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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (47916)	3/8/2006 12:45:57 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Are We at the Cusp of a Major Asset Allocation Shift? March 5, 2006 Michael Panzner is author of "The New Laws of the Stock Market Jungle: An Insider’s Guide to Successful Investing in a Changing World" and a 20-year veteran of the stock, bond and currency markets. He is currently at work on a book about global financial risks. According to a recent article in Crain's New York Business, "consumers are rushing to park their money in New York banks" as 12-month CDs hit 5% interest rates for the first time in six years. That suggests we have reached a point, as far as individuals are concerned, where cash has become a viable alternative to other, more risky investments. At the same time, Japanese central bankers are poised to tighten monetary policy following half a decade of "quantitative easing," while the European Central Bank boosted interest rates this week to 2.5 percent and indicated further hikes are possible. That suggests we have reached a point where fund managers must take into account a much different global monetary policy environment than they have been used to, which will likely spur a more defensive approach to sector and market weightings. In addition, several high profile companies, including Intel -- which cut its first quarter revenue and gross margin forecasts Friday -- have recently warned that the outlook for their businesses is less promising than many had hoped for or expected. That suggests we have reached a point where the persistent optimism about forward earnings that has played a key role in supporting a robust exposure to equities -- and which has helped to drive share prices towards post-2000 recovery highs -- will be reassessed. We have also seen clear evidence that the once bubbly housing market, which has been a major spur to consumer spending this decade, is cooling off. Just this week, for example, there were reports that new-home sales hit their lowest level in a year and the number of properties on the market was the most ever. Under the circumstances, it seems that homeowners -- the prime beneficiaries of the real estate-as-ATM phenomenon -- will be downsizing their spending and borrowing, especially in light of their increased energy costs and the prospect of higher mortgage rates. That suggests we have reached a point where a significant source of economic firepower, the American consumer, will be significantly diminished. And with the personal savings rate near historic lows, odds are, in fact, that many will look to boost cash on hand. Typically, those funds end up in a bank or under a mattress, not in the equity market. Thus, despite the apparently widespread sense that there is little reason to adjust overall equity exposure, more recent developments suggest the catalysts for an imminent -- and potentially high impact -- shift in asset allocation preferences are already in place. prudentbear.com

To: LLCF who wrote (47916)	3/8/2006 1:04:36 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Could Japan cause a US house price crash? moneyweek.com This a a very good read. Mish

To: LLCF who wrote (47916)	3/8/2006 1:10:55 PM
From: mishedlo	Respond to of 116555

FXA Plants Corner fxa.com WOW! 6:00 AM New York time. Monday’s piece was a milestone. I was more wrong than I have been in a long time on reading the near term tone of three related markets. Perhaps some of you are thinking it’s a case of new-dad sleep deprivation. Maybe it is and I just don’t recognize it. Suffice it to say the action over the past two days has surprised the crap out of me… more so the dollar than anything else. I suppose statistically for any market to take out a five days worth of price action in two is not in itself significant. They do that all the time. What was disconcerting was the fact that, from my read, and again using the Dollar Index as my proxy, the dollar had spent virtually two trading weeks around the Bernanke testimony in mid-February working to break into new high ground. It failed in that attempt, only to roll over and look like it was prepared to test the downside a bit. But that failure and subsequent sell off that I read Monday morning to be significant, turned out to be yet another head fake, negated over the past two days. I am obviously reading way too much into the daily swings in here. Perhaps we are simply in a thinly participated trading range, which is actually to be bought when it looks bad, and sold when it looks good. From a devils advocate point of view, if I had picked the bottom on Monday, watched the dollar rally as sharply as it did that day and Tuesday, I would expect a bit more follow through this morning. We aren’t getting any yet. Once again it is stalling at those mid-February highs. The fundamental argumentation I am hearing is that the Fed could hike rates maybe even a third time and that the yield differential between US and other G-7 paper is as wide as it has been in months. While I look at these arguments and think bullsh**, I have learned painfully in the past that fighting against what one views as nonsensical market storylines is a recipe for P&L disaster. It doesn’t matter what I think. It matters what the collective participant base is positioning on. I’m thinking part of my problem is that I am attaching more significance than others to the weakness in housing stocks as a foreshadower of real estate. Those stocks continue to get crushed. Then I compound the problem by over estimating in my mind the effect that a decline in housing will have on the overall economy. That has become the macro (emotional) driver behind my view. So if housing does not get hurt as bad as I think, or does not have the ripple effects that I think it will, from a position standpoint, I might be screwed. Gold obviously deserves a few words too. Guess I should I take back what I said on Monday about new-highs being a foregone conclusion? We went from the renewal of a nice, low volatility upward grind, to panic selling in no time. Yesterday all the commodities got whacked. My rational mind knows there is no evidence that anything in the fundamental backdrop for global commodity prices actually changed. The news rationale for the sell off is that with all of G-7 now leaning toward removing monetary accommodation, a global reduction in liquidity will slow speculation in commodities and potentially stall global growth. Again… think what you will about the reasoning… what is important is that we have moved into a period of time where the flow of capital into commodities seems to be meeting with an equal or greater flow of capital out of commodities. We are seeing the biggest daily swings with no net directional movement since things got going in the summer of 04. I don’t know what that means. I was in the office yesterday and had to overhear Dave Solin explain his bearish view on gold to several reporters who called in. That wasn’t much fun. For now all I will say is this; we made lows three weeks ago at just under $540 basis April COMEX. We rallied to above $570, within ten bucks of the old highs. Now we’re back off again but still $13 dollars above the lows. Emotions aside, prices have done nothing of a technical nature other than move sideways in what most participants would see as a normal correction in an upward market. I’ll make two other observations and then let you go. There seems to be a growing view that oil prices are setting up for a big fall. Even my oil-trading friend Jim who generally maintains a bullish bias notes the high and worrisome (for bulls) inventory levels. I’m not saying I agree or disagree with the growing consensus view. It simply needs to be watched for the potential ripple effects through commodity land. Bonds also put in a little reversal yesterday. If I were bullish and waiting for some behavioral sign to get involved on, yesterday was a good one. Steve Plant FXA

To: LLCF who wrote (47916)	3/8/2006 1:40:14 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

more back-pedaling from Japan: bloomberg.com LDP's Nakagawa Says Japan Deflation Isn't Beaten Yet (Update1) March 8 (Bloomberg) -- Japan hasn't yet overcome more than seven years of deflation, Hidenao Nakagawa, head of the ruling Liberal Democratic Party's policy council, said today in Tokyo. ``The Bank of Japan has independence in deciding policy steps,'' Nakagawa said at a press conference today in Tokyo. ``We want the bank to take responsibility for the results of the policies it implements.'' Nakagawa declined to comment on the timing of a possible shift in the Bank of Japan's five-year-old policy. Central bank policy makers will tomorrow announce their decision on whether to maintain the bank's deflation-fighting policy following a two-day board meeting. Nakagawa last year put pressure on the bank not to rush to change policy, saying the government might need to revise the Bank of Japan Law that guarantees its independence if the bank were to act without considering its intentions. The central bank should adopt clear numerical price targets, Nakagawa said. ``The central bank should send a clear message'' by setting such targets, and show its intention to prevent both inflation and deflation, enabling the bank to win the trust of financial markets, Nakagawa said. The bank should also show it can respond to the risk of inflation, he added.