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Tuesday, 18 March 2008

The principle behind technical analyst David Bensimon's accurate forecasts
lies in the symmetries in markets, reports GENEVIEVE CUA

MAKING forecasts is a tricky business, as many analysts and fund managers will tell you,
but it does not faze technical analyst David Bensimon.
Some of his calls on the markets have been so precise that on one of his
speaking engagements, it spurred an impromptu bidding war among some in the audience for
an on-the-spot copy of his award winning tome on markets, Polar Perspectives.

Mr Bensimon: Asia is in for a prosperity-driven inflationary era

One of the bidders paid for his copy with a gold coin. Worth about US$700
then in November, it was about equal to the price of the book. But the coin
has since appreciated, as Mr Bensimon notes with amusement.

The book last year won a gold medal as the 'best book in finance/
investment/economics' at New York's annual independent publishers awards.


Mr Bensimon's fundamental view is that most of the world - Asia in
particular - is in for a 'prosperity-driven inflationary era' over the next
few years, notwithstanding the jitters over the credit crisis. His
long-term view, for instance, is that the Straits Times Index (STI) will
hit 9,000 and the Hang Seng Index 100,000 by 2012; and gold will climb to
US$2,600 an ounce by 2014.

He has set up a fund to invest according to the themes of his book. One of
his first investors is Stephen Riady of the Lippo Group.


His forecasts may sound quite incredible, until you learn of his near-term
calls on markets which have turned out uncannily right. Last October, for
instance, he told an audience in Singapore that the STI would fall 15 per
cent from its level of 3,900 then to 3,300 shortly. The index fell from
3,906 to 3,306 within six weeks of his call. In The Business Times in
August, Executive Money quoted him as saying that the STI would fall to
2,800; the index was then at 3,300. It fell to a low of 2,866 in January.


The principle behind Mr Bensimon's calls lies in the proportionalities and
symmetries in markets, which he sees as functions of 'phi', also called the
'golden mean'. This is expressed in the number 1.618 and its inverse 0.618.
As he sees it, these symmetries permeate markets, and this is evident in
the scale of market rises and even in the pattern of retracements across
time. His calls have gained a following among banks, traders, hedge funds
and private individuals.


The outcome of a forecast, he says, is not cast in stone but is based on
probabilities. 'The power comes not from saying that markets will do this
or that. It comes from recognising that different alternatives can unfold,'
he says. 'The benefit is not to say the market might go up or down, that's
not of value to anyone. The value comes from being able to say that if the
market chooses this northward path, it will go this far and no more. If it
takes the southward path, it will go this far to a target.


'My speciality is to provide clients with a magnitude of duration and time,
of price and specific levels and dates . . . March does provide a broad
turning point that crosses different markets, not just the STI or equities
but across a spectrum.'


He believes the STI, currently trading at the 3,077 level, could still face
yet another downdraft. It needs to exceed 3,300, he says, to confirm that
it is out of the woods. Until then, there is a 'distinct risk' that it
could fall another 15 per cent to 2550, which will be a buying opportunity.
'In Singapore if we break the 2,850 level, the next level down is 2,550
which seems a little far and rather cheap. But these motions are driven by
panic and over-extension on the downside. But I'd be happy to invest
anywhere from 2,800 to 2,600 because at those levels, it's really very
cheap.'

He said: 'One of the benefits of looking at the very big picture history is
that it provides a degree of comfort and confidence that when we are in a
corrective mode, instead of being worried and panicking, we can be
comfortable that we know what the rhythm is and can recognise the
relationships. We know we'll get to the ultimate target of 8,800 or higher
several years from now, and there are natural levels to re-enter the
market.'


His view is that Asian markets - Australia, Shanghai, Singapore and in
particular, Hong Kong - will move in synch upwards. 'Asia will benefit from
the huge fundamental growth and prosperity sweeping across
the region, that is not in any way harmed by the slowdown in the US.
Asia now has enough internal demand and intra-Asian trade
and infrastructure and consumer spending that it has a life of its own.'


He notes that historically, in past US recessions, the stock market has
anticipated a recovery and rises well before the recession ends. 'There is
no impediment to have markets bottom in March, and have them recover
sharply even if a recession technically continues in the next few months.'


His views on oil and gold are positive but not equally so. He expects oil
to reach US$125 a barrel this year and to move sideways for two years.
'We're still en route to US$125, but the big story is that once we reach
US$125, everyone will scream that we're on the way to US$200
and that's not what's going to happen. '


The catch, too, is that consumer prices will not be adjusted downwards
during the consolidation period. 'The margins for products will be fabulous
and will power the stock market to much higher levels because the reduction of the oil price
will translate directly into the bottom line for
corporates in the industrial and financial sectors, telecom and blue chips.
They'll all be lifted by prosperity.'


He is bullish on gold in the long term but expects some consolidation this
year before it moves to US$1,030 an ounce in 2009, and eventually US$1,220 in 2010.
But the most rapid rise is expected between 2011 and 2014 when he expects the price to hit US$2,600.

1 comment:

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