Tuesday, June 29, 2010

SOS Prechter Says in June 2010


Excerpted from The Elliott Wave Theorist by Robert Prechter, published June 18, 2010
The Daily Crux: OK, so you don’t think the Fed will go that far. But what if the government got involved and tried to inflate its way out by issuing massive amounts of Treasury bonds to the Fed? Wouldn’t that create inflation?

Robert Prechter: If the government tried to do that, bond holders would get spooked, and interest rates would go up and stay ahead of the printing. At the same time, other credit prices—municipal, corporate and consumer—would implode. When the supply of credit is far bigger than the supply of money—and it is by a huge margin—the value of old credit can contract faster than new bonds can be printed. The net result would still be deflation.

But this is not the most likely scenario. Have you noticed that even the Fed chairman has been telling Congress it needs to stop spending and borrowing? The Fed doesn’t want this to happen any more than other creditors do.

If the Treasury’s interest rates do soar, it will not likely be due to inflation fears but to fear of government default. If the government is forced to pay higher and higher rates, it will become a black hole for money. Spiraling Treasury rates would suck money from other sources, causing banks, municipalities and companies to fail, ruining all of their debts, which would be deflationary.

Crux: Will hyperinflation ever happen in the U.S.?

Prechter: It certainly might. But it could only happen after the bond market implodes, not before. Then, if politicians get hold of a press, they might decide to print. But this is political conjecture, not monetary analysis. First we have to cross the deflationary valley, and this could take longer than almost anyone thinks.

Crux: So what you’re saying is that inflation is possible, but that it can’t happen until deflation has run its course. What would you be looking for to indicate that deflation was over and that inflation was beginning to become a danger?

Prechter: A banking crisis, in which thousands of banks shut their doors. Thirty-three percent unemployment. A ruined private and municipal bond market. And a panic in government bonds. If all those things happened, then you would have to be on the lookout for legislation allowing the government to take over the printing of money or to force the Fed to monetize new federal debt at a rapid rate. I think we will have to see all these things before hyperinflation will become possible. If all of this happens, trade all your greenbacks immediately for gold and raw land.

Crux: Are there any scenarios that would change your mind, that would make you think you may be wrong and that inflation is becoming a threat?

Prechter: If the S&P index, real estate and the CRB commodity index all take out their price highs of 2006-2008, it would probably be enough to indicate runaway inflation. We keep a very close eye on all the key markets and will try to be ahead of any such development.

Monday, June 28, 2010

SOS Damn if you do it Damn if you don't


The right question we should ask is not how did we get into this mess?


The right question to ask is how do we get out of this mess?


Just think that you are family in USA, you bought a few condo or houses (over geared), bought a new car, and spend more than you earn based on credit, then your boss tell you, you dont need to work anymore. Multiply it with 14 million unemployed people? what do you get, a group of people that lose their job, their confidence, their savings, their family, their dream?


How did printing more money help them?

More house credit? No way

Lower interest rate? No way


These people do not need more credit, afterall, the bank won't give them anyway.


What is the logical reaction to these situations?



  1. tighten belt

  2. default loan and declare bankrupt

  3. sell houses, or let bank foreclose

  4. tell other family members to support

  5. move to smaller house or stay with parents

  6. buy less luxury goods

  7. increase savings (if any left)

Times these with 14 million people in America you will realise longer run, these will cause


A NEGATIVE social mood will develop.


What can a negative social mood cause, you may ask?


DEPRESSION? Yep, exactly. Assets price related to bubbles will deflate more than 50%, e.g. housing, commercial lots, constructions, furnishings, transports etc



MyView


Those who think we are out of the wood, look at the cartoon above. It will be tougher over the next 2 years until 2012. Why, see above. When your reserve are used up, what will happen? Chaos.


Some may say, you are too pessimistics. Realistic in fact. What most people don't see in the media? The implosion of debt (especially from the derivatives) is far greater than the printing machine can overcome.


Friday, June 25, 2010

SOS Japan


Japan deflation is mainly on the stocks and properties, not its daily consumables or services.


Japanese Yen has significantly appreciated significantly since 1989.


What about USA?


It would be similar, deflation on stocks and properties.


Additional deflation, commodities, including metals.


