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At 10:59 AM 8/27/98 -0700, you wrote:
>Don't think so, can't imagine South American drug cartels, African
>dictators,Arabian oil Sheiks, Russian Mafia and Asian despots going for
>Euro instead of US dollar.
A primary Bear market for US stocks started in late
July and early August when the Transports and the
Dow took out the June lows. The process began in
early May 1998, as US market breadth began to
seriously deteriorate in the smaller cap stocks.
Many market mavens are still denying it. But the
message has already dented consumer confidence and
started to take hold on some selected mutual fund
redemptions.
A real bear market crisis will not be
created in North America until either interest rates rise
or mutual fund redemptions start in earnest.
The best trade for someone holding a portfolio of
good stocks was to short the secondary markets like the
Russell 2000, although it has already dropped +-20%, because
the spread generally widens between blue chips and secondaries
during a market meltdown.
New Highs versus New Lows today told the grim
story in the US stock market that is slowly unfolding.
Go to the CBS MarketWatch web site and check
under tools for investing and see the statistics for
yourself. Look at Fore today it announced an acquisition
the market didn't like and BINGO the stock dropped about
$7.00 US.
A handful of new highs and pages and pages of new lows.
The real market cracker will come when the Dow eventually
takes out the August 1998 lows.
It wants to bounce but a large Megaphone formation
now exists on the Dow daily bar chart giving mixed short term
signals. On the one hand it could bounce, on the other, melt on a
breakdown.
Look for an eventual break below Dow 8300, THEN
LOOKOUT BELOW maybe down to 7800. But that would take time.
The global slowdown is now gripping the whole
world, except with minor early impact so far on the
USA, mainly because of the flight to safety. But the political
climate in the US is adding more uncertainty.
It looks like Goldman Sachs will come in just a little
late on their IPO. Too much unbridled enthusiasm
from market guru Abbey Cohen - overshot the mark
on market timing, but then again when all you can say
is 'up' who needs market timing? The details of the
IPO are being kept secret just in case they have to
pull it due to weak market conditions. Why tip your hand
if you don't have to, right?
Analysts in the US say that the meltdown in Russia
will have an minor affect of the US. Before believing
that propoganda read the following Reuters report published
today on the effect its having on Mexico and Latin America.
Even the Canadian $ meltdown is still in full force, as
the currency continued its full blown collapse today
against the US Dollar, dropping another .71 in the
futures market and now down to .6381 US in the
futures markets. The prime minister revealed to the market
that he had no concern to anything except drop taxes a year
from now and traders jumped all over the currency today with
both boots. Look at how the currency traders have slaughtered
those in their path in the past two years. So who are you going
to bet on, the politicians or the currency traders?
German banks say they are exposed by only $500 million
but the money has to come from somewhere and today the Contagion
of European cash withdrawals struck hard in South America and Mexico.
The XAU is collapsing further, so has it bottomed or are
have other precious metals and the CRB index, as world
wide deflation takes its grip, risking further freefalls
as nobody wants to buy anything or can no longer afford to.
If not already in don't trade 'em until they make a full change
of trend.
YES we will say it again. It's a BEAR MARKET
plain and simple, and it's in full swing on a world wide
basis. If you still have doubts about this, then read the
following, and WINCE. Internet Courtesy Reuters 1998.
What follows is an extract Copyright 1998 Reuters, All rights
reserved for Reuters:
August 26, 1998
Russia crisis wreaks havoc across Latin America
MEXICO CITY, Aug 26 (Reuters) - Russia's
economic crisis wreaked havoc across Latin America
on Wednesday, after sending shock waves through
European and Asian bolsas and onto Wall Street,
dealers said.
Mexican stocks sank to a 20-month low, the Brazilian
bourse ended down for the sixth consecutive day and
Argentina stocks slid 2.69 percent as investors
dismayed by Russia's crisis bailed out of Latin
American assets.
Shares in Venezuela, the lightning rod for the region's
devaluation fears, also fell.
"(Russia's crisis) has made European markets very,
very nervous -- what we're seeing is a chain effect
and we are at the end of the tail," said Alfredo
Guillen, director of research at Interacciones
brokerage in Mexico City.
Mexico's IPC index of leading shares ended down
3.39 percent or 114.35 points at 3,254.44 points, its
weakest close since December 17, 1996. Mexico's
floating currency also took a hammering, the 48-hour
peso setting a new closing low of 9.7659/9.7950 to
the dollar as investor anxiety over emerging markets
showed no sign of abating.
Sharply higher local interest rates -- the bellwether
48-hour government debt contract soared 475 basis
points to 30 percent -- and central bank dollar sales
were not enough to swing Mexico's tattered peso into
positive territory.
Brazil's Bovespa stock index fell 3.93 percent to
7,348 points, closing down for the sixth straight
session.
Its blue chip index was down 28 percent on the
year after Wednesday's close.
"We are not seeing any money flowing into Brazil and
that is fueling pessimism," said one broker."People
are simply hysterical (they are) picking on any
negative news," added another.
On Brazil's debt market, the C-bond ended down one
percentage point at 57-1/8 at 2125 GMT after having
dipped as low as 55-1/4 amid concerns over Russia's
debt problems. The C-bond is considered a Latin
American benchmark due to its high liquidity.
snip
Russia also steam rollered over Argentine shares,
which skidded past the 400 point early in the session.
Though the Merval index recovered a touch, it still
ended 2.69 percent or 11.18 points lower at 404.01
points. Thirty-five of its 44 shares fell.
"Even though Argentina tried to shake off the effects
of Russia's crisis, it was dragged (down) by an
adjustment on Wall Street," said Buenos Aires trader
Luis Corsiglia.
On the Caracas exchange, stocks also ended weaker.
Tight local liquidity and Russian jitters pushed
Venezuela's IBC index 1.2 percent lower to 3,172.29
points in lighter than average trading.
"It's a chain reaction. Investors are dumping emerging
market assets abroad due to Russia, while
domestically the liquidity squeeze is hurting," said
one dealer. "Nobody wants to buy anything."
Rates on Venezuela's interbank market, a pool of
funds used for lending between banks, rose to a
high of 180 percent on Wednesday after shooting
to over 90 percent on Tuesday.
Dealers said that helped curb the flight to dollars as
Venezuela's central bank fought devaluation fears.
But it also reduced the amount of cash available for
stocks.
Dealers said they saw no relief ahead for
Venezuelan stocks already down nearly 70 percent
so far this year.
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What's the best trade in these circumstances you ask? Trades should
be hedged against each other and non correlated where practical.
50% in T Bonds and other US Treasuries. Day trade the highest
volume most volatile US stocks for action and chip away at daily
gains.
Get ready longer term for the eventual reversal in the US dollar
against the world currencies it has already slaughtered, which is
most of them . Hold a BELOW 50% portfolio of super high quality US
stocks and hedge that portfolio with an in or at the money put
on the Russell 2000 (maybe too late, but THEN watch for rallies
and bear market traps to reposition yourself.) If things start
to get really bad, watch for a reaction in gold and precious metals
if one emerges get a big position on and take any big quick gain and
pocket it quickly.
Best'
Michael Paauwe
mpaauwe@xxxxxxxxxx
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