China used to be called a sleeping giant, a reference to its huge area and population, mired in a bleak third world, unproductive economy.
It was twenty-five years ago that its Communist government began slowly transforming its economy into its present unusual mix; a somewhat free-market economic system within a still tightly controlled communist regime.
It takes a long-time to get an idle freight train moving and up to speed, especially when its crew is experimenting and learning as it goes. But for several years now China has been the world’s fastest growing economy. It is already the fourth largest in the world, its gross domestic product at $2.6 trillion, quickly gaining on Germany ($2.9 trillion), but still well behind the U.S. and Japan , the world’s largest economies at $13.2 and $4.4 trillion respectively.
Most economists project that within five years China will move into third place by passing Germany , and within ten years will move ahead of Japan into second place. And that in spite of expectations that China’s economy, growing at a super-hot 10% a year in each of the last four years, is on a dangerously unsustainable pace, and will have to be cooled down or risk runaway inflation.
China’s stock market has been on an even more impressive tear, exploding up 130% last year, and another 50% in just the first few months of this year.
In February, the Chinese government hinted that it might raise interest rates or take other actions to cool off its super-heated economy and stock market. Just those hints were enough to precipitate a sudden 8% one-day plunge in the Chinese stock market, which traveled in hours around the world resulting in the unexpected one-day 440 point plunge in the Dow in February, and triggering a two-week 7% pullback in markets around the world.
The Chinese government immediately downplayed its remarks to forestall panic among inexperienced Chinese investors, and they piled back into their market. It recovered and has now reached still higher highs, as have markets around the world.
With its investors calmed and euphorically bullish again, China ’s central bank announced a week ago Friday that it was following through on its previous hints, by raising interest rates and ordering China ’s commercial banks to set aside more of their assets as loan-loss reserves. It acknowledged that the two moves are aimed at taking some of the fuel away from its over-heated economy and stock markets.
Wall Street blew off the announcement as a non-event, saying the market never responds to the same concern twice, and having responded in February to the Chinese government's attempts to slow its economy with threats, the U.S. market won't react again to the same concern now that the Chinese government is following through with action.
However, former Fed chairman Alan Greenspan warned the world this week that the Chinese boom “is clearly unsustainable. There's going to be a dramatic contraction at some point.”
Wall Street immediately played down those remarks also, reminding investors that Greenspan had been a couple of years early with his warnings of ‘irrational exuberance’ in the U.S. market in the late 1990's. So, of course he must be wrong about China .
Okay. But last week, Li Ka shing, the richest man in Asia, said that China 's stock valuations “are in a bubble” and prices are likely to plunge. In Hong Kong this week he said, “As a Chinese, I am worried about the stock market in China .” He could also be wrong. But he didn't get to be the richest man in Asia by being wrong very often.
A governor of China's central bank also warned last week that “China's stock prices are excessive.” That was just a day after China ’s Premier Wen Jiabao warned of problems potentially coming for China ’s economy.
Why do I bring up China when foreign investors, including U.S. investors, are mostly banned from investing directly in China ’s stock market?
Because, as I noted at the top of the column, China is now an economic force in the world. No way can its powerful economy slow without affecting world wide economies, including U.S. exports. No way can its stock market tumble without affecting stock markets around the world. The speed with which the sudden unexpected plunge in its market in February transferred to U.S. markets, and markets around the world, was proof enough of that.
So let’s hope first that Alan Greenspan, and the richest man in Asia, and the Premier of China, and China ’s central bank, are wrong in being concerned about China ’s stock market being in a dangerous bubble that will have a bad ending.
But if they are right, then we’ll have to hope that Wall Street is right, that problems in China won’t be a big problem for U.S. markets.
31.05.2007. (14:34)
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THE DOW'S NEW RECORD HIGHS ARE DUE TO JUST SIX STOCKS! May 23, 2007.
The Dow has been setting frequent new record highs since October 3 (2006) when it closed at 11,727, above its close at the bull market peak of 11,723 on January 14, 2000 for the first time in 6 1/2 years.
Yesterday the Dow closed at 13,539. That's 15.5% above its level of October 3, and above its level of January 14, 2000.
So even though the vast majority of stocks on the NYSE, NASDAQ, etc., are nowhere near back to their levels of 2000, at least the 30 stocks of the Dow are, right?
Well, no. Not even close. The following is a list of all 30 stocks in the Dow, and where they stand in relation to their level on January 14, 2000.
Stock Price Jan. 14, 2001 Price mid-May, 2007 Difference DJIA INDEX 11,723 13,539 + 15.5% Alcoa 40.00 45.36 + 13.4% Altria 24.25 71.68 + 195.6%* AIG Group 76.04 71.94 - 5.4% American Express 53.16 64.27 + 20.9% A T & T 137.00 40.44 - 70.4% Boeing 44.00 96.48 + 119.3%* Caterpillar 25.97 75.51 + 190.8%* CitiGroup 43.50 55.08 + 26.6% Coca Cola 61.06 51.48 - 15.7% Disney 33.56 36.27 + 8.1% DuPont 67.39 52.04 - 22.8% ExxonMobil 41.87 82.77 + 97.7%* General Electric 50.33 37.34 - 25.8% General Motors 82.25 31.36 - 61.9% Hewlett Packard 56.25 45.58 - 19.0% Home Depot 61.94 38.53 - 37.8% Honeywell 59.87 56.98 - 4.8% IBM 119.62 106.70 - 10.8% Intel 51.53 22.99 - 55.4% Johnson & Johnson 46.84 63.58 + 35.7% JP Morgan Chase 49.25 52.29 + 6.2% McDonald's 42.60 52.50 + 23.2% Merck 74.12 54.15 - 26.9% Microsoft 56.12 30.69 - 45.3% Minnesota Mining & Mfg. 49.65 87.06 + 75.3%* Pfizer 37.00 27.37 - 26.0% Proctor & Gamble 58.50 63.00 + 7.7% United Technologies 31.90 69.21 + 117%* Verizon 56.31 42.61 - 24.3% WalMart 64.50 46.54 - 27.8%
Even with the Dow 15.5% above its peak of January 14, 2000, sixteen of the thirty stocks in the Dow, more than half, are below their closes on January 14, 2000, and not by a small amount. Those 16 stocks are down an average of 30%.
Even more indicative of how narrow the advance is, the Dow's gain has been entirely due to the unusual strength in just 6 stocks; Altria (formerly Phillip Morris), Boeing, Caterpillar, ExxonMobil, Minnesota Mining & Mfg., and United Technologies.
If just 3 Dow stocks, Altria, Boeing, and Caterpillar, were unchanged from their levels of January 14, 2000 the Dow would still be at its level of last October and 1.5% below its 2000 peak, rather than making new highs.
We don't know what to glean from this, except that if more than half of the stocks in the most bullish index in this bull market are down, and the index is up due to only 6 stocks out of the 30, it is more evidence that the new highs by the indexes are very misleading as far as how the majority of stocks are doing.
31.05.2007. (14:35)
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Malo Cramera: Jim also comes in liking Nastech (NSTK) and Acadia (ACAD) with next week's biotech conferences coming up. NSTK is a secular trend on an obesity drug and ACAD is a parkinson's and schizophrenia play.
08.06.2007. (22:32)
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There were no safe havens for investors this week.
The stock market gave back six weeks of previous gains in just three days. The catalyst for the sell-off was stronger than forecast economic numbers, and a speech by Fed Chairman Bernanke in which he said the Fed expects the slowing economy will recover some in coming quarters, but that inflationary pressures remain a problem.
Bernanke’s speech contained nothing new. That was exactly what the Fed has been saying in its monthly FOMC announcements since last fall. But, the stock market had not paid any attention before. This time it listened. The Fed’s worries about inflation, that those worries might cause the Fed to raise interest rates, took over.
The decision of the European Central Bank to raise interest rates in Europe added fuel to the fire. European markets plunged as much as 2% the day of that decision.
And from then on it was more of the same, with markets in Europe, Latin America, and the U.S. falling further in tandem with each other on Wednesday and Thursday. The markets in Japan and Hong Kong caught up with the rest on Thursday night, each tumbling almost 300 points.
So international markets also did not provide a safe haven.
The three-day plunge of 410 points on the Dow was a bit too much so quickly, and bargain hunters jumped in on Friday to help the market bounce back from Thursday’s low. But I doubt that the 3% three-day correction was the end of downside.
Meanwhile, for many centuries gold has been the traditional safe haven in times of rising inflation. But it was also no safe haven this week. Gold tumbled right along with the stock market, plunging $25 an ounce, or 3.7% for the week.
