Tuesday , 5 March 2024

Why a 'Crash Back' to Autumn '08 Lows is Likely By End of 2011

The key concern for analyzing trading/investing opportunities for the rest of 2010 and into 2011 is whether we are facing a major pullback or ‘crash back’ to Autumn 2008 or March 2009 lows or an on-going continuance of the markets’ “risk on / risk off” pattern of the first quarter. Words: 516

In further edited excerpts from the original articles* Cliff Wachtel (www.avafx.com) goes on to say:

Crash or No Crash In 2010-11? That Is the Question
On one hand the following negative forces weigh down on future prospects:
1. The EU teeters on the brink of a wave of sovereign defaults and ensuing banking crisis that threatens the global economy like nothing since the Lehman Brothers crash in the Autumn of 2008
2. The US faces a potential second wave of mortgage defaults of a magnitude not seen since the subprime crisis that ultimately sank the global economy-which was stronger back then.
3. China and India are trying to slow their growth rates to more sustainable levels
4. Interest rates are generally very low and will need to rise over the coming years, creating potentially severe headwinds for most developed economies because they are so dependent on long term low rates.

On the other hand a number of bullish forces are keeping the markets afloat, namely;
1. Low interest rates
2. Slowly but steadily improving economic data and earnings
3. Growth in emerging markets
4. State economic creativity

Four Horsemen of the Coming Crash
When it comes, one or more of the following will be the cause(s):
1. EU Debt Crisis: A likely wave of sovereign defaults and resulting bank failure contagion that has likely become a question of when, not if.
2. US Subprime Crisis II: The US begins to see another wave of mortgages resetting at higher rates in July. The last time a wave of this magnitude hit it caused the subprime crisis which ultimately crashed the global markets and economies.
3. China- Slowdown or Crash? The Chinese are actively trying to let the air out slowly from a potential bubble in Chinese housing construction and real estate but governments do not have a great track record at controlling the pace of economic expansion and contraction, especially once a bubble is in place, and all indications are that it is.
4. Rising Interest Rates: Either via central banks promised tightening short term rates or bond markets raising long term rates on fears of rising default risk from rising deficits.

We believe that while the global economy is improving, the evidence suggests another serious pullback at least. A complete crash of Great Depression magnitude is also a real possibility.

*http://fxmarketanalysis.wordpress.com/2010/04/30/the-coming-crash-four-reasons-pro-and-con/ (AVAFX.com is a leading online trading site for global currency, commodity, and stock index trading.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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