Delayed update from 26th Nov.

Stocks: Sunny side up these days, but don’t get toasted.

We never see the bottom, before after the bottom, but I doubt it was last week.

Stock markets are globally in the good mood due to the above rescue packages. Good that many equity investors focus at the short term benefit instead of the coming higher government bond yield. Going forward the higher yields will compete with stocks. With lower corporate earnings in the coming years is the only compensation to buy stocks at a lower price than current levels.

I conclude that global demand for all sorts of goods has declined so much (not just temporary stopped), that the market place has become smaller. Either can all sellers of the goods accept to sell with a loss or some needs to disappear. A simple protection for investor is to buy market participants with high equity (or small debt ratio’s), but it will be really hard for these companies to obtain a satisfactory ROE. A lower share price before investors buy is a compensation.

It could be that all bad recession news is priced in the stock market. It would just be very early in the cycle that the market is able to price the whole downturn in.

All in all am I still very sceptical regarding stocks. As mentioned last week when S & P 500 broke 820 on the downside I was going for a new and lower target – it is 656.

I respect that we are in a tricky territory, so I will look closer at equities in the next Weekly. Targets for Dow Jones and Nasdaq will be corrected lower accordingly.

Currency markets: Swinging like a share.

Almost as usual is the currency market following stocks. The 1,3250 target in EUR/USD is getting closer, but my view is based on a Dollar sell off and not a bullish equity market. I expect EUR/USD to move back to the 1,2400 – 1,2900 range followed by a break upwards.

The EUR/JPY target at 118,50 has been reached 2 times now but I believe in a 3rd times as well. USD/JPY is currently well supported around 94,00 out of Japan, but I stay with the 90,00 target followed by intervention by Bank of Japan.

Round about the same story for Sterling as it was helped higher by the dollar going lower, but I keep the downwards target in EUR/GBP

China: Fighting the recession dragon

Just a few, but important, numbers to highlight this time.

Today’s rate cut of 108 basis points is another sign of how fierce the Communist Party fights to boost the domestic economy.

I simply stay with the view the that one day China will become a new US demand machine, but the number of people who believes in that probably has gone up. A study I got across last week showed that for 12 months ago 19% of all asset managers was overweight China stocks, lately this number was 67%. Maybe the asset managers just reduced other countries, all in all there fewer remaining buyers. On the other hand, last week it was possible for an asset manager to raise USD 1 billion to invest in Chinese stocks.

Yesterday the World Bank revised the growth forecast for 2009 down to 7,5%, well below the official target of 9,0%. Why is the Chinese Communist Party so worried about that when rest of the world is in recession? Net 20 million people enter the labour market yearly. China needs a yearly GDP growth rate around 9% to absorb the growing labour force otherwise it feels like recession.

I stay with the targets reached once at 11.000 in Hang Seng and 90 in Shanghai B. 

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