UPDATE - UBS

only just one week ago, you read subprime is going to get worse and fast. now look at ubs who just announced how bad it is hit by subprime.

also look carefully at this chart. the first double top neckline is at 55, it fell through and reached the 45 mark as predicted by this kind of chart type. however, look further, you will find it just didnt end there, it now has a multi-top chart and neckline at 50, this is getting worrisome. it did fall through the 50 line, the magnitude south is min 35 ie a fall of 30% more from here.

if you look at banks on their reporting, they didnt come honest with their exposures to SP. therefore i am almost 100% sure that

• HSBC will reach 110 target within the time frame i mentioned in the earlier update about it.
• the interest rate drop by fed will reach at least 1.5% by end08.
• oil will indeed fall back close to 80.
  

SUBPRIME, OIL PRICE and DJ

Many of us are confused about how the subprime woes will play out and also the direction of DJ, interest rates and oil price.

Simple - subprime woes will only get worse and fast, why?

1. A broad base housing market decline rarely ends in 2-3 years, so dont believe that subprime woes can end mid08 though it peaked in early 05. It will take minimum 6 years to recover if not more. The Japanese one lasted 16 years with false alarms of bottoming out all the way.
   
2. Foreclosures are going up
3. Layoffs are on the way - Citigp announced to layoff 50,000 already. 3-5 months after being laid off, if people still cant find employment, they cant finance their mortgages thus further pressuring banks to foreclose which will make the housing market even weaker
   
4. Banks will layoff before xmas to cut overhead
   
5. Finance sector on cutting costs will delay all capital outlays including IT this is why Nasdaq index gets hit even harder
6. Delinquent loans whether they be mortgage or credit card related are already going up fast
   
7. Once consumers stop spending the contraction will accelerate
8. Two charts base on FDIC data indicate how serious the problem is. The magnitude this time is more serious than any of the past corrections of the housing market for the past 30 years or even since 1933.
   
9. DJ Transportation is known to reflect the economy ahead better than DJIA, its performance can be seen deterioratiing faster than DJIA from July07, not until you see a turnaround in DJT ahead of DJIA, the general direction is south.
   

Check out this link and read carefully the full extent of the problem:
http://news.bbc.co.uk/2/hi/business/7073131.stm
The city of Cleveland [Ohio] alone is hard hitted, you can imagine how bad it can be with the rest of the US counted in.

Expect 1 - 1.5% or even 2% cut in interest rates by end08 starting from the next Fed meeting in mid Dec.

It is already in the press that help is on the way from govt, banks, FIs to avoid further upsets when interest rates reset for variable rate mortgages as they fall due shortly. Many FIs will use the news to squeeze short stock positions for a while and also to boost performance for qtr/year end investment positions.

DJ would not have been this high if not for the oil stocks fast and substantial rise, but lately when oil is hitting new high, oil stocks such as Exxon lanquish below their highs reached earlier, this indicates oil has reached a short term peak already. Read my update released 06Jul19 which forecasted the outcome of a similar situation. The crude correction lasted 6 months, how long it will last this time round is anybody's guess, but the faster it corrects, the sharper the rally.

So, couple with subprime woes, expect DJ to fall further subsequent to a rebound after the help on interest rates reset is announced, in short after yearend.