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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Joe S Pack who wrote (43173)	11/27/2008 5:26:47 AM
From: TobagoJack	3 Recommendations Respond to of 219462

just in in-tray · Stock markets want to see resolution of the crisis in the financial area. In the absence of market cleansing collapses, that should require full-scale nationalisation of the worst institutions along the lines of the Swedish model; an approach which also means distressed assets are transferred to a so-called "bad bank". But the Bush administration has still not got the point. · Obama's appointments to his economic team are predictably safe and "establishment" in nature. This means there will be no sudden lurch into protectionist rhetoric. That may happen next year if the economy continues to contract and unemployment continues to rise; most particularly if the Chinese do anything provocative on the currency front. But for the moment nobody can fault China for not trying to do its bit to reflate domestic demand. · Any kind of sustained relief rally in equities from recent depressed levels would likely mean a correction in the dollar and yen as deleveraging pressures relent. Technically, the US dollar index probably needs to decline to below 80 to signal that it is "breaking down". · It remains far from clear to GREED & fear that the world is yet at the tipping point when the strong dollar deleveraging trade turns to the dollar-debasement trade. That would require market action which suggests wholesale dumping of the American currency by foreign creditors. For those who are not confident of getting the exact timing right, the only practical hedge is to accumulate gold and unhedged gold mining stocks now. · GREED & fear's longstanding view remains that the US dollar paper standard will have effectively ceased to exist by the end of 2010 which is also the deadline for the long standing target of gold reaching US$3,360 per oz. GREED & fear's guess is that this decisive inflection point is likely to be reached at some point in the next 18 months as policy in America turns ever more reflationary. · GREED & fear is still not convinced that Treasury bond yields have bottomed in this cycle. The long-term target here for the 10-year Treasury bond yield remains 2.5%. This target is quite likely to be reached if there is another leg to the deleveraging level, most particularly if the Federal Reserve proceeds with ever more aggressive quantitative easing. For this would imply the Fed buying Treasury bonds outright. · The more government bond yields are driven down, the better will become the valuation case for US equities. But in deflationary downturns it is quite possible for stocks to bottom with a dividend yield two or three times the long-term government bond yield. Many Asian stock markets, including Japan, look significantly more attractive than America in dividend terms. And yet these markets do not begin to have the same structural problems of indebtedness as does the US. · Fundamentally, the next two quarters are likely to see almost non-stop bearish macro and micro news in terms of slowing economic growth and slowing earnings growth in Asia. This clearly poses a threat to any equity market rally, though it would obviously be a good sign if markets stopped reacting to such bad news. This is why the second quarter of 2009 looks like a much safer period to be looking to invest more in Asian equities. · The view of Thailand as a relative safe haven is again no longer credible in view of growing evidence of a dangerous power vacuum in the country. The risk is clearly rising of a violent climax to the long simmering tensions between pro and anti Thaksin forces. · There clearly have been growing incidents of violent terrorism in India in the recent past. But this latest development is very different in that it targets the venues in the city where foreigners are most likely to be present. · The CDS on British government debt have blown out way above the CDS on US government debt in recent weeks. This move highlights the perilous situation of the British government's finances as the country enters what is likely to be a very steep economic downturn. GREED & fear continues to believe that the British economy is as vulnerable as any economy globally to the deflation of the credit bubble. · The Bank of England is going to come under mounting pressure politically to do more in the way of unconventional measures to help the ailing property market. The intensifying debacle in the residential property market means, as in America, the end game is likely to be full-scale nationalisation of major banks along the Swedish example of the early 1990s. · Former aggressive or worse subprime mortgage lenders and brokers are now rushing to push mortgages insured by the Federal Housing Administration (FHA). The appeal here is that this is one area of the mortgage market that is now growing as a result of government action. The longer term issue is, of course, whether the federal guarantee will yet again be abused.