Charting around Asia
The Great Moderation?
by John Needham, The Daniel Code Report | February 15, 2008
PrintFreezing weather ruined the holiday season for many in China as heavy rain finally broke the drought in SE Queensland, Australia.
Back to Normal says Frankfurt strategist
Global markets had a more normal tone as government institutions worked frantically to shore up US markets suffering a significant credit event from the subprime meltdown and excesses of financial engineering.
Feb. 14 (Bloomberg) - The Nikkei 225 Stock Average had its biggest gain in six years and U.S. index futures increased. Mizuho Financial Group Inc. climbed in Tokyo for the first time in seven days. The MSCI World Index added 0.9 percent to 1,458.37 at 12:20 p.m. in London, and Japan's Nikkei jumped 4.3 percent, the most since March 2002. Futures on the Standard & Poor's 500 Index rose 0.3 percent. Europe's Dow Jones Stoxx 600 Index gained 0.7 percent, after climbing as much as 1.3 percent.
Japan's economy grew 3.7 percent last quarter, twice the pace economists forecast, as exports to Asia helped companies weather the U.S. slowdown. Shares in the U.S. rallied yesterday following an unexpected rise in retail sales. `Back to Normal' ``People feel the world's getting back to normal,'' said an equity strategist at FrankfurtFinanz Partner in Frankfurt. ``The Japanese economy grew faster than expected, while higher U.S. retail sales eased concern the world's biggest economy is sliding into a recession.''
Really?
I must take a trip to Frankfurt. The air there must be particularly edifying if they think markets are back to normal! Nothing is back to “normal”. Soaring food costs and dwindling supplies again highlight the dangerous combination of climate change with unforeseen consequences of Government policy and subsequent misallocation of resources:
The Times, 13February 2008. The grocery bills are jumping again today, not just in Europe but all over the world. The age of cheap food has abruptly come to an end, and food prices are likely to remain high for some considerable time. The reasons are soaring demand in the developing world, high oil prices contributing to the costs of planting, fertiliser, harvesting and transport, poor harvests in major grain and rice-producing regions because of drought in Australia and cold summers in Europe and parts of North America, and, finally, disastrously timed official policies on ethanol and other biofuels. Take all these together, and the result is a jump of 40 per cent in the UN's 2007 global food price index.
For Afghans faced by flour costing up to 80 per cent more, it means going hungry - and, probably, even greater political instability. For many governments, from Mexico to Malaysia, it means food riots. For everyone, persistently higher food costs will translate into hefty wage demands, and make it much harder for governments to finesse the nasty combination of weakening economies and gathering inflationary pressures. No one is talking stagflation yet, nor should they - but double-digit inflation of any kind is bad news and commodities such as soya beans, maize and wheat are up by as much as 100 per cent.
Governments are worried not only by costs, but by supply, as traditional sources of imports dry up. US wheat stocks are at their lowest since just after the Second World War, and in Europe proverbial seas and mountains of surplus produce have vanished. Argentina has set ceilings on its beef exports, and China, where inflation is at a ten-year high in large part because the prices of pork and other staple foods have gone through the roof, has, Heinz-like, slapped export taxes on 57 varieties of farm produce.
In New Zealand and Australia the consumer binge continues and the property boom remains in full flight. NZ dairy farm prices have been particularly strong, reaching a record median of $3.575m in December, up from $2.5m the year before, a 43% increase year-on-year. Real Estate Institute of New Zealand rural spokesman Peter McDonald said the rural sector had reached a new level as farmers and new investors were competing for properties in a sector with "unprecedented growth".
A marginal drop in median prices in NZ’s capitol Wellington is explained as a lack of multi million dollar houses to sell!
The flow on of these ground up price increases is breaking out as price inflation that even Government statistical hedonics can no longer conceal.
While property prices are down 22% in Japan, NZ Dairy farmers are prepared to pay almost 50% more for their farms. Fuel used in almost every on farm application is at extremes. Animal foodstuffs are going off the charts because of the competing uses for biofuels. All of these input costs feed through the system with the result that dairy farmers in particular are going to be demanding ever higher payouts to maintain their investments.
