Daryl Guppy: Dow May Crash to 7,500 If 10,600 Not Breached
Seeing there’s been quite a bit of interest in my recent comments on CNBC about the historical parallels between the Great Depression and the recent financial crisis, I thought it may be appropriate to elaborate further on the chart technicals behind the observation.
The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.
The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.
The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.
In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market. The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.
The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern. This was followed by a rapid market decline that created the first part of a long term double dip pattern. This retreat also exceeded the pattern projection targets with a fall of 28%.
Fast forward to today, we’re seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market. The rally peaks in the Dow appear in January and May and June. The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.
A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.
The head and shoulder pattern in the Dow and its downside targets, are invalidated with a sustainable rise above 10,600. A move above this level does not signal a resumption of the uptrend, but it does reduce the probability of a double dip.
It must be noted that while the behavioral patterns in 1930 and 2010 are similar, they don’t necessary point to the same result. But it does sound a warning that markets could continue to stand on the edge of a precipice.
Source: 2010 CNBC, Inc.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
“Ring Of Fire” – Bill Gross, No.10 in 25 Most Powerful People In Business And 3 Times “Fixed Income Manager Of The Year”
Bill Gross is the managing director of PIMCO—one of the world’s largest fixed-income asset management companies, with $1,001 billion in assets under management as of the end of 2009. He has being ranked No. 10 in Fortune magazine’s list of the 25 most powerful people in business. In 2007, he was named “fixed-income manager of the year” by Morningstar for the third time in 10 years.
In his February online investment outlook letter, entitled “Ring of Fire”, Gross lumps the U.S. in the “ring of fire” along with vulnerable countries such as Spain, Greece, Italy, Ireland, and the U.K. in terms of investment risk. He said all these countries have government debt approaching 90% of GDP!! And this, says Gross—citing a book by Carmen Reinhart and Kenneth Rogoff called This Time is Different—is bad news, as such high debt levels slow growth by 1% or more, slashing returns on investment and on financial assets.
Gross also cites a McKinsey Global Institute study titled “Debt and deleveraging: The global credit bubble and its economic consequences.” It looks at total debt, public and private, and concludes that countries that enter financial crises with lower initial debt levels can respond far better—explaining why India, Brazil, China, and Canada were relatively shielded from the recent financial downturn.
Gross advises investors to put growth and currency assets in developing economies, especially in Asia. He wrote: “When the price is right, go where the growth is, where the consumer sector is still in its infancy, where national debt levels are low, where reserves are high, and where trade surpluses promise to generate additional reserves for years to come. Look for a savings-oriented economy which should gradually evolve into a consumer-focused economy. China, India, Brazil and more miniature sized examples of each would be excellent examples.”
Similarly, he recommends investing fixed income assets in those same countries if possible, though, since emerging markets have less developed financial markets and lower liquidity, fixed-income investors may need to turn to developed economies. His top choice for now would be Canada, because its “conservative banks never did participate in the housing crisis and it stayed closer to fiscal balance than any other country.” His next choice is Germany. The one to avoid at all costs: the U.K.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
2010: The Best of Times or the Worst? – Robert Kiyosaki
“It was the best of times. It was the worst of times.” - Charles Dickens
Is the recession over? Are happy days really here again? Paraphrasing Dickens, my answer is, “For people who are prepared, 2010 will be the best of times. For many, 2010 will be the worst of times.”
The following are a few of my predictions and reasons behind them :
Prediction #1: The real estate market will crash again.
Pictured above is a graph of mortgage resets. In simple terms, a mortgage reset is when a mortgage comes due. In normal times, refinancing was a simple process…but these are not normal times. Some points of interest:
1. In September 2008, the mortgage resets hit $35 billion that month. That was the exact time the financial crisis hit. When people could not afford to refinance and began to default, the stock market and banking industry crashed.
2. The eye of the storm: In the summer of 2009 mortgage resets were low — around $15 billion a month. This is when optimists began to see “green shoots” in the economy. The green shoots were the eye of the storm. In 2010, as I see it, the second half of the financial hurricane hits. By late 2011, the resets climb to nearly $40 billion a month. The storm will not end until 2012.
3. The first half of the storm was primarily due to subprime defaults. The second half of the storm will hit more solid homeowners. The question is, can they weather the storm? Will Mac Mansion foreclosures be next?
4. In America, there are over 40 million people who own more than two homes. Can they afford to carry and refinance two or more mortgages?
5. Since home values have gone down, many homeowners will find they owe more than their home(s) are worth. Will the bank be kind to them?
6. The time for using your home as an ATM is over. This is crushing retailers and retail real estate. Shopping centers are in trouble. Strip malls are empyting as shopkeepers close — permanently. This will lead to the crash of the office, warehouse, and other commercial properties.
My prediction: Obviously these are the best of times if you are a buyer of distressed properties and the worst of times if you are a seller.
Other things I am watching for in 2010:
1. Will China crash? America’s crash has hit China in the gut. The Chinese are laying off millions of workers. Only massive government bailout is keeping the economy afloat. The Chinese boom will eventually go bust…but will it bust in 2010? Only time will tell.
2. When America stopped importing from China, China stopped importing from the rest of the world. This affects Asian countries as well as Australia, Brazil, and other suppliers of raw materials.
3. Fed Chairman Ben Bernanke is replacing toxic debt with new debt. By protecting his friends in the mega-banks, he is turning the U.S. into a zombie nation. The recession is over, but America is entering an era we will be calling The New Depression, a period when the rich become extremely rich but everyone else becomes poorer. Taxes will kill anyone working for a paycheck.
4. The U.S. dollar will grow weaker. If the dollar strengthens, we will have more unemployment because our goods become too expensive and we will export less.
5. The deficit will increase. The bailouts for the rich are killing the economy.
6. Israel may attack Iran. Israel will not tolerate Iran developing nuclear power, even if Iran claims it is for peaceful purposes. If there is an attack, oil prices will go through the roof.
7. Dead cat bounce. The current stock market rally will probably turn into a dead cat bounce. If the Dow drops below 6500, 5,000 may be the next stop.
The Best of Times
I know I sound painfully pessimistic. I know my predictions are bad news for most people. Yet, for others, bad news is good news.
The following are the bright spots for people who are prepared.
Prediction #2: Gold, silver, and oil will continue to be safe investments in 2010.
The following recaps the year-end prices of gold and silver:
YEAR GOLD SILVER
2000 $ 273 $ 4.57
2001 $ 279 $ 4.57
2002 $ 348 $ 4.78
2003 $ 416 $ 5.92
2004 $ 438 $ 6.79
2005 $ 518 $ 8.80
2006 $ 638 $12.78
2007 $ 838 $14.77
2008 $ 882 $11.33
2009 $1100 (approx) $17.50 (approx)
In 2009, the Dow rose approximately 18%. Gold rose approximately 25%. Silver rose approximately 50%.
By the end of 2010, I predict gold will be at $1,775 an ounce, silver at $24 an ounce, and oil at $85 a barrel. If Israel attacks Iran, these predictions will be blown away.
Prediction #3: The next market to crash will be commercial real estate.
Cash flow positive real estate will be even more affordable. 2010 through 2012 will be a real estate buffet for those with cash and access to credit.
My Personal Investments
As I stated in 2002, “You have up to the year 2010 to become prepared.”
The following are things I have done to prepare myself:
1. I started The Rich Dad Company in 1997 because I saw this crisis coming. For the past three years, I have tightened internal controls and prepared for global expansion via a franchise distribution system. The company is debt free with strong income.
2. 2009 was my best real estate year to date. With the Fed handing out large sums of money and pension funds looking for projects to invest in, my real estate holding company has acquired tens of millions of dollars for acquisition of bankrupt properties and development projects. Development projects are affordable again, as labor, material, and land costs are low and the government is generous with 40-year, low interest, non-recourse loans. People still need a roof over their heads.
3. My oil development projects have done well. We drilled three wells and hit oil on two of them. Government tax breaks for oil exploration remain generous, even for dry holes. Even if the economy crashes, we will still burn oil.
4. I took 90% of my money out of the stock market in 2007. If the Fed raises interest rates, the stock market and real estate market will collapse.
5. I loaded up on gold and silver between 1996 and 2004.
6. With the Fed printing trillions of dollars, cash is trash and savers are losers. As soon as I have excess cash I invest in oil, real estate, gold, and silver.
7. In a zero-interest-rate environment, debtors are winners…but only if you have good debt…debt that’s paid by tenants.
In Conclusion
A few years ago, Japan was ‘King of the Financial World.’ Japan’s economy was the world’s second largest economy — till the bubble burst in 1990. Japan’s budget went into deficit in 1993. Since then, the deficit has averaged 5.4 percent of GDP per year. As a result, Japanese government debt is now 200 percentof GDP today. The U.S. is following Japan, and China will follow the U.S.
We will not see much inflation because the Fed is not able to print enough money to replace the losses from the burst of the credit bubble. Also, factories have too much excess capacity due to lack of demand, which means prices for consumer goods will remain low and unemployment will remain high. Instead, we will see inflation in gold, silver, oil, some stocks, some real estate sectors, and food — not because values are going up but because the dollar is going down.
Welcome to The New Depression. And may these times be the best of times for you.
Source: Yahoo Finance
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
China May Overtake Japan As The World’s 2nd Largest Economy in 2010
Currently, U.S. is the world’s largest economy, followed by Japan and China respectively in the 2nd and 3rd placing. Because of this financial crisis, economists point out that China may have a chance to overtake Japan as the world’s 2nd largest economy in 2010, 5 years ahead of what the experts have anticipated. With China slowly conquering Japan’s export market and a reduction in productivity due to the aging population, this will cause a further decline in the Japan’s economy. The outlook for Japan for the next 10 or 20 years maybe quite bleak. Look at the Nikkei 225 chart below, the index for Japan stock market is still way way below the highest level in the 1990’s because of the famous “lost decade”.
In the 80’s, Japan’s GDP had surpassed that of U.S. once but now, Japan’s GDP is only 75% of that of U.S. and it is ranked No. 19 in the whole world. Japan’s unemployment rate is at 5.7% currently. For the 1st quarter of 2009, Japan’s economy has contracted 11.7% y-o-y, 2nd quarter GDP has only managed a 2.3% growth. Economists predicted that the Japan’s economy may decline by 3% this year and expand by only 1% next year; whereas China’s GDP is fore-casted to grow 8% this year.
At this point of time, China’s net income per capita is not even 10% that of Japan, but China’s economy has already overtaken that of Japan in terms of other economical factors. In fact, the purchasing power of the Chinese has already surpassed that of the Japanese in 1992, it is expected to overtake that of the American in 2020.
Will China overtake U.S. as the world’s largest economy by the year 2020? It is highly possible. Maybe China’s renminbi will replace U.S. dollar as the new world reserve currency by then too. Only time will tell.
Cheers 
Global Market Outlook For Week Beginning 28th September 2009
STI has the tested the 2700 level 3 times but is still unable to break this stubborn resistance successfully. It may experience a pullback to the immediate support level of 2560. If 2560 cannot prevent the drop, the next support levels will be at 2521 and 2424 respectively. Singapore market seems to have lost its upward momentum, it is now going through some consolidation before it has enough strength to break through the 2700 level, hopefully going towards the 3000 mark before the end of the year.
Trading for the China market will be light this week because of the 8 days “Golden Week” break. SSE will most likely consolidate between the 2600 and 3000 level, before it can gather enough momentum to break the 3000 ceiling to retest the early August high of 3478. At this point of time, signs are still showing that this is just a temporary halting of the upward momentum, the long term uptrend for SSE is still intact.
After breaking the resistance of 21200, Hang Seng quickly fall below this level in quite a drastic manner. It should find some support at around 20600 level, based on the uptrend line drawn starting early March. If 20600 cannot provide the necessary support, HSI may have a chance to fall back to 19400, the low attained in early September this year.
S&P 500 could not hold above the 1060 level for long and dropped consecutively for the next 3 trading days. The next immediate support will be at 1039, follow by the next uptrend line support of 1000 level.
NASDAQ did not have enough strength to power through the ceiling of 2167. As a result, it declined together with the general weakness in the US market. The next support for NASDAQ will be at the 2050 level.
Dow Jones is experiencing weakeness as well, with the next closest support at 9630. If this fail to provide the necessary flooring, the next critical support will be 9250. The 10000 level will be a very very tough ceiling to crack if it can trend upwards from here.
I can feel that the markets are slowly running out of steam as they have run too far ahead of the real economy. People are starting to realise that the “green shoots” are not really growing into small plants, instead some of them may have slowly turn into yellow weeds. Our Finance Minister Tharman has already forewarned us that we may have a double-dip recession next year, which I fully agree. The stock market has already factored in for a good economy recovery, it may turn down next year when the fundamental does not live up to the expectation. If this happen, we will most likely have a W-shaped recovery, rather than a V-shaped recovery predicted by a few TOO optimistic experts. A lot of experts associate this financial crisis to that of the Great Depression, which started from October 1929 and ended in July 1932, Dow Jones collapsed almost 90% after having a few powerful rallies. This current financial crisis started around October 2007, has it come to an end after just 18 months? I doubt so, we may see some after-effect of weakness, maybe in 2010.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
Global Market Outlook for Week Beginning 21st September 2009
Straits Times Index(STI) is currently facing a strong resistance at the 2700 level. If this ceiling can be broken, 2746 will be the next stubborn resistance. If 2746 can be penetrated successfully, STI may have a chance to hit 3000 before 2009 closes. I do not foresee STI can rise beyond 3000 level by the end of 2009 because the still sluggish real economy simply DOES NOT allow this scenario to play out. In fact, for STI to rally 86% since the March low of 1455, it has already run up too much and too fast ahead of the real economy.
