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.

ASX Today

The ASX 200 index is sliding back slowly. People may be realizing profits from yesterday's rally. The calm in the markets could be because of the holidays in the US or a breather on what happens next.
The index value is around 4300 currently. Heh, its going towards the 4500 which I still feel is the realistic bottom. So, shares are still oversold and a good buy. On the other hand, we still don't see major buy-in. People are waiting others to start first. Herd mentality is on, as usual. :)

The End

According to the news and opinions the bottom seem to have passed. The Friday was, most probably, the bottom of this bear market. The Australian index is back to 4400 range. It bounced back to the level it had on Thursday before the slide.
Nice to see it bouncing back. And there are more and more opinions on how that was it. The situation is to improve from here. Not drastically, but one never knows. The financial system has lived through life support. Overall, the things are looking better. I assume the market sentiment is improving and the roll will start in the following days/weeks as investors run to catch the initial comeback rally. We know its not about fundamentals but about what everyone else is doing.
I have to admit I'm missing the thrill and the adrenaline of the slide. This will be an event to remember. Well, not for a lifetime as I've seen worse. But for a long enough.

Australian Part of the Global Bail-Out

The Australian Government is having a session over the weekend to conduct measures in line with the Finance Ministers' meeting in Washington. The conclusions from today are the following:

The Government will...

* Guarantee all term wholesale funding by
Australian banks operating in international credit markets. (Anyone lending money to an Australian bank has an absolute assurance
their money is safe)

* Guarantee all deposits of any size in any
Australian financial institution for the next three years. 

* Direct the Australian Office of Financial
Management to purchase an additional $4 billion in residential mortgage
backed securities.

These steps should work out well. In Australia there is no need for Government to buy banks because they are doing well in the current situation. The regulation and lack of involvement with risky loans in the U.S. happen to be extremely useful in times like this.
Financial response, therefore, should be alright. After the crisis, the eyes will be on China and whether it will be able to keep up its growth. The IMF already stated that 100% of the world growth will come from emerging economies and not the developed ones.
Saturation in the developed nations? A balance of power will follow the money. But more on that as things develop.

A View from IMF

Business Spectator - IMF says markets could fall extra 20%

"In a worst-case scenario, governments will need a few more weeks to take the correct measures and the markets could fall another 20 per cent. Then, we'll turn around," Mr Blanchard was quoted as saying in Italian daily Corriere della Sera.

Alright, it was about time. This forecast states that, if the G20 meeting does not bear fruit along with other moves by worldwide governments and central banks, the markets could be falling for the next couple of weeks. Quantitatively, this would be further 20% from the current levels.

The positive assumption, in that case, is that the return rally would cover back those 20% effectively restoring the current level as the next starting point. What would happen after that does not really matter at this point. Just to remind, that is the worst case scenario. To say this, it feels as if they at IMF don't believe this would be the case and that the measures, mentioned at the beginning of the post would, after all, bear some fruit in the current circumstances.

Does that mean that hedge funds completed their sell-off? Well, those next 20% would be the total sell-off that some are expecting. Most of the traders and investors, I'd say, are waiting for the upline to jump onboard. I've read some comments in the news that illustrate this opinion among investors. These are the people that will provide the inertia to the rally.

4000

He he, the new lows come faster than we can count. The Australian 200 index is trading at around 4000 today. That's a psychological limit. One of them, actually.
In half an hour the market is to take a breather for the weekend. Awaiting some statements from the G7 meeting (or, rather, G20 - it shows how important the stuff is :) and their effects on the Monday index movement.

Money Talk

"Investors pulled a record $52.1 billion from U.S.-managed stock and bond mutual funds in the past week, seeking the safety of
government-insured bank deposits as the financial crisis worsened. Shareholders took $43.3 billion from stock funds and $8.8 billion
from bond funds in the week ended Oct. 8, according to data compiled by TrimTabs Investment Research in Sausalito, California. The
exodus followed $72.3 billion of outflows in September, the most in a single month. Investors deposited $185.5 billion into bank
accounts last month through Sept. 22, TrimTabs said, citing U.S. Federal Reserve data. "

Money is flowing heavily from the shares and funds into the fixed income asset classes.

Almost Touchdown

Business Spectator - The climax is near

OK, more and more calls that we're approaching ground. But, by the speed the market is falling, it might not matter when that happens. :)
There are buy indications out there. It's the question on how to pick the survivors.
My strategy is to pick funds, generally index ones. Individual stocks or even other type of funds are quite risky nowadays.

G7 is the next step from here. Deleveraging of the hedge funds is going on right now. They are forced to sell at any price, to raise cash. Not that many buyers yet, though.

