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Crash Buyer

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  1. A reminder of this article on Babak's Trader's Narrative last month on that subject (commodity supercycle)


    with the running 10 yr average rate of return on all commodities (we assumed it was in USD).

    So, again it looks to be worth keeping an eye on when that 10yr avg. starts to peak and turn down i.e. the rate of increase slows and starts to fall. That could happen with prices rising more slowly for a time or following a blow off top but the timescales look to be coalescing...........


    A good summary from Babak. We hear alot about incremental demand from China and India, but what about potential withdrawal of demand growth from OECD nations? To me it's just looking at one side of the coin. I don't buy the paradigm shift at all. Or maybe Gordon Brown abolished the commodity supercycle instead of the UK business cycle by accident?

  2. I only came across Zeal a couple of years ago (H/T whoever linked it!) but it seems he's been pretty much spot on with his macro calls for the last decade. i.e. the equity secular bear and commdoties secular bull. Then within those he's also been very good on timing the cyclical bull/bears too. That chart of a projected hypothetical DOW has been pretty close hasn't it? Broke up through the upper resistance for a short while before the '08 crash but not by much and the projected '08 lows were spot on. I noticed he was hoping for around 4000 to really set up the next bull and we didn't get that, at least not yet.

    We need to see where the next cyclical bear low comes in (assuming we get another one before this secular bear is over). That might be the big low to buy into for the longer term, but will it be higher than '08 (as in his chart above from the 80s), lower (perhaps his 4000 or so target) or a Prechterian/Tamarian total collapse? P'raps we'll find out in 2013/14 or so. Not that long away now........

    I guess it ties in with Grantham's '7 lean years', although he now also seems to be favouring a paradigm shift in commodity prices (whilst allowing for a possible nasty crash first to shake people's confidence) over the remainder of his (and mine probably!) lifetimes.

    Carseller nailed this a couple of years ago on this thread too. Smart man.

    I think that the 4000 Dow low also ties in closely with Grantham's expected 400-500 on the S&P; there are certainly close parallels between their predictions for a 'lean' period up to 2016-ish. Buy-and-holders could be in for a rough ride.

    I must admit, I was originally quite sceptical about the commodity supercycle, but really it can just be regarded as a logical extension of the Kondratieff cycle. Therefore I'm against Grantham's commodity paradigm shift - as Grantham readily admits, the forecast sounds a bit too much like "its different this time".

    On the next low, my interpretation is that as the 33 year period is broken into 17 years sideways and 17 years with rocket pictures required, that the latter part of the first 17 years would be tending towards higher lows (it looks that way from the other chart, as below).


    If only I had the patience for buy and hold. Well, at least there should be plenty of long/short action in the interim period!

  3. Came across this one from March 2002. You may be interested if you've not already seen it...........


    Thanks RK. This certainly caught my attention, especially the bit from 2006 to 2010. Projected Dow trends using 1968-1982 historical data.


    So don't bother with buy and hold for next 5 years! Commodities I presume are inversely proportional.

    Especially now that two years of sharp rises in equities have conditioned short-termist investors to expecting a continuation (extrapolation), courtesy of the Fed, or whoever. Of course it's different this time.

  4. i got caught out a few years back with an oil etf whilst there was contagion in the markets

    re. the nat gas etf - it's a lame proxy for the price of the commodity then?

    I have been following the price of nat.gas futures this year and assumed the etf was tracking it

    well, i am not so sure now - but i was actually considering buying the etf as a long-term hold

    I'd consider it for short term trading only (so the tracking error is not as noticeable) - it looks like funds / equity ETFs are the better option. Personally I wouldn't bother with any of the (non-physical) commodity ETFs due to the roll problem.

  5. Just what I was wondering. How much of the shape is due to decay caused by the failings of the ETF? Costs/roll/leveraged/paying out divs etc

    If it only ever goes one way, it might be worth shorting it. I've thought of looking into this as a nailed on strategic trade myself - just need to find a great candidate - any ideas?

    On the long side, I think Nadeem recommended a trust in last year's e-book (I can't remember and don't have it handy, but if you can't find it let me know and I'll post it). The only one I could find online from Nadeem was First Trust ISE-Revere Natural Gas ETF (NYSE: FCG) in the link below.


    Most funds tend to track the Henry Hub, where prices have been struggling, I would have preferred NBP (UK) or TTF (Holland) as European prices have been much more bullish.

    Edit: Formatting

  6. :D It's packed full of goodies by the looks of it too. I'll post this snip from the section on China......

