Thai Stock Market

[Mature Man]

Hi G,

May i state that nothing has changed as far as the solvency of the banks goes. The changed FASB accounting rules ( Apr 25th 2009) that allowed banks to mark their assets/derivatives at cost intead of market value remains in place.
What has happened is that all the muck has been swept under the carpet.
Hey everyone - everything is okay. Here is the stimulus- Hey we have recovered and everything is hunkydory. Wow, we have averted the the collapse ( poo cant be seen)
The muck- bad debt- should have been removed from the scene.
Now it festers, decays and the entire financial room has started to stink.
Right now there are 2 meetings going on. 1) The G7 heads in the Artic and 2) The Heads of Central Banks in Australia.
We are on the cusps of major announcement and possible changes.
By the way the US needs to raise close to $3.5 trillion this year to cover the deficits and replace the short terms notes falling due.
It's good that all of us have an opinion, as the market moves on different opinions.
In my book however, I dont invest in crooked markets as the crooks are the ones behind the moves.

Cheers
MM

Mature Man, Zig33,

There are some serious developments ongoing right now, and every investor should watch those things closely.

- Technically the oil price broke through the 200 day moving average and is close to breaking through throught the 50 day moving average.

- The Credit Default Swaps are jumping up, as for 04.02.2010:

--- iTraxx SovX Western Europe Index of credit- default swaps on the debt of 15 governments rose 12.5 basis points to 106.5
--- swaps on Portugal soared 31 basis points to 227
--- contracts on Greece jumped 32.5 basis points to 430
--- contracts on Spain increased 13 to 165.
--- swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies, jumped 4 basis points to 96.25, the biggest rise in two weeks.

- Technically all major indices broke out (to the downside) of a rising wedges since March 2009. According to Edwards and Magee this indicates the continuation of the primay bear trend, target the previous lows (from March 2009 !!!).

- Record redemptions from emerging market funds in January 2010.

- Yields of the US treasuries fell, but they are still quite high in the perspective of the current economic situation (4.49 % for the 30 Years T-Bond).

THEN I WILL SELL ALL STOCKS WORLDWIDE. But even holding cash will then not help much!


Giotto

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice...

[Fon Tok]

FYI...for interested ISG members.

Fiscal Scare Tactics
By PAUL KRUGMAN, New York Yimes Op-Ed Columnist. February 5, 2010
http://www.nytimes.com/2010/02/05/op...html?th&emc=th

"These days it’s hard to pick up a newspaper or turn on a news program without encountering stern warnings about the federal budget deficit. The deficit threatens economic recovery, we’re told; it puts American economic stability at risk; it will undermine our influence in the world. These claims generally aren’t stated as opinions, as views held by some analysts but disputed by others. Instead, they’re reported as if they were facts, plain and simple.

Yet they aren’t facts. Many economists take a much calmer view of budget deficits than anything you’ll see on TV. Nor do investors seem unduly concerned: U.S. government bonds continue to find ready buyers, even at historically low interest rates. The long-run budget outlook is problematic, but short-term deficits aren’t — and even the long-term outlook is much less frightening than the public is being led to believe.

So why the sudden ubiquity of deficit scare stories? It isn’t being driven by any actual news. It has been obvious for at least a year that the U.S. government would face an extended period of large deficits, and projections of those deficits haven’t changed much since last summer. Yet the drumbeat of dire fiscal warnings has grown vastly louder.

To me — and I’m not alone in this — the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

And fear-mongering on the deficit may end up doing as much harm as the fear-mongering on weapons of mass destruction.

Let’s talk for a moment about budget reality. Contrary to what you often hear, the large deficit the federal government is running right now isn’t the result of runaway spending growth. Instead, well more than half of the deficit was caused by the ongoing economic crisis, which has led to a plunge in tax receipts, required federal bailouts of financial institutions, and been met — appropriately — with temporary measures to stimulate growth and support employment.

The point is that running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.

True, there is a longer-term budget problem. Even a full economic recovery wouldn’t balance the budget, and it probably wouldn’t even reduce the deficit to a permanently sustainable level. So once the economic crisis is past, the U.S. government will have to increase its revenue and control its costs. And in the long run there’s no way to make the budget math work unless something is done about health care costs.

But there’s no reason to panic about budget prospects for the next few years, or even for the next decade. Consider, for example, what the latest budget proposal from the Obama administration says about interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

Why, then, all the hysteria? The answer is politics.

The main difference between last summer, when we were mostly (and appropriately) taking deficits in stride, and the current sense of panic is that deficit fear-mongering has become a key part of Republican political strategy, doing double duty: it damages President Obama’s image even as it cripples his policy agenda. And if the hypocrisy is breathtaking — politicians who voted for budget-busting tax cuts posing as apostles of fiscal rectitude, politicians demonizing attempts to rein in Medicare costs one day (death panels!), then denouncing excessive government spending the next — well, what else is new?

The trouble, however, is that it’s apparently hard for many people to tell the difference between cynical posturing and serious economic argument. And that is having tragic consequences.

For the fact is that thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price."

[Giotto]

Mature Man, Zig33,

There are some serious developments ongoing right now, and every investor should watch those things closely.

