Max Number Of Channels= 2 Hdmi

March 2009

The Obama administration is distinguished by choices courageous and innovative which is trying to change the face of an America deeply marked by two terms of Bush junior.
It 'funny that, of all the initiatives so far introduced in the social, political, economic, just one that has fewer new elements have been such a broad consensus on financial markets, conceded that the rally that has lifted global stock markets these days is due to the new support plan for the banking system.

Apparently the new plan follows Geithner fairly faithful to the spirit of the earlier proposed TARP, in the days of the failure of Lehman Brothers bank, the then Treasury Secretary Paulson.
This plan aimed to reduce the budgets of the rickety U.S. banks of toxic assets linked to real estate that were terribly illiquid then by massive state intervention. The approval by the laborious U.S. House and Senate had been followed by a resounding rejection by the financial markets.
Like its predecessor, Geithner also appear to care about the urgent need to clean up the balance sheets of banks by securities that will be detected by a complex mechanism of auctions and guarantees to private investors who may participate.
The proposal still has blind spots and gaps are such that it is difficult to think that it was welcomed by financial markets with the best seat in the last five months.

In these days also come from the real timid signs of recovery: the data on sales of existing homes is also better than expected and the manufacturing front, there are signs that the situation has at least stopped getting worse.
This, combined with a very technical situation objectively has certainly helped the recovery in prices. The problem now is to see if it was the umpteenth corrective rally added to an underlying trend is still negative, or we are witnessing a reversal of the trend that should satisfy the outset.

Looking at the weekly chart of the S & P 500 Index shows that prices are part of a large downward channel rather obvious: at first glance it would seem, therefore, that we are in the presence of a corrective rally is indeed relevant in terms persistence and percentages, but may have to give way to a back drop in prices.



However we can not detect that the market actually is at a crossroads: the moving average of 50 sessions (the red line in graph), which traditionally represents the medium-term trend has been interested in closing the weekly. This level represented, since September 2008, the upper limit of the bear market: a barrier against which so far have broken the recovery efforts and has rejected the prices to lower levels (in September 2008 and January 2009).
The next sessions will then be crucial: if in closing week you should see a consolidation of prices above this average, then take The hypothesis that the downward cycle has finished and should begin to accommodate the likely increase in the market.

However, the situation is still dominated by uncertainty and nervousness: it shows the level of volatility that continues to be stationed at extreme levels, certainly typical of the final stages of a bear market but still too high to be considered safe from nasty surprises.
As can be seen from the graph below, readings of particularly high volatility relative to the value of the stock exchange, have always been the prelude to a lasting and significant increases even though as has already happened in 2002, may need further consolidation in prices before the final restart.



THE DRAGON FLY has resumed

In a situation considerably more favorable instead are the Asian markets, especially the Chinese prefer to be sure that Taiwan is experiencing a particularly favorable, but also Shanghai and Hong Kong seem to have taken the path of higher sustainable.



At this point one might wonder what can be expected by financial markets.
In a previous intervention had particularly stressed the relationship favorable price and future profits.
Given that profits grow at an average annual rate of 6% from one peak to another of the business cycle the market today expresses a moderate underestimation compared to current earnings, but offers attractive returns for the years to come: taking into account precisely the real rate earnings and assuming a price-earnings ratio of between 10 (extreme understatement) and 20 (extreme overvaluation) an investor 'box' (buy and hold) who decides to buy shares today could expect from his investment, a return to average 10-11% per annum over the next decade.
this, however in the presence of a recovery in corporate earnings growth and, personally, I agree with the hypothesis of those who say that we will have to wait before this event will occur because:

1. in recent years most of the gains have been achieved thanks to non-industrial and financial logic, the credit crisis and the least leveraged by companies and banks will surely lead to a significant reduction (if not reset) this component of income;
2. the struggle to maintain market shares (or win new ones) will probably be conducted at the expense of operating margin and therefore profit, because production costs have already been cut to the bone (especially at the expense of workers) will necessary to reduce the selling prices of goods produced at the expense of profitability.

