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A stock market rout, investor fear & the global economy

August 5th, 2011 · Greg Atkinson · 69 Comments

As I write today the Australian stock market has slumped around -4% so far after the Dow Jones fell -4.3% and markets in Europe also ended sharply lower. As per usual, many finance journalists are hurriedly pumping out scary stories and dramatic headlines to gain readers attention so it’s time to grab a cup of coffee, relax and focus on the facts.

Firstly here is a good reason not to pay too much attention to ramblings of finance journalists in the mainstream media.  For example back on June 3rd Michael Pascoe in the Sydney Morning Herald wrote:

“Whether US housing starts are down, will the US have a double dip, what’s happening to US industrial production – who here really cares? Despite the vastly disproportionate coverage afforded such detail about the United States, it’s not our economy and doesn’t directly effect us anymore.

It’s Australia’s good fortune to be in the strongly growing part of the global two-speed economy – the part whose growth is made a little easier if the competition for resources is a little less fierce. Just don’t try to tell the stock market that when it’s having a bad day.”

Source: US growth going nowhere – that’s a relief!

So in the world of Michael Pascoe it appears we don’t need to worry about what the Australian stock market is doing because it just follows the U.S. market blindly and has little impact on our economy.

So when people look at their superannuation fund and see it not doing that well he must think that this has little impact on consumer spending?  He must also think Australian listed companies don’t worry what their share price is doing and that this doesn’t affect business decisions or strategic planning?

Michaal Pascoe is so wrong that he has almost done a complete loop and is in danger of actually being right.

But there is more. He also makes this interesting comment in the same article:

“China bears who haven’t been keeping up with the changes underway there will carry on about an alleged dependence on American consumption patterns, but that’s been exaggerated and increasingly lacks truth. Most of China’s exports now go to other emerging nations.”

As with most journalists, providing hard data or links to the data is not Michael Pascoe’s strong point so below I have included some actual data about China’s exports because his observation about Chinese exports doesn’t add up.

Table 8: China’s Top Export Destinations, 2010 ($ billion) 



Source: PRC General Administration of Customs, China’s Customs Statistics

Rank Country/region Volume % change over 2009
1 United States 283.3 28.3
2 Hong Kong 218.3 31.3
3 Japan 121.1 23.7
4 South Korea 68.8 28.1
5 Germany 68.0 36.3
6 The Netherlands 49.7 35.5
7 India 40.9 38.0
8 United Kingdom 38.8 24.0
9 Singapore 32.3 7.6
10 Italy 31.1 53.8


For all the data see: US-China Trade Statistics and China’s World Trade Statistics

I mention the above to highlight that what often appears in the mainstream media regarding the stock and financial markets should be marked as works of fiction.

Today the stock market is quite clearly in rout mode.  Billions will be wiped off the value of the market and this will have an impact on the economy. The media will bombard us with gloom and doom headlines so we need to keep our heads.

Even if stocks rally next week the damage has already been done because consumer and business confidence will take a hit.  Investors are now focused on the pessimistic outlook for Europe and the United States which at some point will also get investors looking at the economic numbers from China again.

As regular readers of this blog will know I have frequently said “keep your eye on the BDI”  because I believe the Baltic Dry Index is worth watching.  Around 90% or more of global trade is carried by ships so if shipping companies are finding it tough going then that suggests to me that the global economy is struggling.

Baltic Dry Index (BDI – 1 Year Chart


The BDI chart above shows pretty clearly how shipping rates for dry bulk goods have remained stuck in a rut after post the GFC relief rally.  The fact that the BDI hit a low earlier this year sent us a clear warning that stocks might tumble.

In other words the BDI had a strong relief rally post the GFC but then fell back as reality set in that the global economy was not doing that great after all.  The BDI has also been dragged down by an oversupply of ships but in general terms, I think it is telling us what people are now realising – it isn’t business as usual.

So it appears to me the stock markets around the world are now going through a similar phase to the BDI.  I suspect stocks will find a bottom soon but at this stage it’s too early to say at what level that would be.  My stab in the dark guesstimate suggests we won’t see the ASX All Ords close below 4000 in the short term but at the moment that looks like a fairly silly statement.

The truth is that none of us know how this will all play out so I am fumbling around trying to make sense of the chaos the best I can so feel free to leave a comment and tell me what you think.

Greg Atkinson is the editor of  Shareswatch Australia, the Managing Director of Ohori Capital and a Director of Eco Marine Power.  He is originally from Australia but currently resides in Japan.  He can be followed on twitter via @GregAtkinson_jp

69 responses so far ↓

  • 1 Biker // Aug 5, 2011 at 1:35 pm

    Those damned Chinese are gonna wreck the world economy, dammit!;)
    Biker, Whitehorse, Yukon Territory

  • 2 Greg Atkinson // Aug 6, 2011 at 9:12 am

    I think the true villain is the notion that governments can keep borrowing and not get their spending under control.

    Anyway the U.S. stock market posted a modest gain last night and the US jobless numbers have investors some hope – perhaps we were near the bottom of this correction?

  • 3 Jimbo Jones // Aug 6, 2011 at 1:07 pm

    Thought i would add a little to the persepctive in the market. My typical trading pattern focuses on mainly resources/precious metal companies. Obviously 10% movements are fairly common place in this arena!!! But wanted to highlight a few obsverations from my research on the broader market:

    – How the ASX 200 will end up is a key question. We are down 18.5% from the high reached in April 2010 of 5025 to 4105 as of yesterday. I am going to research longjevity of bear markets in Australia, but if we base the spread as being over 17 months, i daresay we will be coming to a close in preparation for the commencement of new cyclical bull.

