Martin Armstrong speaks again on the markets, Japan, and his favorite subject, financial disasters to come:
SPECIAL REPORT ON STOCKS (basis S&P Futures, Sept contract)
by Martin Armstrong,
chairman of Princeton Economics
August 13th, 1999
Today's reaction in the stock market, although impressive on the
surface, still has not changed the longer-term outlook. A rally into
next week may form only a reaction high with resistance at 1357 and 1365
(basis S&P Sept contract). Support should form initially at the 1319
level and a closing back below that level on a weekly basis will signal
a resumption of the downtrend. An overall decline into January of 2000
appears likely with a minimum target objective of 1215 and ideal target
objective of 987 to 930. We do not expect this decline to be rapid as
was the case last year but we do see more of a persistent grinding
downward movement for the majority of the period.
Problems in Russia, China, North Korea, and India, combined with a high
probability of a major financial crisis in Japan on top of Y2K, will
keep the fundamental picture questionable at best. In Japan the FSA
investigation of CSFP has exposed just the tip of the iceberg of perhaps
the worst derivatives loss program in the history of modern financial
markets.
We now see hidden derivative losses in Japan may far exceed $10 billion.
Some banks were using derivatives to meet BIS requirements and to
disguise bad loans. An insolvent postal savings fund and the major
booking of derivative premiums as current year profits instead of
mark-to-market, have left this economy in an extremely vulnerable
position. Despite foreign optimism about a possible Japan recovery,
concern and pessimism still dominates the domestic Japanese markets.
Additional losses arising from the convergence trades in Europe have
sparked rumors of billion dollar losses among hedge funds and investment
banks. The problems with the convergence trades in Europe have sent the
credit spreads into a tail-spin worse than October of last year.
All these things combined warn that a serious correction may develop
beginning in September. We recommend reducing risk exposure by taking
advantage of reaction rallies. |
