Global Correction

[Hampstead]

if you combine the market cap of china and india's stockmarkets they still fall short of the market cap of the swiss stock market.

china and india need to expand the stockmarket caps by allowing far more companies to list, state and private companies to increase the market cap to allow a greater spread of funds by investors.

at the moment too few stocks with fairly low market caps and huge demands by retail and foreign investors are pushing prices far beyond their fair values

[lannarebirth]

I am not aware of any market, at any time in history, where a parabolic move like that has not fully retraced. That said, the retracement can take years, and can come from much higher levels. It is "frothy", to say the least.

[Hampstead]

reading your post it seems you are certainly not an avid investor in the exchanges of india and china. i have been for some time now and these future retractions you speak have been an every day talking point on the site i use http. portal.gs.com

some say a further rise of 50-60 %, some say post olympics, whatever the guessing games it seems only a matter of time

the exchanges in china have on numerous occasions reached levels of average daily trading volumes of london and tokyo and yet the market cap and number of listed companies and certainly large cap listings puts it far behind many european exchanges.

[lannarebirth]

reading your post it seems you are certainly not an avid investor in the exchanges of india and china. i have been for some time now and these future retractions you speak have been an every day talking point on the site i use http. portal.gs.com

some say a further rise of 50-60 %, some say post olympics, whatever the guessing games it seems only a matter of time

the exchanges in china have on numerous occasions reached levels of average daily trading volumes of london and tokyo and yet the market cap and number of listed companies and certainly large cap listings puts it far behind many european exchanges.

I've never traded in either of those markets, and I agree with you it could go higher. Maybe even much higher. I don't agree it won't retrace at some point. No pattern like that ever hasn't. As I say, I don't know those markets. I know a thing or two about charts though, and one of those things is, prices in a sustainable uptrend need support.

Edited October 18, 2007 by lannarebirth

[Hampstead]

prices are being supported by average daily trading volumes touching 45 billion dollars on many occasions and averaging in excess of 25 billion dollars.

the other parts of your post seems to indicate that at some time in my posts i have agreed or disagreed with a retraction taking place, i have merely mentioned that numurous institutional investors on the site i use for trading have guessed at what point a retraction could take place in both of these exchanges.

as for your replies, i see no holes in my posts you could pick at, so merely your replies could be seen as just a waste of time

[bingobongo]

for those who understand the following, get ready, for those who dont, i can only wish you the best of luck...

Edited October 18, 2007 by bingobongo

[bingobongo]

my apologies, i forgot one........

[PCA]

my apologies, i forgot one........

whats that - your equity curve after shorting the markets for 3 months?

just a joke but unclear what you wanna say therewith.

[lannarebirth]

Credit derivative spreads?

[sonicdragon]

Credit derivative spreads?

Almost. They are credit default indices, so in essence they are the inverse of the swap spreads. ABXHE is a group index of swaps, where each index tracks swaps on different types of underlying credits.

What the charts are saying is that the spreads in general are widening out again, and in particular subprime is in even worse shape than in aug and sep.

I believe that bingobongo is trying to tell us that the worst has yet to come (and on this I agree).

[bingobongo]

the decay is continuing in the span of one day (since my previous posts)............and notice the futures for US markets as of 11:18pm est......

the credit maket will soon seize up again and global bourses will feel the pain except the decay this time is much worse that what occured in Aug...........

was 27.5........now 25

was 47 ......now 45

was 75......now 73

Edited October 19, 2007 by bingobongo

[Naam]

I believe that bingobongo is trying to tell us that the worst has yet to come (and on this I agree).

i hope BB is right. we bond investors who reinvest the lion share of our proceeds see after three meagre years with ridiculously low yields again light at the end of the dark tunnel.

[Firefan]

As for China and India I certainly agree that there will corrections along the way, BUT the trend is so clearly up, and the amount of new investor money entering these markets is increasing with staggering speed, wherefore I would not be surprised to see a doubling from here simply based on momemtum.

I diversify across the board between both asset classes and geographically (and currency wise) but am planning to remain overweight in emerging markets/China Etc.

Cheers!

[fletchsmile]

I believe that bingobongo is trying to tell us that the worst has yet to come (and on this I agree).

i hope BB is right. we bond investors who reinvest the lion share of our proceeds see after three meagre years with ridiculously low yields again light at the end of the dark tunnel.

Have been some pretty good times in IDR bonds in the last couple of years. Starting around July 2005 when BI rate was at 8.5% and with rates rising until they peaked in April 2006 at 12.75%.

