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blue skies

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  1. Budget will aim to get savers spending

    By Conor Ryan Political Correspondent

    Thursday, July 22, 2010

    As part of its plans to shape the December budget the Cabinet met for a full day session at Farmleigh yesterday to discuss the source of €3 billion in spending cuts.

    But a prominent theme in the discussions was the need for measures to encourage people to stop hoarding cash and start putting money into the economy. No specific proposals have been circulated. However, the notion of schemes to stimulate spending has been agreed.

    Taoiseach Brian Cowen said a variety of options would be considered to encourage consumers to return to the shops.

    "I think it is important to point out that domestic consumer spending is an important part of generating growth in the economy.

    "I think people increasingly are recognising that the confidence building we are bringing forward... is a crucial part of the recovery of the economy, so obviously we will... in preparations for budgets and preparing for the autumn term be looking at various initiatives in that area," he said

    The Department of Finance said the information guiding this philosophy was the economy’s savings ratio, which has shown people with money are preferring to hold on to it rather than spend it. This ratio is expected to double by 2012, relative to pre-recession habits.

    Justice Minister Dermot Ahern said this was a resource which needed to be tapped. "What we really need to do is try and get those people who are saving their money to spend their money in the economy."

    Previously, the Government had pointed to its capital spending programme as its preferred choice stimulus package. However, this will be cut by €1bn next year to contribute to the overall target of €3bn in savings.

    Last year, Finance Minister Brian Lenihan introduced a car scrappage scheme, which has boosted sales. It has not been proved whether this was spending brought forward from future years or if it stimulated unintended purchases.

    Ministers will meet again on Monday for their last gathering before the August break. In September they will begin focused department-to-department meetings to hone the proposed budgetary measures.

    The Government would not be drawn on the type of cuts discussed or potential new taxes or levies, but said all areas of spending were on the agenda and the Cabinet was eager to get the private sector active as a means to create jobs. "We must find a way of trying to loosen the purse strings and get out and start spending money," said a spokesman.

    Fine Gael finance spokesman Michael Noonan said the Government needed to be more imaginative and look at ways to restructure the public sector to deliver the most savings.

    This story appeared in the printed version of the Irish Examiner Thursday, July 22, 2010

    Read more: http://www.examiner.ie/home/budget-will-aim-to-get-savers-spending-125853.html#ixzz0uPW0Itta

    :o Now that the government has blowen its $ now it wants the prudent plebians to follow :unsure:

  2. Why Housing Market Bubbles Pop

    Why Housing Market Bubbles Pop

    Home price appreciation is not assured. Can you withstand the volatility in this market?

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    By Investopedia.com | 19.07.2010

    Unlike the stock market, where most people understand and accept the risk that stock prices might fall, most people who buy a house don't ever think that the value of their home might decrease.

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    Traditionally, the housing market has not been as subject to pricing bubbles as other asset markets have been because the large transaction costs of purchasing a home and the carrying costs of owning and maintaining a home discourage speculative behavior. However, housing markets do go through periods of "irrational exuberance".

    Mean Reversion

    Too often, homeowners make the damaging error of assuming recent price performance will continue into the future without first considering the long-term rates of price appreciation and the potential for mean reversion. The laws of physics state that when any object (which has a density greater than air) is propelled upward, it will return to earth because of the forces of gravity act upon it. The laws of finance say that markets that go through periods of rapid price appreciation or depreciation will, in time, revert to a price point that puts them in line with where their long-term average rates of appreciation indicate they should be. This is known as mean reversion.

    Prices in the housing market follow this law of mean reversion too - after periods of rapid price appreciation (or depreciation), they revert to where their long-term average rates of appreciation indicate they should be. Home price mean reversion can be rapid or gradual. Home prices might fall (or rise) quickly to a point that puts them back in line with the long-term average, or they might stay constant until the long-term average catches up with them.

    The Causes of a Housing Market Bubble

    The price of housing, like the price of any good or service in a free market, is driven by supply and demand. When demand increases and/or supply decreases, prices go up. In the absence of a natural disaster that might decrease the supply of housing, prices rise because demand trends outpace current supply trends. Just as important is that the supply of housing is slow to react to increases in demand because it takes a long time to build a house, and in highly developed areas there simply isn't any more land to build on. So, if there is a sudden or prolonged increase in demand, prices are sure to rise.

    Once you've established that an above-average rise in housing prices is primarily driven by an increase in demand, you might ask what the causes of that increase in demand are. There are several:

    1. An upturn in general economic activity and prosperity that puts more disposable income in consumers' pockets and encourages home ownership.