Bonds were no safe haven either. Disabused not only of the hope that the Fed will cut interest rates to re-stimulate the slowing economy, but alarmed that the Fed might even raise rates to try to ward off inflation, bonds suffered one of their largest weekly declines ever.
So the big debate now is whether this week was only a brief pothole in the road of the running bull, or the beginning of a larger decline.
As always, there are sound arguments on both sides of the question.
My own expectation is that there is more downside to go. My argument is based on two key points. The first is based on technical analysis. Having gone for one of the longest periods ever without even a normal 10% correction, the major market indexes are overbought above their 200-day moving averages to a degree that has always resulted in a correction at least back down to test the support at the moving average. The Dow’s 200-day moving average is at 12,385. That’s about 1,000 points lower, and would be a 10% correction from the Dow’s recent high.
However, it is not difficult to come up with a lower projection. The market has only become this over-extended above its 200-day m.a. seven times since the 1990s bull market top in 2000. Each time, the correction that followed did not end until the Dow was at least equally oversold beneath the moving average. Were that to happen, the decline would be to 11,100. That would be a correction of 18%. As severe as that sounds, it would not be a bear market, which is defined as a decline of 20% or more.
My other reason for expecting the downside has more to go than the decline seen this week, has to do with the market’s seasonality.
The market has a very long history of making most of its gains each year in its ‘favorable’ season of October to May, and suffering most of its serious declines in its ‘unfavorable’ season. The favorable season has ended.
It doesn’t happen that the market has a serious correction in its unfavorable season every year, but it does happen so consistently that over the long-term it pays well to factor the pattern into investing strategies.
Another seasonal consideration is that when the market does have problems in its unfavorable season, the ultimate low is most frequently not seen until September or October.
So a scenario that would fit in with the current overbought condition, and the seasonal expectations, might be to expect an initial decline now of 10% or so, followed by a summer rally, and then a second leg down to a lower low by September or October, just before the next favorable season signal is received.
12.06.2007. (09:38)
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Bundy
Sy Harding:
WHY CHINA MATTERS! May 25, 2007.
China used to be called a sleeping giant, a reference to its huge area and population, mired in a bleak third world, unproductive economy.
It was twenty-five years ago that its Communist government began slowly transforming its economy into its present unusual mix; a somewhat free-market economic system within a still tightly controlled communist regime.
It takes a long-time to get an idle freight train moving and up to speed, especially when its crew is experimenting and learning as it goes. But for several years now China has been the world’s fastest growing economy. It is already the fourth largest in the world, its gross domestic product at $2.6 trillion, quickly gaining on Germany ($2.9 trillion), but still well behind the U.S. and Japan , the world’s largest economies at $13.2 and $4.4 trillion respectively.
Most economists project that within five years China will move into third place by passing Germany , and within ten years will move ahead of Japan into second place. And that in spite of expectations that China’s economy, growing at a super-hot 10% a year in each of the last four years, is on a dangerously unsustainable pace, and will have to be cooled down or risk runaway inflation.
China’s stock market has been on an even more impressive tear, exploding up 130% last year, and another 50% in just the first few months of this year.
In February, the Chinese government hinted that it might raise interest rates or take other actions to cool off its super-heated economy and stock market. Just those hints were enough to precipitate a sudden 8% one-day plunge in the Chinese stock market, which traveled in hours around the world resulting in the unexpected one-day 440 point plunge in the Dow in February, and triggering a two-week 7% pullback in markets around the world.
The Chinese government immediately downplayed its remarks to forestall panic among inexperienced Chinese investors, and they piled back into their market. It recovered and has now reached still higher highs, as have markets around the world.
With its investors calmed and euphorically bullish again, China ’s central bank announced a week ago Friday that it was following through on its previous hints, by raising interest rates and ordering China ’s commercial banks to set aside more of their assets as loan-loss reserves. It acknowledged that the two moves are aimed at taking some of the fuel away from its over-heated economy and stock markets.
Wall Street blew off the announcement as a non-event, saying the market never responds to the same concern twice, and having responded in February to the Chinese government's attempts to slow its economy with threats, the U.S. market won't react again to the same concern now that the Chinese government is following through with action.
However, former Fed chairman Alan Greenspan warned the world this week that the Chinese boom “is clearly unsustainable. There's going to be a dramatic contraction at some point.”
