Mr. Prechter, based in Gainesville, Ga., is a social theorist and technical market analyst with a very unconventional approach. It is based on his own version of the Elliott Wave Theory, which originated in the writings of Ralph Nelson Elliott, an accountant who found repetitive patterns, or “fractals,” in the stock market of the 1930s and 40s. The market still moves in cycles, large and small, Mr. Prechter says, based mainly on “social mood,” which, in turn, influences the economy.
The current cycle will lead the unwary to ruin, he says, “We are in a long-term bear market that started in 2000.” He says the rally that has been so enjoyable for stock investors is just a mini-cycle in that longer swoon.
“I think the bear market will end when most debtors default and the media change from calling it a great recession that’s over to calling it a great depression that isn’t,” he says.
Part of his argument will be familiar to anyone who follows the financial news. We are living “in a world saturated with debt,” he says. “Newly conservative regulatory policies have been clamping down on bank credit,” he adds. “State and local governments will soon cut spending and borrowing, and when the federal government finally cuts spending and borrowing and the Fed — either from within or without — is forced to stop” its quantitative easing program, the game will be up.
Friday, February 25, 2011
Wednesday, November 24, 2010
needs v wants
at the Gold Symposium a few weeks ago, it was stated that you should expect to see inflation in the things you need and deflation in the things you want. Cars and white goods and plasma TVs are getting cheaper in a world with excess productive capacity and over production. But where the rubber meets the road in daily life for billions of people, inflation is pushing up food and fuel prices.
Tuesday, November 9, 2010
Blowout
The Federal Government is expecting a bigger budget deficit this financial year than originally forecast.
The updated budget papers predict a $41.5 billion deficit, which is almost $1 billion more than the July forecast.
Key points: Budget to return to black in 2012/13 with $3.1b surplusProjected budget surplus in 2012/13 down $400mBudget deficit to increase to $41.5b in 2010/11Unemployment rate to fall to 4.5% by June 2012
Treasurer Wayne Swan's release of the Mid-Year Economic and Fiscal Outlook (MYEFO) confirmed predictions that a rising Australian dollar would hinder the Government's bottom line.
But while the 2010-11 budget forecast has blown out, the Government is still on track to return a surplus of $3.1 billion in the 2012-13 financial year.
This compares with the $3.5 billion predicted by Treasury and Finance in the Pre-election Economic and Fiscal Outlook (PEFO) released in July.
The economic update also shows employment conditions will continue to strengthen, with the jobless rate falling to 4.5 per cent by 2012.
A return to surplus by 2012-13 was one of the Labor Government's key election pledges.
Mr Swan says it is the fastest positive turnaround in the budget in more than 40 years.
And he says the Government is determined not to repeat the mistakes of the past.
"We put our fiscal rules in place in February last year because we understood that as we moved to strengthen the economy we had to formulate the exit strategy for the future," he said.
Mr Swan says he is optimistic about Australia's economic future.
"A strong economy is an economy that creates jobs, creates opportunities for people," he said.
"What they (the figures) represent is hundreds of thousands of more Australians in work.
"To be coming back to surplus in three years, well ahead of any other major advanced economy, is something that we should all be optimistic about."
Mr Swan also defended changes to the revenues generated from the minerals resources tax.
He says the revised forecast for the tax relates to the change in the exchange rate.
"What we're dealing with is solely here the exchange rate effect. That's why tax [revenues] overall are down about $10 billion. It largely reflects lesser company profitability," he said.
The updated budget papers predict a $41.5 billion deficit, which is almost $1 billion more than the July forecast.
Key points: Budget to return to black in 2012/13 with $3.1b surplusProjected budget surplus in 2012/13 down $400mBudget deficit to increase to $41.5b in 2010/11Unemployment rate to fall to 4.5% by June 2012
Treasurer Wayne Swan's release of the Mid-Year Economic and Fiscal Outlook (MYEFO) confirmed predictions that a rising Australian dollar would hinder the Government's bottom line.
But while the 2010-11 budget forecast has blown out, the Government is still on track to return a surplus of $3.1 billion in the 2012-13 financial year.
This compares with the $3.5 billion predicted by Treasury and Finance in the Pre-election Economic and Fiscal Outlook (PEFO) released in July.
The economic update also shows employment conditions will continue to strengthen, with the jobless rate falling to 4.5 per cent by 2012.
A return to surplus by 2012-13 was one of the Labor Government's key election pledges.
Mr Swan says it is the fastest positive turnaround in the budget in more than 40 years.
And he says the Government is determined not to repeat the mistakes of the past.
"We put our fiscal rules in place in February last year because we understood that as we moved to strengthen the economy we had to formulate the exit strategy for the future," he said.
Mr Swan says he is optimistic about Australia's economic future.
"A strong economy is an economy that creates jobs, creates opportunities for people," he said.