    If you are interested in reviewing the equity indices of Brazil and Switzerland, both are in a bear market. Why do i compare Brazil and Switzerland? Both have strong currencies and commodity backing and limited government debt. I suspect both these markets will lead a strong rally, as they have been punished AND i have read articles that say to stay clear of these markets. A contrarians delight. These articles are likely written by the same people who have described the US SPX500 as an avoid EVEN thosugh this cyuclical rally has been up a staggering 90% – one of the best rally’s seen in years!!!!

    So we still may see further downside over the Sept/Oct period, but would likely find that we shall see a bottom before a decent rally through November/December.

    – Commodity markets generally perform poorly during the June/July/August period. For some reason, but over the course of the commodity bull market, many prices tend to actually bottom around August. Actually mid August!!!! I am not sure where this storm will send us to, but when i read stories from the US that banks are charging depositors a fee (YES a FEE) to store cash in the bank with them, i would tend to lean that we are starting to look like a significant rally is imminent. I suspect this year will replicate many of our prior years and bottom out commodities for August, then commence their annual pilgramage up to Feb/March.

    – One more point, even though a lot of other markets have suffered a correction/close to bear mkt (10%-20%), the S&P 500 still may not commence a bear market and infact the S&P 500 cyclical bull may infact still be alive. I have reviewed the SPX500 performance over a number of years. In 1998, the S&P 500 corrected 21% from July-October, In 1999, the SPX 500 corrected 12%. See the trend!! Go back to 1980s and see similar corrections. I am not saying we won’t suffer a cyclical bear market, but until the 200DMA turns negative, we still could be hitting new S&P500 highs by year end. I daresay, we are still not through this correction, but scaremongering of sorts about GFC II is still very much unfounded.

    – August also marks the anniversary of having a red headed installed in government. Unfortantely we will still be celebrating this next August, unless true backbone is shown by an independent or even one of her parties members to cross the floor on key decisions.

    Happy Days!

  • 4 Ned S // Aug 6, 2011 at 6:01 pm

    Bit of mention of the reasons for the intraday moves here Plornt:

    “U.S. stock markets proved volatile again Friday, a day after stock prices plunged roughly 5 percent. The Labor Department report that non-farm payrolls rose by 117,000 jobs in July and the jobless rate ticked down slightly to 9.1 percent sent the Dow Jones industrial average climbing 170 points in the first minutes of trading.

    That rise was short-lived as the index went lower, largely on fears of the impact of Europe’s financial crisis. But prices then turned higher as a possible solution to the crisis was announced. In the end, the Dow closed up 60.93 points to 11,444.61, an anticlimax to a day that had seen the index fluctuate more than 400 points.”

  • 5 Greg Atkinson // Aug 6, 2011 at 9:54 pm

    Thanks Jimbo – some excellent insights, but did you have to mention the red head? πŸ˜‰

    I am also expecting a rally sometime later this year after investors work out the sky is not quite falling in. (again) The big question for me is – are we setting up for the next bull market or not?

    By the way, do you have any thoughts you can share regarding gold prices?

  • 6 Plornt // Aug 6, 2011 at 9:56 pm

    I think its pretty obvious now some people knew the USD debt downgrade was comming before it was announced (perhaps weeks beforehand?). Rediculous that people get hold of this info before us mortals have a chance to reconcile it. Thankgod we have the tape!

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 7 Jimbo Jones // Aug 7, 2011 at 8:47 am

    In USD and AUD gold, it is starting to shape up as a strong bull market through to the end of the year. The catalyst, as everyone is seeing, is the continuation of the global debt woes. Previously this would push money into the AUD resulting in minor gains, but now the AUD is depreciating the gold price is moving fast in AUD terms. This year will either be seen as a strong move of the gold price in AUD terms, or being turbo charged by the AUD depreciating down. The AUD will only fall significantly if the RBA chops – will they, won’t they – hard to know. I suspect it will be that the gold price price begins a solid rally up against ALL global currencies, while the AUD sits around the parity level.

    Generally listed Aussie gold stocks should have shown strong gains this year – and a couple have – but there have also been some significant underperformers. It does take time and research to discover a few strong gold juniors, but i suspect the sectors underperformance finished in June this year and we have already started to show some significant gains and more whill be had over the next 5-6 months.

    Another point on the broader market, i reviewed the price action of the ASX All Ords after the 1987 crash and subsequent relief rally into 1989 and subsequent market into 1991, found the All Ords gave up about 27% of the relief rally gains. So our ASX 200 downside case in this correction is probably 3700 (So we still could wipe another 300-400 points of the index, before we recommence our sluggish bull run back up to our 2007 market high – which is likely to be around the year 2014.

    Interesting times indeed.

  • 8 Lachlan // Aug 7, 2011 at 9:13 am

    Excellent posts Jimbo, your pretty bright for a primary school thug πŸ˜‰

    I was saying recently there are two scenarios possible to carry the AUD gold pennant breakout through 2000. It is probable at some stage that currency dynamics will evolve and gold and maybe other assets will appreciate over choice currencies with more critical USD depreciation. It’s Exters prophecies playing out with some money printing thrown in to help the big fish restructure.

    Greg I would be thinking our index is in the bounce/rally zone right now also…from a price technical angle.

