Friday, 1 March 2013

The problem with serial blog posts and global interconnectedness

Having submitted 13 posts for your delectation in quick succession, and with no pretty pictures to enliven the text, I thought I should explain myself.
We live in a global society. And, while it is possible to make an individual prediction for a market without reference to any other, an understanding of the broader picture requires simultaneous review. So although I prepared many of these posts a month ago, I waited until now to publish them so I could look at the global themes.
Having written so many entries, however, time was moving on and I felt that it was better for the project if I submitted the raw posts, rather than edit and add pictures to them. Even so, I have refrained from posting my, almost complete, Euro forecast until I have time to consult the charts of the individual countries.
In an ideal world I would have completed these and all my forecasts before 2013 began and had time to select some appropriate graphics. We don't live in an ideal world - if we did no forecasts would be necessary anyway- and I am well behind my schedule. For that I apologise and will try to make future entries a little less raw.

Shanghai Composite 2013-16

The Shanghai composite peaked in October 2007 prior to the financial crisis in 2008 and now stands at only half the levels it reached then.
The index has, along with all the major markets, risen between November and February. However it has dipped in the last week
And the month as a whole has not seen much of a rise
March promises to be more exciting. There will definitely be volatility, but with some of the negative influences taking  back seat and being replaced with positive sentiment there should be a net upward movement again.
April is less dramatic with a consolidation of any gains. However there is the beginning of a new mood in the market which could be the start of a long term trend. This will take some time to develop though so at this stage investors should be looking for indicators of what that long term influence will be
The next couple of months promise to be more mixed, with no discernible trend. There should not be too much pullback with the market continuing consolidation.
July and August see a return to the themes of April
 But September might see more volatility as there are conflicting signals.  There are wider events at play at this time and the market may be reacting to these rather than long term local trends.  By November the amount of trade looks likely to increase substantially and this is likely to heighten the volatility too.
The year ends with no change to the underlying situation but with more interest in the market from the international community.
There is likely to be a rise in the index as 2015 starts. This is partly due to momentum which has been building all year and partly due to the new interest from the wider investment community. Not all the indicators are positive, however, and there is continued volatility,  but the balance seems to be in favour of credibility in the market rather than fear of its risks.
More volatility seems to be the picture in March to May. Again there are global influences at play that are affecting the market at this time. However despite all the uncertainties, there still seems to be a belief in the opportunities here.
The period around June and July is quieter with a reduction in the fluctuations and no discernible trend
But activity starts to pick up again in August through October  with a notable turning point in the market.
The next noteworthy time is December. Again we see indications of external influences on the market, but this time they are likely to be less enthusiastic. It might not be a loss of faith in the index, but rather a concern with other matters than means that there is a reduction in interest in it.
The first quarter of 2015 probably sees nothing new happening. The market is still absorbing the events and changes of the previous 2 years . There is a chance that there might be substantial speculation at this time, but the signs are not 100% certain and it could also be that there is little direction in prices. There is more likely to be a boost in the period around March and April than in the first two months.
Although there are background favourable indicators ,then come a few months when the market is restricted again by international matters.  It isn’t really till September that trade will again receive another boost. By the end of that month there should be much more interest in the market again and more volatility. 
The last few months of the year see a return to the conditions of January to April. However, although the indicators remain mixed, the net effect is more likely to be negative at this time, with doubts and restrictions dominating. By now, those longer conditions will have established themselves and the new view of the index will be embedded. It will be performing a very different role to that in 2012 when this forecast began.
The beginning of 2016 is calmer again. There is positive sentiment but it is unlikely to be destabilising and the market will probably just hold its value through January and February
March, however sees a return to some volatility and perhaps even some speculative rises . However there are also forces at play to restrain such increases and so a clear trend is unlikely to develop before May.
In fact it is likely that things will have quietened down a little by June. While all the background influences still remain intact, they are operating at a much lower degree and so leading to less excitement regarding the index; merely just some pleasant positive feelings.
While there might be a little more excitement in August and Sept, on balance the calm continues.
And even October which is a more upbeat month still has a feeling of calm about it.
Indeed it is not till around December that there is a clear change of mood. At this time there is potential for huge volatility, although it may be tempered a little by conditions elsewhere.

