General notes - Thu, 02 Dec 2004

"Fortescue Metals Group which rose from last Friday's close of $1.66 to as high as $3.33 today on the back of binding contracts with Chinese companies to build infrastructure and participate in local iron ore mines."

China is developing - they have publicly stated they are building a nationwide highway complex "more extensive than that of the USA" by 2015. The US built their system after 1957, projected at a cost of some $20 billion back then - it sent the stock market ballistic in 1958 as firms salivated at the prospect of the govt letting out contracts to buy bitumen, steel, concrete and on it went. Build build build. Not to mention the land value effect.

Hallibaba and the 40 thieves... money for nothin' and your bay views for free

always pay attention to land tax news -

just quietly, i have found this THE best way to work out where you are in the real estate cycle. Such news as this comes out in the second half when the taxes start to hurt. About four to five years from the top usually.

Note, it is the only tax an opposition ever considers refunding to payers. Now why would that be ? Note too, the solution being offered here, if implemented, will push up land price - and at the second half of the cycle helps push prices right over the top and you know what then. Repeat pattern - same as last two cycles.

Attention to dates, and what happens 15th nov, seemed a heavy day in the markets also

lines up with 60 degrees mid January....

as forecast: happens every cycle as land price starts to warm up

plane crash October - this time in China - again on one of our monthly gann dates. Most of them are.

Doing research for the 1974 real estate led downturn - the big fraud and scam at that time was the equity funding fraud - you can find plenty on the net about it, try check out the 'fraud parties' these guys used to hold !!! interesting, this ran over 1973/74. 30 years later we have Elliot Spizter tackling the same industry and current fraud patterns. Maybe coincidence, but i see it often

some comments from greenspan;jsessionid=DOGPKVUYPWXQUCRBAE0CFFA?

my take on the thing:
It seems to me Greenspan has made a deliberate political comment here, which might be more for his master's digestion than anything else. Anyway…

As far as I can understand it, here is the scenario:

The US dollar is declining in purchasing power against other currencies, especially the Euro. (Currencies trend the longest time by the way, of all markets - the trend once underway normally runs for some years. This trend started in Feb of 2002, shortly after Bush announced much higher steel tariffs) What should this US dollar decline do ? In theory, a fall in the US dollar ought to make imports into the US more expensive, and its exports cheaper, so the US will sell more overseas of what it makes. This would be a policy to follow if the government wanted to increase domestic employment or at least lower unemployment if it is high. This, the US is doing. (Or should I say allowing.)

Government and the bankers would have you believe that what is happening is a process that they control, and one that they allow to happen. I would urge you to think more appropriately: the decline is simply a matter of supply and demand. More dollars are being sold than bought - price declines. It is doing so because markets have recognized the US fundamentals are out of balance. The US debt is too high, and the low rates have put a bubble into US real estate. Greenspan knows it but cannot say anything in public about it, that would give the game away. Hence he will make a political statement to say yes we are on top of the situation, and will ensure a decline in an orderly fashion. (More on that topic in just a minute)

The price of gold should rise as this occurs, which it is doing. Banks / speculators will trade this trend. As a by-product of such a policy, the US trade deficit, at record levels, ought to improve. The US government would be happy to see this improve in my view, without having to do anything else about it, like pay off the debt - always a politically suicidal policy.

The scenario I have alluded to in the past, if gold went through its 440 barrier, is now in play.

As ever, the thing to watch is interest rates and land price. US bond holders, and future bond buyers - and the US is issuing a lot of government paper to pay its way at present - may start to demand higher interest rates as all this takes place (is unrelated to the dollar decline); or if the US wishes to continue to finance its spending, may have to start offering higher rates to attract investors, or the US could choose to start paying its debts. Either choice is contractionary in its effect.

More on that topic:

US debt levels are a dangerous situation only if those financing the debt were ever to demand a higher price for doing so, for some reason that at present is not there. That would see a dollar flight, interest rates spike upwards, and as a corollary, the stock market tank - and a recession. Hence, the bankers are desperate for an orderly decline in the dollar to help put US fundamentals back in line. This is a dog chasing its tail really. If land price never capitalised, none of this would happen, however, it is happening, so:

Now, the second half of the real estate cycle is historically normally more volatile. I have shown those in a Gann class how the calendar day chart really can help forecast future action. See how volatile the chart was 1997 to 2002, well this is going to repeat, 2004 to 2012, but at higher expansion multiples, aka more volatility. Past highs and lows to future highs and lows.

Presently though, there is too much war related spending and credit expansion going on to see US rates rise much, if at all. War spending on;

- Fixing the bullet shortage
- Putting satellites and spies in place, and delivering the resulting imagery and maps to where they are most deeded (involves super large hardware capacity and trillions of CD's)
- Keep the million or so soldiers so far called up for military duty (not all at once) happy fighting chappies,

and a million other things. Hence the commodity mini-boom in addition to what China is doing

One thing we can be sure of, the US will do whatever is in its own interests, utterly regardless of the interests of anyone else to ensure its dominance. History confirms this policy and it will not change in the near future. So it doesn't want a recession. And since bankers believe they can control the cycle, they will do things to try and avoid one.

A classic set up is building: should there be a bank collapse once land prices peak and then decline, (remember any land price decline puts pressure on the banks real estate lending portfolio), it could see fears of a US default on its debt obligations, as per 1893, 1932, and 1974. Keep an eye on the 1893 events, for those who have done the cycles class. (Possibly the hardest cycle to come to grips with as it had a lot to do with bonds and international lending.)

Note, as in all past cycles, rising rates impact first on interest rate sensitive areas, houses, things that go in houses, and car buying. But not yet, it is too early. Banks are presently full of liquidity.

But keep in mind, any event, whilst it is being feared, like the US debt is at present, as referred to by Greenspan, rarely comes to fruition, since it is being feared, money is kept on the sidelines out of fear. At the top, we have to be all in, with few fears on the horizon. Whilst there is fear in the air, (or at least reservations and hesitations) markets keep climbing - this is known in the trade as markets climbing a wall of worry. And this they will continue to do for a while. Perverse I know, but it is what happens.

For all this to come to fruition, and the cycle to turn downwards, land price has to go over the top, peak, and then an event to occur to cause buyers to stop buying. Historically this event has always been bank and credit related - I see no reason why this should change this cycle. Stay tuned.

What to watch for some hints. Try the US charts of FNM Fannie May, FRE Freddie Mac, LEND Associated home lenders, or The REIT index

As to gold, see for what I thought was a very good article.

To the indicators:
jury is out on the yield curve barometer, don't know, implies non expansion at present, though our stock market is pricing in better earnings next year.

bliss index, we are still happy - can't recall a government ever changing at those levels.

rule of 20. now here's a thing. A case of the E in the P/E ratio rising faster than the P (eg, if price is 100 cents, and earnings are 5 cents, p/e of 20; if price rises to 110 but earnings rise to 7 cents per share, p/e comes down to 16) So as our market has risen, shares have actually become cheaper on a fundamentals basis (on average), ie you are buying the average at 16 times earnings, not twenty, despite the price rise. (Inflation did not move for the period) So the recent market rise is on solid ground. This is good to know. Good little chart this one.

That is all for this year. I/we return in the new year after having learnt that the French need a good course in English manners, though they can actually put together a decent meal. Hope you all have a good new year and i do sincerely look forward to seeing everyone again soon.

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