  • 9 Greg Atkinson // Aug 7, 2011 at 10:39 am

    Thanks Jimbo. I am not a huge fan of gold as I have the impression (perhaps wrongly) that it’s already in the bubble zone. There is an awful lot of gold now sitting in vaults doing nothing except waiting to be sold. If I were to invest in gold I am pretty sure I would be trampled in the rush to sell when it does eventually come along. My market timing skills are not very good.

    I agree the AUD will come under pressure if/when the RBA cuts rates. Despite the lunatic ramblings of some media commentators & politicians the AUD is not strong simply because our economy it is the envy of the known world. Seems plenty of people don’t understand the carry trade or even know it exists.

    Lachlan I reckon our stock market is already oversold now and I do expect a bounce but probably not enough to make me dive and start buying. I believe the Australian economy is in for a tough time over the next 6-12 months or more and things will get nasty if/when we get some bad numbers out of China.

    Yes it’s true, I am one of those China bears, so bear that in mind.

  • 10 Ned S // Aug 7, 2011 at 12:33 pm

    The Europeans want the G7 to have a little chat:

    While I can understand them telling Wayne Swan his input is not required, leaving out China seems strange to me.

    Italy is obviously feeling a bit pressured: “”The situation is very difficult and requires co-ordinated action,” Mr Berlusconi said after talks with several European leaders. ”We have to recognise that the world has entered a global financial crisis that concerns all countries.””

    While I appreciate his line has to be “We’re all in this together brothers and sisters; United we stand, divided we fall; Blah, blah, blah”, saying outright that the world has entered (another?) global financial crisis would seem somewhat indiscrete wouldn’t it?

  • 11 Plornt // Aug 7, 2011 at 8:01 pm

    Middle East markets crashing after the USD debt downgrade announcement (they open on Sundays).
    Thats not a great omen for the ASX on Monday. Will 4,000 hold?

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 12 Lachlan // Aug 7, 2011 at 8:35 pm

    I reckon we are headed for inflation very soon. The USDX has been consolidating (maybe a bottom?) as did the markets (maybe tops?) but now that the markets are showing intermediate tops well broken down into significant support and where has the USDX gone? …it’s hobbling at the bottom of the tiny range. It looks as though the near term is going to turn out a collapsing dollar. It might be time to look away from the usual paradigm of deflation (asset bubble bursts) and USD rallies. I’m guessing we’ve got a lifted debt ceiling and now they’re going to step on the gas. There may not be much time for all these charades to justify such action soon. Money printing will just become an advance move, a reflex. AUD gold may not make the big move up from it’s pennant against a dollar rally rather a sell off.

    How exciting, we’re all freakin doomed πŸ˜‰

  • 13 Lachlan // Aug 7, 2011 at 9:02 pm

    “Or will stocks just continue down, instead of a bounce then new lows?”
    Of course its possible for stocks to be driven further in to support yet however if I was short I would have rung the cash register by now and gone market neutral until post reversal. That’s because my fundamental view is that we are in a bull market. The market rout’s will be met by currency devaluations of increasing frequency and intensity according to that “bet” (yep we’re all speculators). While the Dow has been moving up a lot in the last few years and our market has been trading lower down in a more compact range I think that is purely representative of inflation where the US had effectively devalued and our strong currency has forced our market to coil more. Therefore I see value in accumulating here. Accumulating Aus gold and resource stocks at their lows (individual lows at strong support, not index lows) is what I’ll stick with but just for a small part of my portfolio… which is heavy into metal πŸ˜‰
    Another interesting week coming up.

  • 14 Plornt // Aug 7, 2011 at 10:23 pm

    Also the VIX failed to move initially on the DJIA move down, which the media was harping on about. And it didn’t VIX failed to move much. But look at it now. So could have a similar thing happen with DX.
    But watch the DX May lows, if they break, this is a meaningless post.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 15 Plornt // Aug 7, 2011 at 10:40 pm

    I’m kinda thinking USD debt downgrade, forces US interest rates up, which in turn will unwind carry trades, forcing money back into USD. Weird logic, but see what happens.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 16 Greg Atkinson // Aug 8, 2011 at 8:06 am

    I moved a few comments over to this thread since we mostly seem to be talking about the current global stock market rout and short term outlook for the All Ords/ASX 200.

    I was hoping things would settle down over the weekend but it looks like this week is also going to rattle the markets.

    I am still looking for a bounce but now I worry about what level this bounce will be from? Could the All Ords/ASX 2000 plunge below 3800?

    Also we need to factor in that so much trading now is done via computer programs/pre-programmed trading algorithms etc and it’s basically impossible for us to know when they will kick-in.

    You almost have to ask yourself..when do the programmes think the market is oversold?

    Good posts everyone. Cheers.

  • 17 Jimbo Jones // Aug 8, 2011 at 1:01 pm

    Quite an exiciting start to the morning. Down Up Down!!!

    There is definitely a lot of support around the 3700-3800 mark. Any breach of this mark then it will be because the mining and natural resources sectors will have hit the road to nowhere. By then the AUD will be travelling fast on the road south. Will be interesting to see – But there has been a structural shift in terms of the AUD in recent years against other paper currencies.

    So whats the difference b/w this event and the GFC;

    1.First the GFC was from a corporate perspective and breached many systematic risk structures. The losses were NOT know and companys were staring into the abyss as they did not have adequate capital to withstand such a punishing destruction of wealth. In this instance we can see the risk and everyone is prepared to meet it.

