An interesting take:
http://www.compareshares.com.au/son13.php
Market turmoil: the next 24-48 hours are crucial
January 23, 2008
Clifford Bennett, Chief Economist, Sonray Capital Markets
The undeniable reality of any serious bout of market turmoil such as the one currently on-going, is that this is often when some smaller players rise to displace their larger competitors who may have over extended themselves. Both in the business world and the field of financial markets, further significant shake ups are likely.
Our forecast remains that equity markets lead by the US would over-react to the US recession, and then eventually decouple and recover.
This is a time of extreme opportunity. In saying this I am most certainly not suggesting immediately jumping back into the equity markets. Furthermore I am not suggesting that you “hang on for the long term”. In fact, who are these people, who tell investors from the professionals to the mums and dads, “don’t panic”? What sort of risk management philosophy is that?
In eastern Australia the first cracks are appearing that suggest a historically repetitive following of the US economy toward flat to negative growth cannot be ruled out.
This is the biggest shake out of equity and financial markets we will see in our lifetime. It still has a way to go. Those individuals and companies with excellent risk control procedures, with the guts to close out losing positions in a market like this, will be in a strong and cashed up position to take advantage of the opportunities as they occur. Watch for these companies, but there is no rush to buy back in.
In this kind of market it is a far better approach to be willing to miss the bottom, to be able to take a higher price perhaps, but also a higher probability trade, a little further down the track.
History shows us that some of the wealthiest families in the world attained their financial power through an intelligent approach to just such market melt-downs. All such stories relate to the early exiting of the market, a cash is king approach for a short period, then when the moment is right aggressive buying at bargain prices. Now I know that is a hell of a lot easier to say than do. Yet, on a day like today when the world is wavering, to remember this is a market opportunity, not something to be scared of, can provide an edge.
The current opportunity may be to short sell, I am not making that call, as while we are likely to see significant further falls in the US today, as people panic sell at the first chance of some liquidity, we may well be only 1 or 2 days from the low of this down wave.
I believe there is a very good chance that after next week’s corrective rally perhaps, the down-trend will again resume. Perhaps the most likely scenario is that global equity markets remain heavy for another 2-3 weeks, and then enter a long bottoming process, followed by our long forecast gradual de-coupling of global equity markets from the US equity market. The US equity market may well be left floundering near its lows by year end, while other markets recover sharply.
Key Forecasts:
- Fed will cut twice by 50 points in 2008.
- US economy will flirt with negative growth Q1, Q2.
- US equity markets remain at risk near term.
- China to remain a powerhouse.
- Global economy to remain firm.
- Commodities volatile but bullish.
- Gold target at US$495, US$800 achieved, US$1100 next.
- US dollar to continue accelerated collapse over next 6 months.
- Carry trade is old news and over, USD/YEN to decline to 103, 97.
- RBA to raise rates to 7.25% in H1 2008.
- Australian dollar will continue to climb, 93 cent target achieved, next parity $1.00, but in 2008, then 1.08 1.12 in following year.
- Global equity markets having suffered badly from US market weakness will nevertheless begin to recover.
- Australian equities increasingly aligned to global growth, and after some initial 2008 weakness can achieve 6,950, by year end .