In New Zealand, the Government exempted the dairy industry from its own competition rules to create Fonterra as the monopoly dairy marketer. Fonterra, now the world’s largest exporter of dairy products has done a good job for its stakeholders the NZ dairy farmers with record milk solid payouts year after year, but it won’t be enough. The dairy farmer’s unprecedented growth will come at a cost to consumers. To highlight the importance of the dairy industry to New Zealand, the Government recently made a clumsy attempt to withhold the chapter of its own environmental report that showed almost 50% of our greenhouse gas emissions come from large bovines, ie dairy cows! With NZ marketing itself as clean, green and “100% pure” its failure to match its pro Kyoto rhetoric with action is pointed.
The dislocation between various countries in our region is becoming more pronounced. We have a 40% jump in the UN’s food price index, 43% jump in farm prices in NZ, 20% jumps in Australian and NZ house prices year after year yet Governments insist inflation is in the 3% range and analysts think this is normal! Tighten your seat belts and stand by. It won’t be pretty.
URIDASHI!
For those of you following the Uridashi debate and NZ’s ability to meet its repayments, please see the latest RBNZ charts and commentary in my new story “Yarns from Down Under-Part 3” to be published in Financial Sense main page. The original story is in my FSO archives.
The Great Moderation. Are we on the same planet?
In the face of these almost unimaginable excesses the Governor of the Reserve Bank of New Zealand has referred to the recent global economic events as “The Great Moderation”! If these events represent moderation I can’t wait to see the party!
To further challenge the themes of “Getting back to normal” and “The great moderation”, UK newspaper The Telegraph gives us this important story.
Japan is the next sub-prime flashpoint
Last Updated: 12:33am GMT 10/02/2008
There is still $300bn of bad debt out there, and Japan could be hiding most of it. Ambrose Evans-Pritchard reports. Just as battered investors had begun to glimpse signs of recovery in America, the next shoe has dropped with an almighty thud in Japan. Echoes are rumbling across the Far East. The Tokyo bourse has crumbled, suffering the worst start to the year since the Second World War. The Nikkei index is down 17 per cent since Christmas, and the shares of Japanese banks are leading the slide. Mizuho Financial, Mitsubishi UFJ and Sumitomo Mitsui have all been punished as hard or even harder than those US banks at the epicentre of the sub-prime debacle. The nagging fear is that Japan's lenders - the conduit for the world's greatest stash of savings - have taken on a far bigger chunk of mortgage securities, collateralised loans obligations and other exotica from America's structured credit boom than they have yet revealed.
. We may find out soon enough whether the hold-outs are in Japan. American and European banks have so far confessed to $130bn of the estimated $400bn to $500bn of wealth that has vanished into the sub-prime hole. Somebody, somewhere, must be sitting on a vast nexus of undisclosed losses. Japanese banks have to come clean under the country's strict new audit codes by the end of the tax year in March. "We know from Bank of Japan's lending survey that the banks are already tightening hard, so something is brewing. Right now, we are in the lull before the second storm in global markets, and Asia is going to be the source of the nasty surprises," The iTraxx Japan index measuring default risk of 50 Japanese companies saw its biggest one-day jump ever on Thursday to 77.5. Rightly or wrongly, it is flashing a serious distress signal. There are clear signs of deceleration in exports of steel and semi-conductors to China."
Yes, China. It turns out that the intra-Asia trade that was supposed to immunise the region against a slump is a disguised supply-chain ending up in the US market. American shoppers still make 30 per cent of global demand, just as it did a decade ago. Nothing has really changed.
So far, Japan's biggest three banks have admitted to just $4.7bn in total losses between them. The figure is rising. Mitsubishi, the biggest, has just raised its tally to 12 times the sum admitted in November. So the storm spreads East. Once the striptease starts on the onset of a global downturn, it usually has a long way to run.
Asian Markets
Asian markets are following their Danielcode script. These charts are available free to readers at the Danielcode Online website.
Hang Seng. This index turned 51 points from its Daniel number. Did you know?
