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Recession and FX

  • #1
  • First Post: Aug 16, 2007 2:49am Aug 16, 2007 2:49am
On 26th July 2007, FTSE 100 fell through its ascending supportline that lasted for 4 years (from the two minima of 12 March 2003 to 14 March 2007).

The other indexes (Dow, S&P, Dax) are very close to the bottom of their 'channel' and this morning FTSE even fell through the 6000 level, with a nearly 50 point market gap and is now trading at 300 points below the former ascending 'support'.

This looks to me as a trend change, since I cannot find support levels and the ones I could detect have already been hit (6000 with FTSE 100, 7350 with Dax, 12800 with Dow).

It is also striking to see how these (very big) moves of the indexes reflect into the moves on the FX like USD/JPY, EUR/JPY etc.

A very bizar thing to me is to see how 'subprime' lending problems in the United States can cause the EURO to collapse in regard to the YEN.
  • #2
  • Aug 16, 2007 4:45am Aug 16, 2007 4:45am
At 10:30 GMT today the Dow hit the it's bottom ascending resistance. S&P managed to keep a distance of 40 points, Dax stayed 50 points away from the 7200 level.

If the indexes break these lines, I believe we may definitevely speak of "recession".
  • #3
  • Aug 16, 2007 6:08am Aug 16, 2007 6:08am
Dow is trading under it's ascending 'support' now, S&P managed to bounce off its own support within a few points...
  • #4
  • Aug 16, 2007 6:34am Aug 16, 2007 6:34am
Actually, Dow Sept sitting right on weekly trend line.. I am not convinced it will go down more. I think it may bounce.
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  • #5
  • Aug 16, 2007 6:42am Aug 16, 2007 6:42am
Dow still hasn't hit the 10% correction most traders and economists were predicting and calling for. That's another 200 points or so away.

I think it'll hit that tonight quite comfortably, but that would likely be your nearest support for the index as a whole.
  • #6
  • Aug 16, 2007 7:05am Aug 16, 2007 7:05am
This is the situation at this moment. Dow trading under it's former ascending support line. Looking at the momentum of the 'beast' it may go down to the 12000 level and lower.
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  • #7
  • Aug 16, 2007 9:35am Aug 16, 2007 9:35am
S&P has also fallen under it's ascending support line now:
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  • #8
  • Aug 16, 2007 11:09am Aug 16, 2007 11:09am
Quoting AmatPro
S&P has also fallen under it's ascending support line now:

Geez, is there blood in the streets yet? Bernakes first big test here let's see how he does.
  • #9
  • Aug 16, 2007 11:17am Aug 16, 2007 11:17am
Here is our last hope for the moment, the Dax verry close to double support at 7200. Will it fall through or not? Come and see next hour :
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  • #10
  • Aug 16, 2007 6:57pm Aug 16, 2007 6:57pm
AmatPro

What charting software is that?
  • #11
  • Aug 16, 2007 7:20pm Aug 16, 2007 7:20pm
Quoting jay9170
Geez, is there blood in the streets yet? Bernakes first big test here let's see how he does.
Amen to that. Seems like alot of Armchair economists around here predicting doom and gloom. DJIA ended the day at 12,845.
  • #12
  • Aug 17, 2007 6:13am Aug 17, 2007 6:13am
Quoting JFX81
AmatPro

What charting software is that?
It's what you get when you have a live account at Capital Spreads. Unfortunately it doesn't go back for more years than the ones shown. The firm that delivers the software is http://www.it-finance.com/

It is ideal for drawing (parallel) trendlines. The ones you see on the charts for the channels are all exactly parallel. Look at how extreme precisely the Footsie stayed within these channel lines for four years: amazing how exactly 'mass psychology' reflects in these patterns!

In this chart from today you can also see the new bear trend emerging for FTSE since 21st june 2007.
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  • #13
  • Aug 17, 2007 6:32am Aug 17, 2007 6:32am
Quoting waaustin
Amen to that. Seems like alot of Armchair economists around here predicting doom and gloom. DJIA ended the day at 12,845.
Well, my comment on this "doom and gloom" is this: Two years ago I invested my savings in real estate. I live in Europe, so no "subprime" thing here. But anyhow now I feel like the banks lured us in with low intrest rates at 2% etc. As of today the intrest rate has gone up with more than 2% in two years. Which means my montly payments for my mortgage loan are up with almost 20%! What does that mean? I have to cut in all my expenses as far as I can to pay my monthly bills. I have already visited my bank to see if we could get some new arrangement of some kind, but there aren't really many alternatives. So as long as the banks don't cut their intrest rates, I will not be able to put much money in the economy. Everything goes to the bank right now. And I am 'lucky', my intrest rate can only go up 0,5% next year and that's it. I believe in the US it is worse. So add up all these people all over the US and Europe cutting in their expenses where they can to pay their banks, and you see we have a HUGE economic problem. What people carry to the banks, they cannot spend on goods and other services.

So cut them damn rates §!@&!
  • #14
  • Aug 17, 2007 8:09am Aug 17, 2007 8:09am
Quoting AmatPro
Well, my comment on this "doom and gloom" is this: Two years ago I invested my savings in real estate. I live in Europe, so no "subprime" thing here. But anyhow now I feel like the banks lured us in with low intrest rates at 2% etc. As of today the intrest rate has gone up with more than 2% in two years. Which means my montly payments for my mortgage loan are up with almost 20%! What does that mean? I have to cut in all my expenses as far as I can to pay my monthly bills. I have already visited my bank to see if we could get some new arrangement of some kind, but there aren't really many alternatives. So as long as the banks don't cut their intrest rates, I will not be able to put much money in the economy. Everything goes to the bank right now. And I am 'lucky', my intrest rate can only go up 0,5% next year and that's it. I believe in the US it is worse. So add up all these people all over the US and Europe cutting in their expenses where they can to pay their banks, and you see we have a HUGE economic problem. What people carry to the banks, they cannot spend on goods and other services.

So cut them damn rates §!@&!
Well, I agree there are alot of people here in the US that are going to be suffering and struggling as well as alot of the subprime mortgage companies are going to go out of business. However, the majority of these people are people who made stupid decisions and bought into the houses/mortgages that was to rich for there blood and that they had no business getting into in the first place because they didn't earn enough money to pay the bills. Basically they bit off more than they could chew. And yes, alot of them were led astray by these unscrupulous mortgage companies and brokers, but as you see, they are in trouble too.

Frankly, I thought would happen sooner. It's unfortunate that those stupid people have to suffer, and those mortgage companies that dealt this crap out, well they are getting what they deserve. But seems to me it's just a market correction that's been long overdue and things will be better and stronger in the long run for everyboby.
  • #15
  • Aug 17, 2007 8:45am Aug 17, 2007 8:45am
Quoting AmatPro
Well, my comment on this "doom and gloom" is this: Two years ago I invested my savings in real estate. I live in Europe, so no "subprime" thing here. But anyhow now I feel like the banks lured us in with low intrest rates at 2% etc. As of today the intrest rate has gone up with more than 2% in two years. Which means my montly payments for my mortgage loan are up with almost 20%! What does that mean? I have to cut in all my expenses as far as I can to pay my monthly bills. I have already visited my bank to see if we could get some new arrangement of some kind, but there aren't really many alternatives. So as long as the banks don't cut their intrest rates, I will not be able to put much money in the economy. Everything goes to the bank right now. And I am 'lucky', my intrest rate can only go up 0,5% next year and that's it. I believe in the US it is worse. So add up all these people all over the US and Europe cutting in their expenses where they can to pay their banks, and you see we have a HUGE economic problem. What people carry to the banks, they cannot spend on goods and other services.

So cut them damn rates §!@&!
I guess a lot of North Americans are having this problem as well, but really, think of it in terms of simple economics. A bank not operating on gearing that lends at 2% will make no profit if 2% of it's borrowers can't pay up - there's just no margin for error. And banks in turn have to get their money from somewhere - such as borrowing it from depositors - which means in turn that they can't pay more than two percent on deposits. Unless of course, then bank's lending is leveraged, either via low reserve requirements, and/or offshore borrowing. But that introduces risk. And risk introduces volatility. So any 'good deal' should spark questions...

Historically - at least over here, - mortgage rates have been in the 5-7% range; I've seen it as high as over 20%.. But some volatility in house and lending rates has always been present; society used to handle that with simple rules of thumb - for example, never buy without at least 20% down, and the cost of the house should not be more than 2x your annual income, things like that, and if rates or prices are too high, rent. I guess those rules have gone out the window, but I imagine, like the Terminator, they'll be back.
  • #16
  • Aug 21, 2007 4:23pm Aug 21, 2007 4:23pm
Quoting HalifaxCB
Historically - at least over here, - mortgage rates have been in the 5-7% range; I've seen it as high as over 20%.. But some volatility in house and lending rates has always been present; society used to handle that with simple rules of thumb - for example, never buy without at least 20% down, and the cost of the house should not be more than 2x your annual income, things like that, and if rates or prices are too high, rent. I guess those rules have gone out the window, but I imagine, like the Terminator, they'll be back.
In Europe house prices have doubled or tripled in the last 5-10 years. While inflation was almost flat (1-2%/year). Young people that are trying to find a house now can only buy an appartment for the same price as they would have payed for a house ten years ago. 30 year mortgage loans have become common. I heard in the UK it is even worse and there you have 40 year mortgage loans and even multi-generation loans. (Perhaps this is why we can already see some bear trend forming on the FTSE chart? )

So the housing bubble of the post 2000/9-11 era has caused more damage than just the 'subprime-issue' turning into the 'credit-crunch' now. I think the troubles are far more fundamental. The high cost of housing means people can not spend as much on other things as they used to do before. And as more and more young people are confronted with these problems, the impact of this on the economy will only grow.

Since house prices are unlikely to drop with 50%, the central banks should in my view cut the rates - with at least 1% - and then very gradually raise them, not with one percent per year as they have done the last two years, but with 10 basispoints per six months. And that for a period of say five or 10 years. In this scenario you give immediate oxigen to the economy, but at the same time you see that you catch up with inflation caused by rising wages in the emerging markets in the longer run.
  • #17
  • Sep 5, 2007 9:30am Sep 5, 2007 9:30am
Here's a good illustration I found of the size of the problem created by the housing bubble that started in the late nineties and was helped to inflate due to the actions of Greenspan (lowering the rates to crazy low levels) after the dotcom and the 911 crises.

At the moment it seems the bubble is exploding with home price drops of as much as 20 percent.

http://www.investingintelligently.co...09/shiller.gif
  • #18
  • Jan 17, 2008 9:44am Jan 17, 2008 9:44am
It's a little bit funny to see the indexes drop even further as we see and hear Bernanke talk with a trembling voice.
  • #19
  • Jan 22, 2008 8:15am Jan 22, 2008 8:15am
Hi AmatPro, Tks for share
IŽ,m sign institucional site about some fundamental analyses,do you have another to send us?


Best Regards,

Marcelo Marques
  • #20
  • Last Post: Mar 9, 2008 7:36am Mar 9, 2008 7:36am
Quoting AmatPro
Well, my comment on this "doom and gloom" is this: Two years ago I invested my savings in real estate. I live in Europe, so no "subprime" thing here. But anyhow now I feel like the banks lured us in with low intrest rates at 2% etc. As of today the intrest rate has gone up with more than 2% in two years. Which means my montly payments for my mortgage loan are up with almost 20%! What does that mean? I have to cut in all my expenses as far as I can to pay my monthly bills. I have already visited my bank to see if we could get some new arrangement of some kind, but there aren't really many alternatives. So as long as the banks don't cut their intrest rates, I will not be able to put much money in the economy. Everything goes to the bank right now. And I am 'lucky', my intrest rate can only go up 0,5% next year and that's it. I believe in the US it is worse. So add up all these people all over the US and Europe cutting in their expenses where they can to pay their banks, and you see we have a HUGE economic problem. What people carry to the banks, they cannot spend on goods and other services.

So cut them damn rates §!@&!
I feel for you buddy, but I haven't invested in real estate, and currently paying 0% on 0 debt to any bank. I am collecting collect interest from the bank, which apparently gets the dough from you. Why should I take a cut in my income to help you out? Will you send me even a $100 to help me out ? $50? $20? Perhaps you will let me stay in your house for a week or two ? Not really? Well don't complain about rates then. Because you know, I am pulling out EVERYTHING I have from bank accounts, CDs, 401K, stocks and ets.

So your dear bank will need money even more than before. And you can bet that my direct deposit will be out of the bank the same day it gets in.
And the fact that you don't have money to buy goods or services just means a better price for me.
So good luck, you and your bank will need it badly.


PS Don't get me wrong, I really hope you will keep your house as long as it won't cost a fraction of a penny to me.

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