"What they (the figures) represent is hundreds of thousands of more Australians in work.
"To be coming back to surplus in three years, well ahead of any other major advanced economy, is something that we should all be optimistic about."
Mr Swan also defended changes to the revenues generated from the minerals resources tax.
He says the revised forecast for the tax relates to the change in the exchange rate.
"What we're dealing with is solely here the exchange rate effect. That's why tax [revenues] overall are down about $10 billion. It largely reflects lesser company profitability," he said.
Sunday, November 7, 2010
fiat currency
when a countries economy is backed and based on a fiat currency, that is one that has no real value other than the paper its printed on without an intrinsic physical value then this currency becomes useless and when the population registers this in their consciousness and devalues it in their mind, then the country faces financial and economic ruin. this is where america is now. the empire is crumbling at the foundation, the chain reaction was started quite some time ago and will now rapidly deteriorate
AUS $
Mr Swan told Saturday AM the Government will lose billions in revenue because of the high value of the Australian dollar. He says profits for Australian exporters will fall and this will have consequences for the Government's tax take."There's no doubt we're going to cop a fairly significant whack to our revenue in the mid-year budget update, that's just the reality of having a higher dollar," he said."The Australia dollar has appreciated by around 15 per cent against the US dollar in recent months. What that does is really hit the profitability of our exporters and as a result of that is reduces companies and resource taxation."Some estimates say the Government's mid-year economic outlook - due within days - will show a $10 billion loss in revenue over the next four years.Mr Swan would not confirm that number, but says the impact of the lost revenue will be significant."None of that alters our determination to continue the budget discipline that we've put in place over the past couple of years and to make sure that our public finances remain the strongest in the developed the world," he said.
Wednesday, June 23, 2010
Big banks and Aus economy
A "sound financial system" is a big reason Australia had one of its "mildest" recessions in the post-War period while the US and several European countries had one of their "most serious", Reserve Bank of Australia governor Glenn Stevens said in April.
One is a cooling housing market. After rising for 16 consecutive months, capital city house prices were virtually unchanged in April, according to the RP Data-Rismark Hedonic Home Value Index. Weak demand for home loans – the number approved in April was the lowest since March 2001 – suggests other capital cities might soon follow Brisbane, Perth and Darwin, where prices are already falling.
If this happens, bank profits are sure to follow. Why? Because the share of home loans in banks' total lending stands at 58 per cent, according the RBA. Falling house prices spell fewer buyers, borrowing less and paying banks less interest.
If they fall enough, house prices can drag down an entire economy. This is what happened in the US in 2006 when falling prices led to a jump in the number of Americans unable to pay their mortgages and, a year later, a sharp rise in unemployment. The newly jobless swelled the ranks of defaulters until the losses tipped thousands of US banks and mortgage firms into bankruptcy and the global financial system into crisis.niversity of Western Sydney economist Steve Keen can see something similar happening in Australia. He says households are so indebted – the ratio of mortgage debt to gross domestic product has quintupled to 85.7 per cent over the past two decades – they can borrow no more."Our current level of economic performance is dependent on an increasing level of debt to GDP," Keen says. "As soon as you have a stabilising, which we are seeing now, then you are in trouble."
The head of the RBA's financial stability department, Dr Luci Ellis, counters that the recent US experience is historically anomalous. "Financial crises are normally sparked by other sources," she told a conference in May. "These [sources] include commercial property, property development, leverage buyouts, sovereign debt and so on."Which is why the developing sovereign debt crisis in Europe provides a second reason to worry about local banks. While the big banks have little exposure to European governments in difficulty, the RBA's Stevens concedes the most important effects in Australia will come through "the impact on world and Asian growth, on resource prices and on the cost and availability of global capital"."A collapse in China – or even a global slowdown – will have an impact on the economy, Australian income growth, and that would certainly feed into house prices," Australian School of Business researcher Glenn Otto says. "The impact of unemployment is also crucially important for house prices; an economic shock pushing up unemployment would have even more consequences for house prices."While few economists are as pessimistic, most agree the big banks are now too big for any government to let fail. "They are all too systematically important to fail," real estate funds manager Rismark's managing director, Christopher Joye, says. "That is one reason why taxpayers offered the major banks deposit and liability guarantees during the GFC."
Fortunately, they did not have to draw on those guarantees. But what if they do in the future? Is the government's balance sheet big enough to cover the big banks' deposits and liabilities?"The Armageddon outcome would be the complete implosion of the banking system if taxpayers were not there to backstop institutions in the case of a crisis, which could cause extreme credit rationing and precipitous price falls," Joye says.According to a former chief economist of the International Monetary Fund, Simon Johnson, Australia's big banks pose a bigger risk to the economy than the biggest US banks do. Johnson thinks no single bank should own assets (mainly housing, small business and corporate loans but also derivatives and other investments) worth more than 4 per cent of a country's economic output.
