Thursday February 16, 2006 - 11:58:03 GMT
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Black Swan Capital - www.blackswantrading.com
#15 in the bag!
â€śThe end of a period of rising prices leads to distress if investors and speculators have become used to rising prices and the paper profits implicit in them. Of course, it is difficultâ€”many would say impossibleâ€”to distinguish in advance a pause in a continued upward movement from a topping out that presages a downturn. Uncertainty on this score is a cause of distress. A more powerful cause of distress occurs when, after a period in which credit has been stretched in an effort to make capital gains, such gains are no longer available, even on paper. Then creditworthiness declines and a fixed line of credit suddenly becomes dangerously high.â€ť
â€śItâ€™s not the Fed chairmanâ€™s job to create excitement in the markets,â€ť said a bond manager quoted in todayâ€™s Wall Street Journal. It is to signal that hike #15 is in the bag and hike #16 is waiting in the wings for good measure.
And in the background, there is increasing talk the Bank of Japan wonâ€™t wait till 2007 rolls around to do the dirty deed and hike. And a bit further in the background, we see China continuing to sensor the word â€śhikeâ€ť from its lexicon; but we know the pressure is building.
We know much of what makes up sentiment in this game of speculation is â€śat the margin.â€ť And we are getting the sense there is a slightly tear in the â€śliquidity as far as the eye can seeâ€ť mentality. Is #15 a step out of that elusive â€śneutralityâ€ť into a â€śrestrictedâ€ť place our markets havenâ€™t seen for a long timeâ€”about five years?
This tidbit was printed in the Financial Times Short View column on Tuesday. It was a summary of the thoughts of Elliott Wave guru Steven Hochberg. We found this part most interesting:
â€śBut his arguments go beyond the fearful symmetry of market cycles. In the last four years uncorrelated markets have recovered together - notably, precious metals, oil, and stocks in most international markets. This is a signal of a coming correction. Historically, such correlations occur in the late stage of a credit cycle. When too much money is available, it is used for speculation, and all markets go up. After the binge comes the purge.â€ť
Many smart people (defined as those that have been bloodied using real money in speculative markets) continue to warn of â€ścomplacency.â€ť However, most of the crowd canâ€™t hear these warnings, as the music is way too loud. But unless one is a very big believer in â€śitâ€™s different this timeâ€ť we think its time to start listening.
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