 100 million, forecasts OECD. All the power play of the last years might have come to an end?
Obviously, everything will change yet everything will stay the same.

CDS replace rating agencies?

Business Spectator - Rating agencies at risk

CDS or credit default swap rates are getting linked into the banks' interest rates on term loans instead of banks' credit rating issued by rating agencies. If this practice makes ground, the role of rating agencies would diminish and the rates would more closely match the market's perception of institution's credit worthiness.

Hopes of good news

What happens in the market these days seems like setting a stage for a major rally. First, on Friday, the very bad unemployment data failed to push the indexes lower. Instead, there was quite a rally which some analysts called bargain hunting. Then, yesterday, the news about the new US administration investment into infrastructure pushed resource companies higher. Whether this chain of positive development persists in the future, remains to be seen. But, the conditions are there. The majority of people are now bearish and the news hardly affect the mood anymore. That should be the typical attitude at market lows. Which sets the stage for moving upwards. This is, obviously, the reason many miss the initial rally. The US and Australian markets seem to be quite well up from the lows reached only a couple of weeks ago.

Today we will see whether the rally will extend from the US into Australian market. The S&P 200 is currently at 3650 and the ASX is about to open somewhere around that number. Although the index went up to 3750 over night, it is to open near to where it closed yesterday during trading hours.

Valued Opinions

I received my first rewards voucher from Valued Opinions. It is a web site that offers paid surveys. My points have accumulated to the amount of $20 and I was able to request a payout.

The rewards card came in after about a week. I selected a Safeway rewards card and used it to pay for groceries.

I’m happy to see that the system works.

Western Balkans Economic Situation - from Stratfor

Free Preview of Members-Only Content | Stratfor

Here is a brief analysis of the economic situation in the Western Balkans from Stratfor.
Generally, the lack of investment sentiment worldwide will have a long term effect on the region. The growth, dependent on the foreign capital, will be much slower.

Europe has been badly hit by banking crisis and the tight ties between banks and the industry.

Chinese Recovery in H2 2009?

RGE Monitor analysts state

In H1 2009, with the G7 in recession, manufacturing outlook could be even weaker but government measures including those to support the property market could lead to expansion mid-way through 2009. Industrial production is already growing at the slowest pace in 7 years and electricity demand contracted in October

It coincides with statements from other analysts about first positive signs in the economy worldwide.

US Housing Still Far from Bottom

... we learned that the housing market is nowhere close to bottoming out. New home sales dropped 5.3% in November to a 433k annualized rate – the worst since the 1982 recession. Even though sales are now down 69% from the July 2005 bubble peak of 1.39 million units, we believe builders have not been aggressive enough in curbing production because the most critical variable of all, the unsold inventory backlog, rose to 11.1 months' supply from 10.9 in September.

Need to see inventory backlog drop to 8 months' supply

The reality is that even though single-family starts have dropped to 26-year lows of 531,000, they are still running 23% above the prevailing level of new home sales. The worst the inventory-sales ratio ever got in the early 1990s real estate meltdown was 9.4 months' supply. We are currently 18% above that level and almost 40% higher than the 8 months' supply we would need to see before calling an end to the housing deflation phase.

Another 15-20% decline in home prices likely from here

As we saw last week, the Case-Shiller index fell 1.85% MoM or at a 20% annual rate. All 20 cities were down both sequentially and YoY. Home prices are now down a remarkable 22% from the 2007 peaks. With the unsold inventory sitting at the third highest level of the past three decades and mortgage approvals for new home purchases falling to their lowest level in nine years, we believe the laws of supply and demand point to a further 15-20% decline from here. So, of all the things that happened last week in the market, retailing stocks up 17%, the bank stocks up 26%, tech up 9%, the one development that probably has the greatest chance of being reversed is the 60% surge we saw in the homebuilding group.

David Rosenberg,
the North American economist of Merrill Lynch

Despite downturn, skill shortage very high

Business Spectator - Slowdown fails to knock skills shortage

The quarterly Clarius Skills Index, developed by the Clarius Group with KPMG-Econtech and released for the first time on Tuesday, shows skills shortages in 13 of 19 occupation categories analysed were at the highest levels since 2002.

Number of IPOs to increase in 2009

Business Spectator - More IPOs in 2009: PWC

PricewaterhouseCoopers predict the number of IPOs to increase next year. The expected increase is from 25-26 in 2008 to 30-40 in 2009.
The government stimulus is expected to stabilize and lift the sharemarket in the second half of 2009.

Profits higher than expected

Business Spectator - Company profits rise 5.2%

Company profits rose 5.2% on a year-to-year basis. That is more than expected 3.5%.

The Snowball

Alice Schroeder's 'The Snowball': Wisdom from Buffett's Biography - Seeking Alpha

I’ve had it so good in this world, you know. The odds were fifty-to-one against me being born in the United States in 1930. I won the lottery the day I emerged from the womb by being in the United States instead of in some other country where my chances would have been way different.

Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, ‘One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one that is born in the United States?’ It says something about the fact that society has something to do with your fate and not just your innate qualities. The people who say, ‘I did it all myself,’ and think of themselves as Horatio Alger – believe me, they’d bid more to be in the United States than in Bangladesh. That’s the Ovarian Lottery.

It feels a bit comforting to read the above lines. Relieves some of the pressure for not being born at a different place or at a different time.

Phase 1

Big Difference between Price and Value - Seeking Alpha

If we measure the reactions in the news instead of market price graph, the conclusion could be that we are in the Phase 1 of the economic cycle. Some see recovery sooner, some later. The good thing is that with every passing day we are closer to the end of the downturn, anyway.
Most opinions are that the through of the downturn will be sometime between this quarter and mid 2009. The effects of monetary policy, conducted over the past several months, will take time to have effect in the system.

Looking a bit further ahead, there are opinions that investing right now, besides buying a pretty good value, also bears low risk of loss in the next 3-5 years. With all the bad things happening and the reactions to counter the effects, it is hard to imagine things getting much worse in the next couple of years.

Eurozone Inflation at 2.1%

Eurozone Inflation Plummets to 2.1%; M3 Growth Unchanged at 8.7% - Seeking Alpha

ASX S&P 200 closing onto 3700

It is a few minutes left until market close. The close of the day, the close of the week, and the close of the month.
November started with a presidential rally and is closing with a rally.
ASX 200 is hitting 3700 from below at the moment.

Has recovery started?

Well, whether the recovery started or not, BHP is up by 50% in 5 days! From 2000 to 3000 since November 21. This is quite amazing.
So, either a new suckers' rally or the beginning of phase 1? I'm an optimist so I'll go with option #2. Hope this is the phase 1 entering.

Serbia may emerge stronger out of the crisis

BalkanInsight.com - Crisis Will Toughen Serbia, World Bank Says

According to WorldBank's country manager, Serbia may emerge stronger once the economic crisis ends.
These are good signs for the region's future.

