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  1. #11
    Ancient Mariner HKG2301's Avatar
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    Quote Originally Posted by blackcap View Post
    Why would there be another 20% drop in US markets?
    Lots of reasons, starting with the fact that the economy is in recession, but markets are already back at pre-Covid levels. Nasdaq is back at February levels, FFS, and they were considered to be in serious bubble territory even then. Which kinda ignores the real state of the economy, with 30 million plus newly unemployed, a record retail sales drop and a 50% drop in GDP. Oh, and they're trying to re-open before actually recovering from Covid. Then there's the historic reaction to such a huge sell-off, very seldom ending in a V bottom. More usually, there's a dead-cat bounce (bear market or short squeeze rally) of about 20-30% before returning to re-test the initial low. At least. Even given the Fed's unprecedented support, I don't expect it will be any different this time.

  2. #12
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    Quote Originally Posted by peat View Post
    I just said coincidentally (before seeing this thread ) on the Ebos thread that this is NOT a DCB

    over 50% retracement and six weeks long so far means shallow and brief are not fit descriptions of what is going on.
    Are you implying onward and upward from here ?

  3. #13
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    Quote Originally Posted by blackcap View Post
    It certainly is. But you cannot tell me that you know for certain or are even positively sure which direction markets are going to take tommorrow or next week.
    Not suggesting anyone is certain about market direction, it's all a question of probabilities. There are charting statistics/indicators that can help, such as whether a market is overbought or oversold. Also economic indicators, which I touched on earlier and won't bore you with again. My guess is a re-test of the March lows, so I'm short the SPX with options as a hedge. But the next question is, what happens to the NZX (with Covid hopefully under control here) when/if the US markets (Covid definitely NOT under control) do tumble again?

  4. #14
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    No idea but I am picking at minimum a retest of the March lows at some time within the next 12 months as the effects of the lockdown ripple through company earnings and further dividends get cut.
    0% in the bank might be better than 0% in equity if combined with capital loss as well. At least in the short to medium term.

    People may even start to question trickle down economics and the need to artificially keep asset prices at elevated levels(see Bill English's concerns in his report). The Covid-19 lockdown might be the pin that pops the everything bubble.

    Or we could have a currency crisis/inflation first and asset prices continue to rise substantially in nominal and not so substantially in real terms and anyone in cash gets wiped out. I am picking the former rather than the latter but do not have strong convictions that this will happen. From what I read Mr Balance has pretty strong convictions it will be inflation/monetary crisis due to ever more unprecedented central bank monetary stimulus globally as well as rampant govt spending.

    I am hopeful NZ is not quite as insane as the US, China and Europe and the NZ dollar will hold some value but if foreign funny money is pouring in to buy NZ equities we will have no chance of any significant fall in asset prices.

    Negative interest rates means there is no limit to asset valuations. The only restriction becomes how much you can borrow and US hedge funds are closer to the monetary spigot than I am.

    Something else entirely may happen as lately historically significant events and actions seem to be happening on a regular basis e.g. the speed of the latest bear market and the size of central bank stimulus as well as the speed to the return (possibly (not likely in my opinion)) of a new bull market.
    Last edited by Aaron; 06-05-2020 at 03:51 PM.

  5. #15
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    Quote Originally Posted by ynot View Post
    Are you implying onward and upward from here ?
    no not at all
    nor am I implying there will be a new low.
    all Im saying is that it is a real bounce so far , no dead cats involved.
    For clarity, nothing I say is advice....

  6. #16
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    Quote Originally Posted by Aaron View Post
    No idea but I am picking at minimum a retest of the March lows at some time within the next 12 months as the effects of the lockdown ripple through company earnings and further dividends get cut.
    0% in the bank might be better than 0% in equity if combined with capital loss as well. At least in the short to medium term...
    You raise many good points there, Aaron. Food for thought.

    Definitely agree that inflation will be a problem, with this amount of US Fed spending (read 'printing'). Inflation in the USD eventually becomes inflation everywhere. We keep quite a bit in gold, silver and miners (eg GDXJ). Silver has taken a hit so far, but holding onto them all for now.

  7. #17
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    Quote Originally Posted by blackcap View Post
    Why would there be another 20% drop in US markets? Surely the best predictor of future US market prices is today's price? What do you know that all other market participants in the US do not know? Like ynot said, its really is the $m question. No one knows what tomorrow's prices will bring.
    Re-reading this, it sounds like you're saying if the market is up today then the 'up' price is correct, ie the efficient market theory. The market always settles at the 'right' price.

    So, if the market is up, it's predicting further 'up'...?

    That may have worked quite well the last few years, when BTFD (buy the dip) was the best, perhaps only strategy. Not sure that will be the case any more! ��

  8. #18
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    https://www.bing.com/images/search?v...t=0&vt=0&eim=1

    What an amazingly high bounce ! Snow Leopard would be proud of that ! Definitely a live cat but as the old saying goes a picture says a thousand words and purr-fectly encapsulates what would appear to be highly likely to happen next.

    I have been investing for nearly 40 years and have never seen a greater disconnect between share prices and the underlying economy and its likely future effect on corporate profits.

