China Automotive Systems: Revving Up For Growth

China Automotive Systems (CAAS) has posted a couple of strong quarters lately, but the stock price has been inconsistent.

In Q2 of 2007, China Automotive Systems reported revenue of 36.31 million and earnings per diluted share of 0.10. CAAS’s revenue and earnings in Q2 were considerable improvements both sequentially and year over year.

In Q3 of 2007, China Automotive Systems reported revenue of 31.20 million and earnings per diluted share of 0.11. Revenues were up year over year but down sequentially due to seasonality of the Chinese passenger vehicle market. Earnings per share, however, improved both sequentially and year over year.

The fundamentals of CAAS have been improving but the stock price of China Automotive Systems has been behaving erratically. In September and October, the stock price of CAAS was trading above nine dollars and briefly traded over ten dollars. I don’t think the upward movement in CAAS’s stock price had much to do with Q2 earnings. The stock price barely reacted to this news. However, I think some of the big institutions shifted money into Chinese stocks due to the falling dollar (a lot of Chinese companies went up around this time).

The stock price of CAAS has been drifting down since its peak in October. The main reason for this is the CEO and COO sold some shares early in October. The stock price of CAAS has continued to go down since that time but I think now is a good time to pick up some shares.

China Automotive System’s stock price is currently trading near its support and I don’t think the stock price will go much lower. The fundamentals of China Automotive Systems are improving and the stock price will reflect this over time. Also, the Chinese automotive market continues to show strong growth. The CEO of CAAS stated the “Chinese domestic auto industry grew by 27% in the first nine months of 2007.”

CAAS is also trading at a nice valuation. At yesterday’s closing price of $6.40, it has a trailing PE of 19. That is very reasonable for a growing company.

I am going to reiterate my buy recommendation at yesterday’s closing price.

Disclosure: none

Back to school

I look, charmed, as a fragile girl in pink is writing her name on ablackboard in three different alphabets: Latin, Arabic and Sanskrit. I am in a two-storied building surrounding a courtyard, full of chicken and strings with drying clothes. In the middle of this mess there are dozen of fragile young Sikh girls, busy with their lessons.
It is my third day in Jalalabad. I am here because I promised to Inger from Save the Children Norway-Sweden to collect the material for a presentation of their job. For the organisation focusing on rights of children in Afghanistan, it is unavoidable to handle education problems. Because of this I have visited different schools around Jalalabad.
Sometimes I compare Estonia to Afghanistan; my homeland is more or less agricultural country as well. But there is at least one big difference: almost all our ancestors were already literate by the end of 19^th of century. It seems for me that the most important is general literacy: to read the text and to basic calculus. My grandmother managed to get through her life with only four years of village schooling in her tiny home island.
Literacy is not something self-evident in Afghanistan. For example, my husband’s project employs a friendly and hard-working cleaner, Muhammad Zaher. One of my his colleagues had an idea to send this nice guy to an English language course in order for him to have the better job possibilities in the future. But there is one obstacle: Muhammad is not literate.
PS. The PDF of brochure Fighting for Children's Rights in Afghanistan for Save the Children Sweden-Norway is available in internet: www.reddbarna.no/default.asp?HMFILE=103012

Solar stocks no longer the favorite of the people

Solar stocks have been hit Monday by news that Senate and House Democratic leaders are considering a plan to leave renewable energy out of a pending U.S. energy bill. An alert posted Friday by the Solar Energy Industries Association on its web site says that “there are widespread reports that a decision has been made, at least provisionally, to move energy legislation without a tax title that extends the Solar Investment Tax Credits.”

The notice asserts that “a bill without the solar ITC provisions would be a tremendous lost opportunity for our industry and our country.”

Stephen Chin, an analyst at UBS, this morning asserted that removal of the tax credits from the energy bill “increases the likelihood that the credits could expire in 2008.” He writes that “an orphaned solar ITC may not find bipartisan support during an election year, increasing the likelihood of expiration.”