Volcker back in the game

Obama chooses Volcker as economic adviser - MarketWatch

Paul Volcker has been named the head of the President's Economic Recovery Advisory Board. The board is to provide independent economic advice to the new President. Many had hoped that Volcker would come back to the scene in time of crisis as he was the Fed chairman from 1979 to 1987.
This news propped the markets further upwards. The ASX is to open higher. Australian S&P 200 reached almost 3700 overnight. It is to open at 3540, where it closed yesterday. All Ordinaries are about 50 points lower.

A different view to a solution to the current crisis in the US

The More Things Change ... - Seeking Alpha

This interesting article lists possible steps needed to start fixing the mess in the US financial system. What strikes me is that, if implemented, the US financial system would pretty much resemble the European one.

Australia to be hit only next year

Business Spectator - Local dollar to hit 47 US cents, says bank

BNP Paribas sees Australia at zero growth in 2009, with Australian Dollar hitting 47 US cents. Those would be followed by 2.75 percent cash rate.

First Glimpses of Recovery

Business Spectator - Buyers are watching and waiting

OK, so this is what it's like when the good news start appearing. After the first positive signs coming from China, this comment from Gottliebsen adds an icing on the cake.
There might be the first signs of a sustainable recovery.

Another fact is that, the lower the market indexes are the stronger the buying pressure gets.

The ASX S&P200, led by gains in Wall Street, hovers around 3600 after bouncing off 3200 level, reached last week.

China Recovering

Business Spectator - BlackRock says China starting to recover

The effects of the Chinese Government stimulus released earlier are beginning to appear. If sustainable, this would be extremely good news for the Australian economy.

Market as a Discounting Mechanism

As a Discounting Mechanism, the Market Will Rebound Before the Economy - Seeking Alpha

Markets are efficient in a sense that all the known news and forecasts are already calculated in the market price.
It has already been said that markets are moved by sentiment and tremendously affected by expectations. Noone can say with absolute certainty if or when there is going to be a ground-breaking event in the future, like new war or a sudden increase in demand of any commodity, service, or currency. But all the known facts (and distortions) are calculated into the current market price.
So, markets may not further when there is only doom and gloom in the news. All the foreseen doom and gloom is already there - in the market price. So, as things go for worse or are expected to go for worse, the market price will fall. Likewise, as things improve or are expected to improve, the market price will rise.

The above article also mentions that Nouriel Roubini also thinks the recession would end before the end of 2009.

My thoughts is that the market has to stabilize for some time (Stage 1 as shown here), before it can start another growth stage (Stage 2).

Stages in the Economic Cycle

The chart shows stages in the economic cycle. Markets move in a similar manner all the time. Hence, the four stages can be identified:

1. Establishing a base
2. Growth
3. Top stage
4. Decline

National Rental Affordability Scheme

Business Spectator - Scheme offers 'affordable' home rentals

A new scheme has been adopted to offer affordable rentals for low and middle income earners. The Government will subsidize the rent for those income groups who rent their accommodation. This should reduce the pressure on the rent prices and push the home building a bit.

Rescue Package for CitiBank

Business Spectator - US govt agrees to $US306bn Citigroup rescue plan

Losses to be shared by Fed, Federal Deposit Insurance Corporation, and Treasury.

Home Building Recovery in 2009

Business Spectator - Home building recovery expected for 2009

Housing may resume growth in 2009, in Australia.

Geithner - the New Treasury Secretary Nomination?

Business Spectator - Geithner to be tapped for US Treasury chief

Timothy Geithner, the president of the New York Federal Reserve Bank, is expected to be tapped by President-elect Barack Obama to be the next secretary of the US Treasury, NBC News and the Wall Street Journal have reported.

This news propped up the markets yesterday.

US Housing May Bottom Next Year

Business Spectator - Fed's Plosser says US housing may bottom next year

The troubled US housing market should find a bottom in the middle of 2009, Philadelphia Federal Reserve President Charles Plosser has said, but he acknowledged the outlook remains highly uncertain.

US Economy to Rebound in 2009

Business Spectator - Fed's Lacker-reasonable to expect rebound in 2009

"Many analysts expect the US economy to regain
positive momentum sometime in 2009," Richmond Fed Bank President
Jeffrey Lacker said in a speech to the Tech Council of Maryland.

Mr Lacker argued the economy could be seen as ready to rebound next year.

Monetary policy is "quite stimulative," he said. Also, the major shocks that have dampened economic activity this year "have subsided already or are in the process of doing so," he added.

First signs of easing?

O.C. Housing Market: Sales Are Booming, Prices Are Not - Seeking Alpha

House sales in some parts of the US, like Orange County, are increasing. The prices are low but the fall has eased a bit in the recent months.

Housing affordability also increased in New Zealand.

From Financial Crisis to Cyclical Recession

As Stratfor writes, the current financial crisis has been mitigated, if not solved. The problem now is that we are entering a cyclical recession. The economies worldwide now have to find their way out of it. More discipline has to be established in the economies running wild.

There is also a social component to the problem. Fixing economy will not necessarily be the top priority of the governments around the world. Wellbeing of their citizens and the political stability, more probably, will.

The recession is now triggering a range of bankruptcies and it is a matter of which companies live and which do not.

Current Sell-Off

Current sell-off in the US is caused by margin clauses, an increase in anticipated LBO defaults, and hedge fund clients' withdrawal, according to Fitch.

Entering Phase Two

The markets are entering the phase two of the crisis – recession and deflation – and the phase one – the unravelling of the financial sector – is still underway. No good news around at all these days.

The Australian S&P 200 is at 3200. That is more than 50% down from a year ago.

Serbia Reached a Deal with IMF on a $516 Million Loan

As reported by RGE,

• Serbia secured a $516mn standby loan from the IMF, the fourth Eastern European nation (after Hungary, Ukraine and Belarus) to tap the institution for funds, to help stabilize the economy during the global financial crisis. The govt. said it would not necessarily draw any funds from the loan but wants to restore investor confidence in Serbia
• Global financial turmoil has made investors risk averse, resulting in a continued currency decline and sharp fall in the main stock indices. Since the beginning of October, Serbian central bank (NBS) has used €472mn ($601mn) to slow the slide of dinar, which has weakened 20% against the dollar during August-November. Official hard currency reserves fell to $12bn in October from $14bn in September

Deflation

CPI + PPI = Deflation - Seeking Alpha

Both Consumer Price Index (CPI) and Producer Price Index (PPI) have been falling in the US for the past three months. This is a very rare event. It happened only five times since 1947.

Petrol Almost at Historic Lows

Mark J. Perry, in an article at Seeking Alpha, states that the real price of petrol is nearing its historic lows.  As can be seen in the following graph, the inflation-adjusted price of petrol is almost lowest it has ever been. Absurdly, this kind of energy is now cheaper than ever while only a couple of months ago it was the most expensive ever.

The good consequence is that this will help lift the economy when the time comes.

ASX 200 at 3520

The ASX S&P 200 index has closed today at the level of 3523.2. This is the level last seen in 2004. The volume has reduced in the past few days. There are not that many interested buyers, it seems.

US S&P 500 200-Day Moving Average Spread

The current level for the US S&P 500 is 32% below its 200-day moving average. This is the lowest level since the Great Depression. The good thing is that a bounce from such low usually shoots high on the positive side.

