World Stock Markets 2010

[John Doe]

Well after a few false dawns for the bears the index roared on.

 

Next big resistance now within sight (DOW 11245)

 

http://www.londonstockexchange.com/private...tancetarget.htm

 

Could be make or break.

 

Did well shorting at 10500 a few times, before it was was broken. Stung a bit on the last, (10970) but stops were tight so didn't loose the shirt.

 

Now ready to short as soon as DOW goes above 11200, tight stop again.

[silverharp]

 

Hadnt looked at the bank index in a while , its at an interesting juncture with price bumbing up against a downward trend line. Also note the RSI

 

 

[John Doe]

Well so far so good on the 11200 short.

 

Hit my (premature) limit at 11100, so went back short at 11189 last night.

 

Stops at 11289, so a free bet

[John Doe]

Hadnt looked at the bank index in a while , its at an interesting juncture with price bumbing up against a downward trend line. Also note the RSI

 

 

With Goldmans in trouble with the masses (and US Gov) banks are getting a tough time again.

 

Even with increased profits it seems Barclays aren't trusted either (Still think they have lots of nasties in the closet).

[John Doe]

Well so far so good on the 11200 short.

 

Hit my (premature) limit at 11100, so went back short at 11189 last night.

 

Stops at 11289, so a free bet

Stops moved down to lock in 100 ticks, back in the black!

[littledavesab]

Is it me or when I start monitoring FSN's Lowry updates they go and stop the darn thing !

 

Well done JD.

 

 

[John Doe]

Is it me or when I start monitoring FSN's Lowry updates they go and stop the darn thing !

 

Well done JD.

Cheers, well in the money now and locked in a good 200 ticks.

 

Know what you mean.

 

Sandy J used to update evry week, now its every 2 or 4 or more.

 

Saying that, he has updated today. Could be looking bearish if DOW stays below 11005!

 

http://www.londonstockexchange.com/private...caljuncture.htm

[John Doe]

Wow!

 

Over 3% down! Didn't expect that.

 

In fact, my limit was set at 10725, so my short was filled and I missed another 200 ticks!

 

Still, no-one went bust taking a profit .

 

Scared to go back in now though, even though it could still have a way to go.

 

[jerpy]

Still, no-one went bust taking a profit .

 

Scared to go back in now though, even though it could still have a way to go.

 

Bet your not complaining now Best not to be greedy sometimes.

[John Doe]

Bet your not complaining now Best not to be greedy sometimes.

Very true! What a bounce .

 

Still expecting a drop, but too nervous at present. Just waiting for Germans to backtrack a little over the next week or so, that should send it down again.

[John Doe]

Well just dipped my toe in, short DOW at 10760, with a tight stop.

 

 

** Edit, an hour later it seems my stops were a bit too tight, now out again **

[John Doe]

http://www.londonstockexchange.com/private...medweakness.htm

 

Sandy J latest looks bearish, but a test of 10990 first (if that is it breaks 10883, otherwise further falls likely).

 

 

[John Doe]

Now at 10883, just opened a small short, very tight stops.

 

Will keep most of the powder dry in case 10883 breached and next target neared (10990).

 

 

[marmite]

http://gawker.com/5533679/

 

Audio from last weeks stock plunge. Ben Lichtenstein reporting from the S&P pit, the guy is about to explode at about 08:30 in

 

Well worth a listen

[John Doe]

http://gawker.com/5533679/

 

Audio from last weeks stock plunge. Ben Lichtenstein reporting from the S&P pit, the guy is about to explode at about 08:30 in

 

Well worth a listen

Yeah saw that, great stuff.

 

So, DOW breached 10883, hit my stop at 10900. But back in at 10940 (about 8 this morning in out of hours, stops above 11000).

 

Fingers crossed, this could be the start of new falls.

[John Doe]

Yeah saw that, great stuff.

 

So, DOW breached 10883, hit my stop at 10900. But back in at 10940 (about 8 this morning in out of hours, stops above 11000).

 

Fingers crossed, this could be the start of new falls.

Well just hit my limits at 10725 (previous res line from January).

 

Nice

 

Might go back in later if 10880 approached again, otherwise happy to sit on sidelines for a bit.