Renminbi 2013-16

My interest in the Renminbi was heightened when I conducted my analysis back in 2008, when I noticed the links between the US$ and the Chinese currency. We are now slowly approaching a time when any fix between them will be at least partially eliminated.
The year has obviously started with a lot of enthusiasm for the Renminbi. There is a very dramatic and favourable change happening in the attitudes to the currency. At the time of writing even the BOE is on the verge of signing an agreement, backed by swaps, allowing it to lend the currency.  This clearly represents a key turning point the international availability of the currency. China have also decided to pump some liquidity into the country to maintain growth
The momentum to move a greater amount of transactions into the currency will increase during March to June. There is likely to be the beginnings of discussions how to break the peg with the dollar. However, there will be some resistance both within China and externally which will slow down the speed of change over this period.
Around June, however, there is likely to be a leap forward in the process
So expect some exciting announcements around July and August, but still an element of caution in place. There is evidence that inflationary concerns might be to the fore by the end of this period.
 However progress is on a backburner in the last quarter as some difficult conditions prevent further developments. Thus it looks like China will pump a even more liquidity into the system around October and November, perhaps in response to events elsewhere.
 So the year ends with nothing much happening, but a huge wave of expectation for 2014
The first month is relatively calm but the issue of a more free floating Renminbi revives in February , although this is not a time for action
March and April, however are much more interesting. There is a great deal of pressure building up internally and externally and the currency has to begin to change its nature.
There are far less reservations by this time and significant progress can be made.
There is a bit of backtracking around july though. Changes are restricted to behind the scenes.
 The period from Sept to December is much more productive. Real changes occur and while it might be premature to expect a free float – it is fairly certain that there will be a commitment for the currency to trade relatively independently in place by the end of this year.
There are practicalities to be resolved however, and there will be short term restrictions in place in early 2015
There are some unexpected problems around march to May, which must be resolved and progress is not as fast as hoped.
As a result the period through June to Aug is relatively quiet.
The biggest changes therefore take place around September 2015
However, there are inevitably some difficulties which result. Initially there may be problems finding the fundamental value of the currency and there will not be a clear sense of direction of trading at all in the last few months of the year. There may even be an almost complete lack of movement in the exchange rates as the market awaits indicators.
Early 2016 brings nothing particularly new.  The restrictions of December 2016 abate somewhat, although the background conditions continue. No noteworthy events happen before march though.
 By April, it seems that there will be more exchange with other currencies occurring. There is a likelihood that the currency is being well received now and that it is gaining strength and power.
 The general feeling of opportunity and openness is stronger by June
And July sees a significant increase is trading activity. The signs are nearly all positive at this point.
 There is some difficulty around September, however, when trade slips back a little and there is a fear that the currency maybe over- bought.
Nevertheless the over-arching mood is good.
 October is even better. Many of the worries about the currency will be dismissed and there is evidence that investors will see it as a worthwhile opportunity.
 There is likely to be significant speculative activity by November as a result. Although this does not appear to be a longer term trend and there is more economic support for the currency’s value than  might be assumed.  The year ends with a continued positive approach to the currency.

