many readers have been asking whether this is a new bull market or just a rebound. if it is just a rebound why is it so strong.
in fact, i have no clues. it is like asking why this fall [dow from 14000 to 6500, hsi from 32000 to 10600] is so drastic. because the fall is so drastic, the rebound has to be too couple with the fact that usa is printing money.
sometimes i tell from my hunch but most of the time i tell from charts.
my hunch this time is that even if this is a new bull run, it will encounter a major correction before a nice bull market can really starts.
HSI
earlier the chart indicates it would reach 16700. after breaking out of 16000, it formed another bottom indicating it would reach 20000. this is very much like when hsbc falls from the top, it formed many head and shoulder tops as it fell each indicating a further low while this time around, hsi has a similar situation forming many [inverted h&s] bottoms when it goes up.
China
it may be false dawn to conclude that china's stimulus can lead world commodities to rally, rather it is the usa who is now printing money fast enough to push money sitting on the sidelines to move back into commodities, stocks, corp bonds and real estate.
HK
real estate in hk is pretty precarious as it has shot up quite a bit. the fact is money in banks gets no interest, so people move into real estate to get some yields. but people who borrows heavily [70%] could be setting themselves up for trouble as interest rates for mortgage at present are about 2.5-3%, any hike in interest rates will cause mortgage instalments to balloon, if wage rate increase cannot catch up with the increase in mortgage amounts it would put extreme pressure on real estate.
while this worry is not imminent, it may still happen. even so, such incident may not come so soon and bubble can keep on going for a while without bursting as deflation may set in before the arrival of inflation since economy activity is still at a low point and may not turn around so fast. current events in the usa of contraction easing is because of inventory rebuilding not because of return of real consumer demand.
i posted two charts - dow in 1930s and nikkei from 1990s, in both periods the indexes encountered depression or severe recession. it took many years to recover part of the losses but not all. obviously the printing of money helps, but when us govt has to exit their positions, the interest rate increases could be tremendous and could block any recovery to its fullest.
to view the charts more clearly, do one of the following:
- double click the picture, it should enlarge or
- place curosr on the image, right click to copy and paste it onto a blank word doc or paint, then enlarge for easy viewing.
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