Wall Street immediately played down those remarks also, reminding investors that Greenspan had been a couple of years early with his warnings of ‘irrational exuberance’ in the U.S. market in the late 1990's. So, of course he must be wrong about China .
Okay. But last week, Li Ka shing, the richest man in Asia, said that China 's stock valuations “are in a bubble” and prices are likely to plunge. In Hong Kong this week he said, “As a Chinese, I am worried about the stock market in China .” He could also be wrong. But he didn't get to be the richest man in Asia by being wrong very often.
A governor of China's central bank also warned last week that “China's stock prices are excessive.” That was just a day after China ’s Premier Wen Jiabao warned of problems potentially coming for China ’s economy.
Why do I bring up China when foreign investors, including U.S. investors, are mostly banned from investing directly in China ’s stock market?
Because, as I noted at the top of the column, China is now an economic force in the world. No way can its powerful economy slow without affecting world wide economies, including U.S. exports. No way can its stock market tumble without affecting stock markets around the world. The speed with which the sudden unexpected plunge in its market in February transferred to U.S. markets, and markets around the world, was proof enough of that.
So let’s hope first that Alan Greenspan, and the richest man in Asia, and the Premier of China, and China ’s central bank, are wrong in being concerned about China ’s stock market being in a dangerous bubble that will have a bad ending.
But if they are right, then we’ll have to hope that Wall Street is right, that problems in China won’t be a big problem for U.S. markets.
31.05.2007. (14:34) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
THE DOW'S NEW RECORD HIGHS ARE DUE TO JUST SIX STOCKS! May 23, 2007.
The Dow has been setting frequent new record highs since October 3 (2006) when it closed at 11,727, above its close at the bull market peak of 11,723 on January 14, 2000 for the first time in 6 1/2 years.
Yesterday the Dow closed at 13,539. That's 15.5% above its level of October 3, and above its level of January 14, 2000.
So even though the vast majority of stocks on the NYSE, NASDAQ, etc., are nowhere near back to their levels of 2000, at least the 30 stocks of the Dow are, right?
Well, no. Not even close. The following is a list of all 30 stocks in the Dow, and where they stand in relation to their level on January 14, 2000.
Stock Price Jan. 14, 2001 Price mid-May, 2007 Difference
DJIA INDEX 11,723 13,539 + 15.5%
Alcoa 40.00 45.36 + 13.4%
Altria 24.25 71.68 + 195.6%*
AIG Group 76.04 71.94 - 5.4%
American Express 53.16 64.27 + 20.9%
A T & T 137.00 40.44 - 70.4%
Boeing 44.00 96.48 + 119.3%*
Caterpillar 25.97 75.51 + 190.8%*
CitiGroup 43.50 55.08 + 26.6%
Coca Cola 61.06 51.48 - 15.7%
Disney 33.56 36.27 + 8.1%
DuPont 67.39 52.04 - 22.8%
ExxonMobil 41.87 82.77 + 97.7%*
General Electric 50.33 37.34 - 25.8%
General Motors 82.25 31.36 - 61.9%
Hewlett Packard 56.25 45.58 - 19.0%
Home Depot 61.94 38.53 - 37.8%
Honeywell 59.87 56.98 - 4.8%
IBM 119.62 106.70 - 10.8%
Intel 51.53 22.99 - 55.4%
Johnson & Johnson 46.84 63.58 + 35.7%
JP Morgan Chase 49.25 52.29 + 6.2%
McDonald's 42.60 52.50 + 23.2%
Merck 74.12 54.15 - 26.9%
Microsoft 56.12 30.69 - 45.3%
Minnesota Mining & Mfg. 49.65 87.06 + 75.3%*
Pfizer 37.00 27.37 - 26.0%
Proctor & Gamble 58.50 63.00 + 7.7%
United Technologies 31.90 69.21 + 117%*
Verizon 56.31 42.61 - 24.3%
WalMart 64.50 46.54 - 27.8%
Even with the Dow 15.5% above its peak of January 14, 2000, sixteen of the thirty stocks in the Dow, more than half, are below their closes on January 14, 2000, and not by a small amount. Those 16 stocks are down an average of 30%.
Even more indicative of how narrow the advance is, the Dow's gain has been entirely due to the unusual strength in just 6 stocks; Altria (formerly Phillip Morris), Boeing, Caterpillar, ExxonMobil, Minnesota Mining & Mfg., and United Technologies.