China 2013-16

The obvious question in this case is – will China’s position deteriorate or does it have momentum?
 Well, for those expecting a lot of events in China this year, I am afraid you are likely to be disappointed. Whereas the currency and markets may have a great deal of action, the country’s political and economic outlook is favourable. 
 There are some surprises around leadership in late February
And in March there may be some ramifications of this, but there is nothing particularly dramatic in the offing.
The period from April to August is extremely uneventful. There are some issues with the country’s imagine around June-Aug – possibly indications of growth slowing again but this will not be perceived as serious.
There seems to be some degree of optimism around September
And October sees China in a dynamic mood. There might be some focus on the activities of the general population at this time
 The only difficulties might be in the last two months of the year. With some darker elements coming into play in November
And some economic issues to confront in December
The beginning of the year sees a similar mood to September 2013
However by March things are somewhat more difficult. There is some unpleasant news , and perhaps some more concern about the country’s finances, possibly currency related . There may also be talk of government corruption but the situation is unlikely to be too serious as the people are not unhappy. The other possibility is floods at this time.
 The situation moderates a little by June where there is merely a feeling of adjustment. However there will be some residual effects which will have to be confronted and again the mood might be more sombre.
 August is a much better month. While there are some lingering concerns, there is a revived feeling of buoyancy and faith in the government.
And the balance in September is positive too- there is a sense of drive and belief in the opportunities for the future. This builds to a sense of significant power by October .
 There is another shift in late November though. At this point there is sense of culmination of the efforts put in since 2000 and even back as far as the mid 1980s. The result is that there is a sense of achievement but also of responsibility and worry about the next steps.
2015 is a key year in the development of China, when the peoples’ republic becomes genuinely about the people.
This is felt as early as January when there is a an increased feeling of power and energy, but also a growing sense of the need of change and an alternation in the balance of power. This may lead to some conflict between the leadership and the people by February. The mood continues throughout the first half of the year.
There is another peak in activity around June.  There is economic strength but there are issues around the distribution of the benefits. There may even be a need to restrain the actions of some factions and there may be some industrial unrest too. The general impression will be one of increased awareness of how much power the country can harness though.
There is a reduction of the impact of earlier events by Sept but there may well be difficulties associated with the history of one child policy especially as it relates to the split of male and female in the population. There may be more issues around leadership deception.
November sees a more assertive attempt to capitalise on the economic strengths of the country and a resulting stability . However certain elements of the population are still problematic and there is an excess of news on associated events.
The general conditions continue into early 2016, with obstacles and challengers facing the leadership in the first half of the year
Later on in May there is some magnification of these issues, but also more opportunity for them to be resolved.
As a result in June there is a shift in the mood of the people. They become more of a coordinated collective and  by September they have the ability to make major changes to the way the country is managed.
There appears to be continued leadership challenges throughout this period.
Although not all matters are resolved in the next few months, the image of the country does change by October/November and there is a sense of opportunity and renewed leadership.
By the year end China is poised for a major shift in position in 2017, although in the short term it is exercising restraint inside and out

Nikkei 2013-16

Of the stock market charts we’ve looked at so far, the Nikkei stands out as the one with the maximum exposure of the next two years to the global economic situation and other events.
At the time of writing, the Nikkei, along with other markets has been rising since November. It has continued to rise as the Yen has fallen- this is not unexpected – investors like to maintain their overall exposure to a market ( what is more unexpected is a rise of the markets where the currencies have strengthened), however the index, unlike those of the US and UK is a long way from its 2007 peak and still a fraction of its 1980s bubble values.
 As February starts the conditions continue, but there is more caution and the level of trading is reduced. With uncertainty over the value of the economy assets and technologies in place it is difficult to justify further significant gains in the next couple of months
 The situation is further complicated by April and May when there is a return to the weakness of previous years. There is a feeling that the market can’t go too far without underlying structural changes in the economy. However at the same time there is a short term boost due to incoming funds from monetary/currency shifts.
June represents the beginning of a major turning point. A mix of global and technological influences, even shocks, begin to have a significant effect
 Conditions are mixed in July and August. The new situation continues, but there is a surprising sense of stability – the likely impact is that the market remains flat during these months.
September sees a reactivation of the conditions and a turning point in the market.
 There is a lessening in intensity by October and a mix of positive and negative influences suggest that the last few months of the year will be characterised by minor fluctuations but no new trend.
The conditions of mid 2013 continue into Early 2014, with the mix of structural challenges, somewhat upbeat sentiment and liquidity  but accompanied by continued economic inertia. Once again it seems that the market will have difficulty finding a direction and there may even be a pull back as some Nikkei components suffer financially.
The period March to May seems to be accompanied by fear on the part of investors. This may be the impact of events elsewhere, there is still an ongoing potential for shocks and dramatic shifts.
Although the background themes continue throughout June to Oct, the effects are moderated. There is even the potential for a market bounce around July as positive sentiment and good news take over for a while.
August is then uneventful with merely a review of the broader conditions taking the front seat.
But Sept and Oct demonstrate positive themes again despite concerns about profitability there is a belief that the market represents good value.
The last 2 months of 2014 see a return to the longer terms worries however. A particularly difficult time, probably globally, means that sentiment is generally negative and the market will fall. However we must remember that this has been a generally depressed market for  a generation and so any falls are in the context of this. We might lose recent gains but no more.
2015 starts as 2014 ends, but with some additional negative influences. January and February is likely to be a difficult time with depressed valuations.
March and April are slightly better, but although there are some positive longer term influences, the short term situation is still tricky. The market is unlikely to fall further but is unlikely to show any significant rises either.
There is no significant change from May through to September either. The difficult situation remains, although somewhat alleviated by positive news etc.
 Around August and September there is a little bit of light relief from the on-going difficulties but investor fear continues.
However the conditions are changing and October sees the last of the significant restrictions and a feeling that finally the market might be out of the woods.
As a result November and December are without much action at all. In fact there  might be  a moderately positive feel
Although throughout the year the mood that has pervaded for some years now still continues, there are the beginnings of a new environment.
January and February 2016 will be a period of consolidation and strength although not of volatility or significant trend rises.
March to May are also likely to be positive months. Many of the longer term difficult conditions have waned, even if they are not completely resolved and there are some real positive green shoots that will allow the market to rise ( though be aware we are not talking about bubbles) at last.
The period June to September is more mixed, with not all the news supporting the positive trends but there is nothing that seems enough to break those trends. While there will be more fluctuations the market direction remains upwards.
The general tone continues into October. In fact there could even be some speculative buying at this time. However once again not all the news support this and investors are advised to take advantage of the upside but to watch for short term drops
November and December  are once more positive but there is still a lot of caution to be overcome. Don’t expect any significant rises yet
It is noteworthy that 2017 shows some dramatic shifts in tone in this market and it will be interesting to look at these when we get to the next batch of forecasts.