    2. An increase in the population or the demographic segment of the population entering the housing market.

    3. A low general level of interest rates, particularly short-term interest rates, that makes homes more affordable.

    4. Innovative mortgage products with low initial monthly payments that make homes more affordable.

    5. Easy access to credit (a lowering of underwriting standards) that brings more buyers to market.

    6. High-yielding structured mortgage bonds, as demanded by investors, that make more mortgage credit available to borrowers.

    7. A potential mispricing of risk by mortgage lenders and mortgage bond investors that expands the availability of credit to borrowers.

    8. The short-term relationship between a mortgage broker and a borrower under which borrowers are sometime encouraged to take excessive risks.

    9. A lack of financial literacy and excessive risk-taking by mortgage borrowers.

    10. Speculative and risky behavior by home buyers and property investors fueled by unrealistic and unsustainable home price appreciation estimates.

    All of these variables can combine to cause a housing market bubble. They tend to feed off of each other. A detailed discussion of each is out of the scope of this article. We simply point out that in general, like all bubbles, an uptick in activity and prices precedes excessive risk-taking and speculative behavior by all market participants: buyers, borrowers, lenders, builders and investors.

    The Forces that Cause the Bubble to Burst

    The bubble bursts when excessive risk-taking becomes pervasive throughout the housing system. This happens while the supply of housing is still increasing. In other words, demand decreases while supply increases, resulting in a fall in prices.

    This pervasiveness of risk throughout the system is triggered by losses suffered by homeowners, mortgage lenders, mortgage investors and property investors. Those losses could be triggered by a number of things, including:

    1. An increase in interest rates that puts homeownership out of reach for some buyers and, in some instances, makes the home a person currently owns unaffordable, leading to default and foreclosure, which eventually adds to supply.

    2. A downturn in general economic activity that leads to less disposable income, job loss and/or fewer available jobs, which decreases the demand for housing.

    3. Demand is exhausted, bringing supply and demand into equilibrium and slowing the rapid pace of home price appreciation that some homeowners, particularly speculators, count on to make their purchases affordable or profitable. When rapid price appreciation stagnates, those who count on it to afford their homes long term might lose their homes, bringing more supply to the market.

    The bottom line is that when loses mount, credit standards are tightened, easy mortgage borrowing is no longer available, demand decreases, supply increases, speculators leave the market and prices fall.

    Making Price Appreciation Estimates When Buying a Home

    Too many home buyers use recent price performance as a benchmark for what they expect over the next several years. Based on their unrealistic estimates, they take excessive risks. This excessive risk-taking is usually associated with the choice of a mortgage and the size or cost of the home the consumer purchases.

    Recent home price performance is generally not a good prediction of future home price performance. Home buyers should look to long-term rates of home price appreciation and consider the financial principle of mean reversion when making important financing decisions. Speculators should do the same.

    While taking risks is not inherently bad and, in fact, taking risks is sometimes necessary and advisable, the key to making a good "risk-based" decision is to understand and measure the risks by making financially sound estimates. This is especially applicable to the largest and most important financial decision most people make - the purchase and financing of a home.


    A simple and important principle of finance is mean reversion. While housing markets are not as subject to bubbles as some markets, housing bubbles do exist. Long-term averages provide a good indication of where housing prices will eventually end up during periods of rapid appreciation followed by stagnant or falling prices. The same is true for periods of below average price appreciation.

  3. Home price falls a 'near certainty': Grantham


    July 21, 2010 - 10:27AM

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    A US investor with a history of picking market bubbles says it is a near certainty that Australia's home prices will fall.

    Jeremy Grantham created a stir last month by claiming there was a bubble in the Australian housing market which would inevitably fall, and reiterated his view overnight, while looking for more price falls in the US and UK.

    ''Further …decline in house prices in the US is probably more than a 50-50 bet, and in the UK and Australia is nearly certain,'' said Mr Grantham, chief investment strategist of Boston-based fund manager GMO, in his quarterly note to investors.

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    Mr Grantham said economic growth in Australia, along with Canada, looked ''okay'' but both economies were propped up ''by raw materials and, so far, un-popped housing bubbles".

    Historical data on 34 housing bubbles compiled by GMO show that all but 32 returned to their earlier trend. The two exceptions are Australia and the UK, where home prices are climbing again after falls around the time of the global financial crisis.

    Mr Grantham's comments put him at odds with the Reserve Bank which said in May that Australia didn't face a ''credit-fuelled speculative boom'' in housing. The central bank has since said Australians were capable of servicing their mortgage debt levels, even while it has warned Australians against counting on speculation for wealth creation.

    The average median city home price rose 0.6 per cent to $468,000 in May, according to RPData-Rismark, with gains slowing after a year in which home prices rose by an average of 1 per cent a month.

    Macquarie interest rate strategist Rory Robertson said structural differences in Australia would prevent the steep falls seen in US and European markets following the financial crisis.

    Mr Grantham calculates Australian homes currently cost 7.5 times family income, while the RBA puts the ratio at five times, Mr Robertson said, lessening the amount of any potential decline.

    "The RBA and others have regularly observed that the up shift in our housing price-to-income ratio was driven importantly by the structural downshift in Australian inflation and mortgage rates in the wake of the early 1990s recession," said Mr Robertson.

    "If you judge that the downshifts in inflation and interest rates are structural rather than cyclical – and they are – then you wouldn't expect the price-to-income ratio to return to three, where it sat in the high-inflation world of yesteryear," he said.

    Mr Robertson has also said the abundance of non-coastal residential building in the US, along with lax lending standards set the stage for price falls. The situation was different in Australia, he said.

    However, Economist magazine this month said a "fair value" analysis of global property shows Australian property the most overvalued of any of the 20 countries the publication tracks, based on a comparison of the current ratio of rents to prices to a long-term average.

  4. NASHVILLE, Tenn. (MarketWatch) -- Economists and financial analysts are currently arguing whether the economy will experience a "double dip," a recession followed by a short recovery, followed by another recession.

    Some think the worst is behind us, and that output and employment will slowly but steadily increase during the next few years. Others believe we are headed for another crash. The lessons from the last business cycle favor the case for pessimism.

    Stock Charts Vs. Spreadsheets

    Market chart readers view stocks as being vulnerable to further declines, while fundamental analysts see stocks as a bargain given strong corporate profits, reports Barron's Michael Santoli.

    It has been said that if one laid all the world's economists end to end, they wouldn't reach a conclusion. Even so, a surprisingly large number of economists now agree that then-Federal Reserve Chairman Alan Greenspan made a tragic mistake. After the dot-com bubble burst in 2000, Greenspan opened the monetary floodgates.

    Specifically, Greenspan allowed the "monetary base" to increase 22% from June 2000 through June 2003. The monetary base, also called "high-powered money," is the base upon which bank loans are pyramided, expanding the total amount of money held by the public.

    During the same three-year period, Greenspan cut the federal funds rate -- the interest rate commercial banks charge each other for overnight loans -- from 6.5% down to 1%, the lowest federal funds rate in more than 40 years.

    The rationale for Greenspan's easy-credit policy was to provide a "soft landing" for the economy in the wake of the dot-com crash and Sept. 11 attacks. And for a while, it seemed he had succeeded. People marveled that housing prices continued to rise, even amidst the recession of 2001. Indeed, people referred to Greenspan as "the Maestro."

    In retrospect, economists across the political spectrum recognize the role Greenspan's Fed played in fueling the housing bubble. The more cynical analysts argue that Greenspan's policies weren't "easy" at all and merely postponed the inevitable day of reckoning for the economy. Rather than gritting its teeth and suffering through the necessary adjustments in the early 2000s, the nation got an injection of artificial credit that masked the underlying problems with a euphoric boom.

    The housing market eventually collapsed, as all bubbles do. At this point, Ben Bernanke was at the helm of the Fed. Unfortunately, he got his policies out of Greenspan's playbook, except Bernanke doubled down.

    Rather than pushing short-term interest rates down to 1% as Greenspan did, Bernanke has pushed them down to almost zero percent. And in contrast to Greenspan's 22% increase in the monetary base during a three-year period, Bernanke increased it by 94% in one year.

    The unprecedented monetary stimulus from the Fed, in conjunction with the massive deficits of the federal government, did succeed in partially re-flating the stock market and stabilizing home prices. Time magazine named Bernanke its 2009 Person of the Year, and Obama administration officials are taking credit for nipping the Great Recession in the bud. Yet the parallels with the Greenspan episode are clear.

    It makes no sense to "rescue" the economy by having politicians borrow and spend trillions of dollars. It also makes no sense to fix the horrible mistakes of the housing-bubble years by having the Fed create electronic money out of thin air to buy "toxic assets" from investment banks that would otherwise be insolvent.

    The alleged economic recovery is unfortunately just as illusory as the prosperity of the housing-bubble years. It is disturbing to consider that if this is the calm before the storm, then the pending crash will be painful indeed. In the current debate on the direction of the economy, those predicting a "double dip" have the stronger -- if more depressing -- case.

    Robert P. Murphy is a senior fellow in Business and Economic Studies at the California-based Pacific Research Institute.

