Yet another stockbroker

Head to head for the supercycle and the subprime mortgage lenders.

In the end of 1999 there were discussions that this was the new economy where recessions were something for the history books. That was not true then and the concept what we see today is a supercycle where US are going into a soft landing and other regions of the global economy are taking the responsibility to withhold the growth. Maybe there is some truth to that, maybe not, time will tell.

Though a fact is that something is going on, GM is no more the world’s biggest carmaker, China passed the US as Japans biggest trading partner and the US stock market just keep going to new heights.

The profit growth for the first quarter was 6% which is around 3% higher than expected, though not double digits that been a fact for the last 12 quarters. The Dow Jones a have going trough 13000 which is a psychological important number. According to sympathisers of the Dow theory everything is in place for the market to continue the strong uptrend the market been in for some years now.

No news in the housing market, the weakness is continuing and the sales on available residences are down over 8%. The reason to one of the biggest moves on the downside since the end of the 1980: s is the problems with subprime mortgage lenders that having problems getting there money back and can not refinance cause the housing prices are coming off and giving no space for refinancing. More and more subprime borrowers are getting closer to been borrowing more than the house or flat they been borrowing for are worth and can not refinance it with new loans when the prices coming off.

The situation of the subprime mortgages in the US housing sector is serious and can kill the theory of a supercycle very quickly if the weakness in the sector is continuing. The sales for the housing sector have in the end of the first quarter been strengthen up with an increase of 2,6% but there seems just to be a small correction in an steep downtrend. The second quarter will be important for if it will be a soft landing or a recession in the US economy.

The building and investments in the housing sector will be holding back the US growth till at least the second part of 2007. What we see right now is a overall weakness in the US economy but the market seems to think this will be just a short correction in a strong uptrend which leads to that the financial market foremost looks at the levels of profits and the consistently low global inflation that seems to be intact at this stage. Other aspects are the low unemployment rate connected with the strong buying power that the US consumer are withholding and the expression “never underestimate the US consumer” is still appropriate to be used.

Other aspects not to underestimate are the strength in Europe. Germany have recently having very strong numbers when it comes to consumer confidence and growth, likewise for France Great Britain and Spain, which is a fact that is very important to withhold the valuations in the stock market.

Technorati Tags: real+estate mortgages

The Chinese growth was 11,1% for the first quarter and the core inflation was up 3,3% which is twice as much as 6 month ago and the risks have been increasing in the Chinese economy.

The China central bank, The People Bank of China, will probably start increasing the interest but there might not be enough and I predict that China will start appreciate the Yuan and by that try to balance the economy and keep the inflation on hold. With a 25% increase in investments on Chinese soil the challenge to keep the economy in balance and the inflation low without appreciate the Yuan is in my view not possible.

Interesting numbers when it comes to GDP is that studies have pointed out that 5000 GDP per capita is an level where the economy increase there growth helped by the consumers starts moving up as an important force to keep the growth strong. When looking at the GDP Numbers region by region some interesting data can by found.

Regions as China, India and many countries in the Eastern Europe region have for an example been achieved the 5000 GDP number per capita or are very close to do so. Private consumption is and will always be a very important issue for wealth and economic growth and when regions as China and India is getting there where more than 1/3 of the worlds population lives, that will have a global effects on growth and wealth.

The market theory mentioned as the “supercycle” where there will be a soft landing or no landing at all before the growth coming back and pushes the global economy forward might be a fact. The US economy have been weakening but there is not any definite signs of an recession and good signs from Japan and Europe and the fact that Russia and China moving on stronger than ever eases the fact that the US economy have been going into an slowing phase.

The US housing market is still something that worries the market but the today’s tighter lending policy helping the housing market getting out of hand. The GDP numbers in the US for the first quarter is down two 2% growth, down 0,5% from the weak fourth quarter 2006. We don not want any more downside on the GDP numbers to keep the markets confident up.

To make money at this stage there seems to be wise to going short the US. Mentioned before the dollar is a strong case going short and long the Chinese Yuan as well as other Asian currencies seems to be a rather high probability to make some money, bur other currencies can be very interesting as well.

The companies are overall rather positive regarding the future and big things are happening. GM are no longer the worlds biggest car manufacturer and China have becoming Japans, (the worlds second biggest economy) most important trading partner and the Dow Jones is pushing through 13000.

Is the “Supercycle” a fact or is there the 2000^{th century} “new economy” in a new shape and form?