Japanese Yen 2013-16

The Yen has had  a great few years. But all that seems to have come to an abrupt end in the last 6 weeks. Why ? Because we finally have the foundations on which the currency are based questioned by the global mood.
But the question you’ll be asking me is, will this new trend continue?

The answer is, yes, for a while; although it lacks some of the drama associated with movements in other currencies, the questioning of the fundamentals is not unreasonable.We’ve also seen a sudden departure of the currency leadership
 It looks as if there will be some relaxation of the trend over the next couple of months though. And it is important to note that there are some positive stabilisers in place throughout the 4 year period – this is not a currency that will completely collapse- merely have periods of weakness interspersed with periods of volatility and others of relative calm and recovery.
There might be some volatility in April, although this will be only a brief spell, and will be offset by supporting actions or words. Nevertheless there is more to come within the coming year.
The focus by May moves to other countries. However there is still some adjustment at currency leadership level going on. But the value of the Yen looks to be preserved at this time and may even rise.
  July looks more promising for currency movements. We see a return to some of the questioning of fundamentals that started the year. And we also see a rather sudden a dramatic turning point in sentiment. We can expect the resulting gradual decline in the Yen to last for nearly all the remainder of 2013. Only by December will the trend slacken off.
There are new issues to contend with as 2014 starts. We’d have to look back to late 1984 to see what sort of events might trigger this. It appears to relate to the core value of the country’s net assets. Or possibly to power sources. On the other hand the concerns of 2013 are reducing.
February and March sees almost the last of the dramatic volatility that has accompanied the Yen during the previous year. And in this case it might be externally motivated anyway.
April is the next key turning point with a global re-evaluation of the currency.
The next few months – june/Aug -look positive though– the Yen should rise . Indeed the rise might be overdone at this time.
However there is an offsetting influence by September with the return of the issues that were discussed at the beginning of the year – the sources of wealth and power are subject to some limitation.
The next key time is December, when there might be inflationary trends in place which will undermine the faith in the currency’s value
Trade in the currency is suppressed in January 2015
 In February there is a brief return to the volatile conditions of April/May 2014 but this is very quickly mitigated by the next month
The next few months are relatively calm currency wise
 And June/July is a bit of  a mixed bag of events, with no particular trend dominating currency wise.
We have to wait till August for another change in the prevailing sentiment. It seems that the Yen is playing catch up to other economic and political events of the last few months. And it comes in the form of a positive lift for the image of the yen. There is a definite positive trend from now until October or November.
 There is much more going on in the last few months of the year albeit at a more granular trading level, rather than big devaluations or revaluations. Although there  is some suggestion of subdued trading again in these last months., it appears more than offset by the positive effects.
2016 looks to be a more exciting year for the Yen, with a lot more trade.
February in particular shows both volatility and significant flows of funds involving the currency. This parallels a period of significant change in the Japanese country, so we can expect a focus on the country and currency at this time.  It is a little uncertain which way this will go – but it probably entails a downward valuation.
 There is more stability in the second quarter. However there are still major issues relating to the overall value of the Yen and there are signs of significant speculative activity at this time. But expect fluctuation rather than trends.
 July and August return more to the 1st quarter’s picture – with a possible weakening again. Once more it is the volume of trade that is notable though.
And the big speculative activity returns in September.
The year ends with one more period of pressure on the Yen’s value. But this time there is unlikely to be any significant decline. There are too many supporting factors. In fact it looks like December will be an especially positive time for the currency.