Later through the deflation, US dollar will appreciate for a few years before it will depreciate.

Thursday, June 24, 2010

SOS Martin Weiss Prediction 2010-2012

Nine Predictions (in Feb 2010)

  1. Stocks in US will zig zag down from 2010 to 2012
  2. Gold will touch USD2000 per oz by end of 2011
  3. US Dollar will sink in late 2010 towards 2o12
  4. Oil will not make new high
  5. US Economy will double dip in 2011 and worst in late 2012
  6. 2012 US will have a deficit of USD2 trillion
  7. Bond will plunge due to out of control deficit
  8. Maximum turmoil in 2012 - geopolitical shift
  9. Wealth shift in 2012 from West to East
Step 1

Diversified into 5 diff asset class

Step 2

Also take advantage of Down turn

Step 3

Diversify dynamically based on cycle reading

Step 4

Rebalance portfolio eg gold up 50%, rebalance gold portfolio into 20% of total assets

Step 5

Risk protection - stop loss

Wednesday, June 23, 2010

SOS The Economics of Debt Implosion


The Economics of Debt The Truth
Simple anology of debt is when you take a loan from a bank (a debt is created) and you are suppose to pay back the principal and interest within that stipulated tenure agreed by lender and borrower.


The Reality in USA

A. Genuine Mortgage Debt Implosion (Sub Prime + Prime)
The average American borrow more than they can afford to pay back based on the fallacy assumptions that the property price will continue to increase infinitely. Fannie Mae and Freddie Mac - mortgage loan created about USD5.2 trillions, who knows how much is not repayable.

B. Synthetic Mortgage Debt Implosion (CDO, CLO, MGS)
Basically is a second layer debt created (from mortgage and others like credit card loan, car loan, education loan) repackage and sold to financial institutions based on rating agency. Synthetic debt does not has physical securities like you can foreclose a house or building.

C. Betting Debt Implosion (CDS)
The third type of debt is after the creation of synthetic debt, hedge fund will bet against the collapse of the synthetic debt via Credit Default Swap. Basically is an insurance on collapse of a synthetic debt or a genuine debt.

D. Private Equity Debt Implosion
PE debt is created during a hostile take over. It is a trillion dollar business that employed about 7.5 million Americans and the PE debt created in tune of about USD5 trillions. Example, a PE firm will identify an undervalue company, and do a takeover of the said company. It will then cut cost (head count and reduce operation) to make it profitable, and on top of it, get the company to take up more loans (i.e. PE Debt). Should the debt is used to invest in high risk projects. E. Other Derivatives Debt Implosion A more complicated hybrid of debts which are less understood by many. Can be done on currency, commodities and other securities. Mainly used by hedge funds to make high risk investments (or gamble).

MyView

The figures is bigger than anyone can imagine, which, Fed cannot afford it, period. After all, Fed is privately own entity, who is not prepared to buy up all this toxic "assets". The implosion of ALL these types of debt will cause a Depression over a long long time like Japan.
The effect is the Deflation on many type of Capital Assets where these debts are raised to buy. However, one may also be careful that certain consumables prices will remain high due to government intervention, such as medical, insurance and education. In a deflation environment, the momentum of the economy will slow down significantly and it is a silent killer. It will be evident by looking at the following factors:
  • unemployment persistently high
  • consumptions drop (especially on housing)
  • saving rate increase
  • bank credit shrink
  • higher foreclosure
  • higher bank goes bankrupt
  • higher business go bust
Look at the Greece and Spain.

Sunday, June 20, 2010

SOS Look at the dark side


US economy (the dark side no reveal by the media)

  1. housing sales dropped in May after tax credit was lifted in April 2o1o

  2. unemployment did not improve

  3. bank credit still schrinking

  4. savings rate improve

  5. consumer price show no sign of inflation

  6. more bank goes bankrupt

  7. more debt turns bad

  8. commercial real estate continue to plunge

MyView



  1. The stimulus did buy some time

  2. The zero rate did buy some time

  3. The bailout did buy some time

  4. The government intervention did buy some time

However, all actions take above is "bad" for the economy in the long run, due to misallocation of resources, bailing out the incompetence, socialising profit, debasing the currency in long run, causing sovereignty risk.


