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Financial Markets Waiting to Change Direction?

Stock-Markets / Financial Markets 2009 Oct 25, 2009 - 08:14 AM GMT

By: Nadeem_Walayat

Stock-Markets

Best Financial Markets Analysis ArticleBritain's Great Depression caught the mainstream commentators and academic economists off guard (again), as the UK economy failed to grow by 0.2% in the third quarter as widely expected but rather contracted by another 0.4%. However the trend remains inline with my analysis and forecast of February 2009 that called for a low in the third quarter of 2009 followed by a small increase in GDP for the fourth quarter of 2009.


July's analysis (Engineering a Strong UK Economic Recovery into a May 2010 General Election ) suggested that a lower starting base for the economy sets up for a stronger statistical economic recovery into a May 2010 General Election as 1st quarter 2010 data is released during late April 2010 and revised yet higher during May 2010. That an unemployment starting to converge towards my lower unemployment target of 2.60 million by April 2010 rather than the 3.2 million mainstream view that will likely be revised lower in the coming months.

The bankster's that caused the Economic Pearl Harbour have been completely and utterly let off the hook by inept, incompetent mainstream politicians that are still more interested in seeking to maximise the amount they can defraud tax payers of in expenses, the price for which is being paid in Britain by the rise of the far-right which has risen in support from 3% of the electorate to about 8% today. During the week the far-right were given airtime on the BBC flagship political debate programme Question Time. Britains Great Double Dip Depression ensures the next few years are going to be tough both economically and socially as governments fight to prevent the OTC Derivatives Pyramid from Imploding into Financial Armageddon.

Financial Markets

The Dow, Gold, U.S. Dollar and Crude Oil all ended little changed on the week.

The Dow has given a strong performance from the March bear market lows confounding relentless bearish commentary that saw every dip as the start of THE CRASH!, and Gold which remains hinged to the outcome of the U.S. Dollar that still clings on by its finger nails to the earlier bull market scenario, though which implies an inter market relationship that says a higher dollar 'should' result in gold and stock market weakness, as ever timing will be in the detail especially as Octobers stock market correction was much weaker than expected, about half that which was required to correct the preceding advance to the 9,750 target which has not put the subsequent break above 10,000 on a particularly strong footing, therefore I remain skeptical of the current phase of the stocks bull market rally being sustainable, more on this on in depth analysis in the coming days.

Trading Lesson - Forecasting and Trading

Over time one learns the important difference between forecasting, which is scenario building and trading, which is reacting to price movements in real time. Why forecast ?

There is the incentive to stay attuned with the market mentally because the act of trading is not intellectually stimulating it is more akin to repetitive action akin to a martial art or sport where practice rules supreme, whereas forecasting is intellectually stimulating and aimed at giving insight into the mega-trends against which major corrections, even bear markets (with hedging) can be ridden out i.e. the peak oil mega-trend, the climate change mega trend, the population growth mega trend impact on agri-food's, the fresh water mega-trend and the emerging asian middle class mega-trend on consumer consumption and innovation. Therefore the primary purpose of forecasting is to arrive at a firm conclusion in the present that enables one to commit to a trend without which all we would be doing is looking back at what has happened and wishing we had par-taken in a particular investment trend.

However those that blindly believe their forecasts to be absolute after the fact i.e. even if they are going belly up are setting themselves up for an inevitable fall, as all forecasts at the end of the day are only educated best guesses at a particular point in time and must have a mechanism to negate the scenario's. Ironically recognising this fact can lead to the generation of more accurate forecasts as one is not psychologically committed to ones forecasts which is the downfall of many analysts that cling on to trends that have long since been negated by price action as we have observed this year with the stocks bull market rally, which IF a new bear market soon starts will conveniently be erased from the record.

Source: http://www.marketoracle.co.uk/Article14488.html

Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-09 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

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Most Popular Financial Markets Analysis of the Week :

1. Exploding U.S. National Debt Means Bye Bye Miss American Pie

By: James_Quinn

Don McLean was born in 1945 and grew up in New Rochelle, New York. He was one of the earliest Baby Boomers. He was born at the beginning of America’s last High, as described by Strauss & Howe in their book The Fourth Turning. America’s victory in World War II began a new 80 to 100 year cycle consisting of four turnings of 20 to 25 years. The four cycles are a High, an Awakening, an Unraveling and a Crisis. These cycles have been recurring throughout history due to the generational mood changes as people age.

