Monthly Archives: August 2012
It has been my view for some months that all is not well in China. China is an example of the avalanche concept and is not a black swan.
The Economist (August 10) observes that “China’s balance of payments had recorded a deficit in the second quarter, for the first time since 1998”. The balance of payments records two different transactions, payments received for exported goods and services, and outgoing payments for assets. So while the exports earnings were very high, the funds leaving China to buy assets exceeded export earnings in the last quarter.
For at least a year technical analysis has provided insights into a slowing Chinese economy which has not been supported by economic data. American markets are finally showing concern about a Chinese slow down which was dismissed as recently as weeks ago. Major resource companies are now deferring new developments in the light of falling… Continue reading
It continues to surprise me that Australian investors place more emphasis on the Dow Jones index than any other overseas economic data.
Consider the following chart which compares the performance of the Dow Jones industrial index (black), the Shanghai composite (red) and the ASX200 index (blue) from a common base over a 3 year period.
It is apparent from the above chart that the Australian economy is now much more closely coupled to the Chinese economy than to the US economy. While short term moves in the Dow Jones have a strong influence on our market the primary longer term and significant influence is China as shown by the Shanghai Composite.
Perhaps more analysts should place more emphasis on the Shanghai Composite?
I always enjoy John Mauldin’s newsletter, Frontline. In his latest newsletter at:http://www.mauldineconomics.com/images/uploads/pdf/mwo081712.pdf, Mauldin draws the analogy between instabilities and complexities which lead to avalanches, and the instability on world markets. I can’t help reflecting on just how appropriate this analogy is given the current uncertainties on world markets.
While we continue to talk of the US market, the UK market, the German market etc., it is perhaps now more appropriate to think of a world market. While there will always be regional and sovereign differences in markets, with the advent of modern communication, interdependence of trade and rapid transfer of capital, the world market concept is more appropriate.
In the event of a significant incident in any one major economy, the effects are quickly felt across the world in all markets. Today it is entirely possible that a market changing event could… Continue reading
Investing is not easy. At the moment we have an apparent start to a new bull market at a time when world fundamentals are very difficult to interpret. There may or may not be a slowdown in China, Europe is a sinking ship; the US is weighed down by debt and political indetermination and there is the potential for a war in the Middle East. How does an investor interpret these events and have the confidence to invest?
As investors we need to keep things in perspective and it is a matter of looking at the long term performance of our stock market which has grown at about 12% per annum over the very long term. While in the short term there are some doubts, in the long term the market is likely to continue to perform at these rates and continue to outperform cash, bonds and… Continue reading
I noted this very interesting item on China from The Economist. In the second quarter China recorded a deficit in its balance of payments for the first time since 1998. This means that more money is leaving China than is arriving. Balance of payments records two things, payments for exported goods and services and payments for assets. So while the exports earnings were very high, the funds leaving China to buy assets elsewhere, exceeded export earnings in the last quarter.
According to The Economist, the reason for this is that many of China’s very rich are leaving the country (and many intend doing so in the future) and also they are buying overseas assets.
China’s very rich are the ones who are most likely to have inside knowledge of Chinas economic conditions. If the money of the very rich is leaving China everybody else should take note.
Yesterday the… Continue reading
September is often a critical month for the markets. With so much economic uncertainty, this September will be very interesting. There has been little news, good or bad from the EU in almost a month but Europeans are about to return from their summer holidays so things may hot up very soon.
The Troika is due to return to Athens in September and make a ruling on whether to release additional funding to Greece. In Spain the auditors are due to present their final report on the capital needs of Spain’s financial sector. No good news expected for Spain or for that matter, Portugal.
But Germany is the key. Will they continue to pour funds into bankrupt states? In Germany, the CSU party opposes a further Greek bail out. While Angela Merkel had support from the opposition SPD and the Greens to get her… Continue reading
What is wrong in China? China has grown at about 10% for many years and now is slowing to an enviable 7% growth. The stock market index gives an insight in the the economic health of a country, some 9 to 12 months in advance. Why then is the Shanghai composite (below) showing a continuing long term down trend typical of an economy in trouble rather than one which is a world leader with a long term growth of close to double figures?
Maybe there are some underlying factors? Consider two news items from the current issue of The Economist.
1. Prominent Chinese politician Bo Xilai has been dismissed from the party leadership and his wife stands trial, accused of the murder of a British businessman. A guilty verdict is certain under “a corrupt political party and a tame judiciary”. There are undoubtedly many similar examples that do not reach… Continue reading
There is much optimism in the markets now. With the EU situation far from resolved and significant problems in the US economy this optimism may be misplaced. But followers of the Coppock indicator will now be looking to enter this market.
It is interesting to note the RSI divergence on the ASX200 which does suggest a short term correction. The daily chart of the XJO below suggests that it the RSI trend line is broken then a correction is probable.
We are looking at a daily chart here so any correction may well be short lived and provide an entry opportunity.
Not advice of course, just an observation.
As an investor I must always ask if my investment strategy is correct and at what stage it might need to be changed.
My past strategy of being in bonds with very little exposure to the market has served me very well over the past 18 months and has outperformed the index by about 20%. The question is should it now be modified? I continue to be bearish but I am influenced by the Coppock indicator which is indicating a potential bull market so I must have more exposure to stocks. But how much exposure.
The ASX200 remains in a long term downtrend and the Shanghai composite is in a very bearish long term downtrend. If the Shanghai composite (a leading indicator for the Australian market) does indeed give us an insight into the future trends in China, then I cannot be so confident about the medium… Continue reading
Let’s tale this Coppock analysis a little further.Apart from a dubious signal in 1988,the Coppock indicator has served the technical analyst very well over the long term. When you consider the signals over a 30 year period, they have led to increases in the All Ords ranging from as little as 20% to more than 500% over a number of years. So what could be expected from this latest Coppock signal at the end of July of 2012.?
Consider the monthly chart of the All Ords below. It shows that we are still in a long term down trend and there is little evidence for a base or accumulation zone.
So while the Coppock indicator suggests that there is a high probability that there will be a recovery in the index, the magnitude of that recovery may well be minor. How small? Maybe of the order of 20%… Continue reading