This market has to go backwards

Trembling Hand said:

Its because elephants decided to stampede

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I haven't read this in any technical analysis document before. I must do a google on 'stampeding elephants' and adjust my trading and investing accordingly.

Trembling Hand said:

I don't care what retail traders think or do. Just have a look at the H & S thread to see how clueless they are!!

The only thing that moves markets in sync with currencies are insto. That's why the AUD got F up big time last year along with the XAO. Global funds where retiring, risk adverse. The only thing that will move Indexes and currencies is global funds seeking risk or retreating from it.

Have a look at what is moving relative to other things,

safe USD to commodities Currencies. Don't argue with me about the safe bit.

Tech stocks vs old industrial (nasdaq v sp500).

Asian stock index vs Euro indices.

This is the basis of trading, funds are global and very fast in nature. They move quickly and they leave footprints forget TA, FA, and everything else. First learn why markets move ...... it isn't because a stochastic has reached oversold. Its because elephants decided to stampede

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Thanks TH. Your blood is worth bottling.

Try typing "Lemmings off a cliff" for a better result

Hmmmmm ... not sure what happened there? Elephant stampede did not pass GO nor collect $200.

Thanks TH ... I modified my response accordingly.

trainspotter said:

Hmmmmm ... not sure what happened there? Elephant stampede did not pass GO nor collect $200

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I actually deleted it because on further considerations it may of upset the kiddies

trainspotter said:

Try typing "Lemmings off a cliff" for a better result

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I remember the call of lemmings on this forum in December 07 by nioka, when i sold out of all my holdings, he called it a good time to buy

From memory my biggest holding sold was MAH at about 1.87, it's .41 now.

Trembling Hand said:

This is the basis of trading, funds are global and very fast in nature. They move quickly and they leave footprints forget TA, FA, and everything else. First learn why markets move ...... it isn't because a stochastic has reached oversold. Its because elephants decided to stampede

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This is something that is NEVER talked about on forums.

Wonder why?

Why markets move.

MRC & Co said:

This is something that is NEVER talked about on forums.

Wonder why?

Why markets move.

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Of course it is.
Software has even been developed to attempt to track the big players.
Works well.

stocksontheblock said:

I have put some thought into the latest rally, and for what it’s worth it’s going to go backwards - I don’t know by how much, nor the sectors it will effect.

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I'm new here and this is probably a silly question, but are you saying that markets go both up AND down?

Frogacle said:

I'm new here and this is probably a silly question, but are you saying that markets go both up AND down?

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I'm still trying to work out how a rally goes backwards.

kennas said:

I'm still trying to work out how a rally goes backwards.

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I suppose it's a bit like negative growth.

kennas said:

I'm still trying to work out how a rally goes backwards.

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I don’t think for a minute that I am suggesting a market goes down when there is a rally - upwards! I am asking why there is a rally, apart from the obvious, that people want to have some good news and move up, rather than down.

What I am suggesting is that this rally has no basis if all it is based on is company earnings.

Assume the market is bad, and I have $100, and my costs are $90 then in theory I have a cash flow position of $10. Not very good when I report it, is it? However, if I cut some production, reduce product costs (retail end), put some staff off, ease back on development I can reduce my costs to say $50. Just because I can now report a cash flow position of $50 doesn’t mean I have excess cash and hence my balance sheet looks better.

At some point, to remain a viable business I will need to produce more - assumption based on market getting better - employ some more staff and hence costs increase, and I go back to TRUE economies of scale, which might not be as bad as $90 for production costs, yet it wont remain at $50, so earnings will have to decrease later.

All in all, a bubble is created and we - possibly - end up no better off than where we are now! Just because you pump prime an economy doesn’t mean it will prove fruitful. If I recall, some 80% of the money of Government handouts was kept or not spent on anything that would prime an economy. The real world theory is: if I might lose my job, discretion spending can be tightened and I need to save more, and in real terms I am not saving to spend big later, I am saving to cover my a$s and reduce personal debt, then the rubbery market figures are just that, rubbery.

I would also add that what has surprised me is that very few people seem to have taken into account the VERY high increase in credit card debt. This will come back to bite, and could be the catalyst to start all this mess again. The US is experiencing just this, as well as Europe, with particular focus on the UK with personal debt ratio's, the last time I saw anything that suggested that it ran at some 130% to income – not including mortgages. Now this can’t be good, or can it?

HOWEVER, as always ride the wave up and make some money, yet I am merely suggesting that this is not the end of the bad news, bad results and extreme volatility in the market. I hope I am wrong!

Agree somewhat in theory but stockmarkets lead by 6 months or so.

Thats why economists get it wrong so often

stocksontheblock said:

this is not the end of the bad news, bad results and extreme volatility in the market. I hope I am wrong!

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There is always going to be bad news, bad results and, from time-to-time, extreme volatility. So don't worry, if you keep saying what you are saying you will, at some stage, be able to say you were not wrong (thus endeth the lesson in how to be a market commentator).

stocksontheblock said:

What I am suggesting is that this rally has no basis if all it is based on is company earnings.

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What else do you think it is you are actually buying when you buy a share in a company on the open market???

Assume the market is bad, and I have $100, and my costs are $90 then in theory I have a cash flow position of $10. Not very good when I report it, is it? However, if I cut some production, reduce product costs (retail end), put some staff off, ease back on development I can reduce my costs to say $50. Just because I can now report a cash flow position of $50 doesn’t mean I have excess cash and hence my balance sheet looks better.