We can therefore say that the markets are laying the foundation needed to give rise to a change in the underlying trend, also the prices are generally attractive or otherwise to justify expectations of returns are acceptable, given the risk, lack of market equity.
To assist however in a final reversal, or at least long-lasting, must be confirmed by larger especially the economic front:

the market has welcomed a given that the U.S. GDP is less severe than expected but still indicates a contraction, on an annual basis by 6.3%



also observe the data on corporate profits that is literally fell apart during the fourth quarter of 2008



the overall figure shows a decline of profits by 16.5% during the quarter (-21.5 % yoy), the largest contributor to this decline comes from finance companies (-59% and - 66% on a quarterly and yearly) and, although it is lower (-10% -9% on a quarterly and annual basis) does also reflect the drop in earnings of non-financial sectors in the achievements despite oil prices have more than halved.

Symptoms Of Too Much & Too Litle Stomach Acid

Overwhelmed by economic data consistently negative, the stock markets could not help but pursue the path of downward embarked in previous months.
The weekly chart of the index more representative of the U.S. market, the S & P 500, has a disturbing sequence of 'red candles':



not even the comfort given the volatility that, although it is gradually returning from
excesses of late 2008, remains at levels of attention to indicate that among the investors still great fear and uncertainty about the direction that will take the financial markets:



E 'worrying the fact that participation in this fall involving all the sector indexes as well as almost all the securities listed on the New York Stock Exchange: in fact, no license is included in the Dow Jones Composite at levels above its moving average to 200 seats and given rising to 3% of the securities included in the S & P 500 and 7% of the securities included in the Nasdaq 100.
The situation does not improve much if we consider the moving average of 50 sessions, with only 3% of the shares of Dow Jones, 10% of the shares of the S & P 500, 16% of the shares of the Nasdaq 100 is defined located in an uptrend medium term.

However, investors should be aware that extraordinary sequence characterized by long action of the market place is particularly deteriorated in periods when valuations are, by contrast, generally attractive. Consequently, an approach dictated by the rationality of financial markets, would make the building, albeit with caution, in view of the positions that can provide more than acceptable returns over the medium to long term.
at this time, however, certainly take over behavior dictated by the news very reassuring coming from the macroeconomic front and lead to behaviors influenced by extreme pessimism.
The rational investor should, therefore, to base their choices not so much a preference for financial instruments are good at this particular juncture because those assets that returns facing more interesting without losing sight of the fundamental pillars of good financial planning is that the time horizon and risk tolerance.

E 'therefore need to make a proper assessment of the expectations to be able to make a rational choice.
therefore contains an interesting reflection proposed by John Hussmann and I invite anyone with a minimum of familiarity with English to read in the original:

http://www.hussmanfunds.com/wmc/wmc090223.htm

In its Hussmann analysis identifies the so-called peak earnings, ie earnings recorded in year in which the economy is at the point of maximum expansion. Among other
a peak (so spaced from the other phases of the normal business cycle: slowdown, recession, recovery) profits are growing at an average annual rate of 6%, so far from the growth rates on which these judgments are based proposals financial analysts (for example, in 2007, analysts estimated a rate of earnings growth of 18%!).



It 'obvious that the cycle of growth and contraction of profits so far is contained within an ascending channel. Earnings estimates for 2009, relative to the S & P500, fell to $ 28 than $ 78 recorded in 2008 and prices will inevitably have adequate index. The break the downward trend line below shows the uniqueness and severity of the economic slowdown taking place but also allows us to determine with some precision what will be the annual average returns of the next decade on the U.S. stock market.
look at this chart may be helpful:



The thin lines represent a band 'confidence' range within which the values \u200b\u200bof underestimation (P / E = 10) or overestimation (ratio P / E = 20) according to market quotations and expected earnings, the bold line represents the average annual return of the shares of the S & P 500 over the next decade (so it stops at 1999), shown on the left axis: for example, an investment that began in 1990 has provided an average return slightly less than 20% annually, while maintaining the same investment in 1999 there was a loss of close to 4% per annum.
In any case, whenever the market has seen prices similar to those existing in terms of multiples of P / E has now been implemented during the next decade, major returns.

Finally I will touch briefly on the U.S. housing market. He has always said that in this field has originated the crisis and, therefore, should be monitored to catch the first signs of recovery.

The source of the first graph is the Federal Reserve Bank of St. Louis and shows the progress of the construction of new buildings:



E 'clear the sudden drop in new construction of housing units by the end of 2006.
The next graph shows us instead as the price of homes has continued to rise well into 2007 despite the decline in demand, a dynamic that reveals the existence of a bubble destined to burst soon: