Looks like that British guy that posted a letter to Harold Milner on
Egoli may have been right. If so it means that this current rally was
just another suckers rally and the declining major resistance line from
the peak past the July suckers rally peak down to just above yesterday's
peak on the All Ords (resistance at near 2750) is intact. Travis, does
this mean this is an irregular correction as occurred in 1929 ? My
theory if so is the "Ostrich syndrome" - things are just so bad on the
world scene that they just can't believe it to be true and therefore
they choose to clutch irrationally at whatever straws of hope are thrown
their way before reality bites yet again so you get sharp rallies
interspersed with savage declines but the overall trend is down to the
abyss that the situation demands.

Can anybody add anything to this or give some feedback ?

If you want to take a look at the full article you could do a search on the
site to view it, however some of the main points were as follows:

Basically China has developed a surplus of goods that is so big prices are
being driven down relentlessly.

AFR Quote, "Welcome to deflation, Chinese style. Like policymakers around
the world, the Chinese were still standing vigil over the cold corpse of
inflation while, unnoticed, the new danger of deflation was already
rampant".

"The deflationary trend is now a year old. In August, producer prices fell
by their steepest on record, down 4.5 % compared with the same month a year
earlier. So while China's economic growth still appears to be robust at an
official rate of 7 to 8 %, this conceals a deep and dangerous imbalance in
the structure of the Chinese economy".

"And it is a problem for the world. There is a widely held impression that
China is somehow a "self-contained" economy. It is a fallacy. The truth is
that while China was only the world's 32nd trading nation when Deng Xiaoping
launched China's modernisation in 1978, today it is the eighth biggest
trading power on earth. It is far more integrated into the world trading
system than other big economies. Its total foreign trade represented 35.7%
of its total output, or GDP, last year. This is higher than Australia's 29%
and more than double the ratios for Japan or the US".

"This means that China's DEFLATION is already being transmitted through the
world trading system".

Hope this sheds some light on the subject.

Chris

Personally, I hope there will be a Crash but I can't se it yet
unfortunately.

An irregular correction is when the market makes five waves up and then
begins a bear market, but due to the massive bullishness at the time
people just won't believe in a bear, and are able to drive the prices up
even higher than the 5 wave peak during wave B.  

At this stage we don't know if this will happen, this week's downturn was
virtually INEVITABLE following the completion of the 3rd wave of the last
rally with such a nice and clear 5 waves, however if an irregular top is
going to happen we will know shortly.  At that stage I will take profits
(or losses) on my put warrants and wait for the market to do its thing.

If the market is going to do an irregular top there will be another sucker
rally after this fall, of probably about the same magnitude as the
previous bull market.  It probably won't be really obvious when the crash
is going to happen during the irregular correction though, it may well
come like lightning in a massive reversal that will shock everyone, this
is why the best thing to do (if the market does rally again) would be to
hold all purchases long or short until the rally crosses the previous top,
or the crash happens.  Don't worry about being left out if you miss the
first day of the crash, it is supposed to be a really big bear market, if
you want to make money out of the crash buying puts at open of the aussie
market the morning after a horrible US session may well give you very good
returns with low risk.

My advice to EVERYONE is to take the free online course in Elliott waves
at www.elliottwave.com.  If you wish to knock something, you should first
understand it.  Even sceptics of the technique should invest in the time
to take this course (again...its FREE, you lose nothing) and then, thus
armed with knowledge of how it works you can blast away.  For those who
won't be reading up just so they can flame me without looking like an
ignoramous, you will get more benefit out of comments from myself and
other Elliotticians, because in understanding how it all works you
probably won't get so confused.  There are numerous terms in Elliott Wave,
irregular corrections, failures, flats, impulse vs correction.  They
mostly don't mean what you probably htink they mean, so go do some
research.

: theory if so is the "Ostrich syndrome" - things are just so bad on the
: world scene that they just can't believe it to be true and therefore
: they choose to clutch irrationally at whatever straws of hope are thrown
: their way before reality bites yet again so you get sharp rallies
: interspersed with savage declines but the overall trend is down to the
: abyss that the situation demands.
it helps being contrarian at times like this.