    2. Corporate balance sheets are now flush with cash (this is globally). The difference now is that the risk is with the government, rather than the corporate. Why buy a triple AAA (ahem AA+) govt treasuries and earn 2% for 10 years vs a AAA or AA+ Corporate and earn closer to 8%p.a for 10 years.

    3. Can governments with freely floating currencies default?? Of course NOT. You print money and expand your money supply and monestise debt. Over time, inflation takes the debt away for you. Easy!

    4. The markets across Asia and Europe are off b/w 15-25%. is this Normal??? yes, of course it is normal in markets. Have a look at the 1970’s. 15%-25% corrections were COMMON.

    As a last point, these fast corrections are MUCH MUCH better than the slow grinding consolidations that last much longer, because the rebounding rally is always that much more fun and sendiment has swung very fast to pessimism away from the Optimism side. Sentiment can change VERY VERY fast after such a destructive sell off – so be on your toes for when opportunities arise!!!

  • 18 Ned S // Aug 8, 2011 at 1:28 pm

    ASX 200 just broke 4K – About 90 mins to go …

  • 19 Plornt // Aug 8, 2011 at 1:34 pm

    Ned breach of 4050 was confirmation of a bearmarket. So its gone. We will reflex back in the next few days, for a few weeks, then onto a slow death to 3,500.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 20 Ned S // Aug 8, 2011 at 3:58 pm

    The revenge of Barnaby Joyce: πŸ™‚

    But keep calm; Don’t panic … Swanny’s got it all under control – He’s rung up Tim Geithner and said “What the F@#K’S happening???” πŸ˜€

  • 21 Don // Aug 9, 2011 at 5:34 am

    Hey there everyone! Great to see all the usual suspects from DRA. Hang on to your portfolios today, another frightful kicking coming our way after last night. Silver price has held up though which makes my timing starting with a silver mine next month not too bad.

  • 22 Jimbo Jones // Aug 9, 2011 at 7:48 am

    Today looks like being the beginning of pulling out the “cheque book” and investigate a number of decent opportunities.

    Where do we stand:
    1. Looks like we will re-test the 3700-3800 support level. This price action is starting to look like the relief rally and subsequent sell down through 1989-1993. Again, the relief rally after the 1987 crash rose about 53% (2009 circa 60%) and the subsequent correction into 1991 was around 27% (2011 – We are currently around 21%).

    2. The SPX 500 has fallen around 18% from the top. There is a lot of discussion about the GFC II etc and that the US has entered a bear market. Yes maybe, but there have been numerous times over the past 30 years, where the SPX 500 has fallen by up to 25% to recommence their trajectory into the current bull market. The obvious exception to this was 2007/08 which corrected within reasonable limits through to September then faced a full blown panic, nothing the markets had seen for over a generation at least – especially not a bank run anyway!!!

    3. Before the deflationists alarm you that we are going to suffer a Nikkie japanese induced deflated economy, they have been wrong since March 2009 (and also since 2003-2007). 2 differences. Inflation is alive and well. 4% in Australia. 5-6% in the UK. 3% in the US and will rise. and currency devaluations by the US and UK result in a quicker exit from a stagnant economy.

    How long we spend around this level will either be through a bottom formation into Sept/Oct and then subsequernt rally into Nov/Dec or a quick bounce up to a more reflective price level. As a note, the subsequent rally from 1991/92 bearish correction included about a 40% recovery over 6 months into 1993. If we use this as a guide, this would bring us back up to the 5000 level potentially by early next year.

    have a good day.

  • 23 Greg Atkinson // Aug 9, 2011 at 8:52 am

    Hi Jimbo,

    Thanks for your comment. I agree that deflation is not an issue as commentators consistently fail to truly understand deflation in Japan. (for example how much of it is imported)

    For me the current stock market rout reflects what the Baltic Dry Index has been telling us for months and that is global trade is not all that healthy. It looks like the markets were pricing in a global economic recovery too early and now investors realise that there are still quite a few issues that have to work through the system.

    I did not expect the Australian stock market to get this low and today it looks it will get close to testing the 3700-3800 level which I thought was unlikely. So now it’s one of those moments were I will try to calmly decide (if I can) if the correction has gone too far.

    What worries me is the fall in commodities prices (ex gold/silver) as if this were to translate into a long term price decline then this will hit the mining companies and Australian economy quite hard.

    We should also note that those market commentators and finance journalists who talk of the Australian economy being a fortress are being shown to be complete twits.

    What happens in the economies of Europe and the U.S does affect Australia.

  • 24 Jimbo Jones // Aug 9, 2011 at 9:21 am

    I suspect QE3 will announce tonight at the Fed meeting – which might spark a well over due rally – Especially in commodities.

    This is day-to day discussion (and in effect no disfferent to being at the casino) and i don’t generally point to this, but this infact is quite an exiciting time.

    August is always the bottom for commodity juniors and this year – like most others, has again proved its worth in being time to start taking a couple of sneaky bites – before the herd returns.

  • 25 Average Joe // Aug 9, 2011 at 9:45 am

    Any insight as to how this would effect the Australian property market?

  • 26 Ned S // Aug 9, 2011 at 9:58 am

    I hope Bernanke’s got a good line of bullshit figured out for his chat tonight – Saying the obvious, something like “I told all those idiot bloody pollies they had to do something about the deficit ages ago!” probably isn’t going to cut it.

