Lowry's Buying index: 75 year low

Yesterday's statistics show that the Lowry's Stock Buying Power Index sank to a new multi-year low while their Selling Pressure Index is only a few points from a multi-year high. The spread between the two is the widest in the 75-year history of Lowry's.


With a spread this wide, I'm thinking that something climactic should be coming up. Somewhere ahead, the two indicators of supply and demand must halt their spread and reverse. But where and when? I'm thinking that the turn must come with some kind of extreme wipe-out, some kind of final collapse which will create a solid bottom. The bottom, by the way, will be the place where stocks have declined far enough (and discounted enough bad news) so that they finally attract the big institutional money.

So far, we have not arrived at that place. It lies somewhere ahead. Aside from upward blips and even impressive rallies, the big picture now is for a decline that takes the market down to a level where the big money finds stocks irresistible. We're not there yet. We're just not there.

I continue to believe that heavy selling will come in. Heavy selling in the face of disinterest in buying can give you some big days on the downside.

2008:

Crude oil up 42.5%
Ethanol up 20.7%
Heating oil up 43.9%
Natural gas up 76.5%
Unleaded gas up 39.5%

Cattle up 1.0%
Corn up 58.8%
Soy beans up; 26.4%
Wheat down 2.2%
Coffee up 5.9%

Aluminum up 32.7%
Copper up 25.7
Platinum up 33.4%
Gold up 6.0%
Silver up 13.4%.

S&P 500 down 10.24%
Frankfurt DAX down 18.32%
London FTSE down 12.23%
Paris CAC down 19.64%
Hong Kong Hang Sang down 18.33%.
Tokyo Nikkei down 9.47%

Singapore Straits down 14.04%.
Seoul Composite down 9.57%
Sydney All Ordinary down 15.76%
Taipei Telex down 7.40%
Shanghai Shanghai B down 44.42%

From: DowTheory

More bad news on the economy

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.

A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets. le the "Crossover" index of lower grade corporate bonds could reach 650/700 in a renewed bout of panic on the debt markets.

"I do not think I can be much blunter. If you have to be in credit, focus on quality, short durations, non-cyclical defensive names.

"Cash is the key safe haven. This is about not losing your money, and not losing your job," said Mr Janjuah, who became a City star after his grim warnings last year about the credit crisis proved all too accurate.

RBS expects Wall Street to rally a little further into early July before short-lived momentum from America's fiscal boost begins to fizzle out, and the delayed effects of the oil spike inflict their damage.

"Globalisation was always going to risk putting G7 bankers into a dangerous corner at some point. We have got to that point," he said

"The political fall-out could be substantial as finance ministers from the weaker economies rail at the ECB. Wider spreads between the German Bunds and peripheral markets seem assured," he said.

Ultimately, the bank expects the oil price spike to subside as the more powerful force of debt deflation takes hold next year.

.......................................

Morgan Stanley warns of 'catastrophic event' as ECB fights Federal Reserve

By Ambrose Evans-Pritchard, International Business Editor. the Telegraph.

The clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned.

"We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe," said a report by Morgan Stanley's European experts.

Jean-Claude Trichet is taking a hard line on rates. Just as then, Washington has slashed rates to bail out the banks and prevent an economic hard-landing, while Frankfurt has stuck to its hawkish line - ignoring angry protests from politicians and squeals of pain from Europe's export industry.

Just as then, the dollar has plummeted far enough to cause worldwide alarm. In August 1992 it fell to 1.35 against the Deutsche Mark: this time it has fallen even further to the equivalent of 1.25. It is potentially worse for Europe this time because the yen and yuan have also fallen to near record lows. So has sterling.

The point of maximum stress could occur in coming months if the ECB carries out the threat this month by Jean-Claude Trichet to raise rates. It will be worse yet - for Europe - if the Fed backs away from expected tightening. "This could trigger another 'catastrophic' event," warned Morgan Stanley.

How to survive

To survive today in the investment business entrails two considerations -- first, you must not make any major stupid mistakes. Or let me put it this way, to make mistakes is human, we all make mistakes -- but the disaster is to stay with your mistakes. Once you realize that you've made a mistake, you've got to reverse your position -- get out and the quicker the better ("the first loss is the best loss").

The second task in surviving is to be low on debt or preferably out of debt, and to own something of undisputed tangible value. Some of the items in the "eternal" value category are gold, silver, a home owned free and clear, a great work of art, a few gem-quality diamonds.

If you own a business during tough times, the secret is low overhead. High overhead during hard times will chew up any business and spit out the pieces. I consider debt a form of overhead. You find a way to service your debt or you'll lose your business.

If you're solid and solvent during tough times, you can remain on the compounding path. This entails holding good stocks, and reinvesting the dividends as they come through. Or you can take positions in bull markets on a timing basis. This entails buying stocks when the market is clearly oversold, and selling those stocks when the market becomes frothy.

Right now, as I see it, we're pretty much on the sidelines and awaiting the next great buying opportunity. This means waiting for the next major oversold bottom. Where or when that bottom arrives is unknowable. What we do know (hopefully) is how to identify a major bottom when it finally arrives. In other words, to predict is impossible, to identify is possible, not easy -- but certainly possible.

From DowTheory