Sean Maher
About this author:
I went tactically long of equities at the end of last week, expecting a sharp bear rally, and Monday's one day move, particularly in Japan (up 14%) and the U.S. (up 11%) was what I might have reasonably expected for this whole week, so I've booked some profits.
We're in a period of what veteran investor Barton Biggs has termed 'condensed lunacy'. The speed and scale of moves across asset markets are stunning, and in stocks we have seen nothing like this volatility since the huge swings during the 1929-33 Great Crash. This hasn't been a 'buy and hold' market for a very long time, as evidenced by the appalling returns generated by mutual funds over the last decade. So stepping back from the gut wrenching volatility, what's the big picture?
We're still in a huge bear cycle for US equities.
I wrote on 24 July that:
"we're now probably midway through a structural cycle that may last to 2015 or so. Another way of looking at it is that returns were 'front loaded' during the huge bull market from 1983 to 2000, making the entry point crucial for successful investing."
Indeed, I'd expect the 2002 lows to be tested in the next few months, although with the immediate threat of financial meltdown averted, this rally may get us into the New Year, albeit in choppy fashion.
Last Friday looked like an important interim low, although it may be tested. Even in long term bear markets, big rallies lasting weeks and even months are common, and a wise investor will make the most of them and then cash out and sit on the sidelines.
It's buy and fold, not buy and hold.
Away from the banking mess, it is notable that big mining groups like Rio (RTP) are now warning of a slowdown in Chinese demand; I warned as long ago as last spring that China would stumble as their growth model was simply unsustainable. As US consumers retrench dramatically, we now need Chinese and other Asian consumers to take up some of the slack to sustain global growth.
Alternatively, China needs to use its huge holdings of U.S. Treasuries held at the Fed to help support the US economy (for example, by swapping them for MBS and other securities) to inject liquidity into financial markets. Otherwise, China will become part of the problem, not the solution.
Iran has also fallen off the market's radar screen; back in July, there was probably $25-30 of geopolitical risk premium in the oil price related to Iran/Nigeria - now there's zilch. I correctly identified the investment bubble in oil a few months back and was a seller against the overwhelmingly bullish consensus; now I'm going long crude call options. My target was always $60-80 (see Oil: We hit that tipping point, on 4 June), or the marginal production cost of the most expensive conventional offshore production and oil sands. We may undershoot, but not for long I suspect.
Aside from potential OPEC action in November, and the rapid shelving of many high cost production schemes curtailing medium term supply, the possibility of an Israeli strike on Iran is rising again and stands at probably 30% plus.
Despite US diplomatic overtures, it seems that Iran has seen the current U.S. economic chaos as an opportunity to go for nuclear broke, and Russia in its newly aggressive mood, is assisting both with the reactor and advanced surface to air missile systems.
Politically, an attack before the January inauguration of Obama (and let's face it, the McCain campaign has imploded after stirring up the lunatic fringe of the Republican party) is a window of opportunity unlikely to open again before Iran achieves nuclear status. Neighboring Sunni Arab states like Saudi would quietly applaud a successful operation, whatever they say officially. It still seems like a wild gamble, but Israel has performed a few of those before and won; national self-preservation is paramount. This has been a year full of historic surprises, and it's not over yet.
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This article has 15 comments:
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phdinsuntanning
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433 Comments
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Oct 15 10:14 AMand please dont propose a nuclear war to
save your money,
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petersterling
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37 Comments
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Oct 15 10:26 AM-
london callin
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5 Comments
Oct 15 11:05 AMAll in all a poor article given that you are so blatantly talking your portoflio by talking up war. You are a SPIV to put it mildly
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waf76
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66 Comments
Oct 15 11:20 AM-
User 147957
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1 Comment
Oct 15 12:01 PM-
london callin
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5 Comments
Oct 15 12:36 PM-
Alan von Altendorf
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353 Comments
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Oct 15 02:31 PM-
YogiG
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42 Comments
Oct 15 05:33 PM-
billp37
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166 Comments
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Oct 16 11:59 AMWednesday August 6, 2008 07:19
The charge infuriates Dr. Etemad. "With the Shah, we also came to the conclusion that Iran was in great need of nuclear energy because our population was steadily growing and our gas and oil will run out. That's why even though I was in the old regime, I should be fair to the new regime because they are following the same line.
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Friday September 5, 2008 07:56
Wed, 03 Sep 2008 22:32:58 GMT Currently suffering from electricity shortage, Iran has been forced to adopt a rationing program by scheduling power outages - of up to two hours a day - across both urban and rural areas in the country.
www.google.com/search?...
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NOWHEREMAN
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1499 Comments
Oct 16 12:50 PMIran's Nuclear Reactor is scheduled to be activated sometime between December and next February. This is a release from the Russians. To Prevent Irradiation of the entire Region, I would Hazard a strike before then.
Israel's existence is the Bottom line, they are close to 100% oil independent, Having quietly installed Solar and Wind farms throughout Israel. Oil imports have remained the same, the gist? Their Military is quite adequately supplied.
Olmert recently paid a visit to Russia and the New Prime Minister while Perceived to be a moderate is Former Mossad operative. The attack has received the Blessing of the French. Ergo, when not If.
Yes, Iran does need Energy. They have the Capacity to generate all that they need internally. Instead of building refineries and oil fired power plants, they have been modernizing their Military, buying Centrifuges, and building a Nuclear Facility. Iran Refuses to allow Inspectors access. If Iran's Reactor was just for energy generation, there wouldn't be any need for secrecy. They would be receiving aid not sanctions.
The biggest Middle Eastern fear is that they will succeed.
Suggest going to Zawya.com for a better read on what's actually going on in the Middle East VS the liberal pablum seen here.
The West continues to be oblivious to the rest of the World. The planets no longer revolve around the US. The current Financial Collapse has its roots in the US, the rest of the world will write that fact into the History Books.
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Paul Killinger
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1015 Comments
Oct 16 01:32 PM-
billp37
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166 Comments
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Oct 16 09:27 PMWhat is the advange to Iran to attack Israel?
None, we think.
Iran, we believe, may get nuked if it attacks Irsael.
And what is advantage to Israel to attack Iran nuclear facilties?
WWIII?
Suggestion:
Cool it and settle.
www.google.com/search?...
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billp37
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166 Comments
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Oct 16 10:05 PMthey maybe using suicide bombers rather than missiles?
I only speculate, of course,
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billp37
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166 Comments
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Oct 16 10:20 PM-
NOWHEREMAN
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1499 Comments
Oct 17 12:19 AMIf you haven't heard about religious wars? Remember that Movie about Moses? Charles Heston played the lead, he parted the Red Sea to save his people from destruction. These are the descendants of those people and Islam is still trying to destroy them thousands of years later.
Suicide Bombers have been doing a number on Israel for decades. Would the US put up with that kind of activity if they knew the border crossing was from say Canada?
Well, If Iran's activity results in suitcase Nukes, a small one would accomplish what has been tried since the 1950's. Iran is on record regarding Israeli existence. Iran wants to wipe them off the map. It can not be allowed to have a Nuclear Program with that ultimate goal.
History of Nuclear energy in the Middle East, Iraq tried it, Israel destroyed it. Purportedly, Syria tried it, Israel Destroyed it. Iran is trying it.