- Technically the oil price broke through the 200 day moving average and is close to breaking through throught the 50 day moving average.

- The Credit Default Swaps are jumping up, as for 04.02.2010:

--- iTraxx SovX Western Europe Index of credit- default swaps on the debt of 15 governments rose 12.5 basis points to 106.5
--- swaps on Portugal soared 31 basis points to 227
--- contracts on Greece jumped 32.5 basis points to 430
--- contracts on Spain increased 13 to 165.
--- swaps on the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies, jumped 4 basis points to 96.25, the biggest rise in two weeks.

- Technically all major indices broke out (to the downside) of a rising wedges since March 2009. According to Edwards and Magee this indicates the continuation of the primay bear trend, target the previous lows (from March 2009 !!!).

- Record redemptions from emerging market funds in January 2010.

- Yields of the US treasuries fell, but they are still quite high in the perspective of the current economic situation (4.49 % for the 30 Years T-Bond).

- The MSCI world index (stocks) dropped 10 % from the highs of the beginning of January 2010 (http://www.bloomberg.com/apps/quote?ticker=MXWO%3AIND), that means we are technically at least in a correction.

- Psychologically a crash does not happen when everybody expects it. The past few days it could be seen how much fear is in the market after the experience of the 2008/2009 crash - look at the VIX spiking nearly 50 % in 2 days. This is basically good for the markets, weak and fearful investors have already sold.

OK, market technique is a nice additional information toolbox for investment decision making processes - but without fundamental reasons I am not willing to buy such a horror scenario.

Fundamentally:

- China is tightening its credit, higher reserves requests for commercial banks, restrictions for second and third mortgages etc. etc. . That's basically good to avoid a property bubble - at least it reduces the risks.

- The Chinese stock market is not even close to it's all time highs, so the bubble risk is limited right now. Even a shart drop in share prices would not have the dimention of a crash.

- The RMB - a lot of pressure on China to let the RMB float, but as mentioned before and also mentioned in the report below I see the risk of a crash if this happens. If the exports do not rise and the manufacturing overcapacity leads to further price pressure a deadly spiral could evolve. And - though the RMB is pegged to the USD it will be a problem for the Chinese Government to defend their currenct, even with huge foreign reserves.

- The problem of the Euopean goverment budget deficits is right now inpriced - that's basically good, too.

- Emerging markets are not the top favorites of the investors any more. Money will flow back to the US, Japan and Europe (Europe a little bit later, the investors have to digest Greece, Spain, Portugal ...).

- Massive downwards pressure on the Euro - good for European exporters, bad for US multinationals.

- As I wrote before - the US seams to be quite stabile. We get mixed information, the labour market report from last Friday was quite ok, some glimmer of hope in it, some data quite flat. The growth rates of the 4th quarter 2009 high (5.7 % as expected), but background is basically rebuilding inventory, the first quarter 2010 will be worse. We will have to see whether a growth rate above 3 % is sustainable.

- What was mentioned here many times - the US money printing - skyrocketing government debts. I think this number is misused in many discussions and wrongly interpreted. The overall debts of the US is FALLING (!). The first time since the statistics exists this is happening. Falling credit is ONE reason that lead to the deep recession, because demand is missing. But in general it is POSITIVE that the US debts is falling. What happens is a shift of debts from the private sector to the government. The private sector is massively deleveraging in the US.

- If the goverment can keep up this trend, slightly falling total debts but a slightly rising GDP - then something very important was archived, and on the medium to longer term the US market will benefit from that. This is NOT A CRASH scenario for US stocks! We also should not forget that nearly 2 trillion USD were written off by banks during the financial crisis. If the government recreates this 2 trillion somehow (issuing T-Bonds and selling them the the FED = money printing) this is basically not [yet] inflationary - it just fills up what was written off before (!).

- btw., a good read is Richard Duncan's "Corruption of Capitalism". Richard Duncan predicted the financial crisis in his book "The Dollar Crisis". In a nutshell he comes to the result that stimulus packages and higher government debts are in this economic situation not the problem - it's about how the money is spent. It should be spent for future oriented investments, alternative engergy, cancer research etc. etc. , to develop now business areas for the US for future economic activities.

I could go on ...

Conclusion:

The US still seams to be stable to me, with a balance of good and bad news. That will keep liquidity in the market ( no early removal of stimulus ), and that should stabilize the American stock markets.

The emerging markets will see a correction, at least 10 - 20 %.

Europe's markets will inprise the debts situations right now, they will be under pressure for some time.

Gold - I never understood the gold hausse, but if I look at the worlds currencies - I don't see an alternative. The USD is strong at the moment, but for how long? The Euro is not an alternative because of the debts problems of many countries. Ireland, Italy, Belgium are not even in the focus right now - but that will happen soon. The British Pound? No, thank you. The Yen - hmm ... not sure, mixed picture, but I don't like the deflationary scenario there. The RMB ? That's a poker game. All this should create a basic upwards trend for Gold - though I find it hard to believe! What the hell can somebody do with gold in a worst case scenario? Eat the bullion?

Commodities/oil - I leave that out for the moment. Write about that later.