So far the Asian market charts have fallen and retraced from levels that can be called corrective on long term charts. The patterns too can be counted by an optimist as corrective. They are all 3s. Is this meaningful? I think not. Asia’s immediate economic future is still tied to that of USA, the great consumer. I am not in the camp that says Central Banks can fix all, and what is happening in US and UK and European markets is clearly driven by Central Banks trying to prop up reckless financial institutions and continue the mantra of growth, growth, growth. Today in testimony in Washington, Federal Reserve Chairman Ben Bernanke told Congress the Fed "will act in a timely manner as needed to support growth”.
That approach merely prolongs the pain and does nothing to recognise that the global problems we now face are caused precisely by lax fiscal settings and artificially low interest rates coupled with unparalleled access to liquidity.
Artificial growth encouraged by financial engineering is the problem not the solution!
Nikkei 225. Is up over 1000 points from its Daniel number turn at 12573. The Daniel target was 12561, a variance of just 11 points. Did you get the trade?
Shanghai Composite. Now holding below DC resistance.
Big rally in the Taiwan Index. It’s now 460 points from its DC turn.
The Australian SPI 200 index bounced off its Daniel support number at 5175 and rallied to the next major DC level at 6035. It is now consolidating awaiting developments.
Danielcode Subscribers Charts
Danielcode subscribers again had great trading this week with nice trades in Gold, US T Bonds and all the currency crosses. The short term 4 hour charts probably stole the show this week as chart after chart traded to its Daniel numbers.
The Daniel number sequences are secret numbers that all markets recognize but which are unknown to others. This is the continuous Comex Gold futures contract. Every turn is being made with precision at the Daniel numbers. Did you know these price levels in advance? Danielcode subscribers did.
Below are our 4 hour currency charts with the Daniel numbers as given to subscribers. These extraordinary numbers are posted on the website days in advance. You can see what I mean when I say that markets recognize these numbers!
Tracking perfectly. No change. Just exposing more of the same Daniel sequence
This is what my clients are saying this week. They range from seasoned veterans to forex newcomers:
I have to tell you...that what you are doing here is the very first time I have ever had the kind of information that can help me be successful. Bob H, USA
At my rate ,I am twice happy to have enrolled, Thanks a lot for your excellent levels, I mentioned them to a friend of mine from Spain, and I believe that he subscribed too, keep up your exceptional work, it is really something extraordinary. SDI, Andorra,
Entering at 1.9735 on the GBP and entering at 1.4810 on the EUR and placing my stops just 10 pips above the DC numbers, I sat back and let the markets go. Well, as you now see the GBP and the EUR are both DOWN and my stops are moved to lock in a profit of 200 pips on the GBP and I took a buy limit order of 1.4510 on the EUR this morning (U.S. time). These trades are both trading with two lots each! I made more money on just those two trades than working for three straight months! Your DC numbers are just simply unbelievable, Mr. Needham. Mark T, Topeka, Kansas, USA
The Asian charts and many others are available to all at the Danielcode Online. If you enjoyed this article please see this week’s “Yarns from Down Under-Part 3” on the Financial Sense main page.
CAUTION-The Daniel numbers on these charts are from historic sequences that may not be current at the time of publication. They are appended for historic interest only. Do NOT use these numbers to trade markets. Current Daniel sequence numbers for most currency crosses are available to subscribers at the Danielcode website.
Copyright © 2008 John Needham
Asia Editorial Archive
John Needham is a Sydney Lawyer and Financial Consultant. He publishes The Danielcode Report and writes occasionally on other markets. He lives with his family in Australia and New Zealand.
“The fox knows many things, but the hedgehog knows one big thing. A Hedgehog Concept is not a goal, intention or strategy to be the best. It is an understanding of what you can be best at. The distinction is absolutely crucial”. ~ Isaiah Berlin, The Hedgehog and the Fox
contact information
John Needham | The Danielcode Report | Taupo, New Zealand | Email | Website
The opinions of FSU contributors do not necessarily reflect those of Financial Sense.
