Why does it feel like an economic repeat of mid 2008? Because the global economy is now showing hallmarks of the return to similar peak inflation (for that period in July-November 2008) before the bust. All this mixed with a very weak and smashed global economy in 2009. So the repeat of 2008 inflation highs is now being reflected in equity markets and commodity markets which are now all in bubble territories. 2008 is a year that stands as the decline in global economies, as opposed to 2009 where the global economies are fragile and distorted from Government intervention. Which of course has caused price fluctuation's in depressed economic environments, namely industrial output in Asia, Eurozone and the US increasing but private investment almost non existent.
The 2008 inflation scenario (price inflation namely on oil and commodities) lead into the massive sell off of equities and the consumer markets plummeting due to restrictive credit conditions. The question is, are we now entering into a mini bust scenario particularly some stocks, commodities and bank write downs . In which inflation is a precursor to risk aversion again? The answer is a very close possibility. The Commercial Mortgage backed securities market (CMBS) is looking dangerous, government bond yields are edging higher, thus effecting mortgage rates. So further falls in the mortgage sector in the US cannot be ruled out, which in turn will effect banks and overall credit conditions The markets have regained risk appetite in an overdone way; stocks, some currencies and commodities are now looking at peaking out.
As discussed in The US Dollar and Gold showing a reflected 'crossover' patten., the reflective gold/USD patten prior to the global economy sinking in August/September 2008. Showed the inflation conditions that caused gold to spike to $1007 on the 10th March 2008 and the US dollar to fall further (70 cents 17th March 2008), then reversed as risk aversion kicked in and the USD was bought (re: the equity sell off's towards the end of 2008). This could happen again if a correction is on the way, as discussed in this post we appear to be heading that way. A correction in both stocks and commodities (including gold) could occur at some point in 2009 and it will be a meaningful correction.
China and Japan are currently encouraging lending and speculation from their stimulus injections and government intervention will at some point have a banking problem not dissimilar to the US. I would say this is on the cards either towards the end of 2009 or mid 2010
Banks generally will start to lift interest rates on Mortgages to reflect rising global/US Treasury yields in the US.
Thursday, June 11, 2009
Recessionomics - update 3. To buy junk or save up for somthing good?
Recessionomics - update 3The days of excess have come to an end and it's being a dramatic end . Which is kinda good in someways. I briefly discussed this in the blog post the The ‘death of excess’ and the movie Cloverfield . When we had a never ending supply of credit and our purchasing power increased thus causing the biggest credit bubble in history which of course has burst. So now it leaves us in the present state that we are all in (economically). I think back to vacuum cleaners, in the period of 4 years I had three vacuum cleaners with one year warranties on each one. Suffice to say within each of those four years 2 vacuum cleaners died on me and the current one is, well about to be given to the junkyard as a mechanical corpse. The price ranges for all three vacuums ranged between $90-$120. All made in China, all pieces of junk that I purchased because I thought that a $90-$120 vacuum cleaner would do the job and the price was relatively cheap. So, where am I going with this, well with excess dead in the water, quality shines. I am about to buy a Dyson vacuum, I did my math and of course looked at the average price of the three vacuums, the average costs (on all three vacuums) totals just over $300.00 which you could say has also been thrown into the junk pile with the crappy vacuums. So now I am preparing to buy a quality vacuum (a Dyson at $300+ USD). Jeez I mean a vacuum where engineers think about the design and dynamics. C'mon how can you go wrong with that? Originality and quality with efficiency, still you gotta pay for it and Dyson's aint cheap.
Tuesday, June 9, 2009
Could Asia go into a depression? (update 3)
As discussed in the last update. Look towards the end of the year for a clearer indication on price movements/economies of Asia. By then most of the government backed stimulus should be flushed out of the markets. Then it will all be down just to private investment and consumption.
- China's consumer price's down -1.4% May 2009 year on year
- China's producer prices down -7.2% (market expected -6.8%) " "
- South Korea's export down -28.5% May 2009 y/y
- South Korea's unemployment up 3.9% (May 2009) vs 3.7% (April 2009)
- South Korea's annual job losses most since 1999
Oil on a 25mth cyclical bull run? Update 2 - Oil reaches $70.00 a barrel
As forecasted, I mentioned in Oil on a 25mth cyclical bull run? Update 1 that oil would either reach 70 dollars a barrel early June 2009 or in the week 15th-19th June 2009. Subsequently oil is now trading above $70.00 (9th and 10th June 2009).
Although the OBV is showing a divergence with some thin volumes trades on the higher oil price. This could indicate that a sell may occur from the 70 dollar mark. Also there is a flattening out on the monthly graph of the CCI (14) line. A sell on oil will cause the price to fall back into a month to month trading rage of 60 -69 (note on graph).
There are murmurs and speculation (note futures on US interest rates) that US rates could start to move upward; this could drain some volume out of the oil market to support the US dollar. Still supply/demand issues and continued USD weakness could draw a support on 70.00 into 2009.
(Please click on graph for larger image)
*morbius glass does not give investment advice. Trade at your own risk
Although the OBV is showing a divergence with some thin volumes trades on the higher oil price. This could indicate that a sell may occur from the 70 dollar mark. Also there is a flattening out on the monthly graph of the CCI (14) line. A sell on oil will cause the price to fall back into a month to month trading rage of 60 -69 (note on graph).
There are murmurs and speculation (note futures on US interest rates) that US rates could start to move upward; this could drain some volume out of the oil market to support the US dollar. Still supply/demand issues and continued USD weakness could draw a support on 70.00 into 2009.