BRIC Countries’ Position

The article at Seeking Alpha shows the index positions of the BRIC countries (Brazil, Russia, India, and China). As can be seen, they are deep down from last year’s levels.

US Consumer Confidence Steady in November

Consumer Confidence Holds Steady Following October Plunge - Seeking Alpha

Consumer confidence fell only 2.3 points in November after the October collapse.
These are positive signs. Apart from financials and car makers, not many industries are screaming for help. We could be in the eye of the storm.
Valuations for companies is getting attractive.

US Halfway through Recession

Business Spectator - SCOREBOARD: Halfway day

This survey, released last night, suggested that the US economy was already in recession in April, with a duration of 14 months forecast – I guess the positive spin on that is that we are already halfway.

Layoffs

There is a web site that tracks layoffs in the tech sector during the current economic downturn. It is interesting (and scary) to follow through, since tech companies are now affected by wave of layoffs worldwide. The main effort being to save cash during uncertain times.

October 2008 was particularly hard in this sector. Well, not unlike other sectors.

Iceland on the way to IMF deal

Iceland has reached an agreement with foreign savers to repay deposits in their collapsed banks. This is a step closer to realizing the deal with IMF that would help the country recovery.

It seems that the sentiment is changing in regards to their joining the EU in the future to prevent similar collapses.

Baltic Dry Index Making a U Turn?

Baltic Dry Index, as mentioned the other day in a recent post, is not only holding on to the current levels but actually moving up.

This is interesting development since the stock market is continuing moving downwards.

G20

It appears that the G20 meeting accomplished nothing. The results were as expected earlier. And they were already watered down prior to the meeting so that no major moves were even expected.

The next meeting is in April. Until then, everyone seems to be waiting for the new President of the US to get into position and see whether the agreed policies will be implemented and how.

All this is showing in the market which, in the case of ASX 200 index, is dragging around 3640 at the moment, which is the the lowest point so far.

Iceland: From World's #2 to a Ruin in Less than a Year

There is an interesting article about Iceland at Financial Times web site. It portrays the effects of a real financial meltdown.

Having lived in the Balkans area, the image portrayed by the article is not as bad as some I saw earlier. Still, what must be terrifying is that the change from the top (Iceland was world's number two country judged by the quality of life just last year) to the bottom (Iceland, as a country, is at the brink of a bankruptcy right now) happened in less than a year. Makes me wonder if this is the sign of the times. The distinction between developed and developing countries is diminishing.

For example, comparing economic situation in Bosnia and Iceland, I'd probably choose Bosnia as it seems relatively unaffected by the global turmoil. And credit cards issued there definitely are accepted worldwide, which is not the case with Iceland's at the moment. Seems too weird to be true on the first glance. We'll have to get used to it.

A look at the future

An article from RGE site, written by Fabius Maximus, shows how the current crisis is different than others and is, therefore, harder to foresee the future. It contains a long list of links to other articles, written by the RGE team, that forecast certain aspects of geopolitical and economic system we will live in. A good read.

As always, take with a grain of salt. Noone knows what is about to happen and that is the best thing of all - uncertainty.

Property First to Show Signs of Recovery

A RaboPlus article on property presents an opinion that real estate is the first to suffer in an economic downturn but also the first to show the signs of recovery.

Property funds in Australia have kept their levels above the recently hit lows and, statistically, have recovered around 20% since then. Whether that means that the worst is over or not, remains to be seen. It is possible that there will be more to downturn in the near future.

Baltic Dry Index Flat

Baltic Dry Index Flat - A Sign That We've Reached Bottom? - Seeking Alpha

According to the action of the past few days where markets fell down while Baltic Dry Index remained at the same level, some conclude it might be another sign of the bottom.


And a short-term chart:

Congressional Hearing on Hedge Funds

There is a Congressional hearing going on in the US about the role of hedge funds in the current crisis. Possible outcome of this will be a regulation of the sector and more transparency of the shadow banking system, which is unravelling right now.

Financial Markets Easing

Financial markets are easing. The spread between the 1-month New York Funding Rate and the Overnight Index Swap Rate went down to 1%. It is in the downwards trend and should go to normal 0.5%.
All the efforts by the central banks are having an effect and lending should be heading towards more or less normal conditions. The Fed's move in buying preferential shares in financial institutions should also work in that direction.

On the other hand, in the real economy, the conditions are deteriorating fast. The unemployment is on the rise, but nothing spectacular yet. Consumer sentiment is falling, as well as investors'. Fortunately, the surprise on the upside, one day, should be the same as on the downside. If analysts could have foreseen this crisis, it would have never been here.

Australia to Outlaw Naked Short Selling

Australia will permanently ban naked short selling in order to restore confidence in the markets.

Average Weekly Wage in Australia $1,147

Business Spectator - Average weekly wage grows 4.7% to $1,147

Average annual wage in Australia is now very close to $60,000. Multiplying the above amount by 52 weeks makes $59,644.

Petrol Prices at $1.20

Business Spectator - Vic petrol prices continue to plunge

Petrol prices are currently at A$1.20 and expected to go lower.

The Worst Economy Since…

Let's Clarify "The Worst Economy Since...." Debate - Seeking Alpha

The graph above puts all the talk about “the worst economy since …” into perspective. The current unemployment in the US is at 6.5% and the consensus is that it will go to 6.8% next year. Even at 7% it is only slightly comparable to some previous crises.

Fed Actions

Business Spectator - US Fed may step in to soothe markets

When financial markets stabilise and economies start to recover, central banks will need to decide how to phase out extraordinary provisions of liquidity and other credit-market interventions, he said.
In the meantime, some tools created to combat the crisis may become a permanent part of central bank instruments, Mr Kohn said.

I find it a good sign that high officials are mentioning the time when all this will be over and the time to clean up the mess. As stated above, some provisions will become permanent part of the financial world.
Yesterday, Paulson gave up on purchasing toxic mortgages so it will be interesting what happens with the markets until the end of the week. Then, another big event - the G20 meeting, starting tomorrow.
The next couple of days are interesting because the Australian index should either confirm the resistance or break through it.

No Recession in Australia?

Business Spectator - RBA forecast 'preposterous'

Moody's Economy.com is forecasting the Australian economy to record positive growth in the first and second quarters of 2009, for a calendar year result of a little more than one per cent.

Both the government institutions and private analysts forecast that Australia's economy will grow next year. Albeit, a little bit above 1% but that is still better than many other developed countries.

Withholding Tax for Non-Residents

PAYG withholding from interest, dividends and royalties to non-residents

Non-residents for taxation purposes in Australia pay withholding tax on income earned from Australian sources. The link above contains the rates at which different passive income is taxed. Interest is taxed at 10% and unfranked dividends are taxed at 30%. Franked dividends are not taxed.
The tax is automatically withheld by the issuing institution and there is no need to submit a tax return or to pay the tax separately.