Yet NAB owns assets equal to 54 per cent of Australia's GDP, followed closely by CBA 51 per cent) and Westpac (49 per cent).Even the bank with the fewest assets, ANZ (42 per cent) is almost three times the size, in relative terms, of the biggest US bank, Bank of America (which owns assets worth 15.6 per cent of US GDP)."One of the lessons of the global financial upheaval was that sometimes simple is best – and mutuals are very sound, with straightforward balance sheets, conservative funding, high-quality assets and high capital," she says. "Global collapses and bail-outs were about very big, very complex, aggressive and 'creative' institutions."For this reason, Rismark's Joye is more concerned about the overseas expansion of ANZ and NAB than he is about a collapse in house prices."The major banks' peers in the UK and Europe had far greater direct exposures to the US sub-prime crisis through their overseas expansion strategies," he says."My single greatest concern with the major banks right now is their offshore expansion plans, which directly undermine their greatest source of strength during the GFC."Like Joye, Keen is also cool on a size cap, believing banks would successfully lobby it away during stretches of economic and political stability. He favours a cap on the size of home loans instead – equal to 10 times the rental income from a property – and other measures to reduce demand for credit in the first place.Of course, the failure of a big bank is still an unlikely, if no longer a preposterous, idea. According to John Laker, chairman of the Australian Prudential Regulation Authority (APRA), the main bank regulator, the big banks would survive a Chinese and global economic downturn severe enough to raise unemployment to 11 per cent and lower house prices by 25 per cent.However, as Laker admits, a future downturn will "not play out as specified" in APRA's so-called "stress-test". "It is just one of a myriad of future possible outcomes," he said in early June.Among clear lesson of the global financial crisis is that the unlikeliest outcomes become possible in a crisis. After all, the best computer models said US house prices would fall by 20 per cent only once every 10,000 years.
One is a cooling housing market. After rising for 16 consecutive months, capital city house prices were virtually unchanged in April, according to the RP Data-Rismark Hedonic Home Value Index. Weak demand for home loans – the number approved in April was the lowest since March 2001 – suggests other capital cities might soon follow Brisbane, Perth and Darwin, where prices are already falling.
If this happens, bank profits are sure to follow. Why? Because the share of home loans in banks' total lending stands at 58 per cent, according the RBA. Falling house prices spell fewer buyers, borrowing less and paying banks less interest.
If they fall enough, house prices can drag down an entire economy. This is what happened in the US in 2006 when falling prices led to a jump in the number of Americans unable to pay their mortgages and, a year later, a sharp rise in unemployment. The newly jobless swelled the ranks of defaulters until the losses tipped thousands of US banks and mortgage firms into bankruptcy and the global financial system into crisis.niversity of Western Sydney economist Steve Keen can see something similar happening in Australia. He says households are so indebted – the ratio of mortgage debt to gross domestic product has quintupled to 85.7 per cent over the past two decades – they can borrow no more."Our current level of economic performance is dependent on an increasing level of debt to GDP," Keen says. "As soon as you have a stabilising, which we are seeing now, then you are in trouble."
The head of the RBA's financial stability department, Dr Luci Ellis, counters that the recent US experience is historically anomalous. "Financial crises are normally sparked by other sources," she told a conference in May. "These [sources] include commercial property, property development, leverage buyouts, sovereign debt and so on."Which is why the developing sovereign debt crisis in Europe provides a second reason to worry about local banks. While the big banks have little exposure to European governments in difficulty, the RBA's Stevens concedes the most important effects in Australia will come through "the impact on world and Asian growth, on resource prices and on the cost and availability of global capital"."A collapse in China – or even a global slowdown – will have an impact on the economy, Australian income growth, and that would certainly feed into house prices," Australian School of Business researcher Glenn Otto says. "The impact of unemployment is also crucially important for house prices; an economic shock pushing up unemployment would have even more consequences for house prices."While few economists are as pessimistic, most agree the big banks are now too big for any government to let fail. "They are all too systematically important to fail," real estate funds manager Rismark's managing director, Christopher Joye, says. "That is one reason why taxpayers offered the major banks deposit and liability guarantees during the GFC."
Fortunately, they did not have to draw on those guarantees. But what if they do in the future? Is the government's balance sheet big enough to cover the big banks' deposits and liabilities?"The Armageddon outcome would be the complete implosion of the banking system if taxpayers were not there to backstop institutions in the case of a crisis, which could cause extreme credit rationing and precipitous price falls," Joye says.According to a former chief economist of the International Monetary Fund, Simon Johnson, Australia's big banks pose a bigger risk to the economy than the biggest US banks do. Johnson thinks no single bank should own assets (mainly housing, small business and corporate loans but also derivatives and other investments) worth more than 4 per cent of a country's economic output.