Strategy: I still prefer US stocks right now, especially in an environment of a rising USD. It's a liquidity driven market 2009/2010, there are no real alternatives to stocks. Emerging Markets - not at the moment. Gold - yes, 10 % of the portfolio, at least. And a share of Japanese quality stocks.

If

- the oil price falls sharply,
- or the CDSs rise sharply,
- or the US 30 year T-Bond yield rises sharply (above 4,8 or even 5 %),
- or the gold price jumps up in a stable USD environment

THEN I WILL SELL ALL STOCKS WORLDWIDE. But even holding cash will then not help much!


Giotto

Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice...

[Giotto]

Hi G & Z
...
Mike "Mish" Shedlock
http://globaleconomicanalysis.********.com

Mature Man,

here the complete link:

globaleconomicanalysis.b*l*o*g*s*p*o*t*.com/2010/02/nonperforming-loans-in-china-rise-to.html

Tale out the *s .

Giotto
www.livingstones.co.th

[Giotto]

Hi G & Z
...
Mike "Mish" Shedlock
http://globaleconomicanalysis.********.com

Mature Man,

here the complete link:

http://globaleconomicanalysis.******...a-rise-to.html


Giotto

[Mature Man]

The economic forecasts by Giotto and Mature Man are most interesting. My opinions follow: The US stock market is at risk starting soon and going through the spring and again in the fall around the elections. We agree that medium to long term there has to be a (global financial) collapse. Possibly China's bubble burst will be the start. There is just too much increasing US debt. Global trade has been great for global growth but will be interrupted by the pending financial crisis. Hopefully, the world will get through it and come out the other end without too much destruction. It will take years to fully unfold and resolve. Investors should be diversified (currencies and asset types), own some gold, and consider holding some short positions.

Hi G & Z

Here's something in China building up which all 3 of us are in agreement.

MM


Friday, February 05, 2010

Nonperforming Loans in China Rise to "Trillions of Renminbi"

Inquiring minds are questioning the solvency of the Chinese banking system. Please consider China Defaulting Loans Soar, Insolvency Lawyer Says.

Non-performing loans in China have risen into the “trillions of renminbi” because of poor lending practices, an insolvency lawyer said.

“We work really closely with SASAC, the state-owned enterprise regulator in China, and there are literally trillions and trillions of renminbi of, frankly, defaulting loans already in China that no one is doing anything about,” Neil McDonald, a Hong Kong-based business restructuring and insolvency partner with Lovells LLP, said at an Asia-Pacific Loan Market Association conference yesterday. “At some point there’s going to be a reckoning for that.”

China’s government is tightening controls, including banks’ reserve ratios, to prevent record lending from fueling inflation. The Shanghai office of the China Banking Regulatory Commission warned yesterday that a 10 percent fall in property values would treble the number of delinquent loans in the city. Liu Mingkang, chairman of the CBRC, said Jan. 4 that loans were channeled into stock and property speculation last year, which China has been taking measures to stop. CBRC’s press officer is not immediately available for comment today.

Chinese banks issued a record 9.6 trillion yuan ($1.4 trillion) of new loans last year as part of a 4 trillion yuan stimulus package aimed at bolstering growth through the global financial crisis.

Should property prices fall 10 percent in Shanghai, China’s second-most-expensive property market, the ratio of delinquent mortgages would almost triple for the city’s banks to 1.18 percent, according to the Shanghai branch of the CBRC yesterday, citing a stress test based on Sept. 30 figures. A 30 percent decline would cause the ratio to jump almost fivefold, the agency said.

Fitch Ratings said Dec. 17 that Chinese banks’ capital strength is probably more “strained” than it appears as lenders use more off-balance sheet transactions to make room for loans.

I am amazed at the number of people sucked into the "China Story", about how undervalued the RMB is, and what amazing growth China has. The real story is China is a command economy, printing trillions of RMB, funding numerous apartment complexes, malls, and even entire cities where no one lives.

In centrally planned economies, when the government says lend, banks lend. Supposedly this is "growth". It isn't. One must not mistake Ponzi financing for growth.

The US, led by Hillary Clinton and president Obama, is putting enormous pressure on China to float the RMB, in expectation that it would rise and US exports would soar. I believe that if China floated the RMB on the Forex markets, it might crash.

Mike "Mish" Shedlock
http://globaleconomicanalysis.********.com

[Zig33]

The economic forecasts by Giotto and Mature Man are most interesting. My opinions follow: The US stock market is at risk starting soon and going through the spring and again in the fall around the elections. We agree that medium to long term there has to be a (global financial) collapse. Possibly China's bubble burst will be the start. There is just too much increasing US debt. Global trade has been great for global growth but will be interrupted by the pending financial crisis. Hopefully, the world will get through it and come out the other end without too much destruction. It will take years to fully unfold and resolve. Investors should be diversified (currencies and asset types), own some gold, and consider holding some short positions.