Bullishness on the Rise

Sentiment Overview: Bullishness Is on the Rise, Insiders Are Buying - Seeking Alpha
It seems that investors are getting nervous and getting back into the market. The OIS (similar to VIX indicator but less prone to manipulation) is at 0.5%. This is the interbank lending rate, which is now well into normal territory.
The sentiment, in general, is improving. The crisis has well affected the real world. The companies reduce their earning estimates, the unemployment is on the rise. Hopefully, drop in stock prices is higher than the drop in earnings will be. This should be good for the buyers of dividend stocks.
The estimates in Australia are that the Australian Dollar should bounce back sometimes in mid-2009. That would mean that the commodities demand would increase in the next several months, driving the prices up and along them the Dollar.
Some estimate we are now within 20% of the possible bottom. Well, in ASX terms this could well translate into 3600, reached two weeks ago.
Today the index is moving upwards. This week there is the G20 meeting in Washington and the new US president is to name the top economic roles in the new government.

Financial Reforms in the Making

Business Spectator - ASIC says get ready for regulation

The financial markets reform agenda is developing in the US and Europe. It is inevitable, given the nature of the problems that have occurred, that we are going to have a significant reform agenda

Whether something significant happens at the G20 meeting next week or not, the financial world will soon change. Reforms in the regulation are already in the making and will become public soon.

Prospects for the Eastern Europe

RGE - The threats to the eurozone’s expansion

The east European countries would be making a grave mistake in assuming that the present global economic financial market crisis is but a passing phenomenon.

According to this view there are hard times ahead for the Eastern Europe. And it will not last for a short time only.

Markets Today

Business Spectator - Euro shares rise 1.8% on Wall St gain

"There is a growing sentiment that we have seen the lows for some time and now people want to get in,"

Markets continued choppy way up today. The sentence above best describes the current atmosphere. A lot of bad news has been priced in and unless something happen out of nowhere, the way for the market is sideways or slow upwards.

Markets Up as Expected

As forecasted, the markets continue on the way up. It’s the US elections that are providing some stability at the moment.

The ASX 200 is around 4340 during closing time. The comeback is fierce on a long-term scale. It is approaching the 210 moving average line.

A very few analysts are providing more insight into this rally. Most appear to agree there will be more turmoil ahead. But, what is a stock market without turmoil?

Anyway, it is nice to see it coming back up.

Citibank Investing in Serbia

BalkanInsight.com - Citibank To Invest in Serbia

Sad to hear that the wars in ex-Yugoslavia prevented Citibank from establishing their Central and Eastern Europe office in Belgrade in 1990. They are coming back to this market next year.
I wonder if it would be painless to open a Citibank account in Australia and then use it to have an easier way to send the funds to the other side of the world.

Economic Situation in South-Eastern Europe

RGE Monitor

There are excellent analysis of the economic trends and situation in the South-Eastern Europe.

4200 Again

ASX 200 has just broken through the 4200 from below. Looking back at the lows of the previous week this now looks like the stellar heights.

RaboPlus Waives Fund Fees

RaboPlus Australia waived all their fees on mutual funds. That includes entry, exit, and ongoing fees on funds purchased through RaboPlus account. The option remains open until the end of the year.
Right on time to do some purchasing. :D

Current Economic Conditions in Australia

Business Spectator - Grim data seen a rate cut clincher

The article contains a review of current economic indicators for Australia. Inflation is sliding lower quickly. The number of job ads fell 5.9% in October, house prices fell 1.8% in the third quarter, and interest rates are all falling down. Retail sales sank 1.1% in September.
The market already priced in the new RBA rate cut, which will be decided tomorrow.

Investing in a Bear Market

Stocks Bear Market Long-term Investing Strategy :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website

The sum of the previous analysis suggests that we can discount a 1930's style wipeout of the stock market, and viewing a volatile sideways trend for at least the next 6 months to be followed by an gradual upward curve.

An analysis of the situation at FTSE stock market. Done even before the last week's lows. Forecasting slow upwards movement from there.
Glad that I came to the same conclusions. Buy at dips and in installments as the market is so volatile. The only reasonable thing is to average the whole low period instead of gambling on the bottom in one go. I've "had" so many bottoms in the past couple of months. Fortunately, I invested only small amounts and generally averaged down the initial investments. And, yes, just like Buffett, I'm more interested in steady flow of dividends than the stellar jumps of growth stocks.

Here is the most important part of the article, listing step-by-step instructions on how to invest in a bear market:

An investment strategy needs to take these factors into account to determine when the anticipated capital is to be invested.

• Bear Markets Analysis - Favors buying on selloff's during the post 30% drop bear phase.
• LIBOR is frozen so is a negative for investing at this time. The aim is to see LIBOR to fall to below 0.7% above base the interest rate. Current is 1.16%, the more it falls the more bullish the outlook for the stock markets.
• Chart price patterns remain negative, they clearly indicate that the stock market is not done on the downside.

Therefore the rules for stock market investing are -

1. Allocate the amount of capital that is to be invested over a period of time as 100%.

2. The aim is to invest between 5% and 15% per month of the above capital.

3. The trigger for 10% investment in any month is if the stock indices one is investing are within 10% from the bear markets low.

4. The Trigger for an additional 5% investment is if in any month LIBOR is below 0.7% above the base interest rate.

The goal is to scale into the stock market over the next 6 to 12 months i.e. effectively buying into weakness rather than strength and limiting investing when the market exhibits a sharp rally. This implies an investment range of between 5% and 15% in any given month.

I.e. if the intention is to invest $10,000 into the stock market then one would aim to invest between $500 to $1,500 in any month that fullfilled the investment criteria.

Therefore depending on how the stock market performs over the next 12 months, the amount invested in a stocks portfolio should gradually increase towards the 100% commitment.

It's a Trader's Market - Forecast for the Rest of 2008 and Beyond

Forget Buy-and-Hold; It's a Trader's Market - Seeking Alpha

On average traders can expect market gains for the remainder of 2008; doesn't that sound nice? Specifically, we can expect a 10-15 percent gain between now and year's end, based on the quarterly analysis. Additionally, based on the top ten monthly losses we can expect marginal losses in November and solid gains in December and January (3 months later). By aggregating the information, the case for the bulls is even more powerful, but the bearish case is NOT closed. It is almost certain that volatility will continue to be front and center, which will foster an environment fit for traders.

I don't know if it's me picking the bullish signs or is it that more and more analysts are throwing these out into public. Apparently, from now until the end of the year there is 10-15% gain to be made. Adding to the gain made last week, that should be the bulk of recovery from the bottom last month. After that it's a phase 1 - sideways movement for some time until another bull starts.
That's what the books say. Now, to invest or not, the choice is yours.

More Bulls Raise Their Voice

Another Perma-Bear Converts To Bullish-ism - Barron's - Seeking Alpha

Tighter regulation is coming and we’ll face a relatively long, deep recession until Q4’09. But by Leuthold's calculation, stock market bottoms occur when a recession is 60% over. That’s this month.