Last week the gut feeling was that the rally would go on and on, even I
caught myself thinking that!  But Elliott Wave had a clear message, the
market can do whatever it likes in the very short term, but a storm is
coming.

I logged onto Yahoo and saw ALMOST ALL world stockmarkets on the screen
in the red - a quite amazing site after all this bullishness. No, I
didn't say this on the strength of just 0.5% decline - you should know
better than this from your email address. At that stage (early in the
night) the DAX (Germany) was down around 2% (close down 1.7%), the
Nikkei (Japan) had closed down 2.5% and the Hang Seng down 1.9% - guess
where I'm reading this from ? A friend in the office gets your JB Were
market statistics faxed to him. When I looked down the list I noted that
most of the emerging makets were indeed plunging last night, eg Turkey
down 7.7%. The Dow (not the NASDAQ note) was almost alone in rising a
little and that can be attributed to one-off factors like the Fox float
and its impact on News, the vain speculative hope of a US interest rate
cut on Tuesday night (now fading due to the irrational exuberance of the
markets over the last 2 weeks) and of course Gulf War Syndrome. Oh gee,
there I go again quoting your own company's analysis back at you. Nice
one Chris.

Aidan

Thanks for the reply. Yes, my mistake, I was suggesting a more regular
pattern - like either a decreasing amplitude sine wave on an
oscillascope or even a downward channel (All Ords only stangely) which
are of course regular i.e. more predictable patterns - the declining
peaks of each bull run in the overal bear market downturn. Despite your
risky scenario of buying on open after a Wall Street Crash, do you have
any safer advice on how to profit from an irregular correction.
Personally, I hope your wrong about an irregular correction - we will
lose our jobs and homes in a 1929 style depression. Could I be right
about a more regular pattern as I suggested ? If so, we may only have to
wait until Tuesday/Wednesday night for the next big bear drop on Wall
Street to profit from puts if we buy some Monday. What do you think ? I
felt like you early July - the greed of a bull rally is just so
compelling - to my cost, I dipped in. This time discipline ruled -
fortunately I think given the last few days. Look forward to your reply.

Aidan

1.  People say that investors forget that crashes can occur, because
"they" think things are different this time.  Well they are different
this time, to an extent (as they are every time).  There is more money
invested now because more people have to invest for their retirement,
due to the aging of the population in western countries.  Much of that
investment is not under the control of its owners, and is instead
managed by institutions, often limited by their trust deeds as to what
they can invest in e.g.  how many share funds can go to 100% cash?

When more money chases a limited quantity of assets, higher prices
result.  We all accept this in real estate, why not in shares, bonds
etc?

The obvious answer to this question is that real estate is fundamentally
limited in supply, since location is so important.  You can't
manufacture more beach front real estate etc etc.  However reasonable
even half reasonable investments are limited in supply also.

Whilst the number of available securities would expand somewhat to use a
surplus of available investment money (and this has been the case in the
past during booms), I'd argue that that the supply of available
reasonable securities does not expand to *totally meet* the demand for
investments, and is still likely that the huge amounts of money flowing
into retirement plans around the world will have an ongoing and likely
permanent effect on prices of securities.

What's more, information and communication are much improved these days,
and it is unlikely we'll see the sort of "investment" that occurred in
previous centuries with whole countries almost going broke after most of
its citizens invested in schemes run by swindlers talking of lucrative
investments in new fields.  Yes there are swindlers and rip-offs but not
to the same extent as have occurred historically (e.g.  France's
currency was debased by some scheme to "invest" in Louisiana I think it
was).  The nearest we come these days is Barings or Orange County, a
much less grand scale (although perhaps France's population then
was so much less that perhaps it is comparable to Orange County).

2.  Lots and lots of people are talking bear markets now.  It's in all
the papers and the magazines.  Few people are talking bull markets.
That is historically an indicator of the bottom of the market.

The only bull I know of in the press is Ian Huntley, and he's not even
an outright bull.  There are many bears.  The Financial Review is full
of bear articles and has been virtually all this year.  A recent issue
of Shares magazine had a new column by someone claiming to the Contrarian,
and what's his contrarian opinion?  Bear (not very contrary IMHO).

I've quoted from "The Bear Book - Survive and Profit in Ferocious
Markets" by John Rothchild, Wiley, 1998, in earlier posts.  This book
has a chapter on how the press is basically 100% wrong when it comes
to timing crashes and recoveries.

Good on you Tom for bringing some common sense into the "big crash
debate".
The advocates of an imminent crash seem to be traders who can hardly
wait
to be proved right. However if one takes a look at the magnitude of
managed funds and also considers the high level of ordinary retirees'
funds
in share markets here and in the USA I can hardly imagine Governments
allowing countless $billions of their superannuation and retirement
funds
being washed down the drain for decades.

Sure there will be a correction - maybe a painful one - but all
indicators
point to the economy picking up in a year or two. Meanwhile there is a
piece
of good advice I once read in a USA paper. Allocate your age as a
percentage of your assets in cash. The older you are the less chance of
recovering
from a downslide; the younger you are the more chances you can take.
Being 69
years old I admit I haven't followed this advice to the letter but
recently I
have cashed out quite a bit from managed funds and maintain about 55% in
cash.
If interest rates weren't so low it would be more.

I have been reading this thread for about 2 weeks and I believe that both sides
of the argument are taking themselves a little to serious.While everyone is
entitled to their own opinion, that is all it is an opinion.If you all know so
much about the market, none of you would be wasting your time here you would be
finding better things to do with your time spending ALL that money you have
made.

I'm sorry I got a bit hot under the collar as well. I was wrong, tonight
it looks like most world stockmarkets are heading north again.

There is something, though, that disturbs me looking at the graphs,
can't put my finger on it yet but some sort of pattern I've seen
somewhere from looking at past graphs is evident. Don't know whether its
bullish or bearish at this stage but it makes the hairs on the back of
my neck start to tingle everytime I go through them. Can anyone help me
out here ? I don't normally go by graphs but this pattern is definitely
interesting and seems to be on most world stockmarket graphs.

I would like comments from anybody with some knowledge of charting to
give me some feedback on this.

Don't worry Snoopy still looking to emulate your performance as portrayed in
an earlier response to me. Any good reference material you can offer would
be welcomed.

I would think what you said about property points to what to do with
your money at that time, don't you?

<SNIP>

:>By the way, the "big crash" supporters haven't suggested what to do with
:>all their
:>gains should the predictions prove correct. Interest rates and property
:>will be
:>rock bottom also so I guess hiding the gains under the mattress is the
:>way to go.

%%%%%%%%%%%% Delete nospam. to email from this post %%%%%%%%%%%%%

: >1. People say that investors forget that crashes can occur, because
: >"they" think things are different this time. Well they are different
: >this time, to an extent (as they are every time). There is more money
: >invested now because more people have to invest for their retirement,
: >due to the aging of the population in western countries. Much of that
: >investment is not under the control of its owners, and is instead
: >managed by institutions, often limited by their trust deeds as to what
: >they can invest in e.g. how many share funds can go to 100% cash?

: That's a worry. People have to invest (take risks) rather than save for
: their retirement. If there is debt associated with these investments, then
: the risk becomes greater. As you say, the future of many is in the hands of
: a
: few. Let's hope they're well run institutions and not like Long Term Capital
: Management. I would suggest if the system hiccups, people's fear would be
: greater than anything we've ever seen before if so many are relying on
: the markets to fund their retirement. It will certainly happen if people
: think their future security is threatened.

Most fund managers are nothing like LTCM.  Super funds in Australia for
example are prohibited from borrowing money.  Very few funds borrow
money.

The vast majority of people who have an interest in shares don't do
*anything* to manage their investment and rely *entirely* on the fund
manager (usually a super fund).  They are not going to panic and sell,
not because they are not going to panic, but because they don't know
what to do or how to do it.  Similarly a large number of people who own
shares in large public floats such as CBA, Telstra, Woolies etc don't
have a broker and don't know how to sell them.

: >When more money chases a limited quantity of assets, higher prices
: >result. We all accept this in real estate, why not in shares, bonds
: >etc?
...

: Looks as if you’re saying the market is never going to go down for an
: extended period.

