SOS Road to Recovery?

All assets class is up:

Crude oil
Gold
Shares
Commodities
Bonds

Because

US Dollar is down

When will US Dollar going up, when they win the pretiest among the ugly, i.e. Euro, Pound and Yen.

MyView

Currently most hard asset class enjoy the increases at the expense of the lower US dollars, that is a fact. The question is when will it turn? It will turn when the social mood change (which is currently in the process) when we see the berish on US dollar is close to 90%. Soon, the debt burden will implode, when it will surpasses the quantitive easing, which is merely printing of money, NOT improving of healthy credits that leads to sustainable increase in consumption.

Without the healthy sustainable improve in credits, printing of money will not help in long run, perhaps a short spark, that is what is happening to the current assets classes.

Red alert, run before the wave ends. Don't go for the last 5% with a higher risk return. Clear your position and wait for the fall before reentering.

SOS Portfolio update & Dubai Debt

Refer to blog in Oct 12, 2009, Inflationist vs Deflationist - titled Ready Set Go

As at 27 Nov 2009

Inflationist UP 2.9%

Deflationist DOWN 3.27%

Well, both portfolios is rather flat, not much changes.

One thing for sure, the KBW Financial Index is still about 60% down from its 2007 peak.
And on 25 November 2009, Dubai's debt burst, about USD80 billion. So is RBS in UK, and the German banks.

The build up of the negative social mood that cause Lehman Brothers to collapse, not Lehman Brothers that cause the crisis.

Similarly, the build up of the negative social mood that cause Dubai property to collapse, not Dubai property that cause the crisis

MyView

One think that is sure in US is more banks are going belly up each month. NPL is building up, some of them are postponed using "creative" accounting. Commercial property is crashing. Most loans given out in US or Europe are loan the is not "very productive", i.e. loans that has the ability to create new income to repay the loans and interests.

So these "toxic" loans is increasing as days goes by. Printing money will not help, because printing money is exclusive from giving credit. One may continue to print, providing credit requires the evalution of the credit worthiness of a business.

With the implosion of "toxic" debt, credit creation is collapsing as a result of the viable credit worthiness is hard to come by as a result of collapsing debt and consumption.

SOS Deflation Checklist

Can the implosion of debt outstrip the printing of money?
Or can the printing of money outstrip the implosion of debt?

Debt - implosion? How much? Total private debt of US is about USD40 trillion, say NPL of 5% = USD2 trillion.
Derivative debt? How much? USD60 trillion x 5% NPL = USD3 trillion
Total NPL = about USD5 trillion or 36% of GDP.

Printing of money say USD1.2 trillion. What will happen?

SOS

Visit www.falundafa.org to learn more.

SOS For record purposes

Nov 16 2009

Reported by Bloomberg for 3Q 2009

44% exceeded forecast

31% below forecast

25% within forecast

All markets went up across Asia, Europe and USA for about 2%

MyView

It is a myth that economic earnings leads the markets, actually it lags the market. Some of the fallacy assumptions most of the analysts predict is that the earnings will lead the share markets and it was proven wrong many times, as we compare quarterly results against the DJIA over the past 30 years. And it is also a fallacy that most economists or analysts tends to extrapolates a trend, which is also another myth.

SOS Biggest Market

1. Currency market - traded USD3.2 trillion per day or USD 835 trillion per annum
2. Derivatives - outstanding @ 2008 is about USD600 trillion
3. Bond market end of 2008 - USD67 trillion
   
4. Stock market end of 2008 - USD36 trillion (traded USD80 trillion p.a.)
   
5. Housing market of 2008 - USD xx trillion
6. Gold produced p.a. 50 million oz x USD1100= USD55 billion (gold on earth about USD11tril)
   
7. World debt market = USD120 trillion (2 times of GDP)
   
8. USD M1, M2 & M3 = USD1.6 tril, USD8.3 tril & USD10.3 tril
9. World crude oil production in 2008 = 73 million barrels per day x USD80 per barrel = US5.8 billion day x 365 days = USD2.1 trillion p.a.
   
10. World GDP 2008 = about USD60 trillion

SOS What Rounini Said?

By Roubini in Nov 2009

On Oil

Roubini says the "recovery justifies oil going from $30 to "maybe $50". Since oil is today at $80, the remaining $30 are speculation, and speculators and herding behavior.However, there is a Finnish proverb: "Sh*t must be good. Millions of flies can't be wrong" (not Roubini who said that) , so oil can still go higher.However, $145 oil killed the economy last year. He is worried that oil is going to go over $100 for reasons that have nothing to do with the fundamentals of supply and demand. Oil at $100 right now will have the same effects on the economy as $145 in 2008. No matter what GS says.