Then a series of cuts all the way down again to 8.25% now, including 5 successive rate monthly rate cuts of 50bp followed by 3 of 25bp from Jul2006-Mar 2007 from 12.25% down to 9.0%.

Some people were not having meagre times, if positioned right for both these trends. Have to admit I was mainly an incountry observer for the large part tho'

[cclub75]

I think we should not forget... geopolitics.

Even though I agree that the markets could crash (credit crunch, bubbles in the US, monetary disorders etc.)... I know that the markets will crash if... there is an attack on Iran.

I really do believe that Israel will not stay quiet, in front of Iran.

Unless, there is spontanous regime change in Teheran... we are going direct to a confrontation.

It's enough to read this last statement of Simon Peres (president of Israel).

The stakes are too high, they will have to react.

Therefore, here is my bet : I will come back to emerging market, after the large... "discount" that will happen following the attack on Iran.

Edited October 19, 2007 by cclub75

[sonicdragon]

I believe that bingobongo is trying to tell us that the worst has yet to come (and on this I agree).

i hope BB is right. we bond investors who reinvest the lion share of our proceeds see after three meagre years with ridiculously low yields again light at the end of the dark tunnel.

Be careful with what you wish for ! As I'm sure we all know here, markets have a strong tendancy to overreact. If I'm not mistaken a lot of your porftolio is high yield non-sovereign long dated paper. I suppose you are mostly intending to hold them to maturity but if not then you could face some sizeable losses (from current market levels), and in the event of any defaults you would be looking at either even bigger losses or a frustrating experience as a creditor in a restructuring (and possibly bigger losses as well). Having sat on several creditor committees I can tell you that it's not an enjoyable situation, even when you bought the debt when it was already distressed as I did.

[Naam]

Be careful with what you wish for ! As I'm sure we all know here, markets have a strong tendancy to overreact. If I'm not mistaken a lot of your porftolio is high yield non-sovereign long dated paper.

more than 50% of the value maturing within the next 5 years

I suppose you are mostly intending to hold them to maturity but if not then you could face some sizeable losses (from current market levels),

i never considered book losses a tragedy Dragon except... when i was caught pants down nearly a decade ago facing margin calls nowadays i am relaxed with ~40% cash.

and in the event of any defaults you would be looking at either even bigger losses or a frustrating experience as a creditor in a restructuring (and possibly bigger losses as well).

i fully agree but learned my lesson well to sell even with considerable losses when the sh*t hits the fan. that's still better than waiting till the fan spreads the sh*t in all directions (my mistake in 1998 during the "vodka crisis").

[Naam]

Have been some pretty good times in IDR bonds in the last couple of years.

very difficult to trade and the disadvantage of 20% tax at source.

[Naam]

a question for the stock market/share lovers. how do you make a living with your investment (assuming you live of it and don't earn your money by working)? are you continously selling what went up to cover your living expenses? or are you well off enough to pay for your expenses with just the dividends?

[sonicdragon]

Be careful with what you wish for ! As I'm sure we all know here, markets have a strong tendancy to overreact. If I'm not mistaken a lot of your porftolio is high yield non-sovereign long dated paper.

more than 50% of the value maturing within the next 5 years

I suppose you are mostly intending to hold them to maturity but if not then you could face some sizeable losses (from current market levels),

i never considered book losses a tragedy Dragon except... when i was caught pants down nearly a decade ago facing margin calls nowadays i am relaxed with ~40% cash.

and in the event of any defaults you would be looking at either even bigger losses or a frustrating experience as a creditor in a restructuring (and possibly bigger losses as well).

i fully agree but learned my lesson well to sell even with considerable losses when the sh*t hits the fan. that's still better than waiting till the fan spreads the sh*t in all directions (my mistake in 1998 during the "vodka crisis").

OK, so you are talking about investing your idle cash if/when prices come off to a level that stirs your interest. Fair enough. Sounds like you obviously know what you are doing

The russian debt crisis was indeed brutal on a whole range of investors. Those who experienced it first hand are unlikely to forget it in a hurry. And well-seasoned investors know that history has a way of repeating itself, usually in slightly different ways but nevertheless broad similarities exist in many financial crises.

[fletchsmile]

Have been some pretty good times in IDR bonds in the last couple of years.

very difficult to trade and the disadvantage of 20% tax at source.