  • 27 Greg Atkinson // Aug 9, 2011 at 10:00 am

    Joe I would guess that any interest rate rises would now be off the table and possibly even a cut could be just around the corner. It’s probably too early to say what impact this will have on property prices although I doubt it would be positive in any way.

    If commodities prices continue to fall and settle much lower then I think the Australian economy will enter a recession and house prices will slip backwards. If commodious prices fall too low then mining projects will be shelved and that investment pipeline that many market commentators think is money in the bank will start to evaporate.

    It’s all gets a bit psychological at this stage in terms of how confident do people feel about holding onto their jobs, how fearful are they of further stock market losses, how much impact do the funds in their Superannuation affect how they spend etc?

    This is probably not much help…but that’s the best I can do at this stage.

  • 28 Average Joe // Aug 9, 2011 at 10:11 am

    @ Greg – Thanks!

  • 29 Jimbo Jones // Aug 9, 2011 at 10:39 am

    Average Joe – With inflation in Australia at 4%p.a housing will be fine.

  • 30 Biker // Aug 9, 2011 at 11:01 am

    At 4% pa inflation, your 100c mortgage dollars are repaid with 60c dollars in a decade. It’s _one_ of the ways some ‘lucky’ older investors have been able to pay off so many properties in three decades.

    Lost count of how many times I’ve read that property will drop out of the sky.

    Now if Keen had predicted shares would drop 55.4% in TFC and be off their high nearly 44% in the current slide (so far) we’d all be genuflecting.

    There’s a slight chance that a few badly-singed share market aficionados will move from shares to property, but I really doubt it. It’s more likely that folk with cash will try to plumb the share market bottom, buy into shares… then bail to cash again.. probably much too early… . πŸ˜‰

  • 31 Greg Atkinson // Aug 9, 2011 at 3:37 pm

    Well today when the All Ords were down around 5% I thought my statement on the 5th August that:

    ‘…we won’t see the ASX All Ords close below 4000 in the short term but at the moment that looks like a fairly silly statement.’

    was going to bite me much earlier than I expected. But amazingly the All Ords staged a turnaround and closed up 0.5% to finish at 4096 points. Phew πŸ™‚

  • 32 GoWest // Aug 10, 2011 at 3:27 pm

    My partner commented on the hords of suits at the bank borrowing to buy shares yesterday (9th of August)… nice jump today!
    This crisis will be good for australia (if the US follows through) and our exchange rate goes back down, however we shall see if they can actually do a Howard/ Costello and turn their govt spending around.
    As for Oz, we are going rapidly the other way and the constant talk of a surplus after spending billions is a joke. The aged review says the aged costs will increase from 10 billion to 50 billion. Small change to a government that has borrowed an extra 50 billion just to keep the green propoganda going for another year.

  • 33 Biker // Aug 10, 2011 at 3:59 pm

    Hard to visualise those herds leveraging like that, GoWest.
    Wonder what they offer banks as security?!~ πŸ˜‰

  • 34 Ned S // Aug 10, 2011 at 4:12 pm

    Their remaining fake Rolex, platinum coated pinky ring with the tasteful little cubic zirconia in it, and the missus’ 2008 model 4WD maybe Biker? πŸ™‚

  • 35 Ned S // Aug 10, 2011 at 10:57 pm

    Give things another week to 10 days of this and it’ll be time for Shoes to sell his gold … On’ya Shoes!!! (AND Lachlan!) πŸ™‚

  • 36 Ned S // Aug 11, 2011 at 12:07 am

    Damn – The missus is gunna have ta walk the kids to school – Or dad’s gunna have to trade that remaining fake Rolex and his pinkie ring in on a coupla secondhand pushies and fix ’em up for the kids to ride there themselves unless the Brits and Yanks start getting a bit more good natured between now and our Oz morn …

  • 37 Greg Atkinson // Aug 11, 2011 at 7:59 am

    Well the Dow Jones took another tumble overnight as investors seems to be shocked that the growth for the U.S (& Europe) is looking weak. I am not sure how anyone could be surprised by that.

    Back in April I warned that the storm clouds were gathering in: The Global Economy, Baltic Dry Index, Gold and China

    Back then I wrote:

    “Up until late 2009 or early 2010 you can see that there was a correlation between the Baltic Dry Index (BDI) and the share price of the global mining company BHP Billiton Limited. This makes sense since a booming commodities market tends to push up the share price of mining companies and the shipping rates for raw materials moved along the shipping routes covered by the BDI.

    But this relationship or correlation has broken down over the last few years as the BHP share price has basically trended upwards while the BDI has been struggling and now appears to be stuck at multi-year lows.

    At this point you can either give up on the Baltic Dry Index and say it no longer has any meaning or you can join me and say this doesn’t look right. Yes there is probably more ships than needed around at the moment but as I explained earlier much of this extra capacity has been taken out of the system so why is the BDI still so weak?

    Could it be that commodities prices and hence stocks like BHP have run up too far? Could it be that commodities prices now are disconnected from the medium to long term supply and demand fundamentals? Could it be that rather than the BDI being the problem alone that we should actually be looking at commodities prices more closely?

    I appreciate that no economic or trade indicator is 100% accurate and so I accept that the Baltic Dry Index is probably being dragged down due to some over capacity issues in the shipping sector, however I believe more is at play here than a simple over capacity issue and I remain cautious about the outlook for commodities prices”

    Looks like the BDI was giving us a good picture of what is happening out hey?

  • 38 Plornt // Aug 11, 2011 at 11:16 am

    Volatility is rediculous atm. If 10,600 on the DJIA doesn’t hold watchout. The charts for the DJIA don’t look very comforting at all.

    Watching to see if 10,600 on DJIA holds.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 39 Biker // Aug 11, 2011 at 1:52 pm

    Ned: “Their remaining fake Rolex, platinum coated pinky ring with the tasteful little cubic zirconia in it, and the missus’ 2008 model 4WD maybe Biker? πŸ™‚ ”

    Just hard to imagine how you’d tell a line of suits in a bank were queueing to borrow to buy stocks…

    Just possible they were overleveraged punters pleading for an overdraft… to save their hides!

    Getting around in a Rent-a-Wreck Cadillac Eldorado today! πŸ˜€

  • 40 Plornt // Aug 11, 2011 at 1:55 pm

    Anyone know where to step? I’m afraid to take a step incase i fall into a Crevasse.

    EUR.USD looks like its about to reverse in the next 2 weeks.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 41 Plornt // Aug 11, 2011 at 2:00 pm

    “Just possible they were overleveraged punters pleading for an overdraft… to save their hides!”

    Good point Biker. Or if they were trying to leverage up, any big shock to the downside is going to trigger alot of margin calls or forced selling, putting more pressure on prices. Either way if we breach the previous lows, one would assume alot of selling will occur.

    Hearing alot of people talking about how they will profit from the comming downturn and play the reversal. Probably go down slowly for years, drawing in more and more people. This isn’t looking very pretty. Value won’t save you when irrationality takes hold (and can last along time).

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 42 Ned S // Aug 11, 2011 at 3:34 pm

    “Hearing alot of people talking about how they will profit from the comming downturn and play the reversal” – It’s got be a bit of a worry when every man and his brown dog thinks he can profit from these moves hey?

    I’m not playing Plornt – It’s 50/50 cash and debt free housing for me as I’ve said before. Too many people have gotten pinged in too many ways for things to look good going forward to me. Or to make me inclined to play. Some examples:

    * A 55 yo neighbour lost her job in the 2008 debacle – Realistically she’ll never work again – She’s permanently gone from being a tax payer to a welfare recipient now
    * A 53 yo long term public service mate who was planning on retiring at 55 has revised that to 60 at least in part due to his superannuation losses
    * Another 57 yo neighbour whose share portfolio was worth $90K in 2008 reckoned it was worth $19K a week or so back (could well be down a bit more now I guess)
    * Was chatting to a bloke in his late 60s just this week who I gather was a businessman in 2008 – Millions in equity – But had debt – Lost the lot; Including the family home

    So even in Oz where we’ve really not had things too bad at all, there’s been a lot of wealth destruction gone on.

    As for Big Bad Ben printing money to make things better, well a lack of money in their system doesn’t seem to be the problem anymore – Yank banks are sitting on $1.6 t in excess of reserve requirements. And their non-financial counterparts have $1.4 t in cash apparently? Plus a lot of money has obviously flowed into/is tied up in bullion:

    So the best and finest over there have the same basic issue as you I guess? Just what exactly does one do with money to get a return? (Other than speculative trades.)

  • 43 Biker // Aug 11, 2011 at 3:36 pm

    Plornt: “Hearing alot of people talking about how they will profit from the comming downturn and play the reversal.”

    It’s one of our options, IF, in fact, the market bottoms out.
    Unlikely we would do anything unless it fell to around 3300.

    We’d touch none of our capital in the bank at all.
    We’d simply switch all my wife’s TTR Super from cash to indexed funds; then switch back to cash around 3900.

    We’re not greedy!~ πŸ˜‰

  • 44 Biker // Aug 11, 2011 at 3:41 pm

    Plornt: “Anyone know where to step? I’m afraid to take a step incase i fall into a Crevasse*.”

    Being risk-averse is not a crime!~

    * We were up on the Mendenhall Glacier today.
    Not a bad analogy…

  • 45 Plornt // Aug 11, 2011 at 4:02 pm

    ” Another 57 yo neighbour whose share portfolio was worth $90K in 2008 reckoned it was worth $19K a week or so back (could well be down a bit more now I guess)”

    Thats devestating Ned. I hope he can find a way forwards.
    Was he gambling with speculative stocks?

  • 46 Plornt // Aug 11, 2011 at 4:07 pm

    “It’s one of our options, IF, in fact, the market bottoms out.
    Unlikely we would do anything unless it fell to around 3300.”

    Sounds like you’ve done your homework Biker. I was looking at those levels recently aswell.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 47 Plornt // Aug 11, 2011 at 4:39 pm

    “So the best and finest over there have the same basic issue as you I guess? Just what exactly does one do with money to get a return? (Other than speculative trades.)”

    Bank interest lol. I think once interest rates rocket, 10 year Government bonds will be a great longterm return, and provide a safe guaranteed return. Biker might be right in that interest rates will fall first, before they go higher. But thats not necessarily a bad thing, the longer interest rates consolidate and “bottom out”, the bigger the move upwards.

    Commodities aswell, but most can’t handle the volaility in that.
    Silver too. As you’ve stated Ned, equities probably a terrible place to be for along time.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 48 Plornt // Aug 11, 2011 at 4:42 pm

    Also Japan at some stage. Its comming out of the bear phase and going into a buy and hold cycle. But we’ve been saying that for awhile and its still not happening lol. Greg is all ready for it though πŸ˜›

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 49 Ned S // Aug 11, 2011 at 6:46 pm

    “Thats devestating Ned. I hope he can find a way forwards.
    Was he gambling with speculative stocks?”

    Speculative – I wouldn’t have classed the stuff he took the bulk of the hit on as speculative as such Plornt. But the company figured they were on a good thing (building retirement villages); Overextended with too much debt. Found they couldn’t keep paying the dividends they had been is my recollection of what he’s said in the past. And it was all downhill for the stock price from there – Just based on figures he’s mentioned to me, a week ago they were down 92% from their pre-GFC peak.

    His broker had actually said to him a bit before that You’ve done exceptionally well on these – I suggest you take some profit. But he said Nah, they’re paying a decent dividend and are a core part of my retirement portfolio – I’ll keep them. (So the good news was that he bought early – Mightn’t even be registering a loss at all on what he actually paid across the portfolio? – I’ve not specifically asked. But he’s not overly well set up financially so to drop $70K coming up to retirement hasn’t been the highlight of his life I gather – Even if it was at least in part a case of “easy come, easy go”.)

    Just so many damn traps out there.

  • 50 Greg Atkinson // Aug 11, 2011 at 8:22 pm

    I have been waiting for Japan Inc to start growing again for a few years and things were moving in the right direction just before the GFC. Right now the problems in Europe and the U.S. mean it’s tough for Japanese exporters. Still with unemployment less than 5% Japan is holding up much better than most other developed economies.

    Right now I am watching gold, oil and of course the BDI. When I see the BDI & oil on the way up and gold on the way down then I will start to look at equities again.

    By the way, if you have a look here: and look at the one month chart for copper prices you can see how commodities prices (ex gold & silver) have been hit hard.

  • 51 Ned S // Aug 11, 2011 at 9:35 pm

    Copper prices would seem to be important Greg – Tonight is shaping up to be another bad one.

  • 52 Greg Atkinson // Aug 11, 2011 at 10:53 pm

    You mean there have been some good nights recently? πŸ˜‰ Actually there is so much bad news out there that I reckon we might see the markets come up a little before the weekend on simply a whiff of some good news.

  • 53 Ned S // Aug 11, 2011 at 11:18 pm

    You’re too negative mate – Jeez, there’s been lots of good nights lately – All those where the DJIA has gone down less than 3% – There’s been LOTS of them! (Well, a reasonable number as I recall anyway?) πŸ˜‰

  • 54 Ned S // Aug 12, 2011 at 8:15 am

    My prediction abilities are rather poor obviously. πŸ™‚
    Think it’s a VERY good thing I don’t trade!!!

    PS: The Frogs have got the dirts – No more shorting their banks!

  • 55 Greg Atkinson // Aug 12, 2011 at 8:59 am

    Ned we might see the All Ords get near 4400 today. But you know me, I still worry about the Chinese economy.

  • 56 Lachlan // Aug 12, 2011 at 9:48 am

    Oh Boy.

    Get ready for the most eyeball popping display of USD destruction….coming soon. If it (USDX) does pop higher it will be hammered at least. I bet it cant get beyond 78/79 area anyhow if it does.

    Greg I think we have had a very violent leg down, a degree of technical damage (though stock bull market still intact) and its going to take some thrashing about for a while to get us back into rally mode. I expect it to look good one day and terrible the next. We could even touch a lower low yet but only as part of a choppy bottoming formation which will involve a QE3 announcement at a critical stage.
    Gold has signalled only the first part of a large rally and it will go higher. No selling for me Ned.
    Not so sure about silver just yet…I keep my crystal ball neutral there.

    Sorry OT but it was interesting to see vigorous, well fed youths with newish clothes and bicycles looting in London followed by scenes in Africa of very depressed Somalian women leaving their malnourished, dead children on roadsides as they fled drought and violence. Those youths should be ashamed. They have taken it out on the very class of people who are financially supporting them. The government response was lame. If the same people were threatening their political power with violence the army would already be there.

  • 57 Stillgotshoeson // Aug 12, 2011 at 9:54 am

    Ned, I am fairly sure I know which company it was that took that hit.. I owned them at one stage, They are still on my watch list.
    Potential in the future (if they survive πŸ™‚ ) is quite good. 5 years time could see them return to being able to pay dividends.

    @Greg.. I think a 4400 would see me even more certain of a sub 3000 level for the market..

    Daytrader in the Heraldsun thinks 1100 is a possible…….

  • 58 Stillgotshoeson // Aug 12, 2011 at 10:05 am

    @Lachlan. I expect Silver to outperform Gold

    Main fundamental I use on this theory is. Silver @ $100 is likely, 2.5 times current

    Gold @ 2.5 times current puts it up around $4400.. Whilst not out of the realms of the possible, many think it will go even higher than that (and it could well do that before this is over) I still think Silver will outperform.

    Still sticking with my physical Silver and leveraged Gold play through the miners..
    Still like FML, SBM and NCM and my Bolivian speculative play.
    OZL are worth a look too, whilst copper is their main, they are still digging up over 200000 ounces a year of gold out of the ground.
    Have a couple of South African plays as well.

  • 59 Greg Atkinson // Aug 12, 2011 at 10:12 am

    @Stillgotshoeson – well as you know I tend to move against the trend so I reckon we have seen the lows for now and we won’t be near the lows of 2009 again soon, if ever. How’s that for an optimist? πŸ˜‰

    @Lachlan – I am in the gold bubble camp. It may go higher but how high it will go before it comes back to earth I don’t know. I just don’t want to be caught in the rush to sell when folks decide they want to lock-in some profits.