[Mature Man]

[quote=giotto]mature man,

all the best for 2010 to you, to. and many thanks for your report below.

i agree on many points mentioned in the post. but i see the danger coming from the other side of the world: china.

the us seems to me quite well balanced right now. i expect a surprisingly high growth number for q4 based on stimulus, cheap money and inventory rebuilding. i also expect some earnings surprises - the season starts next week with the alcoa results. this should drive the us markets higher for some time.


hi g

thanks for your response. yes, china will have surprises as loan and interest defaults loom high.

however,i do not agree with your prognosis for the us.
here is a very nice article which i am mostly in agreement with

m m

america slides deeper into depression as wall street revels
december was the worst month for us unemployment since the great recession began.

by ambrose evans-pritchard

the labour force contracted by 661,000. this did not show up in the headline jobless rate because so many americans dropped out of the system. the broad u6 category of unemployment rose to 17.3pc. that is the one that matters.

wall street rallied. bulls hope that weak jobs data will postpone monetary tightening: a silver lining in every catastrophe, or perhaps a further exhibit of market infantilism.

the home foreclosure guillotine usually drops a year or so after people lose their job, and exhaust their savings. the local sheriff will escort them out of the door, often with some sympathy –– just like the police in 1932, mostly irish catholics who tithed 1pc of their pay for soup kitchens.

realtytrac says defaults and repossessions have been running at over 300,000 a month since february. one million american families lost their homes in the fourth quarter. moody's economy.com expects another 2.4m homes to go this year. taken together, this looks awfully like steinbeck's grapes of wrath.

judges are finding ways to block evictions. one magistrate in minnesota halted a case calling the creditor "harsh, repugnant, shocking and repulsive". we are not far from a de facto moratorium in some areas.

this is how it ended between 1932 and 1934, when half the us states declared moratoria or "farm holidays". such flexibility innoculated america's democracy against the appeal of red unions and coughlin fascists. the home siezures are occurring despite frantic efforts by the obama administration to delay the process.

this policy is entirely justified given the scale of the social crisis. but it also masks the continued rot in the housing market, allows lenders to hide losses, and stores up an ever larger overhang of unsold properties. it takes heroic naivety to think the us housing market has turned the corner (apologies to goldman sachs, as always). the fuse has yet to detonate on the next mortgage bomb, $134bn (£83bn) of "option arm" contracts due to reset violently upwards this year and next.

us house prices have eked out five months of gains on the case-shiller index, but momentum stalled in october in half the cities even before the latest surge of 40 basis points in mortgage rates. karl case (of the index) says prices may sink another 15pc. "if the 2008 and 2009 loans go bad, then we're back where we were before – in a nightmare."

david rosenberg from gluskin sheff said it is remarkable how little traction has been achieved by zero rates and the greatest fiscal blitz of all time. the us economy grew at a 2.2pc rate in the third quarter (entirely due to obama stimulus). this compares to an average of 7.3pc in the first quarter of every recovery since the second world war.

fed hawks are playing with fire by talking up about exit strategies, not for the first time. this is what they did in june 2008. we know what happened three months later. for the record, manufacturing capacity use at 67.2pc, and "auto-buying intentions" are the lowest ever.

the fed's own monetary multiplier crashed to an all-time low of 0.809 in mid-december. commercial paper has shrunk by $280bn ($175bn) in since october. bank credit has been racing down a hair-raising black run since june. it has dropped from $10.844 trillion to $9.013 trillion since november 25. the mzm money supply is contracting at a 3pc annual rate. broad m3 money is contracting at over 5pc.

professor tim congdon from international monetary research said the fed is baking deflation into the pie later this year, and perhaps a double-dip recession. europe is even worse.

this has not stopped an army of commentators is trying to bounce the fed into early rate rises. they accuse ben bernanke of repeating the error of 2004 when the fed waited too long. sometimes you just want to scream. in 2004 there was no housing collapse, unemployment was 5.5pc, banks were in rude good health, and the fed multiplier was 1.73.

how anybody can see imminent inflation in the dying embers of core pce, just 0.1pc in november, is beyond me.

mr rosenberg is asked by clients why wall street does not seem to agree with his grim analysis.

his answer is that this is the same mr market that bought stocks in october 1987 when they were 25pc overvalued on shiller "10-year normalized earnings basis" – exactly as they are today – and bought them at even more overvalued prices in 2007, long after the property crash had begun, bear stearns funds had imploded, and credit had its august heart attack. the stock market has become a lagging indicator. tear up the textbooks.

[Giotto]

Hi G,

WISHING ALL OF YOU THE VERY BEST FOR 2010

Sorry, my sincere apologies for not having written earlier as promised. Have been unable to get down to writing in due to various reasons.
...

Mature Man,

All the best for 2010 to you, to. And many thanks for your report below.

I agree on many points mentioned in the post. But I see the danger coming from the other side of the world: China.

The US seems to me quite well balanced right now. I expect a surprisingly high growth number for Q4 based on stimulus, cheap money and inventory rebuilding. I also expect some earnings surprises - the season starts next week with the Alcoa results. This should drive the US markets higher for some time.