There are more bullish signs in the news. We can see that there is some buying in the markets as prices go up steadily.
The credit markets are easing and credit is flowing again. After the US elections there should be more stability, as well.
So, according to the quote above, the recession is to go on through the 2009 but the market bottom has been reached last week. Or is very close to it.

Inflation Starts Decreasing in Australia

Australian inflation fell 0.2% in October and is the first fall since 2006. The annual amount is now 3.9%, down from 4.5% reached in September.
It is expected that inflation will continue to slide and reach RBA target of 2-3% mid 2009, well ahead of expected 2010.

Rents are also decreasing by a small percentage but will hopefully continue the trend.

Reversal at the End of October

October's End: Reversal Patterns Are Global - Seeking Alpha

Whether these reversals are the real thing or just a prop at the end of the month that the funds needed remains to be seen next week...

Credit is Flowing Again

The Economist from October 25 contains a story on recovering credit markets. The credit is starting to flow through the system again. LIBOR is continuing a slide down and the volumes of money flowing through the system have increased ten-fold.
These figures have helped most of the this week's rally in the share market prices.
Still, where to from here nobody seems to know.

Bull Retracement Preparing?

Hubb Financial Group

sharpen your tools because soon the bull traps will be gone

This is the message I'm getting from more and more opinions out there. And, looking at the index charts, this may be so. The expected lows were around 3600, which was confirmed this week. Does that mean that there is a way up from now on?
We'll know soon.

One more thing confirming this is the upcoming elections and the certainty they bring for the US and the rest of the world, in a way. Some strategic analysis forecasts that the US would be out of recession even before the end of the year while the troubles might go on during the next year in Europe and Asia.

No Good News for Developing Countries

Business Spectator - The end of deflationary trade

Hungary, Serbia, Belarus, Pakistan and Ukraine are now facing the most excruciating choice: default on their debts or ask the IMF for money at the expense of crushing their economies under the weight of a massive increase in interest rates.

The outlook is not good for the countries needing help from IMF.

That process of importing deflation (or, more precisely, disinflation) from developing nations – especially China and India – relied on trade: raw materials in; finished goods out.
The fall in freight rates for both dry bulk carriers and container ships is telling us that it’s over.

Adding to the list of news about the possible shape the world will take during and after the crisis.

Finance Section, Serbia

Finance - Serbia

I added a section on finances in Serbia. For now, credit cards and banks are listed as I was checking which major banks are doing business there and what are the common products and services offered. Apart from individual services, banks mostly offer packages that include a whole range of services - a transactional account, debit and credit card, online access, etc. Nominal monthly fee is around A$5.

Average Australian Salary = 83K

Salary Information - Latest Pay Rates by Industry at MyCareer

According to MyCareer salary centre, the current average Australian salary amounts to A$83,500. This is quite a high amount.

Yen and Carry Trade

Business Spectator - A yen for chaos theory

The late focus has been on Yen and carry trades worldwide. The article above provides a description and a background of the current Yen oscillations, related to carry trade. Butterfly effect or not, there are all sort of things unwinding now in the financial world.

Sharp Rebound Overnight

Yesterday the Australian indexes were very, very low. The trading range went as low as 3710 but rebounded later in the day, to end the trading hours close to 3800.
Later, trading session in the US was as volatile as it got in the recent days and, after a steep fall from 3900 to 3720, the index rebounded from 3720 all the way to 4020. This is the level where the ASX 200 should open today. The jump is quite significant. Some are of the opinion that this is the bargain hunting. Interest rates are expected to go down worldwide. Australian government is considering some kind of liquidity measures to help mutual funds manage their redemptions. Funds are offered APRA supervision and then they might get their customers' deposits guaranteed by the government just as banks do now.
A step closer towards market regulation and stability, as portrayed in a recent article.

Get Paid for Blogging?

PayPerPost.com :: Get Paid for Blogging, Blog Advertising, Advertise on Blogs

I just ran into a service that allegedly pays for posting articles on your blog. Currently I'm just placing a link here as I plan to return to it in the near future and see the details about the service offered.
I reckon there will be lots of small print there but let me not say anything in advance.

Another Round of Deleveraging

Business Spectator - Drama unfolds in Europe

When markets are deleveraging value goes out the door but when it finishes there will be a huge bounce.

What is happening in the markets now is another round of deleveraging. After hedge funds, now we see brokerage houses and private investors cutting their positions taken with borrowed money - margin loans. This is causing the further fall in prices and indexes. Well, player after player, they are moving out of the game. Soon there will be noone to sell and it will be time to start anew.
Next month there are US elections, summit at the top about the new financial picture of the world (Sarkozy insists that this is not just a meeting but that there has to be some legislation set as well). These, along with the unwinding positions in currencies, commodities, and equities may finally provide a bottom.
Of course, that should last for a short time only. Central banks are poised to cut the interest rates further and a stage for a quick bounce is set. Where to, noone knows. But, the indexes will not remain this low for a protracted period.

Australian Central Banks Intervenes for AUD

Reserve Bank of Australia intervened for the second day on Monday to prop up the Australian Dollar which is currently floating at the multi-year low levels. The central bank bought back the Dollar but the amount is unknown.
The measures have not had significant effect on the market, compared to Euro, as can be seen in the chart below.



Dollar is still at the lowest levels compared to Euro.

Hedge Fund Starvation

Hedge funds ready to blow as positions liquidated | The Australian

I'm just looking into the hedge funds issue. The situation seems as if the hedge funds in Australia are literally starving.

Short selling ban has been extended in Australia. Hedge funds do both long and short positions so this means they lost half of their ability to earn. Especially since very few markets are going up nowadays - effectively disabling hedge funds to make any earning.

So, individual investors are pulling their money out of funds. Hedge funds are highly leveraged, having borrowed much more money on their customers' deposits.
The share market prices dropped, effectively driving down the value of the hedge fund's portfolio. Now, the problem is that when investors pull their money out of the fund, the fund has to either find other investors (let's forget about this option at this time) or pay back the loan used to buy shares. With highly reduced value of their portfolios, they are selling majority of their holdings just to survive. This, in effect, is driving market prices down further. So, another death spiral on the go.

Since the trouble headlines started in September, or earlier, it is a matter of time where many of them should simply fall down and disappear.
According to The Alternative Investment Management Association, the top 10 hedge fund managers in Australia in 2006 were:

1. Platinum Asset Management
2. PM Capital
3. Barclays Global (Australia)
4. Grinham Managed Funds
5. AMP Capital Investors
6. Optimal Fund Management
7. Basis Capital Funds Management
8. WestLB Asset Management (Australia)
9. Kaiser Trading
10. Portfolio Partners

Turn of Events - 3600

Interesting turn of events in the late session last night. ASX 200 went very low, to the 3600 range after closing hours. Sometimes, in the mid session in the US, I guess, the market index shot up. It finished around the 3800 range, near the closing level of the Australian trading hours.
Despite this downward movement there are some encouraging signs. Interbank lending rates are easing. Credit is starting to flow again. Existing home sales in the US were up 5.5% during September. Oil is just above $60 despite strong Dollar and cut in oil production.