What I am saying is that people who predict a fall based on expectations
that PE ratios will fall to former levels may well be wrong.  For
example if I showed you a new class of asset that had the same level of
risk as the stock exchange but yielded 50% p.a., you can bet that that
level of yield would not last, due to buyers bidding the price up.  In
this case you would accept that the price rise was inevitable and
permanent, just because I've changed a few of the numbers.  So
conceptually (I am assuming) you have accepted the argument that more
purchases drives up the price and drives down the yield.  It's just the
numbers we're arguing about.

: That's just as big a call as saying the Dow will fall to
: 1000. All you are
: suggesting here Tom is it is simply the weight of money that will cause the
: market to rise.

No, I am suggesting that the weight of money can change what used to be
a good yield into a lesser yield, resulting in higher prices generally.
I am not suggesting this means a never ending bull market.

: This may be OK in the short term, but surely the
: fundamentals of economic conditions will dictate how the “reasonable
: securities” will perform in the long term. There does not appear to be any
: consideration of this in your argument nor does it appear to be in the
: market at the moment. It is this type of investor psychology that the
: Elliott Wave theory tracks perfectly.

: >What's more, information and communication are much improved these days,
: >and it is unlikely we'll see the sort of "investment" that occurred in
: >previous centuries with whole countries almost going broke after most of
: >its citizens invested in schemes run by swindlers talking of lucrative
: >investments in new fields....

: There ARE countries going broke and others contracting significantly with
: the support of today's information and communication. The common people of
: these
: countries are the ones who have to pay for Government and financial
: institutions ineptitude. (Japan,Russia, Indonesia, Malaysia, Brazil, China,
: Thailand, South Korea........).

The people affected in Indonesia, Korea etc, are not people who were
swindled by some pseudo investment but ordinary people who lost out
because their assets were in the wrong currency.  They haven't been
suckered out of their money, they're just in the wrong place at the
wrong time.

: There is one statement that I have recently read that makes a lot of sense
: and it goes something like this: One of the greatest mistakes people can
: make is believing that politicians and bureaucrats know better than the
: general public. You know how it goes; 'Trust me, I work for the Government”'

: People may already have been swindled by being encouraged to sink all their
: hard earned money into the stockmarket. The swindlers this time may be the
: institutions themselves.

Time will tell.

: >2. Lots and lots of people are talking bear markets now. It's in all
: >the papers and the magazines. Few people are talking bull markets.
: >That is historically an indicator of the bottom of the market.
: >...
: >Don't forget the stock market is a leading indicator. When the economy
: >is recovering, the first indicator to recover is the market index.

: I would suggest that the overall investor psychology at the moment is on the
: bullish side otherwise please explain (sorry – Aussie joke) why the market
: has launched itself upwards simply because US interest rates were dropped
: 0.25% when there was, and still is, some very serious world economic news
: around.

As I said above, the market is a leading indicator, particularly when
recovering.  Therefore it may be a legitimate recovery based on
data yet to surface.

: 1.  People say that investors forget that crashes can occur, because
: "they" think things are different this time.  Well they are different
: this time, to an extent (as they are every time).  There is more money
: invested now because more people have to invest for their retirement,
: due to the aging of the population in western countries.  Much of that
: investment is not under the control of its owners, and is instead
: managed by institutions, often limited by their trust deeds as to what
: they can invest in e.g.  how many share funds can go to 100% cash?
how much of this money belongs to the investor, and how much is margin
lending, negative gearing and other sorts of strategies with other
people's money?  How much is involved in the derivative bubble that the
worlds financial institutions likt to play with?

In 1929 more money was lost in a few days than was in circulation in the
whole united states at the time.  It led to mass bankruptcies as investors
defaulted on their loans en masse and dragged down business with them.

The market capitalisation of many markets is many times the profit
potential of the companies listed, it would take decades for markets to
actually "pay for themselves" if people actually wanted their money back.

Mere money supply isn't a factor I tend to get all bullish about.

I am not a permabear, I just make my own judgements, and the economy looks
crap right now.

: When more money chases a limited quantity of assets, higher prices
: result.  We all accept this in real estate, why not in shares, bonds
: etc?
And then they get so expensive people bale...it always happens for every
boom.