Yet NAB owns assets equal to 54 per cent of Australia's GDP, followed closely by CBA 51 per cent) and Westpac (49 per cent).Even the bank with the fewest assets, ANZ (42 per cent) is almost three times the size, in relative terms, of the biggest US bank, Bank of America (which owns assets worth 15.6 per cent of US GDP)."One of the lessons of the global financial upheaval was that sometimes simple is best – and mutuals are very sound, with straightforward balance sheets, conservative funding, high-quality assets and high capital," she says. "Global collapses and bail-outs were about very big, very complex, aggressive and 'creative' institutions."For this reason, Rismark's Joye is more concerned about the overseas expansion of ANZ and NAB than he is about a collapse in house prices."The major banks' peers in the UK and Europe had far greater direct exposures to the US sub-prime crisis through their overseas expansion strategies," he says."My single greatest concern with the major banks right now is their offshore expansion plans, which directly undermine their greatest source of strength during the GFC."Like Joye, Keen is also cool on a size cap, believing banks would successfully lobby it away during stretches of economic and political stability. He favours a cap on the size of home loans instead – equal to 10 times the rental income from a property – and other measures to reduce demand for credit in the first place.Of course, the failure of a big bank is still an unlikely, if no longer a preposterous, idea. According to John Laker, chairman of the Australian Prudential Regulation Authority (APRA), the main bank regulator, the big banks would survive a Chinese and global economic downturn severe enough to raise unemployment to 11 per cent and lower house prices by 25 per cent.However, as Laker admits, a future downturn will "not play out as specified" in APRA's so-called "stress-test". "It is just one of a myriad of future possible outcomes," he said in early June.Among clear lesson of the global financial crisis is that the unlikeliest outcomes become possible in a crisis. After all, the best computer models said US house prices would fall by 20 per cent only once every 10,000 years.
Friday, May 28, 2010
OECD says rate rise for Australians
A global economic research body has warned Australians that interest rates will rise by up to 1.2 percent in the coming year.In its global economic outlook, the Organisation for Economic Cooperation and Development (OECD) said that while there are risks to the Australian economy from the current crisis gripping European markets, the Reserve Bank will push interest rates up.The OECD says official interest rates wil rise from their current 4.5 percent to 5.7 percent by June 2011.That would likely push real mortgage interest rates towards 9 percent.However, Australian economists are calling for the RBA to pause after its raising rates six times since October last year.The OECD has warned that there are negative risks to Australia's rosy economic outlook from the uneven pace of the global recovery and volatility in financial markets.It says there are substantive risks related to sovereign debt markets which, while originating in some euro-area economies, has spread to other euro members and other parts of the world."Overheating in emerging market economies also poses a risk," it says."A boom-bust scenario cannot be ruled out, requiring a much stronger tightening of monetary policy in some non-OECD countries, including China and India."For Australia, it also says rising confidence and more favourable international trade conditions may lead to more buoyant demand that needs a more rapid rise in interest rates.These risks aside, the OECD expects the Reserve Bank of Australia (RBA) will in any case have to add to its six rate rises so far."After weathering the crisis well in 2009, the Australian economy is projected to experience strong growth in 2010 and 2011, above its trend rate," the OECD says.It is forecasting economic growth of 3.2 per cent in 2010, accelerating to 3.6 per cent in 2011, after 1.4 per cent growth in 2009.This growth will be driven by booming exports and domestic demand.It expects the unemployment rate - currently at 5.4 per cent - to fall below five per cent by the end of 2011, while inflation will be moderate.This, it says, will keep confidence among households at high levels, although the pace of decline in the jobless rate will slow as working hours expand.It expects the consumer price index to hit the top of the RBA's two to three per cent target band in 2010, before easing to 2.7 per cent in 2011.The Paris-based institution says for Australia, managing the exit strategy from the global crisis is "less problematic" than in most OECD countries, and the tightening of both monetary and fiscal policy is welcome given the rebound in activity.It says rising private demand, fuelled by investments and stockbuilding by companies, is expected to replace public demand as the main force driving the recovery in 2010 and 2011."Companies in the mining sector should benefit in particular from the dynamism force of Asian markets and the significant pick-up in the terms of trade," it says."These developments, coupled with the rise in real estate investments, are likely to improve the employment situation."Responding to the report, Treasurer Wayne Swan said it highlighted how Australia's economic growth and employment outlook were among the best in the OECD."The OECD report is a reminder of the strong economic management that has seen Australia fight off global recession and which is returning the budget to surplus three years early and halving peak debt," he said in a statement.Mr Swan also welcomed the OECD's observation that mining companies would benefit from Asian demand and an improvement in Australia's terms of trade.But he pointed out the underlying weakness in Europe was a threat to global recovery.
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