3000 proves to be a very tough resistance level for Shanghai Stock Exchange(SSE) to crack. It may hover between the 2600 and 3000 consolidation range for some time before it resumes its uptrend to retest the early August high of 3748. The recent 23% correction for SSE is actually a good healthy correction, but it DOES NOT signal a reversal in the long term uptrend for the China stock market.
Since early March till now, HangSeng Index(HSI) has rebounded 93% and it has just broken its early August high of 21200. With this strong momentum, HSI should have a high chance to head further north towards the next 23300 and 26300 resistance levels before 2010 comes.
S&P 500 has just penetrated the 1060 barrier and the momentum should see it climbing higher towards the next resistance level of 1168. From the low of 666 in early March, it has only rallied 61% as compared to the impressive rally of 109% for SSE, 93% for HSI and 86% for STI.
NASDAQ is now approaching a strong ceiling at 2167. Since early March, it has staged a gain of 69% from its low of 1265, beating Dow Jones and S&P 500 in term of % increase.
Dow Jones is now moving feebly towards the critical 10,000 level. This will prove to be a very very DIFFICULT level for it to break. It has only rallied 52% from its low of 6469 and is the laggard among the 3 major US indexes.
As we can observe, the Asian markets have outperformed the US market since the start of the market rebound. I believe Asia, especially China and India, and emerging markets will lead the world’s recovery from the financial crisis, instead of the usual US and Europe. Just to quote what billionaire investor and commodity guru, Mr Jim Rogers, had mentioned: “19th century belonged to UK, 20th century belonged to US, 21st century belongs to Asia, especially China”. With US dollar weakening as each day goes by and possibly high inflation coming up, I will prefer to invest my money in Asia and commodities, eg. gold, silver, oil, precious metal, agricultural product…etc, rather than in US and Europe.
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
See How This HORRIBLE Financial Crisis Has DAMAGED Global Bank’s Market Capitalization!!!
Look at the DEVASTATING DAMAGE this global financial crisis has done to the market capitalization of well-known banks in the world!! Oh my God, see how much the asset value of Citigroup and Royal Bank Of Scotland(RBS) have SHRANK DRASTICALLY over the last one-and-half year 
Source: Bloomberg
Reversing the direction of our Wheel of Fortune – Singapore Flyer
Singapore Flyer is the world’s largest observation wheel, standing at a stunning 165m or the height of a 42-storey building – that’s some 30 metres taller than the famed Britain’s London Eye. As the wheel turns, you’ll be treated to a visual 360° feast of iconic and historical landmarks and views from the Marina Bay to the Singapore River, Raffles Place, Merlion Park, Empress Place and the Padang. It’s the only place to see Singapore’s magnificent cityscape.
The direction of the Singapore Flyer has been REVERSED for “a 6-figure sum” because feng shui masters said it was taking good fortune away from the city. The Singapore Flyer, which opened earlier this year, had originally revolved so that it rose to face the business district and went down overlooking the sea, the Strait Times newspaper said. However, masters of the ancient Chinese art of geomancy convinced the wheel’s management to reverse it so that it was not taking fortune away from the city.
“A number of feng shui masters had approached us to tell us that the Flyer is on the perfect site to pick up the good qi (energy) flowing into Singapore, but it was going in the wrong direction,” said Florian Bollen, the Singapore Flyer’s chairman.”The Flyer was going against the sun and taking fortune away from Singapore.” Bollen likened the change to the “completion of a perfect movie” to give a better story, but added that it costed the company a “6 figure sum”.
For visitors now riding one of the wheel’s 28 air-conditioned capsules, their view starts with beaches and housing estates in the east and culminates with a vista of the business centre.
Let’s hope this change in the direction of our Wheel of Fortune will bring more wealth into Singapore to help us soften the impact of the global financial crisis, which could possibly be the worst we have ever encountered since the Second World War.
Cheers
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