 

[littledavesab]

Jeremy Grantham update courtesy morning star

 

http://news.morningstar.com/articlenet/art...51&pgid=rss

Wednesday morning, GMO investment professionals were in Chicago to give an update to clients and consultants on the firm and their current investment outlook and positioning. Speakers included CIO Jeremy Grantham and Ben Inker, the firm's head of asset allocation.

 

GMO is known for its asset allocation strategies and asset class forecasts. They have been forecasting asset class returns since 1995. Out of its 28 forecasts, most have been spot-on, and the more recent ones (1998-2000), which forecasted returns ending in 2008-2010, correctly predicted 10 years of terrific emerging-markets returns and a lost decade for the S&P 500.

 

Below are some of our key takeaways from the two-hour-plus meeting, which included more than 100 slides of data:

 

Periods of low volatility have often coincided with stock market valuation peaks and signs of trouble ahead. These periods include 2005-2007, 1994-1998, 1964-1967, and 1928. Conversely, periods of elevated volatility have often coincided with stock market valuation troughs and times of great opportunity. These periods include 2009, 2002, 1988 ,1975, 1938, and 1932-1934.

 

Takeaway: In March 2010, volatility was back to 2005-2007 levels, which should have presented an indication of trouble or been a warning sign. The recent rise in volatility and stock market correction should not be a surprise to market participants.

 

When 10-year U.S. government bonds have had a 4.5% nominal yield, their real return (which takes into account inflation) has averaged a little less than 3% historically over the next 10 years. When they have started with a 2.5% nominal yield, they have returned almost nothing in real terms, on average. This is even before taxes and transaction costs are taken into account.

 

Takeaway: With the 10-year government bond at 3.5% today, current investors should take note of this historical evidence and should be concerned about maintaining purchasing power.

 

Pension plans assume they can achieve an 8% nominal return with a 60/40 portfolio. Since bonds yield about 4%, this means they assume equities can return about 11% annualized going forward from today's valuations. By contrast, GMO thinks equities will return about 6%. With these assumptions, a 60/40 portfolio is more likely to return about 5% annually.

 

Takeaway: If GMO is correct, pensions are using wildly optimistic return expectations, which means most pension plans are grossly underfunded.

 

Most commodities, save timber and copper, are in contango rather than backwardation, which means investors are paying a high price for insurance.

 

When a market is in backwardation, the commodity futures sell for a lower price than the current market price. Futures prices for a given commodity are in contango when futures contracts sell at a higher and higher premium to the current spot price as you buy further into the future. (For more on this topic, please see this article.)

 

Out of 29 commodities surveyed by GMO, 24 are in contango. Commodities have historically returned about 11% on average from 1970-2000. From 2000-2010, the roughly 14% annualized return of commodities (collateral return plus spot return) was cut in half because of roll return loss (contango).

 

Takeaway: Investors are not taking this roll return loss into account in their return estimates.

 

GMO thinks most sovereign debt looks like a horrible investment. Government yields are near all-time lows (near their level in 1940), even though the prospect for inflation is higher and the government's balance sheet is in worse shape than it was back then. Investors forget that from 1941 to 1981, both Treasury bills and Treasury notes suffered a loss in excess of 1% annualized in real terms.

 

Takeaway: This is why GMO is short (betting against) U.K., Japanese, and, to a lesser extent, U.S. bonds. GMO also thinks the next debt crisis will not be in emerging countries.

 

GMO thinks most equity categories are overvalued. This is because it forecasts the S&P's profit margin will return to its 6% historical level rather than rise to the 7%-plus level analysts are forecasting.

 

Takeaway: This is why GMO is short U.S. small caps, mid-caps, the S&P 500, and low-quality stocks (high levels of debt, low returns on equity, cyclical earnings). GMO also thinks the best relative bargains are in high-quality stocks (the inverse of low quality's characteristics), which it thinks are slightly undervalued, and emerging markets, which it thinks are roughly fairly valued.

 

Given GMO forecasts, an equal-weighted MSCI World Portfolio does not have an edge against the MSCI World Index for the first time since GMO starting keeping records in 1995.

 

Takeaway: A low-cost MSCI World Index fund or ETF (like MSCI ACWI Index Fund (ACWI

 

Sponsored by:

ACWI) ) has a long-term leg up against active management for the first time if GMO forecasts prove to be correct.