  5. The agency said growth would be below historical trend over the next three to five years for two reasons: because banking and real estate will not contribute meaningfully, and the fall in private sector credit is dampening the growth outlook.

    The Moody's downgrade put its ratings in line other agencies. S&P downgraded Ireland to AA in June 2009, after lowering it to AA+ from AAA in March 2009, while Fitch downgraded Ireland to AA+ from AAA in April 2009 and then to AA- in November 2009.

    Moody’s has also downgraded to Aa2 from Aa1, the rating of Ireland’s National Asset Management Agency, its so-called bad bank, whose debt is guaranteed by the government.

  6. But one thing is worth mentioning today. :rolleyes:

    And that is the attitude towards the property market in the UK. Yep, if you expected us to come back from our trip whistling a different tune then you're going to be sorely disappointed.

    During the two-and-a-half weeks we were there, as we caught up with family, old friends, and even strangers, house prices were mentioned... once.

    The conversation went something like this - "How have house prices done in Australia? Here they've fallen a lot but they're starting to level off a bit now..."

    And then the conversation moved on. The person we were talking to didn't even seem to be looking for an answer.

    Of course it's always dangerous to generalise the attitude of an entire population based on a non-conversation with one person. But the fact that no-one else we spoke to even bothered to touch the subject speaks a thousand words.

    Try speaking to more than three Australians without house prices getting mentioned in general conversation - even if you're not talking about anything to do with house prices, odds are the subject will soon crop up.

    I mean, after three weeks away with barely one half-baked chat about housing it was appropriate that almost exactly at the point that we crossed into Australian airspace on the flight home yesterday that we overheard another passenger boring some other passenger with tales of the Australian property market.

    It was the usual stuff that we won't bother repeating. In fact, to be truthful after about two minutes of mind numbing boredom we quickly reached for the headphones to drown out the prattle by watching the remake of Clash of the Titans instead.

    What that conversation goes some way to telling you is that people in Australia are still super keen to talk about the housing market. And not only talk about it, but talk it up.

    They must see it as being like a hot-air balloon, the more hot air blown in the higher it'll go. Stop blowing in the hot air and the balloon soon falls to the ground.

    So while Aussie property bulls continue to blow hot air, in the UK they've given up.

    Because there house prices have already taken a battering.

    Although even that didn't stop The Independent newspaper asked on 30th June, "How long can the housing market avoid a crash?"

    Do you see how quickly the sentiment can change? Here the bubble blowers see rising house prices and think about how much higher they will go.

    In the UK people see fallen house prices and think about how much lower they will go.

    Even the UK 'renovate or detonate' shows were talking down the returns and talking up the dangers of property development and investment.

    In other words, the UK has been there and done that with property investment. And even more importantly, property investors have learned the one lesson that Australian property investors refuse to learn...

    And that is that house prices don't rise for ever.

    Look, I'm not saying that UK investors now believe that property prices will fall forever. That would be irrational. No-one would think that an asset price will terminally fall - without good reason.

    But when you think about it, why should it be such a crazy argument? I mean, if it's illogical to conclude that UK house prices will fall forever then on the flipside it has to be equally illogical to argue that Australian house prices will rise forever.

    However, as we've seen from some of our favourite property spruiking blogs in the few hours that we've been back, the hot air continues to blow.

    Anyway, while in the UK we tuned into one of the daytime property renovation shows. It was called "Homes Under the Hammer". A more suitable title would be, "Housing Under the Pump".

    It was the usual deal, hyperventilating male and female co-hosts following the story of a couple of property investors.

    But aside from the presenters' lack of Ventolin, something was different. The outcome of the show was different to what you would have seen a few years ago. Long gone are the days when mug punters could buy any crappy old terraced house in Morecombe or inner city Bradford and then see the price double despite the terrible renovations carried out by the hapless investors.

    Now property investors look as though they're lucky to get back more than the risk-free rate of return. So much so that the flipping houses approach has to give way to the buy-to-let approach - in other words, buying a house for income rather than capital gain.

    That's the point when the voices of the budding developers involuntarily rise an octave or two as they try to hide the disappointment of only making a 5% gain on the months of effort, "Oh, yes [up an octave], we've thought about renting it out [voice breaks], it's something [rises another octave] we'll definitely consider [cough]! Won't we Sebastian? [nervous laughter]"

    Seriously, for the amount of time and effort these people were putting in to one property development, working 100 hours plus per week on renovations, only to make a 15 thousand pound profit after eight months, they'd be better off working in a call centre or selling "I Love London" t-shirts on Oxford Street.