In short, those steps taken are NOT SUSTAINABLE and have bad side effects. The question now is when will be the 2nd tsunami coming. I give it maximum ONE YEAR.

Monday, June 14, 2010

SOS Laotse


The common men sacrifice their lives for profit


The scolars sacrifice their lives for fame


The noblemen sacrifice their lives for their families


the Sage sacrifices his life for the world


All these people have different professions and their reputations vary, but in suffering injury to their original nature, they are alike.


In short, there is no man but has changed his nature on account of material things.

Sunday, June 13, 2010

SOS Vicious Cycle Part 2

Can the Fed continue to print money and will it work this time? The short answer is no.

There is 2 problem with printing money.

One Fed is a bank. It would have no desire to buy up more worthless portfolio and debasing its reserve to zero unless it is force by the government.

Second, the thought of reflate the economy is another myth. It only aggravate deflation. It give bondholders to panic, hence causing nervous bondholders not to renew or repurchase the expire debt, causing the value of the debt to reduce i.e. deflate.

MyView

Fed cannot save the system, period. Fed will collapse itself. So in the end, it most debt created assets will deflate.

SOS Vicious Cycle Part 1

Editor's note March 2009: Where are we at this point in time? Let's take a look again at the various stages of decline to determine where we are:

Stage one

The major banks of the world major are concerned that any credit obligations that they were to enter into with other banks would not be honored because of the unknown extent of toxic assets (such as derivatives and sub-prime Mortgage Backed Securities) on their books - as was/is the case on their own books. This, in turn , has caused them to go from an expansion mode to a conservation mode resulting in a credit crisis such as we currently are experiencing.

Stage two

The major banks' refusal to lend money to business has caused, or is causing, business to go from an expansion mode to a conservative mode which has, in turn , adversely affected the trend of production. This is evidenced by the 6.2% seasonally adjusted annualized decline in GDP during the 4th Qtr. of 2008 which was the worst decline since a 6.4% decrease in the 1st qtr of 1982. To make matters worse, economists don't expect any relief in the current quarter, which ends March 31st, projecting a further -4.8% annualized rate which would be the first time since 1947 that the GDP has fallen by more than 4% for two quarters in a row.

Stage three

a) The reduction in production by business has, in turn , led to or is leading to, over-capacity which has increased employee layoffs. Indeed, unemployment soared to 8.1% in February, the highest rate in over 25 years. The consensus of private forecasters is for the unemployment rate to get close to 9% in 2010 with some forecasters suggesting a 10% rate. The Federal Reserve, itself, doesn't expect the unemployment rate to fall below 7% until 2011.
b) The increase in unemployment has, in turn , reduced the affected consumers' ability to buy goods and services.
c) The consumers' inability to buy goods and services has, in turn , reduced company sales and profits.
d) The reduction in company sales and profits has, in turn , caused the price of their stock to decline.
e) The lack of easy credit and/or loss of employment has meant that home "owners" (i.e. mortgagees in some degree of co-ownership with whichever financial institution holds their mortgage) have not been able, in increasing numbers, to re-finance and/or afford to re-finance their mortgages and, as such, have not been able to make their escalating monthly mortgage payments which have, in turn , led to a record high number of mortgage foreclosures. Indeed, as of the end of 2008 12% of Americans with a mortgage were at least 1 month late or in foreclosure which was up from 8% a year earlier. Even worse, a stunning 48% of home "owners" who have sub-prime, adjustable-rate mortgages are currently behind in their payments or in foreclosure which, in turn , has resulted in ever more distressed house sales by the mortgagors and other neighborhood homeowners with, or without, a mortgage.

Stage four

The dire economic scene (fear of loss of job, loss of money invested in the stock market, reduced resale value of their house, etc.) has seen, in turn , a) a major increase in savings (the personal savings rate rose by 5.0% in January, the highest rate since 1995) b) a reduction in spending (it dropped 0.2% in December) c) a reduction in the sale of goods and services d) a decline in the price of such goods and services (as evidenced by the U.S. GDP Price Index which declined by 0.1% on a quarter-over-quarter annualized basis in the 4th Qtr of 2008 - the 1st decline since 1954 - and supporting the Fed's obtuse view that "inflation pressures will remain subdued in coming quarters." That tells us that deflation is imminent.