FED seems in this stage to keep the rates on this level through out the year of 2007, the inflation is still to high to consider any cuts and the slowing growth makes it unlikely that FED will risking going in to recession with another increase.

There might be many things to be worried about the US economy but the market still moving up week by week. The IMF is though overall positive regarding the economy and predicts that the global economy only slightly will be affected by the slowing US growth. The global growth will sliding down to 4,9% for 2007 from 5,4% for 2006. That means that the global growth will be around 5% for the fourth year in a road, the strongest growth in 30 years. I think that much of that comes out that the start of the 20th century was the toughest for a very long time.

So why is the market keep on moving up when the US economy is slowing? At this stage it seems like Europe and Asia is taking on the US weakness and the growth for in example Europe and Japan have been moving up from 1,5% to over 2,5 % in a short amount of time. Another fact is that the slowing US economy is because of the housing market, the big effect comes if the private consumption coming in weak further on.

Considering the impact of the US weakness the global economy is not as sensitive as most people thinks. Chinas export to the US is only around 6% of the total GDP, but it is though increasing.

The market seems to think that FED is closer to an interest decrease than before, that FED is more worried for a recession than the inflation getting out of control.

Global Stockmarket

This part will consider regions as the US, Europe, the Nordic region, Eastern Europe, South America and Asia. A strong global growth have been moving almost all markets to good result for 2006 and below is quick overview of areas for the 2007.

Another good week for the Balkan region. The Nordic region also holding up and Japan had a good week though the start of 2007 not been strong though the fundamentals for a good 2007 seem to be there.

Raw materials been coming in focus when as I been giving focus the last month metals is been moving up strong with Copper in the lead. China is the answer to the copper price move, the China import of copper is almost 60% higher than the same period of 2006.

Currency

Last weeks predictions that the dollar should be moving sideward for a while before taking off again was wrong and the dollar just keep on weakening and the market seems to looking forward to that the weakness in the US economy will make FED cut interest rather sooner than later. The best case for speculating in currencies right now seems to be taking on China versus the US. The US seems to be trying to keep on taking a short cut to handling there great deficit by letting the dollar weakening to make the export getting stronger and by that hold the deficit under there arms. China on the other side might revalue there currency to stop the increasing inflation rate being seen the last couple of months. This scenario will keep the trend intact.

Time will tell if I am right.

Happy Easter !!

No market letter this week.

Volatility has been high the last week which creates uncertainty. The US housing market is still in focus and Standard & Poor reports that institutes focusing on subrime mortage loans have indicated that weak creditors having problem paying there loans. The weak housing market will follow us week by week the next couple of month though this is one of the most important issues if US should go in to a recession or not.

Other important issue is that the unemployment levels are not increasing so the consumption can be intact and help the US getting a soft landing of the economy. As long as there is only the weak creditors having problems there will not effect the US economy overall but if there is signs that the important US middle class person having problems it will have great effects on the US and the global economy.

Global Stockmarket

This part will consider regions as the US, Europe, the Nordic region, Eastern Europe, South America and Asia. A strong global growth have been moving almost all markets to good result for 2006 and below is quick overview of areas for the 2007.

The first quarter is to an end and the strongest regions so far have been the Balkan region. Singapore been also moving up strong and looking at interesting sectors Shipping and New energy been remarkable strong.

Currency

No change in the strong momentum for the dollar to have another year when it will be taking off versus the most other currencies in the world. As mentioned before, expectations that the FED is getting closer to stop increasing the interest will help the dollar keep on coming off. The signals from the FED the last couple of weeks have though been difficult to interpret so that may keep the movement on hold till more information regarding the interest hits the market.

This week there where some indications that the bounce the resent weeks are over. I predicted that this was just a bounce and that the uptrend was intact but mayby expected the market to be moving sidewards before moving up again, this seems not be the case but it is a bit early to tell.

The housing market is still something to keep in focus and though the FED increased the interest to 5,25% as expected the FED was a bit softer in its predictions regarding the inflation which might be a step closer to a cut in interest though it is not something that is close in time at this point. A movement in the interest or not, the housing market is still one of the greatest threats for the US economy at this stage.

Some analyst expects that the Fed cut interest as soon as May or June but that is probably to early. The strong job growth and the low unemployment rate makes it, in my opinion, to early to start cutting interest and risk the inflation to start moving up even further.

As pointed out the housing market is a concern and the strength in the housing market in the beginning of 2007 seems to been temporary. Stats the next two months regarding the housing market is something to follow closely the get an good view where it is going from here and what consequences it have for the US economy.