    The fact is, UK property is in a slump. There's no getting around it. And what's more, just as UK investors now recognise that share prices can fall as well as rise, they now realise that property prices can fall too.

    They realise there's no secret formula to property investing. There's no magic spell that ensures the never ending upward spiral in prices.

    They've heard the claims that rising population will prop up prices. That's why they bought so much property. That's why they paid over the odds. In the belief that population growth means higher prices.

    What they've now learned is that there's no verifiable, iron-clad relationship between actual population growth and rising house prices.

    Sure, there may be some correlation, but that doesn't mean that prices can't get ahead of themselves. That's where the property spruikers are blind to the impending disaster they're helping to create.

    The UK now is where Australia is shortly to be.

    You see, it's not the increase in population that pushes prices higher, it's the belief that that an increased population will push prices higher. And that has the effect of, you guessed it, pushing prices higher.

    That belief causes more investors to pile in.

    Share market investors would know of it as trading psychology. Top traders such as Murray Dawes recognise the peaks and troughs in the share market and can use it for profit.

    So make no mistake, the peaks and troughs of the share market are no different to the peaks and troughs of the property market. Whatever the property spruikers will tell you about housing being different.

    It isn't.

    Like any Ponzi scheme, those that get in early and get out before the bust will make a packet. Trouble is, those returns have been and gone, long ago. Those that are continuing to pile in based on the mainstream misinformation about population growth are paying the same too-high prices that UK property investors paid three years ago.

    But even more worrying than that is what happens when that light bulb is turned on above the property investors' head.

    That light bulb shines the light on the foolishness of the Ponzi scheme. The madness of the bubble. At that point investors realise there is no magic spell or formula, just a great big hoax.

    At that point buyers understand that there isn't a housing shortage. They realise population growth doesn't necessarily mean house prices always rise. And they also realise that ultimately a house is something to live in and not a get-rich-quick money-making scheme.

    That housing is a cost not an investment.

    That's when the bubble pops. UK property investors have learnt the hard way, and it seems they've got the message loud and clear.

    Australian property investors on the other hand continue to be spoon fed the same old guff about Australia being different - Rory Robertson has another crack at it in The Australian.

    All we can say is don't believe the spin. It may be galling for any Aussie to take a leaf from the Poms, but when it comes to the housing market it makes sense to learn from those that have actually experienced a housing crash rather from the chumps who continue to claim it can never happen here.


    Kris Sayce

  7. Been watching the FTSE closely for the last few weeks (foolish spreadbetter) and what I've noticed thus far as a newb is that the curve goes from 5400 - 4700 (aprox) and back again and it seems to do this irrespective of news. The news seems to come after to *justify* the movement. For example Dow plummets, then news comes out saying Markets worried about the Euro.

    Although it looks to me that with each successive cycle the highest point is a little lower (like 4350 this time round).

    And yes, agreed it's on it's way down again now - however I believe in around 7 to 10 days time it will once again rally and probably hit 4300.

    Good news is my housing short I placed 2 months ago is now making money...yeehaaa!

    As long as interest rates are low the share market will not crash to low.

    Who is doing most of the buying and selling? Fund managers , banks

  8. [quote name='Realistbear' date='15 July 2010

    Big correction in the stock markets.:

    Governments will keep interest rates low?

    Big drop in the Euro and Pound after weeks of rallying on non-news and cover-ups (stress test mularky).

    what currency is not rubish?

    The start of meaningful MoM house drops.

    Just like the US?

    The Double dip confirmed.

    We are looking into the abiss now the Abiss is looking at us?

    The promised austerity finally sinks in.

    Exports must equal imports, is that possibe with a overpopulated under industrialized Country?

    I think we are now at the tipping point of the greatest depression of all time. :(

  9. I agree, although watching Bardon argue with himself for nigh on two years does have it's own special amusment value.

    You must mean Bardon arguing with Aussieboy :unsure:

    The vast majority of the population have similar personalitys to different degrees.

    They are unable to judge their performance.

    Over estimate their importance and influence.

    Over estimate their past performance.

    Are happy and contented and looking forward to a great future even though their situation is bleak.

    The greatest point is that the less able you are, the more likely you will be to think you are great :D

  10. Even his house is in danger. Under Irish law his wife automatically owns 50% of it, but the other 50% can be sold to pay debts.

    Usually the wife is given the chance to buy her husband's 50% from the administrator. Often the bankrupt's private home is left alone by the administrator, but in this case his luxury house has attracted so much attention that the administrator may feel compelled to act.

    Any other property and assets automatically transfer to the control of the administrator, as will any earnings or pension payments FitzPatrick gets (the administrator will decide how much he needs to live on).