The treasury and the FED are acting clever right now. There are indications (=words) that stimulus money might be removed, whenever reasonable good economic numbers are published – but in reality that will not be done. They know that the recovery is still weak, and the market still needs the liquidity to move forward. A higher stock market is wanted and needed right now. Indications of possible rate hikes are meant to created an expectation of higher rates to stabilize the USD – but I don’t expect that to really happen. And I also doubt that the demand for treasury bonds will fade away, and significantly higher yields have to be offered – there is so much liquidity out there looking for any kind of return that supply and demand can be balanced. And – if the yields should move up we still have the FED, and they will use the FED to buy more bonds and expand the FEDs balance sheet to keep the yields as low as possible.

The danger is coming from China.

The trade surplus is shrinking. Growth above 7.5 % is needed to only keep the actual workforce employed. This growth generation is done by creating a massive property bubble and adding more [unused] capacity in manufacturing. China is not buying US T-Bonds any more since October 2009, the USDs are not flowing back to the US. Sooner or later China will be forced to even sell parts of their foreign currency reserves to keep the growth going.

We all hear the complains of the central bankers and treasury secretaries about the RMB pegged to the USD. In the past and may be right now the RMB might be artificially undervalued, but in the moment when the bubbles start to burst the pegging is a major problem for China. Even if they have 3 trillion foreign currency reserves (starting to shrink right now) they will need endless amounts of money to defend their currency then. And if their attempt to do so should fail we will see something comparable to what we saw in Thailand in 1997... but in a much larger scale. Good night, China. Hell will break lose then ...

BRIC ... the investment chance of 2009 and 2010? I would be very careful with that. India looks best, because their economic growth is mostly base on domestic demand. Russia – I would not invest a single USD there, a crisis starting in China will immediately jump over. Russia’s economy is solely based on oil and gas exports. Brasil already had a good run – the stock market is valued quiet highly and the currency also rose around 30 % against the USD last year. And capital can move extremely fast in a crisis situation.

Compared to that the situation in the US looks quite stabile to me. That leverage / debts is not rising any more is not that bad. And I am quite sure that this is controlled responsible people in the treasury department and FED – whenever the shrinkage should cause the growth to fade away a new stimulus package will be set up, and the balance sheet of the FED will increase a few hundred billions. Who cares?

Inflation because of printing / generating too much fresh money? Not at all, the deflationary tendencies of the low economic growth rates are much too strong. And the danger coming from China will create demand for the USD as safe haven, so the forces for a weakening USD (money printing) are absorbed by contrary forces that should stabilize the USD. It will move between 1.35 – 1.55 against the Euro.

We will get used to higher P/E ratios in the developed markets. Interest rates will stay low, company earnings should not rise too much, and there is a lot of demand for any return generating stocks or bonds.

Commodity prices? Yep, as long as the world looks ok the prices will move up. When the China bubble burst the commodity prices will experience major losses, too. No safe haven.

As for today – things look great. I think I start to clean up my portfolio and sell ... I don’t know whether the China bubble will burst next week or next month, but I expect that to happen within 2010. And when it bursts ... then it will be too late to sell.

Now – there is one major argument against the described scenario. Some famous economists are writing about this scenario, and many people talk about the Chinese property bubble. Usually bubbles do not burst when people talk about markets being in a bubble situation ... that might drive the prices further up because scared investors (like me) have sold already, and shares/property is moving from weak hands into strong hands. So – all might be good this year, possibly. But – I would not bet on that.

As for your predictions for 2010:

*
No, this is not a new Bull Market; the market will be lower on December 31st than it is on January 4th, quite possibly by a a hell of a lot. We may not break the March 2009 lows...

### I agree.

*
The Long end of the Bond Curve is going to move higher on yields. We have completed a long-term (multi-year) inverted Head and Shoulders pattern. The probability of the targets set by that pattern being achieved is extremely high. The target? 6.9% on the 30 year "long bond" - a rate that puts 30 year mortgage money at least to 7%. This prediction assumes that we do not get a panic-style sell-off in the Stock Market - if we do get one (and I think it's 50/50 on that) then I withdraw this prediction.

### I disagree. The yields will move higher but not much.

*
House prices will fall another ~20% - whether as a consequence of the rate back-up or utter destruction in the markets generally. Sorry folks, the housing mess is not over. ...

### I agree. But those further falling house prices will not cause much damage, it is largely expected by the markets.

*
Banks will "give up" on holding their real estate as rates start to backup and will dump their foreclosure inventories. ...

### I disagree. Banks will be forced by government agencies NOT to crash the housing markets. There are some clever guys working at the treasury.

*
Credit will not ease for "ordinary people." All the exhortations about "lending more" have been going on now for more than two years yet have gone nowhere. The jawboning will continue but the results will not come, simply because there is no more good collateral left against which to lend. This will in turn lead to.

### Hmmm, not sure. I agree that there is collateral problem, but there is also the necessity to start credit going again. You will see government programs which provide the necessary collaterals to banks to get credit going.

*
A massive second wave of small business bankruptcies will sweep the nation. We've seen the first part of it. The second will be worse - far worse. With long rates backing up and the 30% credit card sweeping the land those who have relied on credit to operate in the small and mid-sized business world will get relentlessly squeezed. Many will fall.

### I agree.

*
Unemployment will appear to be stabilizing - for a while - but that will prove illusory. We finish 2010 over 10% - no material improvement. If things get real bad we might see 12-14%. Yes, U-3. I won't stick my neck out that far as a prediction but I believe ending the year at or above 10% is a lock.