Yes difficult, which is one reason I never got round to it while there. But there were a few things to bear in mind for working around the WHT:

- pension funds are exempt (not very useful to most of us)

- mutual funds are exempt (could be a route - but lose your flexibility. Then again in an environment like 2nd half of 2006 I'm not sure you had to be very selective to make money)

- various tax treaties with different countries

- I also recall something about issues from foreign governments and agencies, but issued in Indonesia also being exempt, but bit hazy on that, and didn't see much in practice

[Naam]

OK, so you are talking about investing your idle cash if/when prices come off to a level that stirs your interest. Fair enough. Sounds like you obviously know what you are doing

actually that's not at all what i meant. in fact i was joking a bit. my strategy is to increase my cash as much and as fast as possible. before i settled in Thailand 2½ years ago my target was 50% cash by 2012 but this percentage will be reached (God willing) within the next 8-10 months by the "grace" of Thailand's low living expenses and mainly because of not sharing my income with the taxman.

by 2012 i am planning to hold at least 80% cash and with 20% of my holdings i might "play" around. the latter is based on the assumption that my gray cells still work as well as they work today. as a former scientist i am a realist and i am well aware that my remaining statistical life span of 15-20 years will pass in no time as the last two decades have passed. having no (deserving) heirs, only a wife who is a few years younger, i have started to look at investment as some kind of amusement and to keep the old brain occupied.

[Naam]

- various tax treaties with different countries

WHO or WHAT are taxes Fletch?

[Naam]

I really do believe that Israel will not stay quiet, in front of Iran.

Unless, there is spontanous regime change in Teheran... we are going direct to a confrontation.

It's enough to read this last statement of Simon Peres (president of Israel).

The stakes are too high, they will have to react.

Therefore, here is my bet : I will come back to emerging market, after the large... "discount" that will happen following the attack on Iran.

-this is the year 2007 and not 1981.

-Iran's nuclear facilities are spread all over the country. no such thing like a single target (Osiraq, june 1981) in easy reach except for suicidal pilots who will not have enough fuel to return.

-some pilots of the israeli air force might speak fluently arabic, but hardly any of them speak farsi.

-Iran is on alert, Iraq was not. the old trick won't work twice not to talk about the latest technology of SAM missiles Iran possesses.

-even the puppeteers of the village idiot (aka Leader of the Free World) are hesitating to advise a preemptive strike.

-assuming an attack happens and in the aftermath a blockade of the Straits of Hormuz will cause all assets worldwide (except precious metals) drop like a stone and not only emerging markets.

time will tell.

[sonicdragon]

OK, so you are talking about investing your idle cash if/when prices come off to a level that stirs your interest. Fair enough. Sounds like you obviously know what you are doing

actually that's not at all what i meant. in fact i was joking a bit. my strategy is to increase my cash as much and as fast as possible. before i settled in Thailand 2½ years ago my target was 50% cash by 2012 but this percentage will be reached (God willing) within the next 8-10 months by the "grace" of Thailand's low living expenses and mainly because of not sharing my income with the taxman.

by 2012 i am planning to hold at least 80% cash and with 20% of my holdings i might "play" around. the latter is based on the assumption that my gray cells still work as well as they work today. as a former scientist i am a realist and i am well aware that my remaining statistical life span of 15-20 years will pass in no time as the last two decades have passed. having no (deserving) heirs, only a wife who is a few years younger, i have started to look at investment as some kind of amusement and to keep the old brain occupied.

Joking ? ? I thought you were German ?

But on a serious note, we have very very different investment timeframes. I am thinking in terms of 50 years in the future and longer.

[fletchsmile]

Interesting perspective...

http://www.dailywealth.com/archive/2007/oct/2007_oct_12.asp

Do You Have the Guts for This Trade?

By Dr. Steve Sjuggerud

October 12, 2007

At 2:15 p.m. on Tuesday, September 18, 2007, Ben Bernanke surprised the stock market... He cut interest rates by half a percent.

While we can't know for sure, it appears that shares of homebuilders hit a bottom, on September 28. With history as our guide, the cut in interest rates by the Federal Reserve should seal the deal...

At the end of October 1990, the Fed cut interest rates to stave off recession. That cut was the beginning of a spree of interest-rate cuts... the Fed lowered rates 13 times between October 1990 and the end of 1991.

That first rate cut in October occurred within one day of the bottom of a bear market in homebuilding stocks. That bear market had been terrible... It lasted nearly a year and a half. Sentiment among homebuilders eventually dropped to the lowest levels in recorded history. And homebuilding stocks fell by 60%.

