Hold cash, gold and shorts, markets dangerous again
Posted on 12 September 2009 with no comments from readers
This week was the anniversary of the Lehman bankruptcy and financial collapse of last autumn and it was curious to hear the financial pundits talking as though this problem is fully behind us.
There were also some widely trumpeted figures about the success of the Chinese mega-stimulus (equivalent to 50 per cent of GDP in the first half) in sustaining GDP growth around eight per cent.
Chinese exports slump
Almost uncommented was the 20 per cent slump in Chinese exports over the first eight months of the year, and that in the world’s most export dependent economy.
Talk about a shift of growth from economic fundamentals to an unsustainable credit bubble! And just how long can a country keep that kind of stimulus going when its exports are crashing? Perhaps for a while and then?
That would be an issue even if financial markets had stayed down on the floor since the depths of March. But they have not. The stimulus money has gone into a new bubble. Markets have surged upwards, discounting a recovery that shows absolutely no sign of appearing in the real economy.
Therefore markets have now to correct back from an over-bought condition to an over-sold position. After a historically unprecedented 50 per cent recovery from lows there is no other place for the market to go, and no liquidity or buyers to take it anywhere else as the economic stimulus packages unwind.
It was interesting to read the reflections of fund managers in Gulf News today who looked back on the collapse last autumn. None of them seemed to have seen it coming or made the obvious move into cash and bonds, gold or short positions before it happened.
Crash warning
This ought to be a warning written in letters 10-feet high to anybody thinking about diving into financial markets this autumn. This is a selling opportunity, not a buying opportunity. You can buy to sell short but that is it.
How long will this reversal take to happen? If only such exact market timing was possible we would all retire on our market profits.
But anybody who read the commentary on this website a year ago will know that it was saying exactly the same thing again a year ago, and those who chose instead to trust their professional advisers are still counting the cost.
Down will come equities, commodities including oil and gold, and real estate. Bonds should have a last hurrah and the dollar rally. So why still hold some gold? This is a hedge with a limited downside and the asset class of the future.
no Comments posted by readers:
Mining shares seem more fit for adoption as an asset class. These are legitimate enterprises which can generate enormous returns on capital and employ people. Many are being artificially starved capital and driven out of business.
Others are under threat by socialistic regimes, such as the case of the Las Cristinas deposit in Venezuela which was wholesale expropriated by the government.
The idea of precious metals or other tangible goods as a venue for “investment,” which is to say speculation, is one of the key Newspeak propaganda themes.
Instead of continuing our society’s millennial endured tradition of gold and silver as currency, the public is lead to believe that these are merely “barbarous relics,” at best temporary speculation vehicles.
Debt based currency has supplanted the only debt free currencies, precious metals. For this reason I suspect you are misreading how the bond market functions under a debt based currency.
Over the long term we see interest rates fall ever lower. If the central banks were not driving bond prices ever higher, the system would immediately collapse. Former BOE MPC member W. Buiter currently proposes radical experiments with negative interest rates, and he is not alone.
By Ian Mathias, The Daily Reckoning
09/11/09 Baltimore, Maryland
If you seek the market’s next move, why not ask the CEOs of publicly traded companies? For every $1 of insider stock purchases in August, there was $31 worth of sales, says a report from market researchers TrimTabs. According to the firm, execs at U.S. public companies have been net sellers of $105 billion worth of stock over the last four months. That’s the most aggressive insider selling since the summer of 2007… heh, you know… when most papers were rejoicing “Dow 14,000!”
By: CNBC.com
Home prices in the US could fall by another 25 percent because of high unemployment and another leg down will come for stocks, banking analyst Meredith Whitney told CNBC Thursday.
“No bank underwrote a loan with 10 percent unemployment on the horizon,” Whitney said. “I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when.”
Local governments and states are chronically under-funded and “most states are under water,” adding to the problem of low private consumption, she said.
“If you look at the drivers for unemployment I don’t see that reversing very soon,” Whitney said.
If consumers were to decide to spend, “that would be a game-changer,” but it would be an unnatural thing to do in a recession, she said.
“A lot of themes are constant, which is the US consumer and the small business doesn’t have any credit, credit is still contracting,” Whitney said.
Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.
“Obviously that doesn’t bode well for spending,” Whitney said.
She said another leg down was coming for stocks but that Goldman Sachs [GS 174.70 -0.17 (-0.1%) ] still has “gas in the tank” and she kept her ‘buy’ on its stock.
“Goldman is taking a lot of the place that Lehman left,” she said.
But banks are not going to see their earnings rise too much from now on, she warned.
“Banks are taking advantage of what the government is doing by artificially inflating asset prices so they can ride a steep yield curve and they’re going to have a third quarter that reflects that,” Whitney said.
Their shares are unlikely to be uplifted by these results as it happened in mid-July, because then they were under-valued, she added.
Retail sales in the US must be beyond horrible when you can buy a new car with zero down and for the manufacturer o offer you a 2 month return policy with no questions asked must be signs that they are very desperate to clear their stock. This means cars are nit selling and they have plenty of stock to clear that is not moving..
Miners fell with DJI, Gold and Silver in Oct08 and Mar09. Dolar is the only thing going up if we get a correction. 97% bearish sentiment on USD right now seems a fairly good indication of what to come.
Munts, true, but that was brief period in time. Was just watching 1987 crash videos, many miners were actually up on a day when the stock market was down 22%, worst single day crash in history.