### I agree.

*
The "revolting" call for last year was early - but not wrong. There will be at least one major coup or other violent overthrow of a government in 2010 tied to economic instability - either directly or via a war it spawns.

### That’s speculation. Possible. If the bubble in China burst we will see unrest there, for sure. And somewhere in Africa will be a coup – for sure .

*
The states will go to the government well for handouts...

### I agree.

*
A "double dip" will be recognized by the end of the year. Between taxes and rising rates - or an intentionally-detonated stock market to stop the long end of the bond curve going bananas - you can bet on it.

### I agree. But we will not see strongly rising rates, as explained above.

*
China will lose control of their property and plant bubble - with horrible consequences. They're good at the game, but that which can't go on forever won't. I bet it blows up before the end of the year. If so, Australia's property market better watch out - they're levitating on the strength of China's commodity demand and pricing there is California-style.

### Here we go – I strongly agree.

*
The Canadian Real Estate Market will show signs of cracking - especially in places like Vancouver. They may have another year before it all goes to hell, but the time approaches. Beware.

### Possible, I don’t know that market.

*
The Fed's games will "leak" and credibility will be shaken severely. There's too much pressure. Something will give, somewhere. Washington DC is too hostile a place for the "hold hands and head for the cliff together" game to work with an election coming up......

### I disagree. The games will go on and work well.

*
The Democrats lose big in the House. ...

### I agree.

*
Congress continues to try to spend its way out of the recession - and runs head on into rising rates. Watch the TBAC reports. Those will be your "tell" along with the TIC data.

### I agree with the spending, not with the rising rates.

*
One or more of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) either defaults technically or is forced into austerity by the ECB. Further, Eastern Europe becomes dangerous destabilized. ...

### I agree. And – we should not forget England ... 1/3 of the government debts is owned already by the Bank of England.

*
Contrary to virtually EVERY "investment pundit" on the street today return OF capital will once again assert itself as the primary consideration. Sentiment indicators as of 12/31, along with 52-week highs, all are at levels that have been associated with tops on a historical basis. Treasury has to issue $2.5 trillion this year, while we all cheered when they issued $1.5 trillion last year - and got away with it. China has housing trading at 80x average incomes, Australia and parts of Canada have housing markets at 10x or more average incomes and the banksters and "investors" alike appear to have learned nothing, with "reaching for yield" coming back in force. Ponzi ponzi ponzi! Add to this geopolitical event risk and things get interesting. That which can't continue forever won't - we merely argue over timing, not outcome. I'll lay the marker on one or more of these timers reaching zero in 2010.

### I agree, that the collapse is only a question of time – it will happen.

[Mature Man]

Hi G,

WISHING ALL OF YOU THE VERY BEST FOR 2010

Sorry, my sincere apologies for not having written earlier as promised. Have been unable to get down to writing in due to various reasons.

Nothing has really changed on the financial horizon. In fact, it has only become worse with assets being valued at cost and far below their actual worth in bank's balance sheets in connivance with the US authorities since April 25th 2009.

The US Treasury is run by Goldman Sachs and the US Fed by J P Morgan.

There is no real recovery. And what ever QE has been done so far cannot continue at the same pace. Taxes have to go up even as revenue streams are dropping.

Credit is still extremely tight .Corporate lending ( by banks) is at a very low , compared to normal times. Large Commercial Real Estate failures in the US is around the corner. Failure of more big Retail chains is just weeks/months away

I am giving below Denninger's predcitions for 2010. He is one of the few I really respect. People in some parts of the world feel they have been/will be immune to the financial crisis. What they do not realise is the implication of the financial connections/network around the globe. China and India who have never seen a financial crisis or a recession will get to know the implications.Other countries in Asia have undergone such events.

Only one thing that I can add is that I expect major upheavals/events in Jan.
Maybe even a new war front opened up in the middle east - middle Jan.

Mature Man

2010 Predictions from one of the few who call a spade a spade and one who knows his onions.

http://market-ticker.denninger.net/

So with all this said, here's what I believe we're looking at for 2010... ready or not, here it comes!

*
No, this is not a new Bull Market; the market will be lower on December 31st than it is on January 4th, quite possibly by a a hell of a lot. We may not break the March 2009 lows - but I also don't believe for a second we're going back to 1576 on the SPX. Not without the leverage - and we can't get the leverage. I believe we will end the year down from where we begin on January 1st. McHugh calls it "Wave 3 Down"; I call it "aw crap." Either way "irrational exuberance" is back for now but cash flow always wins in the end. I'll be a "generational buyer" of stocks when dividend yields are over 5% and P/Es are in single digits. We didn't get there last year and yet those are the historical metrics that mark true Bear Market bottoms. With that said, I would not be surprised if we hit 1220 on the SPX some time earlier in the year - but it is by no means a lock, contrary to what virtually everyone in the "pundit community" expects (most of which are looking for 1350 or more!)