Some economists are of the opinion that current sell-off is caused by hedge fund meltdown. Australian superannuation funds are loosing $1 billion a day.
Hopefully after the hedge funds are out, the commodity, mining equity and Australian dollar markets should stabilize.

In-Depth Analysis of Serbian Economic Conditions

Global Economy Matters: Serbia, Must What Goes Up Really Come Down?

A detailed analysis of the economic situation in Serbia from May 2008. Demographics, central bank monetary policy, unemployment, credit rating, currency, capital inflows, trade balance...
Current fertility is at 1.4 and the population is rapidly decreasing. The part of the population that remains still in the country is moving the aging median upwards.
Euro has been increasingly in use and this will have adverse effects now that funding disappears worldwide.
Read the article, or at least the final part, and make your own conclusions.

Serbia Lists Itself with the Troubled Countries

RGE - Now Serbia Adds Its Name To Those In The IMF Sick Ward

Funds from IMF will be required to help Serbia go through the current financial crisis. The situation may not be as severe as in other countries, like Hungary, but can not be handled by Serbian government alone. That says enough on it's own.

Picturing the Future - from RGE U.S. Monitor

RGE - The USA *after* this financial crisis - part 2, a new economy for America

An excellent article going a step forward in picturing the possible future for the US. Very descriptive, showing what might be awaiting the strongest capital market in the world.
There is a real possibility of almost eliminating the free markets. Just as the interest rate is now set by central banks so could be the price of guaranteed securities.
The article mentions that the Democratic Party has a public policy objective of nationalizing the health care sector. This will effectively give it the status it has in many other countries which, what an irony, are moving away from it towards privatization.
The price for all this restructuring will come from higher taxes for the rich. Again, a familiar scenario from other countries.
Australia could be an example here for any point mentioned. It already has a public health care sector. It has high taxes. It has highly regulated and quite stable banking sector.
This might very well be the death of the American-style capitalism.

Fund Crisis

Australian mutual funds have been hit by the wave of withdrawing cash from them and moving into (now) state guaranteed deposits at local banks. Some funds froze redemptions or made them available less frequently than before. This is an interesting situation, created by the decision of the Government to guarantee all the bank deposits.
This decision suffered minor adjustments recently. Premium is to be introduced for deposits over $1 million. Premium is also to be paid on any deposit in a non-Australian bank branch. Premiums will vary based on the bank's credit rating, from 0.7% to 1.5%.

Prices of property funds fell dramatically more than those of other funds. After close, at 8pm, ASX S&P 200 index is at 3720. This seems like another leg down the waterfall.

Deleveraging

Turning debt into deleverage | Vanguard news | Vanguard

In 2003 the leverage of US banking and brokerage firms included in the S&P500 index was 20 times so for every $5 of capital there was $95 debt to equal $100 in assets. In just five years the leverage ratio went up to 30 times - so there was only $3.32 equity in the $100 of assets. Those are the numbers for the US banks where you might think the situation would be most severe given it gave birth to the subprime mortgage mess. But some leading European banks' leverage ratio got to 50 times (so only $2 per $100 in assets).

A text from Vanguard Investments Australia about current deleveraging process and the statistics, along with a few advice.
The interesting thing is that European banks appear to have more leverage than the ones in the US. That's why the pain now can be felt in Europe as hard as across the Atlantic.

New World Shaping Up?

Global govts step up crisis response - Yahoo!7 News

"A better world will emerge from this crisis than the one we had before," he said, adding that the fund would "intervene massively" in order to protect any strategically important French firms.

Here is how French do it. I wonder whether this is the shape the world is going to take. It seems so according to current woes that can be read in the news all over.
Creation of a 100 billion Euro fund to intervene in the market crises and to protect the interest of the state will not stop in France. The US is already doing it, just not calling it the same.
Well, the time of free markets is over for now. Time to clean up a bit.
A practical good result from all this may be that the developed countries will have less problems with obesity and other food-related issues. :)

ASX S&P 200 Index at 4000

As a result of overnight action, the S&P 200 Australian index went as low as 3770. There was a rally toward the end of the session in the US so the Australian market opened at around 4000. Continuing upward movement is encouraging.

The current lows seem to hold on for now. I don’t think technical analysis is of any use at the moment but it is interesting to follow through how different news affect the market price movement.

With all the expectations of recession there can hardly be any good news. That would be a logical conclusion. The practical issues that people in general will not be interested in stock market because they will have other issues they will have to take care about. Finding job, keeping it, and paying off other debts seem to be the focus for (too) many.

Market System is Flawed

Greenspan admits market system is flawed - Yahoo!7 News

a flaw in the model that I perceived is the critical functioning structure that defines how the world works

Interesting Congressional hearing. Alan Greenspan states how the very principals on which the current financial system is based is deeply flawed.

Greenspan said that the current crisis had "turned out to be much broader than anything that I could have imagined".

So much for the people at the top knowing what they are doing. Now, the opinion is that regulatory agencies contributed to the fall by having infinite trust in the free markets. Obviously, they were wrong. The statements from the officials today present the case where the world will look more like the system we had in the socialist countries than the one we had in the capitalist ones.
Government is already buying large banks, insurance companies, and is preparing to bail out home mortgages.

G20 Crisis Summit

G20 crisis summit is to be held in Washington on Nov. 15. That's about three weeks from now.
In the meantime, the U.S. stocks hit the 5-year low yesterday. Australian index is hovering around 4000 in the first two hours of trading.

Encouraging Signs - Credit Crunch Easing

Absence of Horrible News Is Good News: Signs Credit Crunch Is Easing - Seeking Alpha

This article reflects my opinion that no bad news is good news. :) It has been three weeks without bank bankruptcies. The events on the horizon are the US elections and the meetings about repainting the world financial picture.
Apparently, the financial system will remain more or less intact, according to the opinion in the above article. A few banks went under. These were the ones deeply involved in assets with high risk. The rest seems to be OK after governments jumping to back them up.
Just how the world will look after this is over is the interesting thing. One request that appears more and more often is the cap on the executive pay for the directors in the financial institutions that require any kind of help from the government. That's fair. Hopefully, all this will result in a more responsible financial system than it used to be.

Level 2 Dealer

IG Markets - L2 Installation

Installation files for L2 Dealer platform from IGMarkets. This is a Direct Market Access (DMA) platform with access to several exchanges worldwide. Customers are still dealing with CFDs, though. You have to be an existing customer to apply for access to this platform.
Features offered are the current market prices and depth - number of orders placed. This could provide an insight into a trade volume, which reinforces the price movement understanding.

4300

No groundbreaking news these days. The market is rushing upwards. It has reached 4300 as of the time of writing this post (2008-10-21 17:30).

Watching the news streams, there are no major changes. Most companies are adjusting their expectations. Getting more realistic and, in general, lower. It seems Friday really was a good day for purchase. Let’s hope it stays this way. I guess this is the beginning of the Phase 1. There are moves announced by governments and central banks to happen during the next month. The world financial blueprint is to be rewritten. President Bush will host a meeting at the top sometimes after the November 4th elections in the US. Also, some think the US government will use another fiscal stimulus to push the economy forwards, sometimes before Christmas.

All of these show that the economy is slowly pushing forward. The upward movement in the markets shows there are people out there who share Buffett’s view on the market levels. :)

Libya Bailing-Out UniCredit

Colonialism In Reverse: Libya Bails Out Italy's UniCredit SpA - Seeking Alpha

Funny to see all the twists. After Russia saying it would bail-out Iceland, now Libya is bailing out UniCredit. :) Interesting turn of events.
Falling share prices (62%) brought UniCredit below Intesa bank by market capitalization.

How to Recognize a Bottom

Hedge Fund Deleveraging Likely to Continue - Seeking Alpha

I suspect that until we see the VIX approach more normal sub-30 levels, stop seeing the DJIA and S&P 500 Index post intra-day percent swings in the high single digits, and see crude oil stop falling in price, it is unlikely that the market will stop feeling the effects of hedge fund selling, allowing for a long-term and lasting rally.

Like most bottoms, we won't know for sure that it has occurred until we see it in the rear-view mirror, but I will be watching the VIX, the price of crude oil, and the Dow Jones and S&P 500 index percent swings for clues.

One of the ways to recognize a bottom of the current market.
Is it the conditions, the outlook, or the shear desperation on the side of investors and traders but there is more and more bullish calls lately. Or, at least those calling bottom or the near vicinity of it.
Probably Buffett, suspected Treasury Secretary, is right with his advice to buy into the market at current prices.

Whatever happens, it is possible that the markets are entering the Phase 1 - sideways movement and preparation for Phase 2 - bull run.

Strategically, there are good hints about what is to come. The governments are solving the problem now. Central banks have already reacted in time. So, in that regard, the conditions are set to get better.
The crisis is entering real world, the world on the street, but that lags behind the markets so it will recover in time, as well.
The next month will be very interesting with the U.S. administration change and the world summits about restructuring the financial system. Enjoy the show. This does not happen every now and then.

Book Market Value

Fundamental Valuation: How Low Could We Go? - Seeking Alpha

The above article lists the book value of the U.S. market and analyzes the ratio of price vs. book value of the companies during last crises. It appears that the market is not at or below its book value. Currently trading at 1.5 times, there is a long way down to go. This fall is a normal correction, looking at those values. During previous crises the price went below the book value. So, in the medium to long term, the indexes could go way lower than this.

Gasoline/Petrol Prices

Winter Heating Costs: How Hard a Hit? - Seeking Alpha

What many Baltimore-area drivers have been experiencing this week is now official: The average price of gasoline is under $3.

Only recently the petrol prices were going skyhigh. Fuel-watch scheme was established to monitor prices on the gas stations. But now, all of that is coming down.
I've been wondering what happens with prices in the Balkans. Those were always very slow on the way down. Yet, they were quick to raise them last year to follow the upward trend. The market in the U.S. is clearly showing trend of lowering petrol prices at the stations. Drop from $4 to $3 is a significant one.

Similar thing happens with heating oil and natural gas prices. This is deflation first-hand. :)

Currency Converter

XE - Full Universal Currency Converter

Online currency converter with wide range of currencies available.

Manually Update Quicken 2009

Quicken Support - Manually Update Quicken 2009 to the Latest Release

Link to Quicken support page that describes how to manually update Quicken 2009 to the latest version. This page contains links to current patch files that can be downloaded.

Warren Buffett Recommends Buying US Stocks

afr.com - The Australian Financial Review

Warren Buffett thinks its time to buy U.S. stocks. We all know his view - "be fearful when everyone is greedy and be greedy when everyone is fearful." This indeed does sound to be the time right now. I've given a similar opinion in my late posts. Ha, not that I'm saying I can pick and predict but to say I'm happy I share a similar view to that of one of the world renowned investors.

If you look at the link in one of my previous posts, it is obvious that right now the stocks are highly oversold and undervalued. Their price is real only in case the collapse really happens. If you count on that scenario then we all won't need cash, anyway.

You can see the original article here.

Fear of Fear

Business Spectator - WEEKEND READ: Fearing fear itself

The most crucial indicator of an end to the rising fear may be, counter-intuitively, more of it. Students of bubbles note that investor sentiment is always most bullish when a market is about to hit a top and most bearish just when it's about to bottom. (Business Week's 1979 cover story on the "Death of Equities" signalled the start of a long-running stock-market boom.)

But when there's nobody left to lose confidence, when Jim Cramer, the ultimate stock guy, throws in the towel and urges people not to buy stocks again until 2013, that sure smells like capitulation.

Whether this turns to be true should be apparent in a week or two. Or, at most, in a month or two.
Anything is possible. Interesting how emotions cloud what is really going on. There is panic almost everywhere. Even if the indexes go up that might be translated as a relief rally. A few of the late ones were already. That is a sign of low morale. Many don't even care to miss the recovery now. As long as there is no more suffering.
So, that is the element that makes people less prone to succeed in financial markets. Of course, if one expects to make money on other people then she should not think and act as those others.

4000 Confirmed

The Australian S&P 200 index today confirmed the 4000 as the current support. The price does not seem to pull lower.
This might turn to be a positive development. Apparently, people agree that there are hard times ahead. How that affects the further price movements, hardly anyone seem to be saying anymore. Is everyone giving up and does that mean that we hit the bottom?
There is overnight action to be seen from Europe and US. Obviously nothing major expected but it will take time for situation to stabilize.

Burton Malkiel's View

Keep your money in the market | The Australian

Financial institutions around the world have suffered life-threatening, self-inflicted wounds by purchasing over a trillion dollars of complex mortgage-backed securities backed by dodgy loans based on inflated real-estate values. These assets have been financed with enormous leverage and with short-term debt.

General overview of the current crisis, the cause, and advice on what to do in the current market. Written for Wall Street Journal by Dr. Burton Malkiel, author of renowned Random Walk Down Wall Street.
Something to have in mind for the moment:

investors who bail out of equities during times like these are almost always making the wrong decision

This may seem obvious but too many now follow the herd mentality. For those with a long-term investment in mind - stay the course, keep on buying while the prices are low to fix the average price of your portfolio.

The advice is simple and effective for those who are not succeeding timing the market.

The Effects of Crisis on Serbian Economy

Svetska kriza i Srbija: Bravo za guvernera :: Mondo

Here is a text (in Serbian) about the economic situation in Serbia. The financial market is generally doing well. The reason is strict monetary policy - something similar to Australia. Hence the whole financial crisis had much lower effect.

The more affected was the share market. Many foreign investors pulled the money out of investment funds additionally putting pressure on prices. Most investment funds lost 30-50% of their value during the last month only.
The practical effect is that many small investors, who considered investment as a way of savings, also pulled their money out effectively losing half of their savings. Its sad to see how people make it harder for themselves.
I've heard similar stories from people I know. Some even want to get their term deposits back.

Oversold Markets

Bespoke's International Market Snapshot - Seeking Alpha

If you look at the 22 maket charts, it is quite obvious that all of these markets are oversold at the moment. Yes, the prices still can go lower.
In times of crises the P/E ratios go up and dividend percentages increase. That only means that share prices are much lower than they used to be.