Chin says that the current tax credit allows commercial system owners a 30% tax credit against total system costs. Expiration of the tax credit, he says, would likely reduce solar system demand among commercial customers, which accounted for 41% of 2006 solar installations. He adds that utilities may be slow to embrace solar if a provision allowing them to take the 30% tax credit isn’t passed.

Chin notes that Applied Materials (AMAT) could see decreased demand for solar-related equipment without the tax credit, and that there also could be a negative impact on solar-wafer producer MEMC Electronic Materials (WFR), pointing out that its largest customer, Suntech (STP), is “increasingly exposed” to the U.S. solar market.

Solar stocks are suffering significant losses Monday:

• First Solar (FSLR) is down $22.11, or 10.7%, to $184.74.
• Suntech (STP) is down $5.22, or 8.5%, to $56.33.
• SunPower (SPWR) is down $15.57, or 12.1%, to $113.13.
• MEMC (WFR) is down $3.04, or 4.3%, to $68.12.
• Applied Materials (AMAT) is down 28 cents, or 1.5%, at $18.43.
• JA Solar (JASO) is down $3.84, or 7%, at $50.67.
• Evergreen Solar (ESLR) is down $1.28, or 9.1%, at $12.80.
• Canadian Solar (CSIQ) is down 75 cents, or 6.7%, at $10.37.
• LDK Solar (LDK) is down $2.35, or 5.8%, at $38.07.
• Yingli Green Energy (YGE) is down $4.05, or 12.7%, at $27.80.

Housing Bubble and Real Estate Market Tracker

Here's our summary of articles and data points on the housing market. It's part of Seeking Alpha's coverage of the real estate market and homebuilder stocks. Like all other topics and stock coverage from Seeking Alpha, you can have this sent to your Blackberry or desktop email by signing up for our no-spam free email subscription service.

Quote of the Day- "From the House's Mouth"

"Wall Street strategies that made the cycle of no-money-down, no-questions-asked lending possible have sucked the life out of my city" - Jim Rokakis, County Treasurer for Cleveland's Cuyahoga County, on the foreclosure crisis in Cleveland. (BBC.com, Nov. 5th)

Real Estate Sales and House Prices

• Otteau Valuation Group November Newsletter (NJ Report, Nov. 6th): "New Jersey home purchase activity in September, as measured by signed contracts, declined 23% from August and was 17% below the year-ago level in September 2006... In New Jersey, sub-prime mortgage originations occurred at modest levels relative to the rest of the nation and foreclosure activity is only slightly elevated from last year’s pace, [yet] potential home buyers continue to hold off which is causing further erosion of market dynamics... Unsold Inventory of homes for sale in New Jersey... represents a 13-month supply on the market, up from 7 months in March and 10 months in August."

• Housing Glut Hits Home (Journal Gazette, Nov. 4th) Indiana: "Fort Wayne Area Association of Realtors' Multiple Listing Service: Allen County homes are taking an average of 96 days to sell... [That's] 13 days longer than five years ago... Multiple Listing Service: Inventory hit a high of 3,329 houses in August... nearly 22% higher than in August 2005 when 2,739 Allen County residential properties were up for sale... Three hundred more workers lost their jobs Monday when Kitty Hawk Inc. shut down its Fort Wayne sorting operation, possibly increasing the pressure on the local housing market... RealtyTrac: Indiana had 9,087 properties with foreclosure filings in Q3, 10% higher than Q3'06."

Mortgages and Real Estate Lending

• Radian Declares Regular Quarterly Dividend on Common Stock (CNN News, Nov. 6th): "Radian Group Inc. (RDN) announced today a regular quarterly dividend on its common stock in the amount of $0.02/share, payable on December 18, 2007, to stockholders of record as of November 16, 2007. Radian is a global credit risk management company... Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, public finance, corporations and consumers."

