Some articles from Max

[maxmak]

1890= Index= 125
1920= 62
1980= Index= 125

This is what you can call as a cup and the handle was as below

2000 = 110

Target = 188

2006 Index= 210

Cup and handle Target was 188.

Population meanwhile increased from 100 million to 300 Million.
So it seems the Rise in Home Prices on a Historic Basis is justified.

*source CFO Asia May 2007

Now consider this:

Intrest rates peaked in 1980.
Intrest rates touched a Historic Low in early 2000

All this should be taken into account
*as this shows there is no Housing Bubble in USA.

If you consider Indian Reality
* One can say we are sitting on a Bubble but US ?

If you consider the above data.

The Housing Bubble bit in US is Very Very Overdone
and not a true picture.

US incomes in 1890 and 2007 are Vastly Diffrent.
So in this respect US housing seems Cheap.

So what is going on ?
Answer lies somewhere below:

* So all i see is a NET- FEAR PSYCHOSIS (NFP)
which has been created in the WORLD Psyche-

The grounds on which this premise is build would have been more justified had the Housing Index been at 1000.

but at 210 and with a correction currently - it might be anywhere around 150.


If from 125 it has gone to 150 in over 100 years or more.
Where is the BUBBLE?

Infact we must ask:

where is the GROWTH in the Real Sense in US REALITY.?

 

[maxmak]

China Factor - The Next Time BOMB?

Is China Playing Puppet Master to the Global Markets?

This morning, the UK Telegraph published an article titled
China Threatens nuclear option of dollar sales.


This has received more than the usual press because shifts in Chinese Policy are typically announced through government sponsored think tanks or academics.

This time however, the warning was given by two government officials which is a reflection of how serious this threat is. With $1.3 trillion in foreign reserves, most of which are held in US dollars, China has what it takes to cripple the US economy.

Selling US treasuries would mean selling US dollars, which may not so bad, but falling bond prices also leads to rising bond yields. At a time when the stability of US economy is hanging by a thread, any further shocks could have widespread consequences and China knows this.

Bond prices and the US dollar have already sold off on the back of the warning. The dollar is trading less than 50 pips away from its record lows against the Euro now.

China Refuses to Bend to International Pressure

The main reason for Chinas threat is continued calls for the government to revalue the Chinese Yuan.

The Senate Finance Committee recently backed a bill that allows the government to impose trade tariffs on Chinese goods if they brand China as a currency manipulator.

US Treasury Secretary Paulson was never in favor of pressuring China into a move, but the new bill will make it more difficult for the Treasury to avoid labeling China as a currency manipulator. The bill also allows the Federal Reserve to actually intervene in the currency markets to force an appreciation in the Chinese Yuan if necessary.

Senator Hillary Clinton has also recently called for restrictive legislation to prevent the country from being held hostage to economic decisions made in Beijing, Shanghai and Tokyo. The US as a whole has been cracking down on heavily on the safety of Chinese made products. Since the beginning of the year, we have had scandals involving Chinese imports ranging from toothpaste to seafood to toys.

China however refuses to bend to international pressure. They have always marched only to their own tune and whenever they get pushed to make a move, they only push back.

Remember the trade sanctions that US Senators wanted to impose last year? China responded by threatening to take any necessary action and at this stage of the game, they have both the political and economic sway to cause a big blow to the US economy and the US dollar.

The Power to set off a Dollar Collapse

China has the power to cause the dollar collapse from two angles. The first is an outright sale of US treasuries and correspondingly, the US dollar. The second is to cause the dollar to fall as a result of weakening US economic fundamentals.

Right now, the US economy is extremely vulnerable. Defaults are rising in sub-prime and Alt-A loans. Mortgage lenders and hedge funds are blowing up left and right. Even though the Federal Reserve seemed to be not all that concerned, the heavy schedule of first time adjustable rate mortgage resets over the next few months could mean more defaults to come.

The peak in mortgage resets will not be until October and after that, we will still be averaging $30 billion a month in resets going into September 2008.

For the average American, this means that interest payments on both mortgages and credit cards will rise sharply. Given that American Express has already reported an increase in late payments, we believe that a continued rise in interest rates could be too much for the average consumer to handle.

Will China Follow Through With the Threat?

However at the same time, we do not think that China will follow through with the threat since China and the US are interdependent. The US is a big importer of Chinese goods and China cannot stop buying US dollars.

Their current bond market is one tenth the size of the US bond market. The average bond market valuation currently stands at approximately 95 percent of overall GDP while Chinas market only represents 30 percent of GDP. With the US dollar likely to comprise a big portion of its managed float, as much as China tries to diversify, some of their money will still be used to buy US dollars and US treasuries.


The US on the other hand will back off its calls on China to revalue the Yuan given the severity of the consequences. A major slowdown in the US economy is in no ones best interest and China will continue to revalue the Yuan, but at their own pace. Therefore even though the US dollar has fallen on the news, further weakness for the time being should be limited.

With the 2008 Olympics just around the corner, China will do all they can to make sure they show on their best face to the world. This includes ensuring economic stability both domestically and globally.

 

[maxmak]

1929 Revisited?

1929 Revisited?

(* I will try and keep this short)
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A sharp fall in the indexes, should not set off the Alarm Bells.
Logically the case should be for a Bounce Back.
What about all the Stock Market Gurus Harping for so long- That the Markets will give way and result in a Global Financial Crisis ?
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Upto now my belief was that this is over done.
But the events that have taken place - around the world recently are Eyeopeners.
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Will we Melt ?
What does Melting mean ?
Melting a Candle of 15000 means it going back to ?
Melting in itself means loss of substance and a break down of the Candle to its lowest levels.
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Sensex: Technical structure is intact at 13900 levels.
What does this mean?
We are still enjoying the Ride and
We have a chance to move out of the Market still.
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Tommorow:

Dow Below 12750 ? Hangseng Below 20000 ? Sensex Below 13900?

Dow:
Having completed the First leg down from 14... to 12750...The Dow would initiall bounce back.

Ideally a Technical Bounce back to levels of 13400 would be ideal.After that it will come to threaten the 12750 levels.

If these levels get breached, We can look possibly to the Second step of 11500.

Sensex:

Ideally a bounce back from 13900 should take us to 14700- 14800 area.

After this 13900 can come under Threat.

If that breaks - we can look for :
12000 levels.

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What does all this point out:

The Bear has struck, It has tightened its grip on the World Markets.

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Why 1929 Revisited ?

What we are looking at is a loss of value in all kinds of Asset Classes.

This meltdown might result in a Sharper downfall.

Why and How:

Us market reliance on Chinese and Asian Markets has resulted in Negative productivity levels.

This means that the Rise in US markets and its prices has been based on Exhuberance.

After all how long can Credit markets keep on Expanding ?

Formula:
The Consumerism Age has come to an End.=The Savings Age has started.
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Cash is King.

The Release in Valuations will bring down only only the US markets but the World Markets to thier Knees.

What does this mean for India:

With a Sharp down turn in US and European Demand,
The end of age of Consumerism will bring down imports from India and Asia.
This will result in Order cancellations, Scaling down of Size,
All this will mean that we will revisit 1929 kind of issues worldwide.

Only this time 1929 which was affecting only the US will be playing WORLDWIDE.

What does this mean for all of us:

Scale down your Investments NOW,
dont wait for the whole Picture to unfold...............Sit as much as possible on CASH.

Best of Luck and Regards/Max Makhija