*
The Long end of the Bond Curve is going to move higher on yields. We have completed a long-term (multi-year) inverted Head and Shoulders pattern. The probability of the targets set by that pattern being achieved is extremely high. The target? 6.9% on the 30 year "long bond" - a rate that puts 30 year mortgage money at least to 7%. This prediction assumes that we do not get a panic-style sell-off in the Stock Market - if we do get one (and I think it's 50/50 on that) then I withdraw this prediction.

*
House prices will fall another ~20% - whether as a consequence of the rate back-up or utter destruction in the markets generally. Sorry folks, the housing mess is not over. The math on this is simple; a $200,000 principal loan at 4.75% for 30 years produces a P&I of $1039.18. That same payment with a rate of 7% produces a principal financed of $157,107.95. If, for whatever reason (engineered or not) the stock market collapses then you get your housing price crash anyway.

*
Banks will "give up" on holding their real estate as rates start to backup and will dump their foreclosure inventories. Why? Because the regulators may let them to play games with alleged "values" when people can get mortgages at 4%, but at 7% there's just no way the numbers work and the fraud becomes too difficult to countenance. There are rumors of major banks dumping hundreds of thousands of homes on the market next year - this is likely the backstory on "why."

*
Credit will not ease for "ordinary people." All the exhortations about "lending more" have been going on now for more than two years yet have gone nowhere. The jawboning will continue but the results will not come, simply because there is no more good collateral left against which to lend. This will in turn lead to.

*
A massive second wave of small business bankruptcies will sweep the nation. We've seen the first part of it. The second will be worse - far worse. With long rates backing up and the 30% credit card sweeping the land those who have relied on credit to operate in the small and mid-sized business world will get relentlessly squeezed. Many will fall.

*
Unemployment will appear to be stabilizing - for a while - but that will prove illusory. We finish 2010 over 10% - no material improvement. If things get real bad we might see 12-14%. Yes, U-3. I won't stick my neck out that far as a prediction but I believe ending the year at or above 10% is a lock.

*
The "revolting" call for last year was early - but not wrong. There will be at least one major coup or other violent overthrow of a government in 2010 tied to economic instability - either directly or via a war it spawns.

*
The states will go to the government well for handouts, they will probably get them, but it won't matter. They'll get some assistance at least, but in the grand scheme of things it doesn't make any difference in a world where long rates are rising precipitously. California and Arizona are in the biggest trouble, with Michigan, New Jersey and New York right behind. The public employee unions will have a kitten but again, it won't matter - that which isn't there isn't there, whether you want it to be or not.

*
A "double dip" will be recognized by the end of the year. Between taxes and rising rates - or an intentionally-detonated stock market to stop the long end of the bond curve going bananas - you can bet on it.

*
China will lose control of their property and plant bubble - with horrible consequences. They're good at the game, but that which can't go on forever won't. I bet it blows up before the end of the year. If so, Australia's property market better watch out - they're levitating on the strength of China's commodity demand and pricing there is California-style.

*
The Canadian Real Estate Market will show signs of cracking - especially in places like Vancouver. They may have another year before it all goes to hell, but the time approaches. Beware.

*
The Fed's games will "leak" and credibility will be shaken severely. There's too much pressure. Something will give, somewhere. Washington DC is too hostile a place for the "hold hands and head for the cliff together" game to work with an election coming up......

*
The Democrats lose big in the House. Time is probably too short for a viable third party to emerge for the midterm elections, and I don't expect the Democrats to lose House control. However, I do expect them to lose their filibuster-proof majority in the Senate, and to lose enough seats in The House to trash their "steamroller" approach to legislation. This might be bullish for the markets late in the year and into 2011 - maybe (divided government is generally good for the markets.)

*
Congress continues to try to spend its way out of the recession - and runs head on into rising rates. Watch the TBAC reports. Those will be your "tell" along with the TIC data.

*
One or more of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) either defaults technically or is forced into austerity by the ECB. Further, Eastern Europe becomes dangerous destabilized. There is a real possibility of outright hostilities in that part of the world next year. Let's hope not. The ECB has a nasty problem on their hands; I have said for quite some time that the Euro is likely to trade at PAR down the road. This year is probably not the year for it, but the cracks in the dam that ultimately could destroy the European Union should become very apparent in 2010.

*
Contrary to virtually EVERY "investment pundit" on the street today return OF capital will once again assert itself as the primary consideration. Sentiment indicators as of 12/31, along with 52-week highs, all are at levels that have been associated with tops on a historical basis. Treasury has to issue $2.5 trillion this year, while we all cheered when they issued $1.5 trillion last year - and got away with it. China has housing trading at 80x average incomes, Australia and parts of Canada have housing markets at 10x or more average incomes and the banksters and "investors" alike appear to have learned nothing, with "reaching for yield" coming back in force. Ponzi ponzi ponzi! Add to this geopolitical event risk and things get interesting. That which can't continue forever won't - we merely argue over timing, not outcome. I'll lay the marker on one or more of these timers reaching zero in 2010.

[Giotto]

...
As far as the dollar goes, I agree with you on the long term, but the Elliot waves say it is time to buy the dollar.
...

PosterLion,

Elliot or not... get out of the USD!


Giotto

[PosterLion]

Dear God of the World's Markets,

Please, what we need now is:

- a weakening USD for at least some weeks,

- an oil price slightly rising, and not going below 50 USD.