    I don't think people are going to go back to the shopping malls and get on aircraft and stay at hotels and eat out at restaurants just because the Govt says its okay. The Big Bad Bear is still lurking and I think we are right at the peak of the middle part of the W, except the last part of the W will be like an L shape....might take years for things to go back to anything like they were....take care out there folks.
    Last edited by Beagle; 06-05-2020 at 06:11 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  9. #19
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    Quote Originally Posted by Beagle View Post
    https://www.bing.com/images/search?v...t=0&vt=0&eim=1

    What an amazingly high bounce ! Snow Leopard would be proud of that ! Definitely a live cat but as the old saying goes a picture says a thousand words and purr-fectly encapsulates what would appear to be highly likely to happen next.

    I have been investing for nearly 40 years and have never seen a greater disconnect between share prices and the underlying economy and its likely future effect on corporate profits.

    I don't think people are going to go back to the shopping malls and get on aircraft and stay at hotels and eat out at restaurants just because the Govt says its okay. The Big Bad Bear is still lurking and I think we are right at the peak of the middle part of the W, except the last part of the W will be like an L shape....might take years for things to go back to anything like they were....take care out there folks.
    There is no disconnect. The reality is those with $ are sick with holding cash in the bank account. Low interest rates = only fools hold cash in the bank account for long periods of time. I know specifically those that accumulated cash reserves in the short term for the sole intention to buy equities. This is apparently in Warren Buffet's recent annual meeting where they said for the individual, holding gov't bonds that pay insane low interest rates - what does that mean when you factor inflation? Look at the 10 year bond rates?

    Investors are looking out for the longer term. They see people WILL go back to shopping, go to dining, go on travels, just like before. Why? Because like previous pandemics, they not permanent and human innovation always trumps fear. Vaccines will aid in getting out of the COVID19 transistion.

  10. #20
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    Quote Originally Posted by Aaron View Post
    No idea but I am picking at minimum a retest of the March lows at some time within the next 12 months as the effects of the lockdown ripple through company earnings and further dividends get cut.
    0% in the bank might be better than 0% in equity if combined with capital loss as well. At least in the short to medium term.

    People may even start to question trickle down economics and the need to artificially keep asset prices at elevated levels(see Bill English's concerns in his report). The Covid-19 lockdown might be the pin that pops the everything bubble.

    Or we could have a currency crisis/inflation first and asset prices continue to rise substantially in nominal and not so substantially in real terms and anyone in cash gets wiped out. I am picking the former rather than the latter but do not have strong convictions that this will happen. From what I read Mr Balance has pretty strong convictions it will be inflation/monetary crisis due to ever more unprecedented central bank monetary stimulus globally as well as rampant govt spending.

    I am hopeful NZ is not quite as insane as the US, China and Europe and the NZ dollar will hold some value but if foreign funny money is pouring in to buy NZ equities we will have no chance of any significant fall in asset prices.

    Negative interest rates means there is no limit to asset valuations. The only restriction becomes how much you can borrow and US hedge funds are closer to the monetary spigot than I am.

    Something else entirely may happen as lately historically significant events and actions seem to be happening on a regular basis e.g. the speed of the latest bear market and the size of central bank stimulus as well as the speed to the return (possibly (not likely in my opinion)) of a new bull market.

    You make some statements but with what backing or reference?

    What does Bill English know? He knows how to screw the average NZ worker with Kiwi Saver as it's a proven money tree for IRD to tax year after year.. while the smarter investor looks to buying tax free real estate. Show me where assets prices are elevated? Oil? = nope, precious metals? = nope, houses? = nope. In my view, prices have deflated as the 'money supply' has vaporised. If there was no gov't printing of $, we would be in great serious state to the point of having wars.

    Again, where's the proof of rampant inflation? In 2008 the US gov't did massive QE and have prices ran out of control? Nope. In recent events is the $3T in monetary printing in the US going to cause inflation? Again, look at the 'money supply'. Easily over $3T has been lost out of thin air through assets vaporisation.

    https://www.thebalance.com/causes-of...prices-3306094

    Above link talks of 2 key causes of inflatio - also worthy to click on the link on 'Quantity Theory of Money'.

    But the average NZ investor doesn't read this kind of stuff. They coddle around, see and hear what others say and bode along agreeing (such as at any point gov'ts go on a spending spree = inflation).

    The NZD currency is not going to hold value. That's because we're too small of a country and what we have to offer is 2 tricks. One = agriculture resource extractions and Two = Tourism. You can bet tourism won't come back any time soon and it would take AirNZ several years to regain what they last recently in global flights (as globally disposable incomes disappears). If you want a strong NZD, you need LESS of it's currency exported (as locals buy imported products because NZ doesn't make many things), and / or have more of NZ products exported as more currency flows into NZ than going out.


    Not sure where you mean about asset valuations in a negative interest rate environment. What negative rates really mean is savers of cash are punished and those that borrow are rewarded. So the person that has more incentive to borrow funds from the bank to buy more houses will stand in a much better position than the person that has cash (a solution where the rich get richer). Banks aren't going to give $ to anyone... just those that meet the requirement and the same would apply to corporate shares that try to vie for bank loans instead of borrowing privately from the public. There is no free lunch even at negative interest rates, meaning the banks (lenders) will gain more in the spread.

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