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Market Outlook Report - The Market & Business Cycles - Sept 2011 Issue
Market Outlook Report - The Market & Business Cycles - Sept 2011 Issue
Dear HBJ Family Members, After the successful release of our previous 3 market outlook reports during last 10 months, we are once again back with the market forecasting report called The Market & Business Cycles. This issue is more informative, can be used for education purpose. It will help you to look at the BIG PICTURE of the world economy & various asset class. Last week, Ben Bernanke has warned about the US crisis. Market took it seriously, but later on nobody on the street was cheered about Obamas 447 billion dollars job package. Euro zone crisis is also deepening particularly, the Greece crisis has become worse. ECBs German member Jeorge Stark has decided to resign over dispute on helping Greece. All these concerns will dampen the investors sentiments. At home, India Inc. will announce Advance tax data for the second quarter on 15th September followed by RBI credit policy on Sept 16th. We know that we can never predict the future. But with Market Cycles we can anticipate the safe times and the dangerous times, the moment to take risk and the moment to conserve capital. Understanding the fact that bonds lead stocks, and stocks lead commodities will help in selecting the asset class to part our funds. The rich understands the economic cycle. Unlike the poor, the rich will start to park their cash in the stock market towards the end of the depression. The rich will wait patiently for 1, 2 or 3 years. They are not bothered by the daily fluctuation in stock prices. When stock market revive, they easily make 200-300% return. Remember, Economy changes but history repeats itself.You dont have to be a swami guru to predict the future. What you need to be is just a part of HBJ Family. At this moment, wait for further downside in the market. Keep cash in your hand, nowhere else. You are very close to once in a lifetime opportunity to invest in stocks! Regards, Kumar Harendra, CEO, HBJ Capital
Is this a trend reversal? [Nov10 Issue] HIGH ALERT GIVEN ADVISING TO KEEP 50% CASH IN HAND & 50% IN STOCKS. Fat Boys [Dec10 Issue] ALERT GIVEN TO SAFEGUARD INVESTORS FROM THE FALSE BREAKOUT IN DEC10 The Sixth Sense [Feb11 Issue] PREDICTED SENSEX/NIFTY LEVELS OF 16K & 4800 BY JUNE11, ACHIEVED IN AUG11. The Market & Business Cycles [Sept11 Issue] PREDICTED SENSEX/NIFTY LEVELS OF 12-13K & 4000-4200 BY DEC11.
Market Overview
Interest rates play a very important role in determining economic activity, the phases of the business cycle and the performance of the stock market. Higher interest rates increase the costs to businesses and individuals. Companies must pay more to borrow money for capital investments or to fund daily business operations. Higher interest rates also increase the demand for money to invest in bonds, competing for money to invest in the stock market.
As on today Nifty is trading around 18 P/E - Historically market has never traded below PE of 8. Best time to buy a stock is when you have money! Those looking for great deals can buy stocks around Nifty 40004200 levels or Sensex 12-13K where PE will be around 14-15 by Dec11. Should I sell? Should I buy? -You have to stick to your plan. If the plan is to be long, then start getting in now, there are lots of stocks that are cheap, available much cheaper than earlier.
How much market can fall further? Another 15-20% correction from the current levels. Look for Sensex 12,000-13,000 Levels & Nifty 4,000 4,200 Levels How long this market correction/crash will continue? Maximum extent of correction will happen during Oct & Nov11. A dull & distress period from Dec11 till Apr12 is likely before recovery takes place. How ugly are things going to get? Worst than 2008 meltdown in term of sentiments breakdown but NOT in terms of price correction. What we need to do right away to protect ourselves from it! Stay Invested with HBJ approved stocks, Arrange more & more Cash by selling some of your holding in Sept11 bounce or from outside and Take Advantage of market fall during next 4 months to accumulate wealth creating stocks. Do you suggest investing in GOLD ETF? Yes, if you are looking for short term gains, you should invest in GOLD ETF or Short Nifty Future or Buy domestic consumption based stocks. Bond prices has already fallen, stocks are falling now, commodity will soon follow.
Equity investors are in for a rude shock.The global economy is sliding back into recession and they are still not even aware that these events will trigger another leg down in valuations, the third major bear market since the equity valuation bubble burst. Economic data is increasingly pointing to a double-dip recession and that presently there is too much optimism among investors. So far the equity market has shrugged off much of the weaker data that abounds, and has not joined the bond market in a perceptive move. The equity market will though crumble like the house of cards it is, when the nationwide [US] manufacturing ISM slides below 50 into recession territory in coming months. During Aug11 it was 50.6 almost close to recession zone!
S&P may drop down to 600 levels from 1154 today and Dow may fall down to 7000 levels from current level of 10992 . This is in-line with the kind of drop seen in 2000 and 2008!
Bottom line: Every reliable popular and esoteric credit market indicator is flashing bright red just like they did in 2007-2009!
It is impossible for the U.S. to ever pay off its debt, in fact U.S. is bankrupt
Bottom line: Major European and U.S. bank stocks are plunging to levels last seen in the 2007-2009 crisis. Key economic data is slumping to levels last seen during the 2007-2009 crisis. And credit market risk indicators are soaring toward levels last seen in the chaotic days of 2007-2009. So we ask you a simple question: Why shouldnt the Dow plunge back toward those levels too?
Gold can spike high above $2300, now trading around $1855
What makes markets go up and down is NOT the fundamentals it is people. Between 1970 and 1974 gold rallied from $35 to about $200 on the same default. Nothing changed, but gold fell into 1976 to $103. Then it rallied to $875 into 1980. There was NO change in the fundamentals. Rumors are echoing in the corridors of power in Wall Street and Washington whispers about Fed Chairman Ben Bernanke's secret plan for interest rates. The Fed on Aug. 9 pledged to keep the benchmark rate near zero until at least mid-2013. Now, the rumor is that "Helicopter Ben" is seeking to force down longer-maturity bond yields in a lastditch attempt to boost the economy. Mind you, the 10-year note is only yielding about 2 percent now. But even on the rumor of this shift in Fed policy, Wall Street heavyweights are rumbling there could be unforeseen consequences from such a move. Lower returns on Treasuries drive investors into riskier assets in search of a higher return. This can boost equities and most commodities including gold. Investors who have never even thought about owning gold before will rush into the metal. This could be the critical thrust we need to drive gold above $2,000 an ounce, then $2,300 and potentially much higher! And it's not just gold. Commodities of all types precious metals, agriculture, energy and more are poised to rocket on Bernanke's gambit!
These are precisely the things that happened just before America's LAST great stock market crash in 2008! and they're happening RIGHT NOW!
The number of unemployed persons, at 14.0 million, was essentially unchanged in August, and the unemployment rate held at 9.1 percent. The rate has shown little change since April.
Since adopting tough austerity measures, the Greek economic activity is contracting more aggressively. Its debt burden is growing, led by continued worsening deficits precisely what the austerity plans are crafted to reduce. The risk premium in Greek government bonds is higher, government revenue is lower, spending is higher and Greece needs even more money to stay afloat. Put simply: Austerity is not working! One thing austerity is doing, though, is its killing global growth. And thats not good for the outlook of commodities. And historically, a common trigger for global sovereign debt defaults happens to be falling commodity prices.
The rich will wait patiently for 1, 2 or 3 years. They are not bothered by the daily fluctuation in stock prices.
Martin Armstrong the founder of Economic Confidence Model says that we are observing a shift of the confidence from public (government) money to a confidence in private (corporate stock/bonds) money. During next few years we will see the large amount of global debt (and each governments actions toward that debt) and the international capital flows that result from the confidence or lack of confidence regarding the debt.
Looking at the very long term: A panoramic viewpoint makes it obvious that Markets go through long phases -- bullish, bearish and sideways -- lasting anywhere from 5 to 18 years. We can notice that from year 2000 till today, Dow is in 11 years long bearish phase ! Last century saw three secular Bull markets: The first lasted from 1921-29. The Dow went from 75 to 350+ -- a 367% gain over 8 years. The post WWII Bull market 16 years later, and ran from 1945-63. It propelled the Dow from the low 200s to 1,000. That 354.5% gain occurred over 18 years. The next Bull market began some 19 years later in 1982. The Dow starting at 1,000, and by the time the Bull ended in 2000, the Industrials had peaked at 11,750 -- a whopping gain of 1,075% in 18 years.
To know how to rotate between assets, it's necessary to be a little more familiar with how the relationships between different markets work. The simple version breaks the market down into three markets: bonds (or interest rates), stocks and commodities. Generally, bonds lead stocks, and stocks lead commodities. Typical investment cycle consists of a bond rally, which is followed by a stock rally, which is then followed by a commodity rally. The opposite is true as well -- weakness in bonds generally precedes weakness in stocks, which in turn precedes weakness in commodities. Not surprisingly, these relationships are due in large part to the causality between these different markets. In this cycle, for instance, stocks are in the middle of their declining phase as rallying commodities put the squeeze on margins.
Contd.
Early Recovery -Finally, things are starting to pick up. Consumer expectations are rising, industrial production is growing, interest rates have bottomed and the yield curve is beginning to get steeper. Historically successful sectors at this stage include: Industrials (near the beginning). Basic materials industry. Energy (near the end). Late Recovery - In this stage, interest rates can be rising rapidly, with a flattening yield curve. Consumer expectations are beginning to decline, and industrial production is flat. Here are the historically profitable sectors in this stage: Energy (near the beginning). Staples. Services (near the end). Early Recession -This is where things start to go bad for the overall economy. Consumer expectations are at their worst; industrial production is falling; interest rates are at their highest; and the yield curve is flat or even inverted. Historically, the following sectors have found favor during these rough times: Services (near the beginning). Utilities. Cyclical and transports (near the end).
Disclaimer
This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person. Persons into whose possession this document may come are required to observe these restrictions. This material is for the personal information of the authorized recipient only. The recommendation made herein does not constitute an offer to sell or solicitation to buy any of the securities mentioned. No representation can be made that recommendation contained herein will be profitable or that they will not result in loss. Information obtained is deemed to be reliable but do not guarantee its accuracy and completeness. Readers using the information contained herein are solely responsible for their action. HBJ Capital, or its representative will not be liable for the recipients investment decision based on this report. HBJ Capital, officers, directors, employees or its affiliates may or may not hold positions in the companies /stocks mentioned herein.