Largest Crisis Ever (So Far :)

Business Spectator - This crisis outranks 1987

The reason for last night's fall are the hedge funds and expiring obligations - deleveraging. That's good to hear, meaning that the fall is not directly related to the prior conditions and the bail-out(s). Well, prices still go down and go down well.
With every day we are seeing more of this monster. This is something to remember for a long time.
But, after surviving the Bosnian war and four years in Sarajevo, nothing can surprise me. :) So it's fun to follow through. Even this blog will be something to read through at a later day.

Changing Geopolitical Order

Business Spectator - Geopolitics turned on its head

Just as expected, this might be the end of western domination. In politics, culture, economy... I just didn't expect it to happen so abruptly and fast. The new world is being born. In only a year, we will live in a totally different environment.

Good News

Good news start to outweigh the bad ones these days. Australia is to ride through the financial storm by supplying the resources for Chinese industry. The China's growth is to decrease a few percentage points but still to remain above 10%. Aussie one is to drop from 4.7 in 2007 to 2.5 in 2008 and 2.2 in 2009.
With the lack of bad news, the good ones are popping up. Central banks reduced rates. They are pumping cash into the system. The share prices are still low because of fear. Also, the prices include the negative prospects for the near future.
The important issue is - things change. Every day the IMF and other financial institutions adjust their economic forecasts. This means that the forecasts are wrong in the first place. The sharemarket prices include these discounts with a negative outlook for the market in the future. A clear sign of bad times. As they say, that leaves an opportunity that good times may appear.
I bet the best forecasts were in 2007, just before the bust started. :)

The Worst Decline in History

It's Not You, It's the Market - Now Officially the Worst S&P Decline in History - Seeking Alpha

Heh, truly amazing times to go through - the worst decline in history. Have a look at the stats.

4200

Is 4200 the new bottom. It's just been confirmed once and the Australian S&P 200 bounced back into 4300s range. I guess there was an important announcement about 20 minutes ago and it jumped about 100 points.

Update: Right. Multiple central banks announced rate cuts worldwide. There was rumor about concerted effort to be done by central banks around the world and I guess this is it.

* Fed cuts rates by 50 basis points

* China, ECB, Britain, Canada, Swiss and Sweden cut

Markets, Banks

Market is so volatile that it's almost useless watching it these days. Generally, it's sinking deeper and deeper. Hopes and dreams vanish, plans change.

Commonwealth Bank of Australia is buying BankWest. Wonder what will happen with their fantastic rates on savings accounts and term deposits.

Brrrrr

In some opinions in the news, people are starting to use the term bottom. The other day I read that there is lot of deleveraging to be done before we could call a bottom. Then, last night, as the market was diving in a free-fall margin calls for those leveraged positions were in the making. Apparently, this morning there were lots of margin calls for people to cover those positions. Many sold the shares "at the bottom" and then watched the prices shoot up. This sentence appeared in an opinion and has struck a cord. Could it be it?

As I'm watching, the ASX 200 index is passing 4670. This looks too much for a dead cat bounce. It will be interesting to see what will happen later in the day when other markets open.

Of course it's early to say. The confirmation should come by Friday or the next Monday, after the G7 meeting. But by then it would be too obvious and too late. :)

Still, there is about 15 months of recovery in front of us if we take the average time it has taken for markets to recover, whenever the bottom gets hit.

ASX 200 Closes at 4600

Last night it went down to 4200, opened this morning at 4400, and closes at 4600.

Roller Coaster

Roller coaster, rock'n'roll... Who can say this is not interesting. RBA slashes rates 1%, market surges 100 points.
It recovered from 4200 last night to 4640 at 15:12 today. There is almost one hour more to go until ASX close. Then we will see what the Europe and US are going to do. On Friday its G7 conference. A concentrated effort is required worldwide to counter the market spiraling down. Whether this is a dead-cat bounce or a return to range remains to be seen, of course. Most people think its doomed to be a dead cat bounce.
There are no support and resistance lines right now. The index is in uncharted territory and everyone is pretty much clueless. It is interesting to go through this. I don't think I'll believe any economist for the rest of my life. :)

European Problems Start

Business Spectator - Blame it on Europe

It gets very much scarier in the markets. Just as U.S. passed the bailout vote, Europe is starting to solve its problems. But now it looks very much scarier as all the economies are related.
Very interesting times, indeed.

S&P 500 Price Growth: 1927-Aug 2008

S&P 500 Price Growth: 1927-Aug 2008 - Seeking Alpha

The above article contains a few charts displaying price growth of the U.S. Standard & Poor's 500 companies index. The charts are displayed in linear and semi-logarithmic form.

US Economy - Unemployment

The U.S. economy lost 760,000 jobs this year. Call it recession or not, makes no difference.

Current Financial Crisis

Thoughts from the Frontline

Here is a great analysis of the current financial crisis in the US and elsewhere.

