.... so where to from here.. equity markets have exploded from the lows. They have been backed by turn in various economic indicators and also earnings beating forecasts .. short term the market is stretched up.
"stretched" is the word!!!! i think there's a little profit takign to be had in the very near term - possibly before the end of October.
Economically I think sept, dec and 2010 march qtr will be quite strong. After that period we may see a short slump as govt driven demand is wound back and consumer led demand starts taking over ... it takes a while so likely there is slump period during the transition. Mayeb a V followed by a U ... but with the "U" being much shallower and bit more prolonged than the first V..
there has to be some profit taking soon - we've seen bugger all recently (i was expecting the break below 4650 to signal a take down to ~4350) - i don't call a 200pt move a "profit take".
Longer term US is still in difficult situation ... exploding govt debt, higher unemployment, retiring baby boomers etc etc. This financial mess has accelerated what started earlier this decade.. rise of china and emerging countries and slow decline of US. US will stay dominant for long time but its share will diminish ... europe and japan are in worse situation as their demographics are even worse.
i worry about the US. on one hand, i feel they've devalued their dollar on purpose by printing printing and ... hmm ... printing. on the other hand - that does nothing for their debt problem - it's almost a "double dissolution" of their dollar. i truly feel that the US have seen the beginning of the end in the past few months - with still more banks' immenent collapse and UE still rising, you could very likely see a nation with nothing supplied for it's taxes paid.
the EU only has itself to blame. the EU have done nothing but red tape everything at the expense of it's own health and wellbeing for the sake of "progress" and to quote HiEquity - "We must do something! This is something! Therefore we must do this!"
China, India and emerging countries should continue decent growth despite sluggish growth in US, europe... We will start to see 'some' decoupling .. decoupling takes a long time - decades for substantial decoupling esp from a massive market like US / Europe ... so as US and europe slump , emerging countires will also slow, but it will be less pronounced.
i feel the decoupling will be swift and painless for those not heavily tied to the US dollar. Countries like Iran and Russia have long called for the oil standard to use the Euro - you may find they have a system in place waiting to implement. Australia is still trading USD, but we are seeing a reduction, being replaced with other major currencies equally.
I think what is making real headroom with emerging currencies is that you have countries like China and India and Indonesia producing a "new for them" middle class who are spending. On the other side of the planet there are countries like the UK and USA who have a widening gap between classes - soon there'll just be working poor and investing rich and zero middle class. if the history of economics has taught us nothing else, it's that the middle class SPEND. in a financial system designed around this model, means no middle class - no public and private revenue.
Resi property wise things have also changed. My initial view when the crisis started in late 07 was that equities would bottom, then a while later unemployment will bottom then prop would bottom some time later. But things changed, e.g. govt didnt cut immigration by huge amount like in 92-93, building approvals and construction went down to multi decade lows, and unemployment in aus stayed stubbornly low. The govt propped the lower end and monetary and fiscal policy was used.
The govt has gone into sooo much debt now that if govt hasnt planned major infra (road, rail whatever) its unlikely to be built in next 10 years.
shades of about 10 years ago where i remember Perth was crumbling - bad roads, bad hospitals, no teachers, no cops. now we have good roads, more cops and still bad education and health. good to see the govt have their priorities right....
...all off the back of resources.
i think even if it IS planned, it'll be shelved.
This combined with mismatched govt policies is going to support prop prices - e.g. fed govt sets immigration quota and baby bonuses (boosting demand and future demand) and state / local govt is responsible for providing much of the infra, building approvals , setting duties etc etc. Well with the latest population projections its obvious fed govt will maintain a high immigration level and at same time the state govts are close to their limit on debt.. Also construction companies are still finidng it difficult to finance and bring supply quickly to market, and this will likely continue for a while..
Likely impact large demand , not much more supply ... impacts prices...
i mean to reduce house prices is not that hard esp in australia.. fundamentally we shouldnt have such high prices ...
but in the end it is what it is, and am not going to fight it, because its not something thats likely to change soon... so might as well benefit from it...
you said it. fundamentally it might not be right, but it is what it is; and you can't fight that - so trade with it.