    Bankruptcy here lasts for 12 years. FitzPatrick can't be a company director during that time. He can't even borrow more than €650 without prior approval.

  11. King of BTL Speaks

    Landlords who are looking at hitting the big time when it comes to property investment will look at one couple in the UK with mouths agog.

    I have spent several mornings chatting with Fergus and gleaning some of his pearls of wisdom, gained from over two decades of investing in residential property and several more decades in business.

    His final tip is probably the best.

    If you are going to invest in property do it because you enjoy it. Only when you enjoy doing something are you likely to be prepared to put in the necessary effort and time to make the whole thing a success.

  12. Post Is that the Sound of a Dead Cat Bouncing?

    The markets are bouncing. Quick get on board before you miss the train. It’s all up from here.

    A 250 point rally in a week from very oversold levels is enough to get anyone’s heart racing. Is this the low of the pullback? Is the uptrend from March 2009 still intact and therefore is this the time to jump back into the markets?

    It could be. We have fallen 17% from mid-April to the lows in May which is a decent retracement. If the uptrend is still in play then you would expect the markets to find a base around here and start trending up again.

    To gain a better insight into whether this current rally is an opportunity or a bull trap we will have to dig a bit deeper under the hood.

    Volumes traded in the markets over the past week have been anaemic. For example yesterday’s volume of $3.7 Billion was in the top three lowest volume days this year apart from early January when everyone was on holidays.

    Usually I would say that a rally on very poor volumes after a huge sell-off was more than likely a bull trap, but the difficulty with judging the current rally in this way is that we are in the middle of school holidays in Australia and post the end of the financial year a lot of Fund Managers will be off to Bali with the kiddies.

    Our results season gets under way in August and the US reporting season is about to get into full swing. Most Fundies will sit on their hands during this period while they await the results to be released. Therefore it is to be expected that volumes will drop away in July and they have been doing so over the past few years only to see a bounce back in August.

    Therefore the current very low volume that we are experiencing is a seasonal occurrence. It may not be possible to disregard this rally based on the low volume that is behind it, but it certainly makes me wary of jumping onto this rally at this point. When the music stops the market can be hundreds of points lower in a couple of days and all of the new buyers will be trapped.

    To gain a better insight into whether this rally can continue it is perhaps better to have a quick look at the spread of data that is coming out at the moment.

    Australian business conditions appear to be stabilising at quite healthy levels. After hitting a two year high of +13 three months ago the Business Conditions Index has stabilised at +8.

    In the last two weeks we have seen the Central Banks of Malaysia, Taiwan, Korea and India all lift rates and after our strong employment numbers last week we are probably going to see rates raised here before long. Also the IMF came out last week to increase their projections for world growth in 2010.

    This all points to the recovery actually gaining a firmer footing as time goes on and would make current prices look like a bargain.

    Now what are the warning signs that we should be taking notice of?

    Chinese steel demand has weakened off substantially in the last few months. Iron Ore spot prices have collapsed to their lowest level for the year having dropped by nearly 40% since mid-April.

    This sharp slowdown in Steel demand may be a sign of weakening growth in China and could bleed through to weakness in our resource stocks going forward. The outlook over the next quarter will be weak and expectations may be set too high currently.

    I think it is far more important to be listening to China’s heartbeat at the moment than anything else.

    Also it is interesting to note that the correlation between stocks on the S+P 500 is at its highest level since the 1987 stock market crash as pointed out in The Wall Street Journal.

    This is not a call for an imminent crash but it is food for thought.

    Now let’s turn to the technical picture currently and ask ourselves whether now is a good time to buy.

    ASX 200 Daily Chart

    Click here to enlarge

    This first chart shows the ASX 200 daily chart going back to 2002. In it I have drawn an ellipse around every time the 35 day moving average has crossed under the 200 day moving average thus sending a long term sell signal.

    The first occurrence was in early 2002 just prior to a sharp sell-off that lasted until the beginning of the US/Iraq war in March 2003.

    The next occurrence was in early 2008. We all know what happened after that.

    The third occurrence was in early June 2010. I don’t know about you but that alone is enough for me to remain on the sidelines in the face of this current short term buy signal. Until the 35 day moving average is back above the 200 day moving average I have to say that the market is in long term downtrend.

    If we have a closer look at the market what do we see?

    ASX 200 Daily Chart

    Click here to enlarge

    This chart shows the number of times in the last few years that the 10 day moving average has crossed under the 35 day moving average. You can see here that when the 35 day is under the 200 day and thus in long term downtrend, a crossing of the 10 day moving average under the 35 day moving average has had a very high strike rate in terms of being a good intermediate downtrend sell signal. It is only while we were in long term uptrend that the signal had a lower strike rate.

