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Going into today's trading we are essentially back where we were last
Tuesday morning before the drop and recovery. At that time, we were in
a downtrend possibly looking to retest the Sept low during February.
There are still a passle of problems to contend with. Consumer
spending is erratic, corporate profits have yet to return, and captial
spending is weak. All of these have to improve before a sustained bull
market can reappear.
The Enron malaise has fired a warning shot across the bow. The repeal
of the Glass-Steagall Act, special purpose entities, and ineffectual
auditing has created the possibility of lower prices waterfalling into a
cascade of corporate bankruptcies. Failure to deal with such issues has
kept Japan in a never ending quagmire (see comments below).
For sure there will be rallies, but we are not out of the woods by a
long short. Use stops and keep 'em tight.
Re: Japan
The Nikkei plunged another 23% in 2001, down a staggering 73%
from its peak. The yen has crashed to record lows.
The central bank recently acknowledged that bad loans
are fully 25% more than the previous estimate of $1.2
trillion.
And now, here's the story on the next leg down:
Dozens of Japanese banks will fail, triggering a
whole new collapse in Japan's stock market.
For over a decade, the Japanese government has
desperately tried to turn its economy and stock
market around -- not just two or three times, but a
total of TEN times. Every single attempt at
intervention was a flop, a total failure.
Now, with the Nikkei down 73% and economic
conditions in Japan continuing to deteriorate,
foreign investment powerhouses are looking for the
exits. Merrill Lynch will close most of its 30
offices in Japan. Charles Schwab, the biggest US
discount broker, is shutting down all of its online
Japanese operations. Morgan Stanley Dean Witter is
pulling out, too.
Japanese banks are about to get KILLED. Dozens of
them are already saddled with over $1.5 trillion in
bad loans. They have no way to dig themselves out.
Many will fail, including one giant Japanese bank
with more deposits than CitiGroup and JP Morgan Chase
combined.
The flight of foreign capital and the bank
failures will trigger a whole new collapse in Japan's
economy. Industry will come to a virtual halt.
Unemployment will go through the roof. And the stock
market will crash through the floor.
Japan is the largest or second-largest trading
partner of nearly every significant East Asian
country, including China, Taiwan, Thailand,
Indonesia, Korea, and the Philippines. So Japan's
troubles are pouring over onto them.
There are civil wars in Indonesia and a terrorist
rebellion in the Philippines. Taiwan, Singapore, and
Korea are suffering recessions. Stock markets are
getting creamed in Taiwan, Malaysia, the Philippines,
Indonesia, and Hong Kong. These countries were just
barely recouping from the 1997-98 depression. And
now, their largest trading partner is going into
collapse. It's devastating.
Japan's troubles are even beginning to spill over
to Europe. Unemployment is running nearly twice as
high as in the US. Consumer confidence is crashing
through the floor, and a whole new tech wreck is
underway.
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