USD Carry Trade and Commodities Bubble

Roubini believes there a huge bubble fueled by zero interest rates in the U.S. and in other countries which are causing a huge carry trade. The dollars are invested in risky assets such as commodities, equities, and credit. An even bigger bubble than before is being created."It’s going to go crashing down, in an ugly way." "I don’t know when the correction is going to occur, it could be a while longer, but eventually it will be a pretty ugly correction, across many different asset classes."

On Gold:

He does not believe in gold. He says there are two reasons gold can go up:1. Inflation, not the case now as are are in deflation (capacity glut, weak demand, big unemployment).2. Armageddon, or another depression. He thinks this has been avoided will all the massive printing."So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go".

MyView

Roubini, Soros, Prechter and Rogers...Oh my! They are singing the same tune. The risk of 4 of the intelligent experts said of the economy is wrong at the same time is almost zero. How can two renowned academicians, and two renowned investors reading the same pattern of US Dollar (in the short and medium term) be wrong at the same time?

What the majority (more than 80%) main media and analysts said:

Market will go up

USD will continue to decline

Gold will reach all time high

Commodities will continue to go up

OK, I have never knew or heard that majority will make money in the long run, but the fact is proven that one percent of the population own ninety percent of the world's wealth.

Would you choose to listen to the 4 fellas or the 12,000 fellas out there. Well, the majority may be right for the time being, but the 4 fellas are correct in the long run and makes lots of money.

SOS US Dollar reversal?

1. Bob Prechter said the USD reversal is coming (Oct 2009)


2. Jim Rogers said reversal of USD is due (Nov 2009)


3. Roubini predict dollar reversal (Oct 2009)

MyView

I believe so. Why, the US bond holders will take the necessary action when the US dollar continue to weaken.

SOS Can market be manipulated?

Q: Can wave patterns detect market manipulation; to begin with can markets be manipulated for sustained periods of time or at all?

A (Bob Prechter in the August 7 interview with Outlook Profit; bold added): No person or agency can manipulate broad markets, at least not for more than a day or two. The natural movements of markets make it appear sometimes that they can. I smile when I see reports such as, “The Fed is losing control of the bond market.” As if it ever had control in the first place. When markets go up, the Fed seems to be in control; when they go down, it seems out of control. But the control aspect is an illusion. Market direction is the sole basis upon which people decide whether the Fed is in control or not. And markets go two ways, dictating the changes in perception.

SOS Financial Assets Mania Part 2

By Elliote wave

The chart of dollar trading relative to GDP shows how much more willing investors are to trade shares in companies that operate in an economic environment that is anemic compared to that of the mid-1960s. A basic implication of the Wave Principle is that the public will always show up at the end of a rally, just in time to get clobbered. This chart shows that it is happening in a big, big way now because the market is at the precipice of the biggest decline in a long, long time.

Total dollar volume continues to rise despite further fundamental financial deterioration. Yes, GDP experienced a one-quarter, clunker-aided uptick of 3.5 percent in the third quarter. But the economy is in far worse shape than it was when we made the above statement. In fact, its recent performance on top of the decades-long economic underperformance (which is discussed extensively in Chapter 1 and Appendix E of the new edition of Robert Prechter's Conquer the Crash) means that industrial production just experienced its worst decade since 1930-1939. Total manufacturing employment slipped to 11.7 million people, its lowest level since May 1941 when it was 33 percent of all jobs. According to Bianco Research, manufacturing now accounts for only about 9 percent of the workforce. Finance anchors the economy now, which makes it far more susceptible to non-rational dynamics.

As Prechter and Parker explain in “The Financial/Economic Dichotomy” (May 2007, Journal of Behavioral Finance), a financial system is not bound by the laws of supply and demand in the same way that an industrial economy is. In finance, confidence and fear rule decisions. “In the financial context,” say Prechter and Parker, “knowing what you think is not enough; you have to try to guess what everyone else will think.”

We do know one thing: When everyone is thinking the same, the opposite will happen.
Right now, record high dollar volume of trading shows that confidence, at least on this basis, has reached a new historic extreme.

MyView

Average value trading volume is 25% of GDP, mania during 1929 is 140% and today 2009 is about 400%.

What does this means. Total value trading volume is about USD56 trillion, 4 times the GDP of 2008. Would this be sustainable?

SOS Financial Assets Mania?

When Wall Street’s total value of assets rose to a “mind-boggling 36.6 percent of GDP” in late 2006, The Elliott Wave Financial Forecast published a chart of U.S. financial assets literally rising off the page.

The Financial Forecast observed that financial engineers had “found a new object of investor affections—themselves” and asserted that “the financial industry’s position so close to the center of the mania can mean only one thing; it is only a matter of time” before a massive reversal grabbed hold. Financial indexes hit their all-time peak within a matter of weeks, in February. The major stock indexes joined the topping process in October 2007 and in December 2007 the economy followed. Subscribers will recall that one of the most important clues to the unfolding disaster was the level of financial exuberance relative to the fundamental economic performance.