    Also when looking at the long term price action in this chart you can see that the rally from the lows in March last year reached the 50% Fibonacci retracement at 5000 points in the ASX 200. If we are still in a secular bear market as I believe we are, then a retest of the 50% can be the beginning of the next leg and could take us back to the lows reached in March last year.

    We are in intermediate downtrend having just confirmed that we are now also in long term downtrend, but we have bounced 250 points in the last week.

    When looking at it from this point of view, the 250 point bounce looks like a drop in the ocean and if anything is a clear bull trap. I will not be advising anyone to jump on this rally, but that doesn’t mean that I’m not wrong. It just means that the big picture is far too bearish for me to try and pick up pennies in front of bulldozers.

    Murray Dawes

    For Money Morning Australia

  13. I can feel a payrise coming on.

    Santos Rises After Reports Shell May Take Gas Stake

    July 9 (Bloomberg) -- Santos Ltd., proposing a A$16.4 billion ($14 billion) gas project in Queensland, climbed the most in 19 months after newspapers reported Royal Dutch Shell Plc may buy a stake and become operator of the venture.

    Santos surged as much as 8.1 percent to A$13.79, the biggest gain since December 8, 2008. It was at A$13.69 at 12:33 p.m. in Sydney, compared with a 0.1 percent increase in the benchmark S&P/ASX 200 Index.

    Shell may spend A$2 billion to acquire as much as 35 percent of Santos’s Gladstone liquefied natural gas project, the Australian Financial Review said, without saying where it got the information. In a separate report, the Australian said the Hague-based Shell is competing with Korea Gas Corp. and China Petroleum & Chemical Corp., known as Sinopec, for a stake.

    “Shell probably have a better ability to deliver large- scale projects on budget and on schedule,” Mark Greenwood, an analyst with Citigroup Inc., said in a client note today. A pact “makes sense for Santos” because it reduces the competition for resources and increases the likelihood of further processing plants in the future, Greenwood said.


    Santos (STO)

    As someone who likes mining companies, I’m loathe to sell one, but this oil and gas company never seems to make me happy, as the share price reflects. Santos is about the same price it was a year ago. The one positive about a disappointing share price is a potential takeover offer. There’s been speculation about a takeover, but that’s all it’s been.

    Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.

  14. THE DISTILLERY: China ore bust

    Glenn Dyer

    Published 7:16 AM, 12 Jul 2010

    The Monday papers are full of politics, climate change policies, stories on mines and shipping, but the big yarn from the weekend, the continuing fall in China's imports of iron ore, went all but unreported, except for two reports.

    So an early morning bouquet to the Melbourne Herald Sun's Kerrie Sinclair for having the sense to read through the weekend Bloomberg newswires and spot the story (which a quick Google Saturday evening would have confirmed) that China's appetite for foreign iron ore (including Australia's), had cooled again in June for a third month. She wrote: "Figures from China's General Administration of Customs showed its iron ore imports in June slumped 9 per cent to 47.2 million metric tonnes, from 51.9 million tonnes in May. Compared with June last year, its iron ore imports fell by 15 per cent." The story was passed around the News Ltd tabloids, including the Daily Telegraph in Sydney and The Courier Mail in Brisbane.

    She could have gone further: compared to December's 62.1 million tonne figure Chinese iron ore imports are down 25 per cent. Now that's a big fall. Chinese steel prices are said to be down 17 per cent in the past few months. At the same time spot iron ore prices are now below the contracted levels from BHP Billiton and Rio Tinto at $US128-130 per tonne on Friday, and 7.5 per cent lower than the $US139-140 a tonne the previous Friday.

    The Australian Financial Review carried a report on China's trade surplus growing in June as exports rose and imports eased. But the AFR buried both stories. Trade seems to take a back seat to 'what if' political stories. But at least the AFR had coverage and spotted the downturn in iron ore (in a report on page 22). The Australian was lazy and carried a Wall Street Journal report that was written for an American audience and not Australia. So the paper missed the slump in iron ore imports (and a 17 per cent fall in copper imports as well). The Sydney Morning Herald missed the China trade story completely, let alone the fall in iron ore imports.

    The falls in iron ore imports and the second quarter and first half production reports from Rio Tinto later in the week, will ensure the mining tax issue remains in the public eye this week. The Sydney Morning Herald's economic editor, Ross Gittins gives the Gillard government a good kicking in his Fairfax column this morning over the new tax deal. "Tony Abbott is right. Julia Gillard and Wayne Swan have grossly misled the public on the cost of their abject surrender to the three big mining companies over the former resources super profits tax. They claimed that almost halving the rate of the tax – from 40 per cent to an effective 22.5 per cent – and making various other concessions demanded by the companies would reduce tax collections by just $1.5 billion over its first two years, a mere 12.5 per cent of the originally budgeted $12 billion. How was that unbelievably small cost achieved? Partly by shifting the goal posts."