Stage five

We are going to see a self-reinforcing escalating vicious cycle of stage two, stage three and stage four over and over again. The downward "spiral' is in progress.

So there you have it! We are in the early weeks of stage five. As such, it is fully understandable why the governments of the world are throwing money at the credit problem so excessively in an attempt to get the wheels of industry turning to stem the decline before it takes hold. It is an extremely dire situation with no end in sight at the moment.

MyView

Throwing money at the credit problem did stall the iminent crash frok March 3009 to Jun 2010 or perhaps a few more months, but, as the vicious cycle restart, the spiral will only gets stronger and stronger.

Can they stall it again in mid to late 2010 by throwing more money into the system by the government? Well, Prechter has proven yet and again that goverment stimulus (Marc Faber thinks this is likely) does not work for long run. I will post the argument in the second part.

Wednesday, June 9, 2010

SOS Lightning Bolt


Investor ask: It appears that the best shape to describe the economic trend we are in is not a V, not a W, not an L, not a square root sign, but a lightning bolt -- zigzaging down from left to right (left-hand translated?) Your thoughts?

Bob Prechter:
Yes

MyView

Yes. The elimination of debt from the surface of the earth is far more than the "printing press" technology. Don't forget the derivatives market is 10 times more than the world GDP combined.

The lightning bolt not only strike Europe, US, or Australia but also cause heavy storm in the the BRIC to fall. Japan & SEA (south east asia) is not spared. Of course it is at different rate.

Tuesday, June 8, 2010

SOS Revisit the Myths of Share Market in USA


  • Myth No 1: Earnings drive the market
  • Myth No. 2: Small Stocks are the Place to Be
  • Myth No. 3: Worry About Inflation Rather than Deflation
  • Myth No. 4: It's Enough to Simply Beat the Market
  • Myth No. 5: To Do Well Investing, You Have to Diversify
  • Myth No. 6: The FDIC Can Protect Depositors
  • Myth No. 7: It's Bullish When the Market Ignores Bad News
  • Myth No. 8: Bubbles Can Unwind Slowly
  • Myth No. 9: People Can Make Money Speculating
  • Myth No. 10: News and Events Drive the Markets
Dear Readers (if any) The above 10 myths have been proven by facts, based on Robert Prechter's research.

Monday, June 7, 2010

SOS What Happen? By end of 2010?


12 months High and Now (7 June 2010)


USA 11258 and Now 9931 dropped 12%


UK 5833 and Now 5103 dropped 13%


DAX German 6341 and Now 5931 dropped 6%


Nikkei 11408 and Now9502 dropped 17%


HKSE 23099 and Now 19378 dropped 16%


Shanghai 3800 and Now 2695 dropped 29%


Average dropped about 15% x 60 trillion = USD9 trillion wipe out from the earth



MyView


What happen? Well what goes up will come down. Simple. Any more to go? Well, another perhaps 20 to 50% by end of the year 2010. Lets have a look by year end.

Friday, June 4, 2010

SOS Harry Dent said


What Harry Dent said in his book The Depression Ahead Stocks will peak between Oct 2009 and Feb 2010, then will fall between 2300 to 4500 by later 2010, with 3350 to 3800 our most likely target.

Thursday, June 3, 2010

SOS Marc Faber May 2010

Marc Faber - May 2010 recommendations:

  1. Emerging economies - properties in country side, healthcare, water, banks, insurance, consumer finance, brokers, plantations
  2. Gold and Silver - long
  3. Japan - Perfect contrarian play - banks
  4. New regions - cambodia, laos, myanmar, mongolia, sri langka, africa
  5. Commodities - although correct 50%, long term intact, agricutural, NG etc
  6. US treasury - Short
MyView

Based on Mexico experience, market collapse then printing money then market shot up 200x, but in USD value, no changes over 1979 to 1988

Tuesday, June 1, 2010

SOS Down Under Housing

Please goto www.debtwatch.com by steve keen in late may and look for How to profit from the Australia property crash (& banking crisis).

Australia property is due to pop, just like the US, Europe, China, and Japan.

Almost most expert will say that demand outpace the supply, exactly happen in California, Japan, HK, UK, Ireland, Spain, etc

Good luck.