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Rally Almost Over

Discussion in 'Shares' started by Tim, 13th Aug, 2009.

  1. Tim

    Tim Well-Known Member

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    I don't believe this rally has much more to go.

    During one recovery the market gained 100% in 5 months, so things could continue to go up, however I believe it will take 3-6 years to fully recover from the lows earlier this year.

    I base this presumption on historical statistics for booms and busts, and the fact that sentiment is positive but is possibly likely to deteriorate in September due to fear feeding on itself.

    This is all psychologically driven but I would be interested in comments and thoughts?

    I might add I am expecting a 5-15% drop in September.

    Tim
     
  2. Chris C

    Chris C Well-Known Member

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    I want to agree with you, but I don't think the market will turn unless quite bad news really starts to start coming out again. I think Alan Kohler raised the interesting point today:

    Whilst I'm of the opinion that people are WAY too optimistic about the next 6 - 12 months, unfortunately that optimism is feeding on itself at the moment, but of course with me being in the "do nothing" category for the time being I get to begrudgingly watch the market rise based on my interpretation that is will be falling very significantly again in the future (though I have no idea when).

    That said, I'm just reading bloomberg now, and US retails sales are down, unemployment is now apparently rising again, stimulus will continue to wain... makes you raise an eyebrow, and I'm of the opinion if the recovery trend falters even for a few weeks the optimism will reverse very quickly as people race to the exits.
     
  3. dudek

    dudek Well-Known Member

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    Danger of doing nothing,

    Bad when the market crushes, bad when the market picks up. :)

    Unfortunately there is nothing in between.

    It’s relatively easy to make money if you understand that all comes to fear and greed.

    Sale your shares when you think people start to fear that they may loose all the gains. Forget about core data and all the smarts behind economy. After all it all comes to people.
     
  4. Tim

    Tim Well-Known Member

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    Thanks Chris and Dudek for your replies.

    I am reading a very interesting book at the moment that suggests that while the share market is linked to businesses and capital raising, its more of a casino based on whim than anything else.

    Makes for easier money looked at this way.

    Tim
     
  5. lorrimer

    lorrimer Well-Known Member

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    There may well be a 10-15% correction, in fact there has to be at some stage. But the market could quite easily rise another 15% before that happens.
    The market has come a long way in a short time but we have only just recovered the losses sustained since Lehmans went under. So as long as the figures continue to improve and growth returns, as it surely will, then the long term trend will be up. There is still a lot of institutional money on the sidelines and many fund managers who have missed out on the rally are now eager to get funds back into the market. People who invest now for the long term in good quality stocks will reap the benefits in terms of capital growth and increasing dividends.
    Even the RBA are now saying that the recession in Australia is not nearly as bad as they thought it was going to be. I say, what recession?
     
  6. Tim

    Tim Well-Known Member

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    I wonder what the economists and markets were saying during the great depression when the market made a 60% recovery in a false rally, only to find new lows?

    At the time would they have said "this is the recovery, its all over" (just like we are now...) or would they have said "bah humbug this is not it, the worst is to come" (I doubt it....)

    Tim
     
  7. davo6253

    davo6253 Well-Known Member

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    Probaly both Tim, as they do now. That way someone is always right!
     
  8. Billv

    Billv Getting there

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    Tim,

    I guess the difference today is that we did not have a great depression.

    Economies have not been wiped out, there is a lot of money on the sidelines and fund managers have to do something with it because leaving it in cash doesn't make money and finally today we have technology so we can use this to our advantage. We are fully connected to the markets, we can respond quickly and minimise risk.

    I think, it's possible that we'll have some pullback but people are not scared anymore and as the markets pull back, people who missed out on the first wave of recovery they'll be keen to jump onboard so I doubt that we'll see new lows, I fact I am suspecting that we'll have a dip and new highs
     
  9. Chris C

    Chris C Well-Known Member

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    I think Tim might have been alluding to the fact that even during the start of the Great Depression the stock market found reason to rally strongly, and the same may be happening here.

    I definitely wouldn't be writing off the chance of the worst recession this country has seen since the great depression, I think the probably of it occurring is still odds on. We are far from out of the woods, and the 2% loss on the Dow last night will definitely have a few investors beginning to question the reasons behind the rally.

    Actually when deflation sets in holding money actually makes you money in a real sense, due to the fact that during deflation a dollar today will actually buy you more tomorrow, which is the opposite of inflation.

    Of course with that said, just because deflation has set in doesn't mean there won't be companies that are worth investing in, it's just that companies that are highly leveraged become very risky, as during deflation whilst the real value of money improves, the real value of debt also increases.
     
  10. Tim

    Tim Well-Known Member

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  11. DuaneRS

    DuaneRS New Member

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    It doesn't really matter if the rally is almost over, if you are placing an investment now for the long term. Shares prices and the indices are way below what they were at their peak in 2007. Even if the market drops again by 10%, over the next 3-5 years surely it will bounce back by significantly more than that.
     
  12. Tim

    Tim Well-Known Member

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    Yes it will bounce back at some time and it is a lot cheaper than it was

    The average time to reach a new high is 3 years from the low point

    In the great depression the MSCI fell 54% and it took 29 years for the DOW to recover after it fell 89%

    Tim
     
  13. Chris C

    Chris C Well-Known Member

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    It is completely possible for the the market index to drop by 5% every year for the next 10 years and an investors that invested today could still be wealthier having invested.

    It is equally possible that the market can go up by 10% every year from the next 10 years and an investor who invested today could be worse off.

    The index itself is not the reflection of wealth, the purchasing power of your money is what's important. There are experts saying that the DOW will be at 20,000 or 40,000 or even 100,000 within the next 5 years, but it will only be as a result of hyperinflation and the collapse of the USD. On the flip side there are those like Steven Keen arguing that we are more likely to see debt deflation which will drive asset prices like stocks and house prices down massively for years to come but if that happens a dollar then will be worth more than a dollar today.

    There is no such thing as "surely" investment when it comes to predicting nominal values.

    Though I would say that "surely" in the long run you can rely on businesses/individuals to be better than what they are today. So whilst the future index value of the stock market is hugely debatable, it's not really all that important when you consider that in 5 - 10 years time you'd think that businesses will logically be a lot better off in the sense that they will be more efficient, more productive, with better technology and producing more output, and that is what makes an investment today a good one - so no matter what the index value of the stock market businesses will make progress.

    Actually the only reason why the index value might be important is if you are using leverage/debt to invest, because no matter what happens in the world, be it inflation or deflation the debt you owe will be the same nominal value.

    *rant off*

    :p
     
  14. Tim

    Tim Well-Known Member

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    With Chinese shares now firmly entrenched in a bear market ......
     
  15. Tim

    Tim Well-Known Member

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  16. davo6253

    davo6253 Well-Known Member

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    Wouldn't want any significant bad news to come out now, I can see things reversing very quickly if something doesn't go the right way.
     
  17. Chris C

    Chris C Well-Known Member

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    At this stage with the market having rising 40% based on its forward looking perspective if the good news its expecting isn't forthcoming we could be heading south again, let alone if bad news started coming out again.

    Of course if we get genuinely bad news I still reckon there is every chance we could look to set new lows.
     
  18. Billv

    Billv Getting there

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    Chris
    it's unlikely that we'll see new lows because I can't imagine any worse news than what we already had.
    So IMO we could have a short lived pullback, some sideways travel and up we go again.....
     
  19. Chris C

    Chris C Well-Known Member

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    It probably is unlikely, but at the same time I can "imagine" loads of things that could very well eventuate to cause the market to plunge to new lows.