(Please click on graph for larger image)
*morbius glass does not give investment advice. Trade at your own risk
Thursday, June 4, 2009
Rio Tinto F***** up big time
A debt ridden monster (Rio Tinto) gets offered a lifeline from Chinalco (Aluminum Corp. of China) to continue feeding into the biggest commodity consumption market on the planet, China.
Still the spectra of protectionism has creeped in killing off common sense. Your biggest customer offers a direct investment, especially in a time when commodity markets got hammered. And you play hardball? China wants a cheap deal and they should be offered it, the AUD is too high, Australia's Terms of Trade on exports have collapsed (-11%) and Rio Tino forms a cartel with BHP... yes expect downsizing, in fact you can bet on it that there will be a lot more job losses. Fuck the shareholders they are clueless. As the USD sinks the AUD will be pushed higher thus effecting Australia's export recovery.
Still the spectra of protectionism has creeped in killing off common sense. Your biggest customer offers a direct investment, especially in a time when commodity markets got hammered. And you play hardball? China wants a cheap deal and they should be offered it, the AUD is too high, Australia's Terms of Trade on exports have collapsed (-11%) and Rio Tino forms a cartel with BHP... yes expect downsizing, in fact you can bet on it that there will be a lot more job losses. Fuck the shareholders they are clueless. As the USD sinks the AUD will be pushed higher thus effecting Australia's export recovery.
Oil on a 25mth cyclical bull run? Update 1
On July 11th 2008 oil hit 147 a barrel on the NYMEX exchange. At the time several issues were occurring, inflation was high as far as the US dollar losing value, geopolitical saber rattling between Israel and Iran. Not to forget the US/global recession was about to reach a critical point in 2008.
Upon a possible conflict in the middle east I saw a short term trading range between 141 and 150, please refer to this post World Crisis scenarios for the 21st century – Peak Oil (update 14) Oil heading towards $150.00 (written July 11 2008). Of course we didn't reach 150, but we did reach the all time high 147.
Now it appears that a 2 year cyclical bull run on oil is occurring again, this may reflect shorter price gains on a shorter period of time as the oil price was very over sold when the global recession kicked in later 2008 and early 2009. As discussed in Oil on a 25mth cyclical bull run?, there is an anticipated sell point at $70.00 a barrel. I mentioned that oil could reach $70 late in April 2009 or early June 2009. At this point oil has risen to $68-69, as there is now a trading range between the 60-69. It is quite possible oil will hit $70 early next week ( 15th-19th June 2009), the drop back into it's trading range.
What should be noted about a bull run on oil is that a market is driven on demand and supply issues, therefore the huge sell off that occurred after the highs of $147 in July 2008 was in response to the global economy grinding to a halt; the sell off was severe and probably a little over dramatic. So the speculation argument falls short by assuming that prices were deliberately being driven up, which is a foolish politically driven argument. It should also be noted that no one likes losing money in the market and traders rely on supply statistics and demand issues. Another factor is oil is a hedge against a weak US dollar and since the US goverment doesn't like it's own currency traders look at hedging against an asset losing vale (USD). As we all know oil is rare and getting rarer, More so in an environment when oil production became unprofitable (global recession) and will now struggle to become profitable (high production expenses) in a higher priced oil market with limited supply.
Please refer to graph (click for larger image). Note the On Balance Volume Indicator (OBV), see the volatility from 1st January 2007 (start of bull run) to June 2008 (collapse of oil price). Then it's a straight line down to a bounce on the 1st Januray 2009 (start of new oil bull market).
*morbius glass does not give investment advice. Trade at your own risk
Upon a possible conflict in the middle east I saw a short term trading range between 141 and 150, please refer to this post World Crisis scenarios for the 21st century – Peak Oil (update 14) Oil heading towards $150.00 (written July 11 2008). Of course we didn't reach 150, but we did reach the all time high 147.
Now it appears that a 2 year cyclical bull run on oil is occurring again, this may reflect shorter price gains on a shorter period of time as the oil price was very over sold when the global recession kicked in later 2008 and early 2009. As discussed in Oil on a 25mth cyclical bull run?, there is an anticipated sell point at $70.00 a barrel. I mentioned that oil could reach $70 late in April 2009 or early June 2009. At this point oil has risen to $68-69, as there is now a trading range between the 60-69. It is quite possible oil will hit $70 early next week ( 15th-19th June 2009), the drop back into it's trading range.
What should be noted about a bull run on oil is that a market is driven on demand and supply issues, therefore the huge sell off that occurred after the highs of $147 in July 2008 was in response to the global economy grinding to a halt; the sell off was severe and probably a little over dramatic. So the speculation argument falls short by assuming that prices were deliberately being driven up, which is a foolish politically driven argument. It should also be noted that no one likes losing money in the market and traders rely on supply statistics and demand issues. Another factor is oil is a hedge against a weak US dollar and since the US goverment doesn't like it's own currency traders look at hedging against an asset losing vale (USD). As we all know oil is rare and getting rarer, More so in an environment when oil production became unprofitable (global recession) and will now struggle to become profitable (high production expenses) in a higher priced oil market with limited supply.
Please refer to graph (click for larger image). Note the On Balance Volume Indicator (OBV), see the volatility from 1st January 2007 (start of bull run) to June 2008 (collapse of oil price). Then it's a straight line down to a bounce on the 1st Januray 2009 (start of new oil bull market).
*morbius glass does not give investment advice. Trade at your own risk
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