    Which I read as the mother of all bear traps. (By 'weather' he's referring to earlier remarks about the likelihood of last year's unusually bad weather being repeated, and thus if not, excess supply causing price falls).

    Thanks for this, always an excellent read. On your post above:

    In the last newsletter, JG argued that we were heading towards another financial collapse, the inevitable conclusion to the "hair of the dog" treatment (my way of describing the drunk going for another round of debt to solve his problems) that the Fed is providing. Indeed, the argument was that by this autumn, the bull would be exhausted and we should go to cash.

    Now, given the correlation between equities and commodities, surely this would create the buying opportunity outlined above? Of course if we consider that given we are already maxed out on fiscal debt, the logical get-out clause would be further (and massive) QE that would threaten seriously high inflation and therefore support the purchase of any hard assets that can preserve value. :ph34r:

    Just trying to join the dots.

  7. to ask - I havent been following hamilton on the spx and markets because I have been concentrating on the very few markets that I think that I have a hope of understanding. Has he been right so far or has he missed any targets yet?

    Last summer Adam nailed the silver low to the DAY. :ph34r:

    For the past couple of month's Adam's been expecting an SPX correction of at least 10% (and commodity corrections along with it) and is sticking with it despite the continued strength in equities.

    The argument in the latest essay is that end of QE2 in Jun will be preceded by the long-awaited correction.

  8. You don't think there could be a horrible short squeeze going on?

    Any blow-ups happening behind the scenes with top level government involvement on both sides? It's the new war you know.

    I just think it needs to get back to the 60 area sharpish and that we're now coming to the weak seasonal area for gold.

    On the specifics of the silver market, I thought it was going to correct in the 30's. :unsure:

  9. Recent posts from Nadeem and Adam Hamilton, backing up the "correction is not over yet" side.


    Immediate price action targets FTSE 6000 as we move into early April, then a correction that targets 5,800 as we move into early May, i.e. in line with the trend expectations for the Dow.


    Can the stock markets power higher indefinitely without a correction? Can the SPX continue advancing at its blistering 59% annualized pace? Not a chance. Extreme greed and complacency can’t persist for long. And once the sentiment pendulum starts swinging the other way, like it appeared to in early March, it isn’t going to stop until the opposite extreme is hit. And only a full-blown correction can generate the extreme fear necessary to achieve this.

    So odds are a correction still looms for the overbought stock markets. The early-March selling was a start, but it fizzled out prematurely. The earthquake is to blame for this, by the way. Most of that pullback happened before the quake hit, but once it did traders latched on to it and used it as an excuse to sell. But like all news, this story’s impact had a short half-life. As the shock of that event rapidly abated, so did traders’ fear. But it was premature as that selloff hadn’t yet come close to rebalancing sentiment.

  10. Thanks for that CB. People would do well to note his points on interest rates (lag economy versus the market which leads the economy) and oil (again reflects the economic outlook like markets themselves).


    Agreed - the consensus view is that impending rate rises will be negative for stocks, suggesting expectations of weak equities ahead. So if one was able to move the market, one might well do the opposite. :ph34r:

  11. Anyone got any thoughts about Nadeems latest or was it done already?

    I think it was discussed briefly, although IMO there was a lot in there that will already be familiar to regular Nadeem readers. :P

    Looks like Nadeem is finally formulating a 2011 stock market forecast (well, its only March):


    The most recent price action of a weakening copper trend is line with that of a weak stock market price trend. Whilst the stock market has bounced strongly from the recent lows, however the copper price continues to show relative weakness which suggests that the stock market trend over the coming months is going to find it difficult to break higher until the copper price trend again starts to out perform the stock market trend.

    A closer look at the copper price shows a market that is consolidating a strong bull run from the last significant low of 272 in June 2010, with the last low of 407.60 being a near perfect technical bounce off of support from the preceding high, therefore strong support lies under the market at around this level. In terms of the bull market trend, the break of the support trendline implies that the correction is not over in terms of time which at the very least suggests that copper is likely to test the 407 support and more probably break support before turning higher again. This suggests that copper has some months to go before the bull market resumes and since the stock market can be expected to lag copper then a resumption of a sustained stock market bull run is even further out, thus suggests that the stock market is likely to trend within a trading range for much of the summer months i.e. at least into July 2011.


    My interpretation of EWT suggests that the correction is going to morph into a trading range with an upward bias as the stock market attempts to break higher and thus there will be likely plenty of ziga ziga ah-ing Spice Girls style along the highs over the coming months to confuse the absolutists wave counts of both bulls and bears that will only become clear in hindsight. The overall trend of a trading range (with false upside breakouts more probable than downside breaks) that at least extends into Mid May and possibly all the way into July could look rather messy and be full of nasty whipsaws that would punish both the bulls and bears before the stock market sustains a breakout higher. The only question mark is when will the stock market break higher which my ongoing in-depth analysis will seek to resolve towards a final trend conclusion for the remainder of 2011 which this EWT analysis forms a mere part of.