Global Housing Slump?

• Bovis Gives Warning On Profits As Volumes Fall (Times Online, Nov. 6th) UK: "Bovis, the top 10 UK housebuilder, has given warning that faltering consumer confidence [and the credit crunch] has hit sales during the key autumn period... Malcolm Harris, CEO of Bovis: Profits for the full year would now be "slightly below" previous forecasts. Bovis has refused to cut the underlying prices of its properties in an effort to maintain margins but fewer sales this year will translate into a fall in profits. City analysts sliced £10 million off their 2007 pre-tax profit forecasts for Bovis from £139 million to £129M. Profits last year were 13.7% higher at £132M."

Subprime Fallout

• Bonus Pain Is Dish Still Served Bold (Wall St. Journal, Nov. 7th): "Executive-search company Options Group projects Wall St. bonuses will decrease 5%-10% from last year, the first overall drop in five years. Compensation consultant Johnson Associates: Bonuses will be flat, thanks to a relatively strong stock market and big profit gains in H1'07... Companies that have taken significant hits recently, such as Merrill Lynch & Co. and Citigroup Inc., could give smaller bonuses than those by more-successful rivals... Options Group projects an average 15%-20% decline in bonuses for people in bond and currency departments and a 10% rise for those in stocks. Those working in mortgages could see a 30% decline."

• Bonus Pool Springs Leak (Crain's NY Business, Nov. 3rd): "State Comptroller's Office: Bonus checks, which account for the lion's share of bankers', brokers' and traders' annual pay, will be 10% smaller this year. That would mark the first drop since the technology stock meltdown early in the decade... Gustavo Dolfino, president of recruiter WhiteRock Group: In the past four months, close to 12,000 bond bankers and traders have lost their jobs... Most [of the following previously] announced layoffs are believed to be of NYC-based employees: BEAR STEARNS August 240; October 300. J.P. MORGAN CHASE October 2,500. MORGAN STANLEY October 200. CREDIT SUISSE October 170. BANK OF AMERICA October 3,000."

• Avoid the U.S. Until the Subprime Mess Really Hits the Fan (Enzio Von Pfeil in Seeking Alpha, Nov. 6th): "My guess is that Q1'08 will be particularly messy. Once we get the first wounded companies reporting the extent of their damages, Wall Street will go wildly bearish... Lighten-up on your US exposure, except for tech stocks... [as] these are like "consumer staples" - people need tech such as search engines, regardless of what the economy does. We keep advising to avoid banks. Also add to this: mortgage-related finance companies. While we do maintain that America will fall strongly, buy on dips in China, Hong Kong, India and Malaysia."

• ResMae Stops Funding Loans (OC Register, Nov. 6th): "ResMae Mortgage Corp. in Brea, California announced Tuesday: "Effective immediately we are temporarily suspending new loan originations... Our National Operations Center in Brea, CA will continue to support existing loans in the ResMAE pipeline and will continue to fund loans through their commitment expiration dates... Despite the suspension of loan originations, ResMAE will continue to operate its fully staffed loan servicing operation in Brea, CA." ResMae is a subprime lender that was scheduled to emerge from bankruptcy in June, after being acquired by Citadel Investment Group."

• IndyMac’s Q3 Losses Surge (Roy Mehta in Seeking Alpha, Nov. 6th): "Alt-A Mortgage lender IndyMac Bancorp's first loss since 1999 [reached] $202.7 million ($-2.77/share) compared to a gain of $86.2M ($1.19/share) last year. Analysts had been expecting a $0.46/share loss. IndyMac took a $575 million credit-related charge, and halved its quartely dividend to $0.25/share. The company noted it held only $112 million in subprime, second-mortgages and home equity lines of credit as of Sept. 30 -- 0.3% of its total assets. Mortgage loan production fell 30% to $16.82 billion... The wider loss was a result of increasing loan losses and severance costs. IndyMac increased its credit reserves 47% to $1.39B."