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The demise of the G7 financial systems, currencies and economies continues to march along as incomes collapse.  The social welfare states and their banking system’s Ponzi finance-based economies are BROKE, their obligations and promises irredeemable and unpayable.

A debt spiral is in full view, irreversible with policymakers unable or unwilling and opposed to making the changes required to CREATE PRIVATE SECTOR INCOME GROWTH and control SPENDING, and which must be done to avert the final CALAMITY.

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5. U.S. Dollar Attacked by Central Bank Lilliputians Profting From the Carry Trade

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The US Federal Reserve continues to talk about their urgent Exit Strategy. My theory is they will be doing mostly talking and almost no doing. The nations that talk the least will be hiking interest rates the most, like Australia. The United States might be dead last in hiking interest rates. The credibility of the USFed will in the process continue to be harmed much more than already, which is rock bottom. The Dollar Carry Trade and the lost Petro-Dollar advantage will work to destroy the USDollar as the global reserve currency. The USFed will have to resort to unusual means to keep the world ‘interested’ and ‘involved’ in the USDollar at all. When they lose interest and involvement, the US$ will descend into the Third World. The USDollar will then be forced to find its true value, based on its own merit.

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6. If Bernake Doesn’t Raise The Fed Interest Rate Very Soon There Will Be BIG Trouble

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Their is No Economic Recovery-Its A Cover-up

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Comments

Shiva
27 Oct 09, 18:46
Dow Jones Predictions

I agree with you that we have gone too far too fast. But for the past month, the rise has not been a clear one (like July/August), instead it has been making ups and downs but with higher lows and higher highs.

Can't this just be a consolidation to the next move up? Based on earnings and current news I don't see what can trigger a sudden sell-off.

Do you see Dow going up again like in May?


Nadeem_Walayat
27 Oct 09, 20:38
Stocks correction

Hi

The correction was too mild, I would not be surprised if we see a lower low i.e. break the correction low, which ironically would be a sign of strength!


Kumar
28 Oct 09, 19:41
Your analysis on DOW & GBP

Dear Nadeem: Looking forward for your great analysis of US markets & GBP currency too.

I am visiting your site for your article every single day.

Thanks & Best Regards,

Kumar


Nadeem_Walayat
29 Oct 09, 09:40
Trading

Hi Kumar

been busy trading, not had the time to peform any analysis.

It takes several hours to arrive at a conclusion, so will have to be done during the weekend / emailed out sunday.

Best.

NW


Mo
01 Nov 09, 01:29
Where are the markets heading?

Hi Nadeem,

As always, excellent analysis.

Your forecast of the stealth bull market in Q1 and Q2 was impressive to say the least. I wish I had the courage to aggressively buy and hold for a few months during that time, I would have made a fortune! Still day trading and quick swing trades did give good returns.

What’s your take on the major sell off that took place in the US on Friday. The selling pressure was so strong and there was no buying to support it whatsoever! The overall tone has also changed in the media and the so-called financial analysts are advising people to sell

Where are we heading in Q4? Do you think the correction will be brutal or a normal pull back before resuming the rise back up? The biggest pull back we have seen so far was only 7%, so what do think will happen this time? We are already 6% down on the S&P and around 5% on the DOW?

Also what’s your take on the US market in the first half of 2010 will it resume growth or do you believe in the W-shaped double dip recession? I find it hard to believe that we will go back to the March lows anytime soon. I feel we are in the beginning of a new business cycle and it will take a few years before we experience a similar meltdown. I just hate the all doom and gloom analysts/economists like Roubini and Mark Faber. I feel they only want to make a lot of noise in the market by inducing fear – of course get free publicity and make money out of it. What do you think?

Finally, do you buy into this hyper-inflation theory? If so, then when do you expect it to happen? Is it a 2010 or so 2011 story? What sort of an impact will it have on stocks, oil and real estate?

Too many questions I know, but you are one of a very few analysts who I truly value their opinion.

Regards,

Mo


Nadeem_Walayat
01 Nov 09, 11:18
stocks where next?

HI

I am working on an update, will email out in a few hours.

I am skeptical of fundemental analysis because its only really useful in hindsight, offcourse by then the market has MOVED!

In March we were told corporate earnigns means no rally until 2010, as I warned to ignore. If you follow fundementals you will always be 6 months behind the market.

Hyperinflation is not visible. Stagflation is.

we are headign for a double dip recession the severity of which is not easy to gauage at this time, but yes it will hit stocks, but I suspect not commodities.

Anyway more on this in my update to complete...

Best

NW


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