The subsequent bull market – kicked off by the October 1990 rate cut – was fantastic... Shares of homebuilders rose 554% in a little more than three years.

If you had the guts to buy homebuilders when sentiment was at record lows, and when the Fed kicked off its rate-cutting campaign, you'd have made an absolute fortune.

My friend, you have the opportunity to do exactly that, right now...

Three weeks ago, the National Association of Homebuilders announced that builder sentiment just tied its record low from the 1990-1991 recession. And the Fed just cut rates. The same two things that kicked off the last extraordinary move in housing stocks just happened again... except the move this time around could be even bigger than last time...

There's an easy way to size up value with homebuilders. This business isn't rocket science. They build homes. So all you need to do to value a homebuilder is take the assets and subtract the debts. Most of the time, that should leave you with something close to a liquidation value for the company (it's called the book value).

Historically, at real estate market peaks, investors have foolishly paid 100% premiums to book value to buy shares of homebuilders. And when real estate is suffering, investors won't even pay book value for homebuilders. So homebuilding companies sell at a discount.

On average, since 1980 (as far back as I have data), homebuilding companies have traded at a 50% premium over their book value. That's because investors expect that the homebuilders can make good money off of their assets.

But as of September 12, homebuilders were trading at a massive 26% discount to their book values. This tells us investors are scared.

And when you compare this to the overall stock market, you see how cheap it is... As a whole, U.S. stocks trade at a whopping 200% premium to their book values. To say it another way, stocks in general are four times more expensive than homebuilders. (Homebuilders are selling at 0.74 times book value, versus the overall market, which is selling for 2.97 times book.)

When I look back at the end of October 1990, stocks in general were "only" three times more expensive than homebuilders.

In short, right now, homebuilders are cheaper relative to the overall stock market than they've ever been, including late 1990, the worst time in the last generation.

I'm excited about this trade for many reasons. The biggest reason is simple... It meets my ideal criteria for investment: We now have all three things we're looking for when we buy. The three things don't come together often. When we get all three together in one trade, I call it the Holy Grail of the investment world. It's happening right now in homebuilders.

Longtime readers know these three things... In short, we try to buy 1) cheap, 2) hated investments, when 3) an uptrend is just beginning.

Right now, it appears we have that in homebuilders. And the upside potential is embarrassingly high…

Good investing,

Edited October 19, 2007 by fletchthai68

[Naam]

-Joking ? ? I thought you were German ?

-But on a serious note, we have very very different investment timeframes. I am thinking in terms of 50 years in the future and longer.

i'm Klingon holding (by coincidence) a german passport your timeframe is different as i assume you have children. unfortunately i don't (anymore).

[bingobongo]

next week should be a duzy.........as the credit tranche continues to degrade at an acclerated rate

only thing that saved the market was that today was Friday

this garbage paper was bought by the Europeans, the Chinese, the Japanese.........global markets will feel the pain

73 to 70 - AAA and AA

45 to 42 - A

25 to 22 - BBB

Dow13,522.02-366.94-2.64%

Edited October 20, 2007 by bingobongo

[sleepyjohn]

Interesting perspective...

<a href="http://www.dailywealth.com/archive/2007/oct/2007_oct_12.asp" target="_blank">http://www.dailywealth.com/archive/2007/oct/2007_oct_12.asp</a>

Do You Have the Guts for This Trade?

I too have been thinking along these lines Fletch.

Food and housing are the most basic of basics.

Two things make me hesitate:

1. The Homebuilders have in fact had a great run and are still up in general. I'm saying this from memory as my charting program is in the Windows side of my Macbook....it's true isn't it?

2. The classic time to buy is of course on a breakout. Without this one could have money lying dead in the water for years.

If one has the staying power although the breakout has not happened one may be tempted to average in. Have you done any research into the longest dead periods for housing?

[sleepyjohn]

I checked briefly on a yearly and here are initial notes:

The fact is that the homebuilders, although they have lost 50-90% are broadly at big multiples of their early 90s lows, often 10x or 20x.

The 90s downtrend was broadly 3 years, but there were sometimes sideways movements of 8 years or more after "breakouts". Right now we are 2 years or so into a downtrend.

The ETFs XHB and ITB don't go back far enough and I think the stocks require further analysis to get a better idea of the "mean" movement of the sector.

Edited October 20, 2007 by sleepyjohn