 

Other points:

 

GMO is overweight Russia (trading at 5 times earnings) and Turkey due to valuation, momentum, and macroeconomic considerations, and is underweight Taiwan, India, China, and South Africa due to valuation and momentum considerations.

 

The average Shiller P/E (inflation-adjusted 10-year average earnings divided by current market price) for emerging markets has been 17.7 since 1993. Its current level is 18.

 

In 1980, the 14% 30-year bond rate extrapolated 11% inflation for 30 years. A 5% bond rate extrapolates just 2% inflation over the next 30 years.

U.S housing prices are finally trading near fair value (2.9 times price divided by median income). U.K. housing prices still need to fall over 20% to reach fair value, while Australian housing needs to fall at least 30%.

 

High-quality stocks are a free lunch in GMO's opinion. Since 1965 they have beat the S&P 500, but they should have a lower equity risk premium because they are better companies with better balance sheets than the average S&P 500 company.

 

Quality stocks are the cheapest they have ever been on a relative basis since 1965 compared to the S&P 500. The last time they came close to this level was in 2000 (tech bubble) and 1969 (right before Nifty-Fifty era).

 

Final Takeaway from the Presentation

Grantham said, "Give data the benefit of the doubt." If you do, then you will:

 

Take less risk than normal right now

Won't get too clever with your allocation strategy.

Will maintain modest return expectation due to current valuations in bonds and stocks.

 

+ one can register free @ www.gmo.com for access to a limited number of well written articles

[littledavesab]

Mish's lot - newsletter just issued

 

http://www.sitkapacific.com/files/Sitka_Pa...ient_Letter.pdf

Unlike 2007, it isn’t just suspected that the market has entered a long-term valuation contraction—it is quite certain. The red flags from technical and sentiment indicators are significant in and of themselves, and suggest investors should be cautious here. However, when we compare the current valuation contraction to past periods, we find that these caution signs are coming right at what may be the last bout of optimism before sentiment on stocks really turns negative.

 

+

Gold made a high near $1226 in December, and since then it has been consolidating in a range between $1170 and $1044. This range is above the significant resistance (now support) near $1000 that gold broke through last fall on its way to its December high.

 

It would be completely normal for gold to decline and test this support area before the

next advance begins. Such a test could take gold below $1000 for a short time, but as long

as gold stayed above that level on a monthly closing basis there would be no threat to gold’s ongoing bull market.

 

 

hmmm maybe ?

 

[John Doe]

A couple of weeks ago Sandy J was looking at the possibility of DOW heading down to

 

"9835 and eventually reaching towards 9430 and possibly 8955 – 8865"

 

Looking likely now perhaps.

 

Should coincide with DD's update on the Dow highs thread.

[John Doe]

Latest Sandy J update out, just as DOW hits first target in out of hours (9835)

 

Quite bearish.

 

http://www.londonstockexchange.com/private...itialtarget.htm

[John Doe]

Just bought my first call on the dow open, very cheap (£110) July dow 11200 on finspreads.

Hoping to offload soon on a quick bounce (if dow gets to about 10400).

More of an experiment really to see how it goes with the time etc.

[El Dali]

Latest Sandy J update out, just as DOW hits first target in out of hours (9835)

 

Quite bearish.

 

http://www.londonstockexchange.com/private...itialtarget.htm

 

 

Yes John, 9835 was the Feb low. Teetering around that today. Intraday we're under it.

Does closing under it (even by a tiny margin) not confirm a downtrend?

[John Doe]

Yes John, 9835 was the Feb low. Teetering around that today. Intraday we're under it.

Does closing under it (even by a tiny margin) not confirm a downtrend?

I think so, although a few 10's of points either side wouldn't confirm fully.

[John Doe]

Well that was an interesting exercise.

 

Decided to jump out and sell the call for a small loss (£44).

 

Should have stuck to straight spread bet. Would have been 400 ticks up

 

Still could be worse, looks like the releif rall might be done, so just opened a small short for the weekend, fingers crossed.

[kernull]

hey guys i have made some analysis on the dow:

 

http://seekingalpha.com/instablog/481054-k...13-dow-shredded