The Inflation in the US is still over the goal of 2% and the core inflation which is the one the FED looks into the most was up to 2,7% in February and it is important that it is not moving up any further.

So the never ending story if the market is having a hard landing or a soft landing will probably keeps on going for some time.

Global Stockmarket

This part will consider regions as the US, Europe, the Nordic region, Eastern Europe, South America and Asia. A strong global growth have been moving almost all markets to good result for 2006 and below is quick overview of areas for the 2007.

The emerging market was as can be expected in top when the market this week moved up. India that been under pressure in the start of 2007 had a good week and might be hitting it lows for a while and the long up trend seems at this stage to be intact though the fundamentals makes the region looks a bit overvalued. Behind Asia and Latin America Eastern Europe moved up strong and the Balkan region have been amazingly strong in the beginning of 2007 and the Balkan region seems to be one of the strongest cards for this year.

The energy sector starting to looks interesting and it looks that the sector has possibilities to shortly make a new all times high. The valuation of the sector is low though the expectations to make strong profits in the next couple of years.

As mentioned Oil moving up strong and the Copper is just keep on moving upwards mainly because china is back and buying and pushing the prices up.

Currency

The FED helps the dollar to keep on coming off and the speculations of an cut in interest have kept on the pressure on the dollar and the downtrend are intact and as soon as the FED clearly states that an cut will be made not to far away the dollar will hit new lows.

The uncertainty in the US housing market still works as a wet blanket for the financial market. We have because of the increasing interests seeing the US housing market cooling down for the last 6 to 12 months but at this stage there is some uncertainty if the US consumers will, regardless of the housing market keep up the consuming in the near future, if not that will hit the slowing growth even more and gets its closer to an recession. Though no signs of recession are really visible today.

The mortgage level for the US housing sector is still manageable but when correction of the prices come this changes rapidly which is an concern for the Fed when adjusting the interest. Debt management have the last couple of months been giving some focus after that the US consumers in the last 3-4 years used there house as an wallet for consuming, this have been rapidly changing in the last couple of months.

The macro statistics have been weak overall but the job-growth is still good and no signs of recession can be seen there but that can change quickly because of the flexible US job market that can downsize rather quickly.

The level of company that invest is way to low to take over some of the weakening consuming, the fourth quarter was down 2,5% and January down 6%, but there is some signs that there is plans that the investment grade will move up in near future. There is important that companies sees business opportunities and use there historically great profits to invest to keep up the overall growth.

The overall market valuations still seems to be manageable and that will support the market in the coming weeks when uncertainty is out there keeping the pressure on.

Global Stockmarket

This part will consider regions as the US, Europe, the Nordic region, Eastern Europe, South America and Asia. A strong global growth have been moving almost all markets to good result for 2006 and below is quick overview of areas for the 2007.

No trend to make you go long, no trigger that are good enough to make you put money in the market and it seems that is the way most investors think at this stage, but that can change quickly if we gets some good statistics and some positive market news.

Copper is still strong and it seems that every bounce we get is an opportunity to buy.

Currency

News regarding currencies is that China is starting an investment unit that will have the responsibility increasing the return on the currency reserve that till this day on routine been put in US bonds. This will over time put even more pressure on the US dollar when huge amounts will be put elsewhere.

After some damage control the market came back some this week but I think it will still be some uncertainty in the market in the near future. The long trend are intact and I think that next week will be an idea for the long term investor to put some money in if we have an shake out in the market.

One thing is for sure that it will be difficult to make some money in the market, no trend and great volatility.

I at this stage predict that the market will not be back in its long trend for a couple of weeks.

An issue is that the bounces we get hit harder and harder, the small healthy correction seems to just be a memory, why that is the case is hard to tell but the evolving financial market globally gives more and more mostly inexperienced private investors closer to the sell buttons which gives this huge moves in no time.

The Dow Jones tried with not much success to go through the 12300 level and it seems that the market will stay at these levels for some time before moving up any further.

Global Stockmarket

This part will consider regions as the US, Europe, the Nordic region, Eastern Europe, South America and Asia. A strong global growth have been moving almost all markets to good result for 2006 and below is quick overview of areas for the 2007.

No big moves to report for this week after the last weeks drop. Asia was up some accept India that is been taking some downside the last month after that the government trying to implement some not very popular welfare programs that though might be a good the for the growth in the long run.