MyView

No joke, financial assets value make up 36% of GDP of USD14 trillion or equivalent to USD5 trillion. The average is 2.5%. What does that actually means? Bubble?

SOS Want to be a cotrarian?

The share market is bullish

Gold is hitting all time high

US dollars continue to weaken

If you want to be contrarian, buy:

Short S&P 500 (SH)

Short Gold (DGZ)

Long US Dollar (UUP)

Updates on Inflationist and Deflationist Portfolio started on 12 Oct 2009 @ USD50,000:

As at 10 Nov 2009 closing the result is as follows:

Inflationist up 2.29%

Deflationist down 2.83%

Well, so far, inflationist camp win after one month. Remember, it is the quality of experience that counts not the quantity of possessions.

MyView

One must not only uphold the principles of life but also uphold the principles in cultivation practice, which is far more important. For principles of life, one can learn from many model personalities such as Confusius, Gandhi, etc, for cultivation practice, one must always apply the principles learned from the scriptures or teachings in our daily life. In cultivation practice, there is no life models to follow because it depends on oneself.

SOS Currency in Danger!

By Graham Summers

Quite a few people wrote in last week telling me I was insane for even claiming that the US Dollar could rally. But in reality, this is the outcome Americans should all be praying for given the alternatives:

a Dollar rally would only damage stocks and commodities,

whereas a Currency Crisis would effectively destroy the economy and a Country crisis… well, that one is obvious.

Stocks, generally get all the attention from the media, but in reality they are relatively small fries compared to the Bond and Currency markets. As of 2008, the world stock market was roughly $36 trillion in size.

In contrast, bonds were $67 trillion and

forex (currency) which TURNS OVER $3.2 trillion PER DAY: ten times the daily volume of EVERY stock market in the world.

What the facts says...............

Does This Look Like A Healthy Economy To You?
Industrial capacity at an all time low: In May ’09 industrial capacity was 68% -- roughly 1/3 of our plants are doing nothing at all.
Falling revenue and profits: Even after laying off people and cutting costs, Q-over-Q Corporate Revenues and Profits fell 17% and 33% in 2Q09.
Food stamps in America? There are more than 30 million Americans on food stamps.
A creeping socialist tide: A full 18% of incomes are coming from an already broke government.
Unemployment desperation: No less than 7 million people will run out of unemployment insurance by Christmas (add their families and you have 13 million folks becoming destitute).
Plunging state coffers: Tax receipts are at their lowest levels since 1932.
Bankrupt governments: As many as 32 states have budget crises ($121 billion in total deficits) and the Federal Government has a $2 trillion deficit.
Derailed transportation: Rail carload volume for 1H09 is down 19% from the already dropping level of 1H08.

Is 2009 a repetitive of 1930?

Key Factor (1930 vs 2009)
-1930's
-Right Now 2009 Nov
Initial Collapse
-49%
-52%
Length of theSubsequent Rally
155 days
150 days+
Gain of the Subsequent Rally
+50%
+50%
Final Collapse
-70%
Coming Soon

MyView

I was once told, you think you know so much about the world economy, what for, can you make money from that! Money has become the main measurement of a person success. How much can an intellectual intelligence worth if it doesn't help the person to make money. So, if money is used as a measurement of person success, then, I conceed, only 5% of the world population is rich, therefore successful. Wouldn't this implies that the other 95% not successful, because there are not rich, in monetary terms.

Some even says, how much does a morality worth? We have even come to a stage to value morality with money. So sad.

Don't read just because you want to make money, read because it interest you, read because you want to enjoy the writer's intellectual mind and flare of writings, read because you want to explore outside your domain of understanding the world, read because it keeps your mind wander, read because it unearth the mysteries, read because you want to satisfied your curiousity.

Reading about world economy helps one to understand the world better, not necessarily to gain from it materially. If that is the case, it would be such a sad case for education. Gaining and losing in investments is just a game, don't let it goes into your head that if you make a lot of money, you can assume yourself are intellectually better than others.

SOS S&P earning estimates

July 2009, Wall Street firms estimate the S&P 500 will earn $74.54 a share next year (2010), up from $72.54 in May. Stocks traded at 13.18 times estimated profit, indicating a 26 percent increase in the S&P 500 should the index return to its five- decade average of 16.54 times annual income.

In June 2007 Wall Street estimate $72 a share for 2008 end up $48 a share actual

In July 2008 Wall Street estimate $70 a share for 2009 end up $42 a share estimate in Jan 09

The changes in estimates is unbelievable. From a $72 to $42 a share, so now, they are doing it again, estimating $74 for 2010, so I believe the actual will be around $42-$48 a share by end of 2010.