: The obvious answer to this question is that real estate is fundamentally
: limited in supply, since location is so important.  You can't
: manufacture more beach front real estate etc etc.  However reasonable
: even half reasonable investments are limited in supply also.
A lot of stock market transactions really are paper money though,
companies float themselves and issue shares, similar market forces
eventually come to the fore as you get when you try that with a currency
printing press.

: Whilst the number of available securities would expand somewhat to use a
: surplus of available investment money (and this has been the case in the
: past during booms), I'd argue that that the supply of available
: reasonable securities does not expand to *totally meet* the demand for
: investments, and is still likely that the huge amounts of money flowing
: into retirement plans around the world will have an ongoing and likely
: permanent effect on prices of securities.
One of the signs of a bull market topping is the increasing number of
floats and decreasing quality of them.

: What's more, information and communication are much improved these days,
: and it is unlikely we'll see the sort of "investment" that occurred in
: previous centuries with whole countries almost going broke after most of
: its citizens invested in schemes run by swindlers talking of lucrative
: investments in new fields.  Yes there are swindlers and rip-offs but not
: to the same extent as have occurred historically (e.g.  France's
: currency was debased by some scheme to "invest" in Louisiana I think it
: was).  The nearest we come these days is Barings or Orange County, a
: much less grand scale (although perhaps France's population then
: was so much less that perhaps it is comparable to Orange County).
*cough*

someone email this guy and update him on what has happened in Asia lately.
Schemes run by swindlers talking of lucrative investments in new fields
sounds a lot like indonesia, Hong Kong, China, Thailand...

: 2.  Lots and lots of people are talking bear markets now.  It's in all
: the papers and the magazines.  Few people are talking bull markets.
: That is historically an indicator of the bottom of the market.
Actually the brokers and newsletter advisors are already saying the worst
is over.  There is a lot of bearish *talk* but in reality the investment
pushers are out there saying this is the time to buy.  

Crashes take the market to massive undervaluations and amazingly good
value and dividend yields.  At the moment yields are only slightly better
than the amazingly pathetic yields of a couple of months ago.  Value
investors are not jumping in with both feet.

In stock selection is use a simple formula of relating the PE ratio to the
forcast growth of a company.  I got this method from the great "Zulu
Principal" books by Jim Slater.  At the moment very few of the investment
criteria of this value investor system are met in very few companies.

The rules of investment don't change.  The idea is still to buy shares
cheap and hold them for eventual growth.  Shares are still historically
the worst value ever.

: The only bull I know of in the press is Ian Huntley, and he's not even
: an outright bull.  There are many bears.  The Financial Review is full
: of bear articles and has been virtually all this year.  A recent issue
: of Shares magazine had a new column by someone claiming to the Contrarian,
: and what's his contrarian opinion?  Bear (not very contrary IMHO).
may be due to printing delays.  

: I've quoted from "The Bear Book - Survive and Profit in Ferocious
: Markets" by John Rothchild, Wiley, 1998, in earlier posts.  This book
: has a chapter on how the press is basically 100% wrong when it comes
: to timing crashes and recoveries.
yeah, I agree.  But I think you are a little too optimistic here, the
market see saws a lot, but we are still at the see stage!  (a pun in that
one if you speak Cantonese, meaning the market is still shitty)

: Don't forget the stock market is a leading indicator.  When the economy
: is recovering, the first indicator to recover is the market index.
And where is this recovery then?  

by the way, I agree with the guy who asked to depersonalise this thread.
Although it is interesting for a while to have two full threads in a
widely read newsgroup devoted just to me, I am not exactly trying to get
myself into the papers as a guru or anything, I am just trying to add my
own perspective to a discussion, Elliott Wave is a great investment tool,
I think people should know about it, but I am not the self proclaimed guru
of EW or anything, any more than a guy who goes on about fundamental
ratio analysis is seen as a guru.  EW is certainly exotic enough to
polarise oppinion, but that is irrelevant.

