More from Heinz:
even though the
market ls bouncing at the moment, i wouldn't expect MUCH of a bounce.
true, bearish sentiment is not at an extreme...but a stock market
decline in its beginning stages is always a very frustrating
back-and-forth affair.
this is because residual bullish sentiment from the previous upleg
frequently reasserts itself. regarding oil, it seems ready to correct,
and at the moment is more likely to be supportive of stocks, although
i agree of course that the recent prolonged period of high energy
costs has very detrimantal long term effects. they have been ignored
only because they always hit the economy with a lag. but hit it they
will.
as for the FOMC, it seems very likely that the next rate hike will
both be larger then the previous ones, and also the last one. because
if the FED TRULY manages to stop real estate and junk bond speculation
(it will, whether it intends to or not) it means that those bubbles
will collapse very swiftly.
one should definitely keep a very close eye on all the sectors somehow
connected to these bubbles...there will be enromous declines imo, akin
to the Nasdaq bubble's collapse in '00-02 in size and duration (i.e.,
everything from mortgage lenders to homebuilders, and even retailers
and credit card companies is likely to suffer large losses in terms of
market cap. also look for another spate of scandals to engulf the
market, as balance sheet shenanigans begin increasingly to come out in
the course of the decline).
my view is that the slowdown will likely become evident
earlier than that. this is because recent economic data worldwide have
been quite weak. the pattern of ending credit bubbles is ALWAYS a
SUDDEN halt in economic activity. while the top itself tends to pass
unnoticed (it's akin to holding one's breath almost...), the period
right after the top is a progression like, one month everything still
looks o.k., the next month some data points are surprisingly weak, but
they're scattered enough not to cause any real worries yet, but the
month after that surveys of actual businesses show that everything has
screeched to a halt practically overnight.
i think the housing bubble has ALREADY popped. it just hasn't registered yet.
true, the Fed is probably the LAST market participant to notice, and
will therefore definitely overshoot. but consider for a moment that
short term interest rates have already increased by 175% from their
lows. that's a HUGE move. it is not material that they have come from
a very low level and thus still ARE at a historically low level.
what's important is the size of the increase, as well as the fact that
'historical' is very much relative in this context. the FF rate is
very high for an economy with a huge output gap.
in short, i think the next hike will be like throwing gasoline on a
fire (or rather, the inverse of that metaphor). it will be the final
straw, it will accelerate the downturn of a bubble that has already
met its demise. in a very short time all sorts of dubious debt
instruments now stuffed in hedge fund and pension fund portfolios
could meet with a 'no bid' situation. such a crash in junk would
probably cause inter-meeting rate cuts.
it's not for nothing that the bond market has begun to rally
again....imo the bond market 'knows' the end is near, and that the
'reflation' of 2003-2004 was nothing but a brief interlude in a
secular deflationary downturn. |