SOS Volume vs GDP

In the end, there is one reality: "Finance anchors the economy now; which makes it far more susceptible to non-rational dynamics," as the November EWFF puts it.This is in no way like the boom times of the 1960's (as illustrated on the chart above) -- when industrial growth reflected social mood's solidly bullish bias.

And, as the November Elliott Wave Financial Forecast warns: "The financial system is not bound by laws of supply and demand in the same way as industrial economies. In finance, fear and confidence rule decisions." When those emotions turn, so does the entire order.

MyView

Finance anchors the economy, and in finance, fear and confidence rule decisions. So, once the truth puncture the fallacy of the real economy, fear will strikes. That is where fear will lead the social mood to sell all related financial assets.

Confident will evaporate. It doesn't need an event or catalyst to encourage the change in social mode.

SOS Commercial Property in US

For perspective, in the first half of last century, banks were required to hold 18 cents for every dollar of loans, or only 5.5 times leverage.

Today big banks, on average, have only 4.2 cents of equity for every dollar of exposure or 24 times leverage.

These capital levels are still so thin that a new wave of commercial defaults could require further capital-raising or larger government bailouts.

Today, 6 November 2009, US unemployment rate hit 10.2% (unofficial is about 15%).

MyView

Will the commercial properties collapse cause another crisis? Looking at the number of foreclosures increasing almost daily, the likelihood is high. With unemployment rate at 26 yrs high, how do we expect the consumptions to revive? Stimulus is a temporary measure that does not solve the fundamental problems of over supply, but delay the implosion of the commercial properties.

Perhaps, this will be another catalyst for tsunami part 2.

SOS Myth

SOS True or False?

1. Bailout is economically is good?


2. Cash for clunker economically is good?


3. Derivatives is economically good?


4. High unemployment is economically good?


5. Printing money is economically good?


6. Over consumption is economically good?


7. Over gearing is economically good?


8. Fed action of reducing interest rate is economically good?


9. Too big to fail for financial institutions is economically good?


10. Unsustainable growth in GDP is good?


11. War is economically good?


12. High demand in war business is good?


13. More lending is economically good?


14. Liar loans is economically good?
15. Big government is good?

MyView

What is good? Just answer the above questions and you will realise the actions will resolve the problems, prolong the problems, inflate the problems or simply cause a bigger problem.

I believe the action taken by the Fed or the US Government is economically not good, but, why do the share market goes up if it is not good? Well, market follows social mood, and driven by social mood. Media and earnings are important and used as a lagging tools to explain the up and down of the market, but does not help in any way provide an accurate long term forecast, because it does not capture "black swan event".

Ever wonder why the black swan even happen, well, if you read the elliote wave chart, you won't be suprise by the even because you have predicted the event with high probability.

SOS Myth with a chance of Bull Rally

Why is US keeping the interest rate low when the US economy is recovering?

Have anyone keep track of the unemployment numbers?

What about the housing implosion, had it been resolve with the bailout?

What about the climbing deficit?

Ok, instead of looking at the entire US, which is much more complex, why don't we just focus on say, California.

• why doesthe government of California does not have sufficient fund from tax? Is it due to increasing unemployment?
• how can more unemployment boost the house price when they do not have money to pay their rent?
• if California economy is recovering strongly, does it has to resort to increasing deficit spending?
• if the market had recovered, why didn't they quickly remove the stimulus program?

Should we believe what the main media said? Or believe the government? If they said the the economy is out of recession and on a growth path, why didn't they just increase the interest rates?

If the economy is recovering, why don't the government stops the stimulus?

If overdebt problems can be resolve by just stimulus programs, then why are the banks not lending and consumer not borrowing? If they are hit by the overdebt problems again, just do another stimulus, after all, they have the money printing machine.

Sometimes over analysing the economy may be a problem. We notice that most media and economist or analysts tends to lag behind because the reasons they gave are to substantiate the outcome of the market movements and their projections or forecast tends to be on a linear basis, like what the S&P forest of 2009 and 2010 earnings in early Jan of each year is out by 50%, and why should we believe them after all.

MyView

The share market is reliance on the stimulus to move, the moment it is remove, we will see what happen.

The right question to ask is the recovery sustainable?

Look at

• Unemployment
• Housing market
• Deficit
  

Has the Government stimulus plan resolve the fundamental issue of the housing bubble or merely defer it? Doesn't it look exactly like Japan?

SOS Myth

Myth or Truth?
US is out of recession?
US dollar going to tank?
Crude oil will goes up to 3 digits?
Gold will be more than 2000 per oz?
S&P 500 is on a bull rally?