• MBIA, Ambac Losses Will Be `Massive,' Egan Jones Says (Bloomberg, Nov. 6th): " Egan-Jones Ratings Co.: Bond insurers including MBIA Inc. (MBI), Ambac Financial Group Inc. (ABK) and ACA Capital Holdings Inc. face "massive losses'' over the next few quarters that could test their ability to raise new capital. MBIA may lose $20.2 billion on guarantees and securities holdings. ACA Capital may [lose] $10B; Ambac may reach $4.3B; mortgage insurers MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN) may see losses of $7.25B and $7.2B, respectively... Fitch Ratings said yesterday it [is] reviewing the capital of Ambac, MBIA, Financial Guaranty Insurance Co. and CIFG Guaranty to ensure they have enough capital to warrant an AAA rating."

• GM Taking $39 Bln Non-Cash Charge In Third Quarter (MarketWatch, Nov. 6th): "General Motors Corp. (GM) said late Tuesday it will record a third-quarter non-cash charge of $39 billion because of accounting standards related to its deferred tax assets in the U.S., Canada and Germany. The company said the money is needed to establish a valuation allowance in part to compensate for unanticipated losses at GMAC Financial Services. GM is scheduled to report its third-quarter results on Wednesday."

• Fitch Cuts Rating Outlook Of Wells Fargo, Wamu, Capital One (MarketWatch, Nov. 6th): "Fitch Ratings said Tuesday it revised rating outlooks for several major banks: Wells Fargo Co. (WFC) and Capital One Financial Corp.'s (COF) [were revised] to stable from positive, and Washington Mutual Inc.'s (WM) [went to] negative from stable. Fitch removed Countrywide Financial Corp. (CFC) from ratings watch and assigned it a negative outlook. Wells' Fitch debt is currently rated AA and Capital One Financial is A-. WaMu's rating is A and Countrywide's is at BBB+. The agency also cut National City Corp.'s (NCC) issuer default rating to A+ from AA- with a negative outlook and revised down KeyCorp (KEY)... to stable versus positive."

• IndyMac Posts Loss, Morgan Stanley Writedown May Loom (Bloomberg, Nov. 6th): "Morgan Stanley, based in New York and the second-biggest U.S. securities firm, may write down $6 billion on the value of mortgages and related securities, Fox-Pitt Kelton analyst David Trone said in a note to clients... Bank of America and Wachovia, both based in Charlotte, North Carolina, may be forced to write down more mortgage-related assets in Q4, Friedman Billings Ramsey Group Inc. analyst Gary Townsend told investors."

• Analyst Sees More Q4 Subprime Write-Downs (Yahoo! Finance, Nov. 5th): "Charles Peabody, partner at research firm Portales Partners LLC expects more write-downs from Citigroup [beyond the] $8B-$11 billion writedowns for subprime mortgages... Peabody also said there may be write-downs at Goldman Sachs Group Inc (GS)... and Lehman Brothers Holdings Inc (LEH): "I really don't believe those two organizations have come clean." Merrill Lynch & Co Inc (MER) was the only big Wall Street firm to post a third-quarter loss after writing down $8.4B on investments linked to subprime mortgages... Goldman, Bear Stearns Cos Inc (BSC), Morgan Stanley (MS.N) and Lehman have collectively written down $3.6 billion so far."

Foreclosure Data

• Cities Battle Default Wave (Sacramento Bee, Nov. 6th): "DataQuick Information Systems: More than 6,500 homeowners have lost houses this year to foreclosure in Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties. Three of every four are in Sacramento County... The nation's cities are taking numerous approaches as the foreclosure problem rolls from East to West. Jacksonville is offering no-interest $5,000 loans to help people with short-term mortgage problems. Chicago and Baltimore advertise a "311" telephone number for people behind on mortgage payments to call. Cleveland's suburban officials are fixing broken windows, mowing lawns and installing alarms in empty houses to keep neighborhoods stable."