At some point, to remain a viable business I will need to produce more - assumption based on market getting better - employ some more staff and hence costs increase, and I go back to TRUE economies of scale, which might not be as bad as $90 for production costs, yet it wont remain at $50, so earnings will have to decrease later.

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This logic is flawed. If a business has been able to restructure it's cost base and production output such that it is able to satisfy a change in demand (downwards) without going bust, and can now generate a consistent profit at the new demand level, then they are sweet! You seem to presume than an individual business must have growth to remain viable/profitable - that is simply not correct.

The big killer in recessions for earnings is normally a surprise drop in demand, leaving businesses with loads of inventory that they can't clear and so have to write it off and get rid of it below cost = big earnings hit. Added to that of course they are geared up for higher production than what is now required (too many staff, too many factories, too much debt or whatever = costs too high to be profitable = burn cash and go out backwards). In this current case, I think because the crisis started o/s, a lot of business saw a severe downturn coming, and had time to scale back costs, clear inventory etc, such they were ready for the down turn to some extent. That's why earnings now are not as bad as many forecast.

The only reason we need a return to growth is if investors want to see capital appreciation in our shares via earning growth. But in the absence of growth (or in a contraction), I'll take steady reliable profits anytime over a bankrupt enterprise and the loss of all value in my shares!

All in all, a bubble is created and we - possibly - end up no better off than where we are now!

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IMO I don't think the current rally is a bubble - the market overshot to the downside massively pricing in a scenario far worse than what it appears we actually have, so the market is just re-adjusting accordingly as earnings and other data confirms this.

Cheers,

Beej

Timmy said:

So don't worry, if you keep saying what you are saying you will, at some stage, be able to say you were not wrong (thus endeth the lesson in how to be a market commentator).

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LOL. Subtle

kennas said:

I'm still trying to work out how a rally goes backwards.

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yllar

skyQuake said:

Agree somewhat in theory but stockmarkets lead by 6 months or so.

Thats why economists get it wrong so often

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I keep hearing this one, and I hope your right.

Timmy said:

There is always going to be bad news, bad results and, from time-to-time, extreme volatility. So don't worry, if you keep saying what you are saying you will, at some stage, be able to say you were not wrong (thus endeth the lesson in how to be a market commentator).

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Yep, bad news in a good market is one thing, yet good news in a bad market is not always as good as it might seem.

Ohhh, and look out Alan K, I'm after your job!

Beej said:

This logic is flawed. If a business has been able to restructure it's cost base and production output such that it is able to satisfy a change in demand (downwards) without going bust, and can now generate a consistent profit at the new demand level, then they are sweet! You seem to presume than an individual business must have growth to remain viable/profitable - that is simply not correct.

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Maybe if I run a corner store I am not so much interested in growth, thats for sure, yet if I run say, BHP etc then I am in the business of growth. My product is finite and I must find more, or other products that I can diversify into, otherwise when I dig the last lot of 'stuff' out of the ground its the end of me.

As with many businesses in great times they have a tendency to have more staff than they need yet the business can carry it. Further, in mining particulary it costs more to close operations than it does to continue to run them. So, cut staff, run the plant and operation to maintain a baseline level of production and you still produce - yet not sell as much, cut costs in the short term and your books look better. This is fantasy reporting, not actual reporting for many businesses.

I would also suggest that these companies are not, "generate a consistent profit at the new demand level" as you suggested. My whole point about the lastest reporting season is that they have excess cash yet they have not generated or provided a new level of profit based on their products, the 'profit' is based on cost cutting, which is very different. If sales had stayed equal or increased then you would be right, however they have declined - possibly not in line with cost cutting, hence cutting outweights sales and sales - as a headline figure look better than what they are.

Beej said:

The big killer in recessions for earnings is normally a surprise drop in demand, leaving businesses with loads of inventory that they can't clear and so have to write it off and get rid of it below cost = big earnings hit. Added to that of course they are geared up for higher production than what is now required (too many staff, too many factories, too much debt or whatever = costs too high to be profitable = burn cash and go out backwards). In this current case, I think because the crisis started o/s, a lot of business saw a severe downturn coming, and had time to scale back costs, clear inventory etc, such they were ready for the down turn to some extent. That's why earnings now are not as bad as many forecast.

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Yes, however this only applies to specific industries. Housing, retail, and mining certainly dont fit into this one, well not that can I see.

Beej said:

The only reason we need a return to growth is if investors want to see capital appreciation in our shares via earning growth. But in the absence of growth (or in a contraction), I'll take steady reliable profits anytime over a bankrupt enterprise and the loss of all value in my shares!

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I completely agree. Great statement, however are these 'profit reports' really PROFIT's, or just excess cash from cutting/scaling back so much, and not driven by real sales. Thats my whole point in starting this thread, I cant see - with much of the market - how this is a sales driven profit, its a cost cutting driven profit?!?!

stocksontheblock said:

I completely agree. Great statement, however are these 'profit reports' really PROFIT's, or just excess cash from cutting/scaling back so much, and not driven by real sales. Thats my whole point in starting this thread, I cant see - with much of the market - how this is a sales driven profit, its a cost cutting driven profit?!?!

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There is no difference. If anything profits delivered after cutbacks are "better" as they have to be made after accounting for a whole lot of one time costs like inventory/plant write-off, staff reductions, debt adjustments etc etc.

Cheers,

Beej