  15. Only scum would talk to Laura like that.

    I give as good as I get!

    You offer me offence with out provercation.

    What does that make you?

    I come across scum offten, they are the type that bully people.

    Mostly they do it because they think they can get away with it.

    Scum are the product of their genetic and enviromental enviroments.

    What is your excuse?

  16. renters are scum.

    Many renters are no better than scum.

    Iam not, I can not speak for you however.

    Now Laura to my spelling.

    You have picked no me because spelling is my weakness.

    Get use to it.

    You think it was fun at school ? children are so small minded.

    As you gessed I was rejected for a bank loan by every bank in town.

    Feel happy about that?

    Now let me gess some thing about you, going on the photo, I would say you are a over weight , single, middle aged woman.

  17. David26

    Default October 2010 would be next opportunity to buy low re: charts

    October 2010 would be next opportunity providing all follows history; Bull Markets have three stages , first a slow upswing , second consolidated upswing when Investors desperate to find 'Parking Space' for money, (we are in beginning to middle of stage 2. Stage 3 Public and anyone else all gripped by 'don't want to miss out' like a Real Estate / Dot Com / Tulip / boom. See the charts at link below.

    Third stage is a growing bubble, irrational exuberance. Mentioned in evening news programs..."Today Tonight" "Should you be buying Gold?" Koshie holding the Breakfast Show in a Gold Vault. Third stage starts when people become aware of this small corner of the worlds 30 Trillion Economy, possibly strikes during a Sovereign Debt Default or recognition US Dollar is not a Safe Haven.

    Note: commentators as applied to Gold rarely use the words “Safe Haven” anymore. Plenty of people ready to buy scrap Gold, very few selling and no big talk from Media about Gold.

    Silver, you would not know the stuff exists lest of all that its very cheap, the Media is owned by the Elite, Silver is a very small market. Some estimate 200 Million Ounces actually available in World Stock piles. Half a Billion $ would dry up the Market.

    My thinking is when no - one is talking about something, especially Mainstream Media then its probably worth a look at. Physical Possession is only real safe way to own Metals. Stocks are very vulnerable as Silver is Mined as a By Product of Tin , Lead etc mining. Stocks are not a safe option.

    Deflation is probably the only scenario where Gold & Silver could be adversely effected. Even during the Great Depression after initial drop during Deflation phase Gold gained 30% after meddling by FDR and JP Morgan.

    Little known fact: JP Morgan avoided duty in Civil War by paying $300 to have another serve in his place. This was Legal, can't have the Elite's kids being blown to bits by Bullets Daddy manufactured.

    Today Silver is $18.40 USD per Oz, Aust Dollar @.86, that's $22 Australian, for an ounce in a 100 Ounce Bar, a machined coin is $26 to $27 for one Ounce. Buying a 10 Oz Coin the Machine price drops to $25.50.

    If buying the 1 Kg coin the cost per Oz is $24.17. It would not take much for Silver to reach an Australian Spot price of 24. Per Oz. ($19.50 US per Oz with Au Dollar at $.81 to the US $ = Aussie Spot of $24 per Oz in Bullion form not a shiny 10 Oz coin.

    The price of converting Bullion into Coin is not fixed, at present its about $5 an ounce, if Silver doubled in price the 'machine costs go up as % of cost of coin. Hence Silver coin of 1 Oz at $30 + $9 to $12 in overhead,

    Britain is putting a 20% GST on all Silver coins, US is preparing $600 'declaration' limit (Name & Tax Please).

    Ideally Silver and Gold will continue upward at steady pace, 14% up this last year. A good Investment is one that has a low probability of loosing 50% -100% of value. Silver is never going to loose 100%; highly unlikely 50%, 10 or 20% on ups & downs always a possibility.

    Long Term.... 2 to 5 years, the price should Triple. There is 1 Oz of Gold for every 15 of Silver in the ground. The price of Silver should normally reflect this ratio. Presently it takes 67 Oz Silver to Buy 1 of Gold (67:1). Ratio at (15:1) = $80 per Oz, that just reflecting the fundamental supply ratio. If reserves are as low as we think they are who knows ???

    GoldSilver.com News Headlines "Race to Debase - Middle 2010"


    Try the perth mint

    I am at a loss to know if silver or gold are a buy at the moment

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