• Michael Jackson Neverland Ranch Appears in Foreclosure Report (Mortgage Lender Implode-o-Meter, Nov. 6th): "Michael Jackson's Neverland Ranch has appeared in the November 5th, 2007 Foreclosure Detail Report for Santa Barbara county. While the looming foreclosure of Neverland Ranch has received some coverage, this would appear to be hard confirmation of the event... and indication that it is still underway."

• Foreclosure Wave Sweeps America (BBC News, Nov. 5th): "One in ten homes in Cleveland, Ohio is now vacant, and whole neighbourhoods have been blighted by foreclosed, vandalized and boarded-up homes... Many of these homes are now owned by the banks and investment pools owning the mortgages, and the company making the most foreclosures in Cleveland is Deutsche Bank Trust, acting on behalf of those pools... Claudia Coulton, co-director of the Centre for Urban Poverty at Case Western Reserve University in Cleveland: Over 10,000 families - one in eight of all owner occupiers in Cleveland - will face eviction this year - and the number is expected to rise."

Macro Impact, And Will The Housing Slump Cause A Recession?

• Schwarzenegger Orders State Agencies To Prepare For 10 Percent Cut As Budget Slides (My Desert.com, Nov. 6th) California: "Gov. Arnold Schwarzenegger has ordered state agencies to prepare a plan to cut 10% from their budgets as preliminary reports indicate that the subprime housing crunch will hit the California state budget harder than expected. The order, issued Monday, could affect agencies from education to healthcare to transportation. Reports indicate that the tax revenue fallout from the slump in the California housing market could push the governor's balanced budget into a $10 billion deficit."

• Why the Fed Continues To Cut Rates (Tim Iacono in Seeking Alpha, Nov. 6th): "The government's inflation statistics do not track home prices directly. Instead, they use an estimate of what homes would rent for... What would the consumer price index look like if real home prices were used instead of owners' equivalent rent? The last couple months of plunging home prices would take the annual rate of inflation to zero (actually, it's still positive at 0.01%)... a big reason why we are in the mess we are in today is that inflation, with real home prices included, was much, much higher than inflation with OER back in 2003, 2004, and 2005 when interest rates and lending standards were at multi-generational lows."

• Furniture Sales In Flux (Press Democrat, Nov. 4th) California: "The housing downturn and subprime mortgage meltdown are [hurting] many Sonoma County furniture retailers already reeling from competition from cheaper imports... Fewer home sales [and] sliding home values make it more difficult for consumers to tap evaporating equity. The slump that last year sank R.S. Basso in Sebastopol, and Colburn's Wood Furniture and Greenwood Home Furnishings in Santa Rosa has deepened... In addition to Bare Woods and Santa Rosa Bedding & Furniture, stores that have closed or are planning to close include Furniture 101, Black Sea Gallery and Red Tag Furniture in Santa Rosa, Furniture Solutions in Rohnert Park and Couches, Etc. in Petaluma."

Homebuilders, Housing Stocks and Housing-Related Stocks

• Questions Swirl on Levitt Unit (Wall St. Journal, Nov. 7th): "Shareholders: Levitt Corp. (LEV) could be on the verge of unloading its home-building unit, Levitt & Sons... Levitt would be getting rid of a troubled unit amid a crisis for home builders, [and] it would be [liable] for little of the subsidiary's debt... Parent company Levitt would be free to focus on its other ventures, such as its land-development unit, Core Communities LLC, and Bluegreen Corp., a developer of vacation resorts in which it has a 31% stake... Eric Landry, Morningstar analyst, [cited] roughly $400 million of $654M in debt the parent company could eliminate or restructure through a bankruptcy."