If just 3 Dow stocks, Altria, Boeing, and Caterpillar, were unchanged from their levels of January 14, 2000 the Dow would still be at its level of last October and 1.5% below its 2000 peak, rather than making new highs.
We don't know what to glean from this, except that if more than half of the stocks in the most bullish index in this bull market are down, and the index is up due to only 6 stocks out of the 30, it is more evidence that the new highs by the indexes are very misleading as far as how the majority of stocks are doing.
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Utjecaj gama zraka na mlade nevene
bravo za entuzijazam! cijenim! lijepi pozdrav! samo dalje s blogom!
03.06.2007. (21:58) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
Malo Cramera:
Jim also comes in liking Nastech (NSTK) and Acadia (ACAD) with next week's biotech conferences coming up. NSTK is a secular trend on an obesity drug and ACAD is a parkinson's and schizophrenia play.
08.06.2007. (22:32) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
NO PLACE TO HIDE! June 8, 2007.
There were no safe havens for investors this week.
The stock market gave back six weeks of previous gains in just three days. The catalyst for the sell-off was stronger than forecast economic numbers, and a speech by Fed Chairman Bernanke in which he said the Fed expects the slowing economy will recover some in coming quarters, but that inflationary pressures remain a problem.
Bernanke’s speech contained nothing new. That was exactly what the Fed has been saying in its monthly FOMC announcements since last fall. But, the stock market had not paid any attention before. This time it listened. The Fed’s worries about inflation, that those worries might cause the Fed to raise interest rates, took over.
The decision of the European Central Bank to raise interest rates in Europe added fuel to the fire. European markets plunged as much as 2% the day of that decision.
And from then on it was more of the same, with markets in Europe, Latin America, and the U.S. falling further in tandem with each other on Wednesday and Thursday. The markets in Japan and Hong Kong caught up with the rest on Thursday night, each tumbling almost 300 points.
So international markets also did not provide a safe haven.
The three-day plunge of 410 points on the Dow was a bit too much so quickly, and bargain hunters jumped in on Friday to help the market bounce back from Thursday’s low. But I doubt that the 3% three-day correction was the end of downside.
Meanwhile, for many centuries gold has been the traditional safe haven in times of rising inflation. But it was also no safe haven this week. Gold tumbled right along with the stock market, plunging $25 an ounce, or 3.7% for the week.
Bonds were no safe haven either. Disabused not only of the hope that the Fed will cut interest rates to re-stimulate the slowing economy, but alarmed that the Fed might even raise rates to try to ward off inflation, bonds suffered one of their largest weekly declines ever.
So the big debate now is whether this week was only a brief pothole in the road of the running bull, or the beginning of a larger decline.
As always, there are sound arguments on both sides of the question.
My own expectation is that there is more downside to go. My argument is based on two key points. The first is based on technical analysis. Having gone for one of the longest periods ever without even a normal 10% correction, the major market indexes are overbought above their 200-day moving averages to a degree that has always resulted in a correction at least back down to test the support at the moving average. The Dow’s 200-day moving average is at 12,385. That’s about 1,000 points lower, and would be a 10% correction from the Dow’s recent high.
However, it is not difficult to come up with a lower projection. The market has only become this over-extended above its 200-day m.a. seven times since the 1990s bull market top in 2000. Each time, the correction that followed did not end until the Dow was at least equally oversold beneath the moving average. Were that to happen, the decline would be to 11,100. That would be a correction of 18%. As severe as that sounds, it would not be a bear market, which is defined as a decline of 20% or more.
My other reason for expecting the downside has more to go than the decline seen this week, has to do with the market’s seasonality.
The market has a very long history of making most of its gains each year in its ‘favorable’ season of October to May, and suffering most of its serious declines in its ‘unfavorable’ season. The favorable season has ended.
It doesn’t happen that the market has a serious correction in its unfavorable season every year, but it does happen so consistently that over the long-term it pays well to factor the pattern into investing strategies.
Another seasonal consideration is that when the market does have problems in its unfavorable season, the ultimate low is most frequently not seen until September or October.
So a scenario that would fit in with the current overbought condition, and the seasonal expectations, might be to expect an initial decline now of 10% or so, followed by a summer rally, and then a second leg down to a lower low by September or October, just before the next favorable season signal is received.
12.06.2007. (09:38) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...