The inflation forecast for the next two years is 0 or even negative.

Future of Banking

Business Spectator - Banks on the brink

Banking everywhere is going to look very different in 2010. Already it’s clear that to varying degrees the industry will be government-controlled. That means old-fashioned ideas of just lending what you get in deposits will prevail, with wholesale funding as a minor supplement rather than the main game.

This is how banking could very soon look like. In the near term it could easily sink even lower than where it is at the moment. And then it will be quite hard to go up for the simple reason of completely different business model with lower profits and debts that will have to be repaid to governments.

Interest Rates

Interest rates are set to fall in order to help the economy. There are opinions that the interest rate cuts got us into this mess. While they eased the recent crises, they did not allow for a natural process to complete. There was no real market correction. That led to every new crash being deeper and harder. And the rates kept coming down to ease the pain.

And soon the rates could approach 0. Well, the question is – what happens when the next crisis hits? Will central banks then set the interest rate to a negative value? Will they start charging money in order to keep money? Interesting.
Well, if not that then the next downfall could end up badly.

Cutbacks

Interesting to see the developments from the financial markets now spreading all over the place. Australian Government is now reconsidering its military buildup and reducing the military budgets to cut costs. There now seems to be a $15 billion "black hole" in the budget for the next year. Around $10 billion would go missing from the projected $21 billion budget surplus.
Since the Australian Dollar fell dramatically in the recent months, the cost of overseas purchases almost doubled. This is heavily felt in the military purchases, amounting to hundred of billions. Next year the decision should be made about purchase of F-35 fighters and that might now be questionable. The same concerns come from the US, where cost cutting could undermine the research and development on the same aircraft model.
If Australia and other governments, and they will, start cutting overseas purchases that will be felt in the provider countries. The same way work done for overseas customers might get cut down hence increasing the unemployment domestically. That turns the avalanche as more funds from the budget goes for social security payments. People will not go on spending money and, in turn, funding other businesses and job creation etc.
We are now seeing this huge correction in real world. The data that pops up lately only shows what many have guessed about the recent period. Slowdown in the economy.

Market Action Overnight

It is interesting that markets had another slump over night and today. Nikkei fell over 10%, ASX 200 is down from 4300 to 4000.

Oil is trading below $70. Heading down. If it falls further, the expectations are that it will go all the way to $50. The forecast for the 2009 is that it will trade under $100. So much for all the talk about fuel efficient vehicles. :)

Yet, gold has not moved much. And instead of going up it also fell today.

Interesting development. Since the ASX 200 level is so close to recent low the next couple of days will be very important. But, also, they might not. :)

4000

Australian 200 index is to open at around 4040 today. A few percent below the levels reached in the recent rally.

Yesterday, in an online briefing about the market, there was an opinion that the recent low need to be tested and confirmed for the graph to move sideways and/or upwards. Or, it also could continue downwards. I guess it was not expected this fast. So it seems the movement could continue lower despite all the efforts from the financial authorities worldwide.

I think the fear is becoming overwhelming. Almost everyone now talks about the crisis, recession, banks, etc. Ordinary people who watch the news just now start to pull their deposits out of the banks, or sell their investments. That pretty much paints a picture for the general emotional bottom of  the market. What happens with the indexes? That’s another story. :)

No More Bear Raids

Farewell Financial Bear Raids - Cramer's Mad Money (10/14/08) - Seeking Alpha

Farewell to financial stock bear raids Cramer told viewers. The Treasury Department's new protection plan finally puts an end to this devastating, but legal, practice. Cramer said the market was able to hold onto most of its gains on Monday because the possibility of another Great Depression was taken off the table. He said that the government's plan to take taxpayer money and invest it directly in banks has finally broken the cycle that has plagued the sector, panicked investors and brought many of the industry's finest companies to their knees. Cramer described the process in which short-sellers and hedge funds targeted banks and destroyed them. By using unregulated credit default swaps, short-sellers were able to create unsubstantiated fear in a stock. Once the fear took hold, the short-sellers would exacerbate the situation using naked shorts and puts to lower the stock price even further at very little cost to them. With stocks under heavy pressure, rating agencies were forced to lower ratings, causing media speculation and eventually banking customer panic. Cramer said the Securities and Exchange Commission's prior moves to ban short-selling on financials didn't go far enough to prevent the credit default swaps from being used to spread fear. However, that has changed with the government's new rescue plan for financial companies and its huge influx of capital. Cramer said short-sellers now have to once and for all cover their positions and leave the financials. "The financial stocks no longer have a bulls-eye on the them," he said. "SEC-endorsed bear raids are a thing of the past."

Here's another argument suggesting there should be no more drastic falls in price of banks. These prices were heavily influenced recently, entering a spiral of death. Now that this option is off the table conditions are being prepared for the regeneration of the market. Only after such drastic moves as the ones that resulted over the past weekend can the focus be turned onto recession and beyond.

Past the Tipping Point

I see a consensus about this past week being the bottom of the market. People are focusing on where to from here. It is a good thing that the worst is behind us and we are now entering Phase 1 again. Slow built-up. This is what happens with sharemarkets. The real world will lag behind the sharemarket movement. We are just starting to see the effects of tightening in credit, reducing number of jobs, slowing economy. Generally, it is still hard to see the real difference out in the street and that’s why I’m eager to see what happens in the next 3 months. Probably not much.

The effect I see right now is caused by the very low level of Australian Dollar compared to Euro and other currencies. These low levels haven’t been around for a long time. Certainly nothing I’ve seen. This effectively means a 20% drop just in the currency conversion. I don’t want to even try to add that to the losses in superannuation and index funds. I guess it is a good thing to still have a source of income and the will to move forward and continue on achieving life goals.

What follows now? I’d hope not to see large shake-ups of the price levels. Companies will go bust, obviously, and the earnings will be lower than previously. But that is all to change during the next year. If the recession is to last 18-24 months that means that in those 18-24 months we are to see moving forward. Cleaning up the bad credit, bad practices, adjusting regulation, the creation of the new environment. This will all have an effect on the economic outlook and, in turn, the share prices and earnings.

There is opinion that good times are ahead but that remains to be seen. Obviously, since it was this bad the future can only be better? :)

Rating Agencies Actions

Business Spectator - Rating agencies face downgrade

The EU has already moved to limit the influence of credit rating agencies and remove the excessive reliance on their opinions by financial institutions. Earlier this month the EU said it would force financial institutions to do their own due diligence on securitisation issues and not simply rely on credit ratings.

Banks that fail to do their own due diligence on securitisation issues will face heavy capital penalties. In addition, European member states are being encouraged to water down or remove rules that require banks, insurers and pension funds to use credit ratings to comply with capital or solvency requirements.

Finally some real work on the way for the financial industry. All the analysts will now have to do some real analysis of the underlying economic conditions of their business. This should bring some more quality to their work.

One of the measures is to reduce possible conflict of interests for the rating agencies. A lot of these issues were turned the blind eye to, until recently.