• Ryland: Charlotte 'Reasonably OK' Right Now (CNN Money, Nov. 6th) North Carolina: "[Since] Charlotte is doing "reasonably OK" in this crumbling housing market - it is excluded from Ryland Group Inc.'s (RYL) " Savings Spectacular" deal this weekend... Ryland is offering savings as high as 25% from Friday through Sunday. Sale markets include Las Vegas, Phoenix, Baltimore, Northern and Southern California, Denver, and Chicago. In Las Vegas, the three-bedroom " Shasta" model is now $368,823, down from $533,823, Ryland said. Ryland is the latest to try a fire sale. Hovnanian Enterprises Inc. (HOV), Standard Pacific Corp. (SPF) and Pulte Homes Inc. (PHM) have all said their similar deals were successful."

• Shareholder Group Calls for Beazer Chief's Ouster (Builder Online, Nov. 6th): "Citing a lack of leadership, federal investigations, and a downward spiral of stock value, the CtW Investment Group [a major Beazer shareholder] wants... the immediate removal of CEO Ian J. McCarthy... CtW: "Mr. McCarthy was paid over $57 million in total compensation over the past five years, including $22M in 2006 alone... among the very highest for similarly sized firms. On top of that, Mr. McCarthy executed his largest ever sale of company stock - 179.535 shares at $43.07 each, totaling $7.7M- last November, less than two months before the stock began its steady collapse to its current $9.52/share."

• A Home Builder That Saves Your Hand From Scalding (Mercury News, Square Feet Blog, Nov. 6th): "At least one builder is targeting consumers at a crucial source -- our point of caffeine acquisition. I ordered tea at Mission City Coffee Roasting Co. in Santa Clara this morning and the little jacket around the paper cup featured a full-color ad for 51, a condo and loft development from Centex Homes (CTX) near downtown San Jose. The web site for the housing development has no pricing information on it that I could find, which is a bit annoying, seeing as the anti-hand-burning jacket actually lured me to the web site. Maybe the prices are changing too fast?"

• Screaming Values Are Out There (Motley Fool, Nov. 6th): "MGIC Investment (MTG) is expecting negative earnings in 2007 and 2008. Mortgage losses and loss reserves are already three times the five-year average level, and I expect them to go higher during 2008. Oddly enough, the tightening credit crunch actually plays to the company's advantage, since many avoided mortgage insurance (insurance is generally needed when the loan-to-home-value ratio is greater than 80%) by using piggyback (second) mortgages. Second mortgages are the first to go as house prices fall and borrowers default. [Now] lenders will insist on mortgage insurance instead of encouraging piggyback mortgages... MGIC is selling at around half its intrinsic value."

• HouseValues Reports $900,000 Net Loss In Q3 (Inman News, Nov. 6th): "SEC filing: Online real estate marketing and lead-generation company HouseValues Inc. (SOLD) this week announced a $900,000 net loss for Q3'07, vs. a $500,000 net loss for Q3'06... HouseValues closed its Washington facility and laid off 100 workers, about 30% of its workforce... to reduce operating expenses...HouseValues [also] acquired Realty Generator LLC, a technology company that offers lead-generation services to real estate brokerage companies, and a related company, Blackwater Realty LLC, on Nov. 1... HouseValues: "Agents reduced their investments in marketing as transaction volumes continued to slow in many major markets." The company acquired 250,000 shares of its common stock during Q3'06."

Commercial Real Estate and Real Estate Investment Trusts (REITs)

• Financial Ground Has Shifted Under a Record Deal (NY Times, Nov. 7th): "Robert M. White Jr., president, Real Capital Analytics: Kushner Companies $1.8 billion purchase of 666 Fifth Avenue in January commanded the highest price ever paid for a single building... [but] the financing raised eyebrows: A Barclays-led group of lenders... provided an interest-only first mortgage of $1.215B based on an annual cash flow of $114 million, or 1.5 times the debt service, according to SEC documents. But... the cash flow from existing rents would actually cover only 0.65% of the debt service. Robert White: The building’s shortfall amounts to $5M a month. A $100M reserve fund was included in the debt package to cover the shortfall."