Could you please do that for us?

Thanks in advance.


Giotto

You know G . . .

I wonder if you were invested in what you thought the world needed when you made this wish. I hope you were. It was quite a prescient call if you ask me!

poster

[PosterLion]

Hi, Poster,

Nice portfolio. Especially the short position on the US T-Bonds. I looked for an option to do the same, but I did not find any appropriate papers for private investors to short the T-Bonds. Let me know how you managed to do that.

I basically agree with all investments except the US $ long position. And I would add some South American emerging markets to my portfolio.

US $ - difficult at the moment. On the medium to longer term I would expect the US $ to fall and fall and fall ... short term it was oversold and had to technically react on the strong GBP and Euro rally.

If the US $ rallies this will have a negative impact on the stock markets again. And it will only happen if Oil starts to pull back. That will only happen if the expectations becomes stronger that we are NOT through the recession, and that we might get a W shaped recesion/recovery. If that happens you might want to be in the US $, but not in commodities and stocks.

I personally don't believe in the V shaped recession/recovery we are right now pricing in at all markets.

C U .


Giotto

The easiest way for me to short the 30 year bond is with the UltraShort 20+ Year Treasury ProShares (TBT). Marc Faber has money in it so it must be good right?

It is an ETF that seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Lehman Brothers 20+ Year U.S. Treasury index. The fund normally invests at least 80% of assets to investments that, in combination, have economic characteristics that are inverse to those of the index. It also typically invests in taking positions in financial instruments, including derivatives that should have similar daily return characteristics as twice the inverse of the index. The fund is nondiversified.

Actually, I am doing all my investments with ETFs these days because they are the easiest way to move in and out of just about any market you can imagine. If I want to invest in South America as you mentioned, there are several ETFs I can use to do that with:

iShares S&P Latin America 40 Index (ILF)
iShares MSCI Chile Investable Mkt Idx (ECH)
iShares MSCI Mexico Investable Mkt Idx (EWW)
iShares MSCI Brazil Index (EWZ).

There are even leveraged long and short funds for these indexes. It's crazy! And that scares me a bit because it seems to me we are about to create an ETF bubble.

As far as the dollar goes, I agree with you on the long term, but the Elliot waves say it is time to buy the dollar.

Cheers Mate!

I hope I have the chance to meet up with you soon.

poster

P.S. I see you must be following Bejing. I hear they have been shopping in South America too.

[Giotto]

Hey G,

Here's the general make-up of my current portfolio. My biggest position is the short on the 30 year bond. It made the month of May feel like i never wanted it to go away.

What are your longs and shorts these days?

I am really thinking I need to make a trip to LOS soon. What is the current status of life there?

Thanks in advance and take care of yourself!

poster . . .

- Short the 30 year US Treasury Bond (established position mid-April)

- Long the Dollar (established position this week)

- Long Natural Gas (established position this week)

- Long Heating Oil, Crude Oil, Gold, Aluminum, Corn, and Wheat (established position Nov. 2008)

- Long Singapore, Taiwan, Hong Kong, Australia, and most of the remaining emerging Markets (established position Nov. 2008)

P.S. apologies in advance to those that disagree with the term "emerging markets" as a description of their respective country. It's just what we call them here in Oklahoma as a matter of convention. I reckon us Okies will be calling ourselves "a resident of an emerging market", in good time.

Hi, Poster,

Nice portfolio. Especially the short position on the US T-Bonds. I looked for an option to do the same, but I did not find any appropriate papers for private investors to short the T-Bonds. Let me know how you managed to do that.

I basically agree with all investments except the US $ long position. And I would add some South American emerging markets to my portfolio.

US $ - difficult at the moment. On the medium to longer term I would expect the US $ to fall and fall and fall ... short term it was oversold and had to technically react on the strong GBP and Euro rally.

If the US $ rallies this will have a negative impact on the stock markets again. And it will only happen if Oil starts to pull back. That will only happen if the expectations becomes stronger that we are NOT through the recession, and that we might get a W shaped recesion/recovery. If that happens you might want to be in the US $, but not in commodities and stocks.

I personally don't believe in the V shaped recession/recovery we are right now pricing in at all markets.

C U .


Giotto

[PosterLion]

Hey G,

Here's the general make-up of my current portfolio. My biggest position is the short on the 30 year bond. It made the month of May feel like i never wanted it to go away.

What are your longs and shorts these days?

I am really thinking I need to make a trip to LOS soon. What is the current status of life there?

Thanks in advance and take care of yourself!

poster . . .

- Short the 30 year US Treasury Bond (established position mid-April)

- Long the Dollar (established position this week)

- Long Natural Gas (established position this week)

- Long Heating Oil, Crude Oil, Gold, Aluminum, Corn, and Wheat (established position Nov. 2008)

- Long Singapore, Taiwan, Hong Kong, Australia, and most of the remaining emerging Markets (established position Nov. 2008)

P.S. apologies in advance to those that disagree with the term "emerging markets" as a description of their respective country. It's just what we call them here in Oklahoma as a matter of convention. I reckon us Okies will be calling ourselves "a resident of an emerging market", in good time.