Japan 2013-16

It would be difficult to find a chart more different from the ones we’ve looked at already than the Japan chart. While those chart’s show increasing tensions from the global configuration at the moment, much of the work in Japan is past for a while at least. Indeed, the most prominent factor is currently one of action. And this could hardly be a better indicator of how the country has started 2013, with bold plans to stimulate the economy and its arguments with China.
Japan has a number of key characteristics:
A resonance to the global oil based consumer economy of the 20th century
A tendency to hide its feminine side
Ability to harness technological change when certain conditions apply
Excitability, quick to anger and react to external forces
In early 2013, despite the revival of a drive for action, there are still some obstacles, that will continue the inertia that the country has experienced for a little while longer.
Things are quite stable around march time, although behind the scenes there are some changes – which might particularly relate to the role of women in Japanese society and Japan’s acceptance of its feminine element – this is a theme which will continue in the background over the next decade until it finally reaches resolution in about 2022
 In April to June the focus turns back to the external international trading environment, but there is little evidence of much impact from internal changes yet.  However there will be increased emphasis on the need for action again by June.
But really, there isn’t much to talk about over the following few months as it is not until December that some turning points are reached. At this point we will start to see some lessening in the on-going inertia that the country has experienced ( although the country will continue to reflect some of the negatives of the advanced mass market economies as this is built into its DNA) and there may be some increased protectionism and nationalistic issues arising.
As 2014 progresses we should see the beginnings of slow restructuring in the Japan economy and particularly its internal debts which relate to the savings of its population.
The year also starts with some difficulties for the leader
By March there is likely to be a clearer shift in the attitude of the people.
But it seems that the main action at this time in elsewhere in the world and there is continued uncertainty how this will impact the country.
In the following months to Sept, there is a re-occurrence of the themes discussed in  December 2013.  Any issues will be more entrenched on this occasion. The key time for any notable events would be Aug/Sept.
 We should be aware that there is some potential for earthquakes again around Oct time. The situation does not look too serious though, at this point, although any indications should be noted as the themes will repeat in 2015/6. There are some more leadership difficulties in play at this time too.
Indeed the year might end with a leadership change ( but not a particularly dramatic one- just part of the continued adjustments that the country has experienced for some while now)
Finally we start to see some events in the frame over the next 2 years, that will change the Japanese economy more radically. The people are ready and the impact of this will fall gradually into place.
In the early part of the year, however, we see some of the issues from 2008-2012 being reactivated – a consequence, it seems, of events elsewhere again. Some of this continues throughout the first half of the year
 In March things are closer to home, with a repeat of the Oct 2014 rockiness- again this could be geological or merely economic. This appears to be the most serious time in Japan over the 4 year period with the country, Yen and Nikkei all showing negative indicators.
The theme continues for some months and is particularly acute around June time. Things are really beginning to get shook up- literally and metaphorically.  We should expect to see the beginnings of technological shifts among other things as japan changes its approach to the economic difficulties of the past decades by embracing innovation
 After a brief couple of months respite the process starts again in September, but is now more about changing the leadership.
The year end with the completion of many of the issues from the last 2 years and the increasingly impetus for radical change.
January 2016 starts with a different emphasis. Now the impact of the global configuration that has been dragging on elsewhere comes to Japan in a more concrete way.
 It becomes noticeable in February, with what again could easily be earthquake related activity or some other sort of threat. It could be economically, although such a dramatic and sudden influence is unlikely to be of internal economic origin; it is more in the nature of external shock. However there is a possibility of technological advances too- but these will be both positive for the economic developments but negative for existing technology and industry too. Certainly there is significant instability at this time. However there are some stabilising influences too around March, so this will mute the effects somewhat.
The picture continues throughout the first half of the year. This is a very important time for the country. There is a real sense of Japan pulling together in action: leadership and people, to overcome any challenges and to grasp the new directions.
 By June the situation becomes calmer and the next few months are without significant direction, probably until around Sept/Oct and even then we don’t return to the disruption of the earlier months until November and December.  There are some real opportunities for positive change here , even though such change will be disruptive. And, because the instability is magnified, this time there is accompanying delusion or disappointment or possibly sadness associated with the events.