Buyer 1.   A owner/occupier purchases a property which keeps the elements out
and has intangible aesthetic benefits which may not translate into eventual
profits.   These purchasers  only economical concern is whether they can
afford the mortgage repayments.   When in times of inflation these purchasers
can do nothing wrong, they can sell and buy and believe they are making a
profit as their real estate agent tells them as he pockets the sales
commission.   If the inflationary cycle stops and real estate prices stagnate
or drop,  the owner/occupier consoles them self with the fact that they did
not buy the property as an investment but as a place to live and has no need
to sell now and if in the future they sell, history says you will make some
sort of profit.   This is a sort of mindless long term buy and hold strategy.

Buyer 2.   A real estate investor needs to buy property as a going concern.
The projected return (rent) dictates the price he is willing to pay for the
property and also if this return is comparable with other investments. e.g.
bonds, shares.   The investor has a certain time frame for the investment he
has to be assured that the investment strategy will remain intact for that
time period. i.e. foreseeable economic factors will not alter in that period.

In times of high inflation Buyer 1 controls the market as they bid up the
price of properties out of the economical reach of Buyer 2.   More first time
home owners come into the market because there a false assurance that you
cannot loose in this market.   Buyer 2 sees the rental market drying up
because of this, he looks around for better investments either bonds or
shares.   Banks will make riskier loans to people because profits are the name
of the game.   People over commit themselves in loan arrangements because they
believe that inflation will overcome the tenuous nature of loan commitments.
The inflation cycle slows, the effects show up, job layoffs, asset price
stagnation or deflation.   Buyer 2 moves into the market and controls it as
Buyer 1 is now the stressed seller as mortgage repayments cannot be met
because of wage stagnation and loss of overtime or job loss.   Buyer 2
dictates what he is prepared to pay and gets his price.   The rental market
has picked up because Buyer 1 is now a tenant.

There are clearly countries in crisis around the world, but, although
their problems are linked, they are not the same.  For example, to my
untrained eye it seems that Asia's problems are over inflated asset and
property prices and bad credit decisions coming home to roost.  By
contrast Japan has a deflated economy, not an overheated one and
economic activity needs to be boosted - although it does have the same
problem with dodgy loans.  In the US companies are overvalued and there
is too much demand in the share market.  Bad loans don't seem to be a
problem though.  China is a highly immature market coming to terms with
all sorts of factors.  Russia is just a basket case and probably will be
for decades.

Australia's response to all this has been for companies to cut costs and
conserve cash; the currency devalued; and exporters have looked for new
markets.  To date this seems to have been fairly successful.

While the problems around the world are linked (Japan's deflation
exposes Asia's problems through a drop in demand for production; and a
lot of the money intended for boosting Japan has ended up in  the US,
for example), they are having a different impact in each country.  Some
are doing very well and others are doing very badly.  Doesn't this
suggest that when the next major thing happens (say a crash in US asset
prices) it will affect various countries differently?

I often hear people say that Australia's stock market is undervalued.
Maybe this assessment is out of date or based on a comparison with the
US, which is overvalued.  On the other hand, maybe this means our market
is valued around the right level.  Our market has certainly not been
performing any where near as well as the US recently.  Doesn't this
suggest that our crash may not be so bad and recovery may be quicker?
We may not have the long bear market after the crash that we are told
occurred in 1929, as was suggested somewhere above.  Things are so
volatile that recovery may be just as swift and dramatic.

OK so the US is a major trading partner and if it suffers we will suffer
too.  But Japan and Asia are also major partners and their problems
haven't killed our economy yet (it's been a year and a half now, since
problems started there).

I have only been in the market for a few years and partly by accident (I
guess I am a 'mum & dad'), so everything I have said is probably wrong.
I would have thought though, that in light of pretty poor returns from
any other sort of investment, it is still worth keeping a foot in the
share market - provided you are buying things that aren't necessarily
going to be hit badly by problems overseas and you don't need the money
for a while.  On the other hand, I do see the merit in pulling out now
and buying back in later at lower prices - even if your normal strategy
is to buy for the long term.

Feel free to tear this post apart.  I will be happy if you convince me
that I am wrong so I don't lose all my hard earned.  I guess I would
just leave it in cash if I pull out of the market.  I don't have the
confidence to be off buying put warrants.