FYI | May 25 2006
Regular readers of my weekly editorial already know I exchange thoughts on a regular basis with my good friend Markus Mueller from Reynolds Stockbroking.
This week Markus was not in such good spirits. I asked the predictable conversation opener: How long do you think all this is going to last? I hope not too long, Markus said, it’s not a good environment if you want to make some money.
Markus believes the markets are testing the new Chairman of the Federal Reserve Bank, Ben Bernanke. He already made a few minor errors, it hasn’t exactly filled the markets with a lot of confidence, Markus believes.
Just like Stephen Roach, chief economist and global strategist at Morgan Stanley, Markus is long enough in the business to remember financial markets did the same thing when Alan Greenspan landed fresh at the helm of the US Fed.
Two months after Greenspan took up the position in 1987 stock markets crashed. The same thing happened to his predecessor Paul Volcker in 1979: the bond market landed in a spin shortly after he took up the position. Roach even remembers the short tenure of G. William Miller leading to a brief US dollar crisis in 1978.
Is history repeating itself in 2006? Markus believes so. He thinks investors are out to test the nerves and skills of the new Fed Chairman, to see whether he is fit for the job, and whether he can be trusted with the huge responsibility that goes with the leading position at the world’s most important central bank.
Markus also has a suspicion the US authorities have put a guilt trip on the Chinese premier when he paid a visit to the US recently. The global imbalances need to be addressed one way or another, is his reasoning, and central bankers will always be focused on achieving an orderly correction in the transition to a new world order.
They cannot do it without the Chinese playing along and doing their part. Nobody wants the US dollar to land in a freefall (and gold going through the roof). And while all this is set in motion, global inflation needs to be kept in check as well.
Markus has become a regular reader of FN Arena News over the past few weeks. He is especially intrigued by the Neutral indicator. He has now asked me twice to explain again how it works.
Just like several other readers, he would like us to find out whether the indicator also gives other signs, like when share prices are likely to bounce again. Unfortunately, so far we have only discovered that share prices correct soon after the indicator drops below 51%. But maybe, one day, our daily analysis will discover another sign.
The good news is that we have now decided to go public with our own indicator. At FN Arena we like to do things thoroughly. We don’t launch something that may not be as solid as we claim it is. After four years and a correctness rate of 100% so far, including repeated tests during the past two months, we have become a little less apprehensive.
Soon, George our IT wizard has ensured me, every subscriber to the Australian Broker Call and its related products will be able to watch and follow the FN Arena indicator on a near real time basis. For all others we will continue writing regular analyses and observations, just like we did over the past few weeks.
We have done some thinking as well. The Neutral indicator may be 100% correct as a name as it is based upon the relative amount of Neutral recommendations in the universe of ASX listed stocks covered by the ten leading stockbrokers and equity researchers in our database, but it doesn’t really sound sexy.
Yesterday I thought let’s call it the Bull/Bear Indicator. Unless someone among you can come up with a better suggestion, we will probably call it our Aussie BBI.
In case you think you can do better, here’s our email address: info@fnarena.com
Markus, by the way, has a gut feeling we might be in for a W-shaped rebounce, as opposed to a U-shaped recovery. The difficulty with a W-shaped future is that one never knows when the floor under the market will be knocked back again.
Markus would like to advise everyone not to put all your money into the market again if the current recovery proves to be genuine. The market will still likely end the year higher than were it is today, he believes, but there might be another fall back waiting to occur between now and then.
This is not necessarily a view shared by another highly regarded market watcher, whom I have the pleasure to call a friend as well. Dennis Gartman, I believe, doesn’t read FN Arena News, at least not as often as Markus does, but he sympathises with what we are trying to achieve.
Dennis has been warning the subscribers to his daily newsletter the future may have turned bleak for US equities, suggesting we may be experiencing early days of a new bear market.
Not the kind of prophecy Markus would like to hear. I hereby sincerely apologise for spelling Markus’ name with a ‘c’ instead of a ‘k’ in earlier writings.
Till next week,
Your not so worried as Dennis Gartman editor,
Rudi Filapek-Vandyck
(Supported by the Fabulous Three: Rob, Greg and Chris)