    However it cannot be denied that the current rally is strong and impulsive in nature so the alternative is that this time EWT will work like clock work and generate an far easier pattern for the bulls at least to interpret and act upon which suggests a strong bull run into Mid May to well beyond the last bull market high of 12,391, that will once more leave the perma-bears end of the bull market calls busted once more, before the stock market enters into a summer correction (Sell in May and Go Away).

    Bottom line - There is nothing in EWT to suggest that the 2 year bull market is ending, if anything EWT implies stocks have another year of gains ahead of them. Immediate future is less certain, and leads me towards a volatile trading range with an upward bias into at least mid May and as late as early July in advance of sustained bull run out of the range. So perma-EWT bears can be expected to suffer from another year of amnesia as they scramble to re-invent another year of busted bear market calls.

  12. 100*(6109.7-5496.5)/6109.7=10.04%

    Personally I am more inclined to a higher low being printed between now and the end of the month than a lower low - but I shall wait and see.

    Thanks for that HAM, looking at sentiment I would tend to agree that it increasingly seems that was it. Maybe the presidential cycle and monetary stimulus are just too strong at this stage.



  13. Too quiet indeed.

    I've got a feeling we could be about to see a major downside move here. This isn't looking like recent corrections to me at all - stuff is just hanging there below resistance levels as if poised to make a move. Oil spike imminent? :unsure:

    I think if I had equity longs here I'd get out of them until this resolves.


    I certainly hope so - if the bounce is going to run out of steam then it should do around now.

    It just seems that everyone is turning bullish, that Japan-led falls were 'overdone' and Libya is not an issue anymore. In other words, the obstacles to a resumption of the uptrend are being put away.

    Where's that 10% correction I was promised?

  14. Had a few drinks so am just going to ask it once again to see where we are up to.

    Obviously I could not display such heresy on the main forum without being ousted as a bull and either banned or appearing in Bbanners sign off but I want to ask the few here that I regard as knowledgeable.....is there still a drop in house prices expected?

    I ask because I am not seeing it. Prices are increasing here, mortgages are increasing and inflation is making my bottom sore.

    I am beginning to wonder if the hpc mantra is self feeding and missing the reality of QE and the low BOE rate which seems likely to stay that way for a long time. This while ignoring increasing bank mortgage rates, deposits required and everything else.

    The costs of buying at a higher price before with a much lower rate seem to be far outweighed by buying now at a slightly reduced price at a much higher interest rate, especially over 25 years. I cant be the only one to consider this or am I missing something?

    I reserve the right to wake up with a headache and delete this before any of you are out of bed :lol: and replace it with my usual "."

    Well I'm still waiting for the rest of the house price crash. We've viewed some houses but everything is so over-priced (to a crash buyer, that is). IMO prices have crept back up to 2008 levels (just 1 year off the peak). Although with rising inflation, any real price falls would be limited.

    If you want another opinion, I'd offer Jeremy Grantham of GMO, who continues to warn that UK and Australian house prices will correct.

  15. From the last Jack's Wrap (Monday)

    That doesn't mean we won't go lower after a small bounce. You just try to understand where the market will find strong support, and possibly its bottom on this move. The oscillators on the short-term charts, once those levels are reached, tell us a lot. If they don't impulse up on the bounce, then we go lower still. I'd say focus on S&P 500 1264 and Nasdaq 2660. If those levels go we could see a more explosive correction down to 1200, or thereabouts, on the S&P 500 and around 2500 on the Nasdaq. Nothing out of the ordinary if that does take place.

    S&P 1257. Bring on the 10%-er.

  16. Thanks. Yes there are a number of issues. I already have PM positions in platinum and gold, but prefer there to go online with storage, commission accepted (I'm not a end of the worlder). Of course any trade is a bet but I'm looking to hedge the house price and my deposit situation vs a number of different scenrios playing out in the energy/metals - and currently in the process of putting some (totally subjective) probabilities on how things could play out and positioning in line with them. The tracking error issue with the energy ETFs does make it hard to establish anything like a hedge as I want though, and I don't want to put down the sort of money that's involved in even the mini options and futures.

    On your energy hedge, have you considered Shell or BP shares instead? No option roll and they pay dividends (BP still re-building payouts though).

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