    As for London/UK..well when you have a system where locals don’t want to work and so labour is imported from overseas then you have a problem.

    Looters, arsonists and assorted thugs deserve rough treatment..end of story.

  • 60 Lachlan // Aug 12, 2011 at 11:55 am

    Yes Greg, unfortunately soft treatment does not work.

    Shoes I have no doubt about silvers long term outlook…up.
    Much industrial demand, decreasing supply, throw in monetary inflation. Monetary role not quite so important in my view. Gold is king there. Just a good long term inflation hedge.
    Maybe hold a few coins for Armageddon insurance….and they look nice πŸ˜‰

  • 61 Lachlan // Aug 12, 2011 at 12:02 pm

    The disconnect between the metals and the shares is now much worse though…which means I’ll buy more. I’m certain it’s a patience game. Bought IGR (41c) and CDT (35.5c) on the way down. Still no NCMs yet. OZL…yes I should have them too. I’ll consider both on price when more cash comes through.

  • 62 Greg Atkinson // Aug 13, 2011 at 9:19 am

    Lachlan – in a perfect world I would like to see commodities prices fall further as at current levels they are putting a drag on economic growth. We also need to see money move out of gold in vaults and into the system so that companies have the confidence to invest in new equipment, R&D and acquisitions etc.

    At the moment most commodities prices have fallen back, but there need to come back some more especially gold. Then I will be a happy camper.

    Of course the world isn’t perfect and I could be just missing out on some good trades…as usual!

  • 63 Ned S // Aug 13, 2011 at 9:58 pm

    Greg: “Lachlan – in a perfect world I would like to see …” – Just curious Greg (as the Powers-that-be aren’t gunna pay any more attention to you than me; With that pretty obviously being none.) But in a ‘perfect world’ do you have any thoughts on what the price of cash ‘should’ be? (Relative to inflation – Real inflation I mean; As opposed to the central banks’ jigaboo numbers. And best expressed as a range re that real inflation given that I think I accept the apparent need of central banks to twiddle the cash rate up or down a bit occasionally? Though not like they have been doing.)

    PLus a second question – Accepting that we don’t live in a perfect world and in a lot of ways it seems to be getting less perfect – For those in the West by and large anyway maybe? -. What is your punt on cash rates going forward? (Mine is lower long term – OUCH!!?!!)

  • 64 Lachlan // Aug 14, 2011 at 6:40 am

    Putting aside the nominal case Ned, real rates must stay low/lower…. or we are going to have London phenomenon on a global basis. Actually i suspect we will see more of that regardless….sadly.
    It does look scary as gold climbs higher Greg however the fundamental case is that CBs are strong hands and need more and more gold. The trend of CB accumulation is at least three years old as far as I can tell and increasing in pace. Public are weak hands and have little impact on the market so far compared to the hoarding happening at higher levels. I suspect the orderly bull market in metals up to the 1550 mark will later be seen as an accumulation phase with the previous 300/400 area the bottom phase. The breakout last week to 1800 was a new phase shown clearly on the long term charts, a parabolic phase. Now the public are taking an interest also. Everyone is starting to talk about it. Not sure they are buying yet. I think we will move to approx 2500 quickly (12months) from here.
    The reason it looks and feels scary I believe is because the public is experiencing a new type of inflation. They are seeing cost push inflation where wages and employment stay seriously depressed. So on main street it “feels” deflationary while the cost of living mysteriously climbs. Therefore the cost of gold feels too high…. if your not a banker.
    I don’t see any downside for gold at all. Even if it goes to 300 again, or even lower is possible, anything is possible, its purchasing power will still be greater than it was at multiples higher. If we get there it means that leverage everywhere will be destroyed. Gold is an asset which has suffered in value because leverage has been used to keep it suppressed.
    Granted Greg I present all this as though it is fact but I do agree I am a speculator and I could suffer a turn here few expected. I believe we all have to speculate if we are honest. It’s so hard to prove anything absolutely in this world. So if my forecasts do go pear shaped and I have to lose out on my portfolio….thats ok, I’ll have done the best I can. Granted, in such a case, I wouldn’t be too pleased, true.

  • 65 Lachlan // Aug 14, 2011 at 6:43 am

    “missing out on some good trades…as usual!”

    Good call on BHP though a few years back Greg. I was not so enlightened unfortunately.

  • 66 Greg Atkinson // Aug 14, 2011 at 8:57 am

    Ned in my ‘perfect’ world we would not be obsessed with GDP and inflation. I would not break into a sweat if we had periods of deflation and would prefer to see cash rates quite low.

    Also taking on massive debts as the primary means to stimulate growth is bad news in my opinion. I don’t have a problem with governments or companies taking on debt for special programs but there should be a plan to pay the loan down rather than just keep borrowing to keep the good times rolling.

  • 67 Ned S // Aug 14, 2011 at 11:16 am

    I found this an interesting read:

  • 68 Plornt // Aug 16, 2011 at 12:51 pm

    Silver is about to go up (albiet there maybe a shakeout). System says target at least 45$ on this rise.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

  • 69 Plornt // Aug 16, 2011 at 12:56 pm

    Oil buy triggered on system. Target 98$ over next 2 months. Stops 82$ closing price.

    This drivel should not be taken as financial advice. Seek to obtain professional
    advice before proceeding with any financial decision.

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