Positive Views Start to Emerge

Business Spectator - Toyota expects auto market to recover

I feel the worst is behind us. It was probably last week when the fall-out ended with a bang.
Now some optimistic views start to show in the news. There are positive forecasts for auto industry, that suffered a lot in the past couple of months, in the above article.
There are also some views that mortgage owners in the US are going to be better of as a result of the bailout package. The US housing was one of the underlying causes for the current slump and there are views that the situation in that sector has to improve to form a basis for the recovery of the rest of the economy.
Expect the next couple of months to represent a "cleanup". Whoever survives in the market will have a strong base and will be a solid target for investment.

Global Credit Crunch

Business Spectator - Prepare for a global credit crunch

In the aftermath of the bailout vote it is time to look ahead. What lies in front of us in the coming months? Global credit crunch and its effects.

The End of an Era

Dr. Doom - Profile - Nouriel Roubini - Predicting Crisis in the United States Economy - NYTimes.com

This might be the beginning of the end of the American empire

Is this anabrupt coming to an end of an era of US dominance? It was bound to happen sooner or later but I never thought it would happen with a bang. :)

Is this the double bottom?

This is how ASX 200 looks today



Is this the double bottom?
According to one explanation double bottoms look like the above. They are complete "when prices rise above the high end of the point that formed the second low".



The key point in the current situation is that there is only a week between the two bottoms, which makes it an unreliable chart pattern.

Senate Passed the Bill

U.S. Senate just passed the $700 billion bill. All eyes are now on House, which will probably vote on Friday.
Australian index oscillates around 4800 since opening. Will probably remain so until the end of the week.
Poll on CNN Money shows 62% of voters not supporting the bill while 38% supports it. If this is how House will vote on Friday, the near future is not very bright for investors.

Cash Reign is Over?

Expert Articles

An article at InvestSmart web site debates that the period of cash rule is over. The rates have peaked recently and have already started on the downward path. There are still good rates with term deposits. BankWest still has an offer of 8.1%, which will probably match the share market rates in the coming period. Well, this is true if we take that a hard period is in front of us. Some believe the profitability will be very thin in the coming two years. In that regard, the current cash rates are worth locking in at the current levels. More and more people believe that central banks will need to ease the rates to allow the economy to recover.
Well, it's a transitional period. Now the bet is how long will the recovery take. Lock in the (currently high) cash rates or put the funds into share market and equities and hope for a quick recovery.
There are no silver bullets. The recommendations are simple - diversify; invest as much as you are comfortable with; invest into assets you are comfortable with. Don't over extend in any case. Everything else is gambling. To do that, one can simply go into a casino and try a few bets. Fortunes can be made overnight that way. :P And lost, too.

Nonetheless, the cycle is nearing its end. Finally.

Stockmarket Closes at 4814

Today the indexes continued upward movement. Australian All Ordinaries closed at 4814.5 while the ASX S&P 200 closed at 4794.6.
This is close to the previous trading range. Tonight the US Senate will make a decision on the bailout plan and the Congress could go back to it, as well. That move could push markets a bit upwards into the trading range. Such a development would form a nice bottom that started mid-July.

Bottom Reached?

Business Spectator - Hazards beyond the rally

The US share market rose steadily all night as more and more buyers felt that yesterday we had touched the bottom. And for the time being that’s true and it could well be that September 29 (September 30 in Australia) was the 'day of no hope' that we have been looking for and that the market will now form a new base. There is a good chance of that, but no certainty.

writes Robert Gottliebsen.

While the drop yesterday was hard, the markets retraced back fairly quickly. The index behavior is quite different to the previous periods. As the graphs show, the percentage of fall gets smaller and smaller. While there are shocks that are high, the reversals are fairly quick. Selling obviously indicates a lot of fear and there's a smell of blood in the air.

Earlier I've called the bottom at 4700 and that really may be the case. While the index went as low as 4400, that was outside the trading hours in Australia. 

There is a growing consensus that we are (almost) there. The new bottom should form as it is fairly reasonable to expect the bailout vote to succeed. The US would suffer the most if it doesn't so I don't expect anyone to take a responsibility for such a stupid decision.

So, the bottom will obviously form around 4700 and start its way up slowly from there. The Moving Average on the past 210 days is getting a bit closer but we have about another month to go until it reaches the current index level. That's when the index could shoot up if the economic conditions improve. The US elections should be over and some certainty should come on that side. The statistics say that the first year after elections is a good one. So, an upside movement could happen in a couple of months. The problems will remain in the financial sector as their time has passed for now. Just like with IT bubble, the credit bubble has burst. Also, thankfully, the housing one. I'd expect the house prices to stabilize. Actually, I'd hope for it as the housing is expensive pretty much everywhere. I can't even think about owning my own home.

So, I hope to see the index level to form a bottom and jump around the 4700 level for some time. Maybe even go back into 4800-5000 range. At least the slide down should end and our savings should stop effectively disappearing. :)