Thursday, March 26, 2009
Monday, March 23, 2009
3 up-waves of a bear US share market rallies
The three waves of bear share market rallies (or three retracements from the great fall).
The 1st wave was inspired by the statements from Citi, JPMorgan and BofA that their 1st Qtr 09 results are expected to be better than expected, i.e. profits are returning. At the same time, US Treasury Secretary is announcing the TALP program that simply inject lots of cash so as to further 'blue' the banks' balance sheet. Due to aggressive provision in 2008, any recovery of bad or doubtful debts will provide a boost to profitability of banks. Given the large U.S. govt bailout money (cash injections) to key players of financial market, they will be able to honor each other contracts (including AIG), such that the 2008 provision was over-stated (due to earlier assumption of no significant bailout money).
Instead of the financial institutions using their own resources (which are almost all wipe out), the US govt (FED) basically took over the whole financial (in fact, gaming) system where FED acts as banker and players on the same table. FED simply took most of the doubtful loans into his own book, reimburse these 'failed' banks with money so that these banks are able to pay one another. There are leakages, where payments due to overseas counterparties, Deutsche Bank, UBS, ...etc.
Though the 1st wave had started, but it will be for a short period before other worries begin to weaken the investors confidence. The weakening economic activities will take away more jobs and also the other sectors' weaker profits. In addition, the banks are still sitting on a time-bomb of other existing housing loans (excluding sub-prime which by now are almost fully written off), personal loans, credit cards, and commercial business and properties loans while their other 'money-making' activities of the past, CDOs, CDS and other derivatives selling are as good as gone. The basic business loans' profits are low, due to the low interest differential charges levied, and high business risks. There is hardly any new business loans activated, instead it is mainly rolling over of existing loans while banks try to reduce their current loans' books slowly.
The 2nd up wave is expected to re-surface somewhere in June/July 09, due to the effect of global govts' fiscal stimulus which takes the form of slowing down workers' retrenchment while increases demand for other services and production. The businesses that cater to these govt projects will increase their investment. At the same time, the very low inventory situation in most businesses will also increase production to meet the increasing demand of govt fiscal stimulus. Benefits of tax credits (due to last year losses) will enhance the corporate profit reporting. These will reinforce the confidence that global economy are showing better sign of recovery.
The Oct's fear of last year will again pull back the market in Oct 09 and as unemployment remains high, it causes the market to pause and re-examine their confidence that all things are really back to normal. This pull back is likely to be shallow and short.
Nov 09 will start the 3rd up wave bear rally due to the benefit of statistical effect, the growing corporate profits, and confidence. By now, the release of better economic figures and sales will reassure the public and investors that things are back to normal and economy seems to be growing well. (This is what I earlier called the Tsunamic tide retreat or the calmness after the 1st major negative wave). Due to the weak data in 2008 in the 4th Qtr, the 4th Qtr 2009 results will look very healthy and makes the public feel great that economy is in full recovery. At the same time, the bullish outlook of the following subsequent six months (up to end 1st Qtr of 2010) will further push the bear rally to greater height, which DJ is likely to retrace back up to 10335. The confidence will persist till Feb2010.
While this confidence grew, the effects of FED massive money printing will reach its final effect of causing high inflation and thus, undermine the confidence of the USD to the point and pulled DJ down quite quickly to 5087. It will be a sizable amount of dumping of the USD and its assets around the world.
For a longer (and more macro) picture of global economy, please go to Andy Xie's indepth analysis at his website http://english.caijing.com.cn/2009-03-04/110111590.html
Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?
The 1st wave was inspired by the statements from Citi, JPMorgan and BofA that their 1st Qtr 09 results are expected to be better than expected, i.e. profits are returning. At the same time, US Treasury Secretary is announcing the TALP program that simply inject lots of cash so as to further 'blue' the banks' balance sheet. Due to aggressive provision in 2008, any recovery of bad or doubtful debts will provide a boost to profitability of banks. Given the large U.S. govt bailout money (cash injections) to key players of financial market, they will be able to honor each other contracts (including AIG), such that the 2008 provision was over-stated (due to earlier assumption of no significant bailout money).
Instead of the financial institutions using their own resources (which are almost all wipe out), the US govt (FED) basically took over the whole financial (in fact, gaming) system where FED acts as banker and players on the same table. FED simply took most of the doubtful loans into his own book, reimburse these 'failed' banks with money so that these banks are able to pay one another. There are leakages, where payments due to overseas counterparties, Deutsche Bank, UBS, ...etc.
Though the 1st wave had started, but it will be for a short period before other worries begin to weaken the investors confidence. The weakening economic activities will take away more jobs and also the other sectors' weaker profits. In addition, the banks are still sitting on a time-bomb of other existing housing loans (excluding sub-prime which by now are almost fully written off), personal loans, credit cards, and commercial business and properties loans while their other 'money-making' activities of the past, CDOs, CDS and other derivatives selling are as good as gone. The basic business loans' profits are low, due to the low interest differential charges levied, and high business risks. There is hardly any new business loans activated, instead it is mainly rolling over of existing loans while banks try to reduce their current loans' books slowly.
The 2nd up wave is expected to re-surface somewhere in June/July 09, due to the effect of global govts' fiscal stimulus which takes the form of slowing down workers' retrenchment while increases demand for other services and production. The businesses that cater to these govt projects will increase their investment. At the same time, the very low inventory situation in most businesses will also increase production to meet the increasing demand of govt fiscal stimulus. Benefits of tax credits (due to last year losses) will enhance the corporate profit reporting. These will reinforce the confidence that global economy are showing better sign of recovery.
The Oct's fear of last year will again pull back the market in Oct 09 and as unemployment remains high, it causes the market to pause and re-examine their confidence that all things are really back to normal. This pull back is likely to be shallow and short.
Nov 09 will start the 3rd up wave bear rally due to the benefit of statistical effect, the growing corporate profits, and confidence. By now, the release of better economic figures and sales will reassure the public and investors that things are back to normal and economy seems to be growing well. (This is what I earlier called the Tsunamic tide retreat or the calmness after the 1st major negative wave). Due to the weak data in 2008 in the 4th Qtr, the 4th Qtr 2009 results will look very healthy and makes the public feel great that economy is in full recovery. At the same time, the bullish outlook of the following subsequent six months (up to end 1st Qtr of 2010) will further push the bear rally to greater height, which DJ is likely to retrace back up to 10335. The confidence will persist till Feb2010.
While this confidence grew, the effects of FED massive money printing will reach its final effect of causing high inflation and thus, undermine the confidence of the USD to the point and pulled DJ down quite quickly to 5087. It will be a sizable amount of dumping of the USD and its assets around the world.
For a longer (and more macro) picture of global economy, please go to Andy Xie's indepth analysis at his website http://english.caijing.com.cn/2009-03-04/110111590.html
Full Article in Chinese: http://magazine.caijing.com.cn/templates/inc/chargecontent2.jsp?
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