Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: HairBall who wrote (1727)	12/14/1998 3:21:00 PM
From: thebeach	Read Replies (2) \| Respond to of 99985

So much for my Contrarian theory!!!

To: HairBall who wrote (1727)	12/14/1998 3:26:00 PM
From: Roebear	Respond to of 99985

LG Warning Long Post I hate to belabor the commodities angle, but here I go: smh.com.au Australian investors, businessmen and farmers have probably grown accustomed to waking up each day to learn that it's been another now typical day across the globe's commodity markets, whose plunging prices have been driving the fortunes of everything in commodity-based economies such as Australia, but the alarm bells only now are starting to ring in New York, albeit for different reasons. Some observers, such as Deutsche Bank chief economist Ed Yardeni, have been expressing concern about the deflationary implications of falling commodity prices for some time but the concerns seem to have broadened. While Australian analysts talk about the pressures on the $A caused by weakness in commodities and the local currency's vulnerability to further weakness, (as do their counterparts in South Africa, Canada and New Zealand), analysts elsewhere increasingly are viewing sagging commodities as a harbinger of difficult times ahead. When the Bank of England lowered its official dealing rate at the end of last week - a move, incidentally, that seemed to have little impact on the London markets - its policy committee cited the commodity price falls as indicators of worse prospects for global activity. Dr Yardeni has a similar view but he believes that the current round of global interest rate cuts since the Fed unveiled the first of its three cuts is not just intended to ease the extraordinary pressures that built up in the world financial system late in the northern summer. "Central bankers around the world finally understand that deflation is no longer a risk: it is a clear and present danger," says Yardeni. He would like to believe that the deflationary risk is being reduced but he is not convinced just yet because coincident indicators suggest it is still there. It might be that it's too soon for the impact of the interest rate cuts to show up but Dr Yardeni believes that the most sensitive price indicators still show deflation or point in that direction. The US purchasing managers' (NAPM) price index has fallen to levels usually associated with recessions, with prices falling at their fastest pace in 50 years and, because the index is highly correlated with corporate profits, this could signal the US is not just in a pricing recession in the industrial sector but a profit squeeze too. Any doubts would have been removed by the host of earnings' warnings from US blue-chip companies over the past week although it's hard to say whether the renewed bearishness on Wall Street and Thursday's sell-off were sparked by the warnings or the commodity news behind them. Oil prices have more than halved over the past year to a 12-year low, copper has slid to an 11-year low and most overall commodity indices have been slashed to 20-plus year lows. A few experts believe shrinking commodity prices are sending a grim message about the global economic outlook and signalling that the global financial crisis is not over by any means. The Commodity Research Bureau Raw Industrials Spot Price Index has already plunged to the middle of the band regarded as a global growth recession zone and is accelerating towards the outright recession zone. With all these worries about the planet's economic health it probably is not surprising that Treasury bond yields have headed back to levels not seen since the mid-October financial scares and that spreads are widening again. Swap spreads turned around and headed back towards crisis levels last week and the US credit market started to fret again about spreads on investment grade industrial bonds. Despite the Fed's credit-crunch-avoiding swerve with interest rates, the average spread on long-term industrial bonds had only narrowed from 166 basis points in October to 155 basis points in November. Given all this the Fed could feel justified in cutting interest rates again this week but no-one is expecting it to - if only because it seems to have re-inflated the bubble in the sharemarket with its brace of rate cuts so far. The share market has been the fount of euphoria for two months and has succeeded admirably in ignoring the tremors elsewhere. As it heads into 1998's last triple-witching Friday, it will be interesting to see whether it can succeed in maintaining its state of bliss. Investors still seem happy to pay more than 30 times earnings. The third-quarter reporting season ended with a 0.1 per cent annual dip in recurring profits, says Standard & Poor's, a far cry from the 15.9 per cent average annual advance in corporate profits between 1994 and 1997. The question is whether end-of-year window-dressing by fund managers will be enough to postpone any serious trouble in the sharemarket until the New Year, even if other financial markets get kicked to the kerb. Perhaps there is more to this market than impeachment?