• Times Square Comfort Inn Sells for $31M (The Real Deal, Nov. 6th): "The Times Square Comfort Inn has sold to Gemini Real Estate Advisors for $31.7 million. The 78-room hotel at 42 West 35th Street, between Fifth and Sixth avenues, is near the new New York Times building. Hotels are booming in Times Square."

• Special Report: Real Estate's Biggest Deals (Daily Business Review, Nov. 5th): "Commercial real estate lenders in South Florida... are demanding more cash at closings and expecting healthy cash flow on commercial properties, leaving it to deep-pocket pension funds, hedge funds and institutional investors to seal most of the big deals... Gone are the days when investors would use bridge loans and interest-only 10-year loans for their office, warehouse and shopping center purchases with little money down... Lenders now want 25%-35% equity to finance a deal, brokers say... University of California economist Kenneth Rosen: REITs are expected to plummet about 20% in the next year... [they] are overvalued by 25%-40% relative to stocks and bonds."

Two Reasons To Buy Sallie Mae Before Everybody Else Does

Two reasons to buy Sallie Mae ((SLM) $42.86):

First, the odds on your money are pretty good here in the low forties $42.86; Stop loss at 40.50, and upside as much as 15% to 20% through next July. You may get it a dollar or two cheaper, but don’t wait since the short covering rally in financials has begun in earnest, and all boats will be lifted once Citigroup ((C): $35.00) makes a definitive bottom this week (see my post on short covering in financials from Tuesday).

Second, the chance that a bid for the company will be resuscitated would make purchasing this stock worthwhile, even if the deal was priced well below the original offer.

Sallie Mae, a favorite short of mine (2003 through 2005) seems like a low risk call option, with downside protection in the way of a multi-year low, and plenty of support provided by the two factors mentioned above. Of course, you could always pair this long with a short on First Marblehead ((FMD): $34.99), which offers little upside (lot of stock overhang up here), and, from my perch, a stock worth something in the ballpark of mid to low 20's.

Current Dollar Decline Longer, More Severe Than Historical Declines

With the US Dollar index falling even lower today, below we highlight the historical bull and bear markets of the currency.

As shown, market cycles for the currency are longer than some of the other asset classes that we have looked at. The average bull market for the US Dollar is 1,710 days long for an average gain of 48.90%. The average bear market is 1,610 days for an average decline of 31.84%.

Based on these averages, the current bear market is both longer in duration and more extreme in its decline. Since the current bear market in the US Dollar started in July 2001, currency has declined 37.69%.

click to enlarge

Below we highlight a historical price chart of the US Dollar index. As shown, we're currently at record lows. However, the currency isn't nearly as oversold as it has been in the past based on its distance from its 50-day moving average. Currently, the US Dollar is 2.25% below the bottom of it trading range.

As highlighted in the second chart below, the Dollar has reached oversold levels of 3% to 4% quite frequently.

Comparing Bubbles: China vs. Nasdaq and Homebuilders

On Monday we compared the rises and crashes of the Nasdaq and the Homebuilders during their respective bubbles. A Bespoke reader asked if we could overlay the current rise in China's Shanghai Composite on the chart to see where its bull run currently stands in comparison.

The Nasdaq and Homebuilders rallied for around 2,000 calendar days, while the Shanghai has currently only been in rally mode for 560 days. However, the gains in China of 488% are fast approaching the max gains that the Nasdaq saw of 639% at its peak.

The most interesting data points here are the starting dates of the bubbles. The Homebuilders began their enormous rise on March 14, 2000, just four days after the Nasdaq peaked. Interestingly, the Shanghai started its meteoric rise on July 11, 2005 -- just nine days before the Homebuilders peaked. Investors have seemingly flocked from one bubble to the next.