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Archive through May 14, 2010

Chart Forum » Hilarius' Hall Of Fame » Our Daily Bread » Archive through May 14, 2010

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rdumas
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Username: rdumas

Post Number: 3407
Registered: 11-2006

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Wednesday, May 12, 2010 - 10:19 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi MM,

Yes I tend to agree that the XJO if it heads down will probably have an each way bet by settling within the confines of the expanding channel until it gets its lead from the US market futures later today.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Username: ody

Post Number: 4967
Registered: 10-2006

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Wednesday, May 12, 2010 - 10:52 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Back to the scene

I wish to apologise to those who were or may have been surprised by my absence as a poster. I had intended to produce a note here to the effect that I would not be able to post for a number of days, but time stole up on me, and when I tried to write something on someone else's computer subsequently I got into difficulties.

Briefly - and I am now catching up with other things left undone! - my view is much the same as it was before I stopped posting. Already well before Kevin Rudd madly decided (he is the person centrally responsible, after all) to introduce his resources tax, I had repeatedly given my reasons why I felt sure share markets would decline from their high plateau, or, if they decided to press on, would be heading for a big fall. I believe they have decided not to press on, and that, even if with volatility in both directions, the markets are in essence back to a bearish mode, or will at best go sideways. Anything like a sharp and sustained recovery is now extremely unlikely - and the Australian market would have particularly difficulty in contending with the resources tax and its through-flow if if tried to keep going up.

For that component has introduced a very serious new negative element into our market. I am afraid that I find the talk about this not harming our resources companies and our economy utterly at odds with the facts as they have already been playing out, and with anything that common sense would suggest. You simply cannot introduce a tax like this without significant harm - not only to the companies and their workers, but also to the nation at large. Projects have already been shelved, mothballed, or quitted; action has gone overseas that should have occurred here; and with this albatross round our necks we shall not easily compete. Much foreign money has been withdrawn already, and more will follow.

As Rudd is so absolutely unrestrained in his socialist/communist urges and his reckless spending, while at the same time he wants to keep "ordinary Australians" happy, it is not surprising if he turns out to be one of these old-fashioned socialists who think that you can take money out of a capitalist economy without hurting the workers. He is completely wrong in this thinking. Yet he may well go further, and there seems to be a good chance that he will turn to the banks next.

By the way: on the one hand all this will help rivals in other countries with resources industries, but, of course, if the prices of commodities which e.g. BHP sells go down with BHP, then such commodities also go down in price elsewhere, affecting other commodities stocks. One or two posters here do not seem to grasp that this is a logical national and international flow-on effect. But for the most part I have been heartened by posts here (such as Bridog's recent ones) that did diagnose the harm that our government is causing.

And let us not console ourselves with the trillion and more that European governments have declared to be at the ready to "help out" Greece and other lazy, incompetent nations. This high sum represents a colossal potential loss, and it would not have been thought of unless the situation in the weaker European nations were not truly dismal. As always markets reacted optimistically to this potential "rescue", but they should interpret it instead as a very serious danger signal.

Obviously, I continue to see share markets as very risky places to be under these circumstances. Fundamentally, I see no evidence of any important improvement in economies, and even positive figures should be seen as often the result of stimulus measures, and hence unreliable over time. I think that, in essence, the bad things we had reason to fear are continuing to come out of the woodwork, and one's emphasis should be on preservation of capital, not on exposing it to risk.







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ody
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Post Number: 4968
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Wednesday, May 12, 2010 - 11:03 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Some supporting evidence for the belief that markets will be weak, if not necessarily falling badly:
-------------------
Beyond The Relief Rally
FNArena News - May 12 2010

This story was first published two days ago in the form of an email sent to paying members.

"The share market consists of one group of people who fail to learn from history and another group of people who simply don't how how to read or interpret history." (*)

By Rudi Filapek-Vandyck, Editor FNArena



It was always a near 100% guarantee that share markets across the globe and commodities would rally strongly once the selling pressure would abate. The problems in Greece haven't lasted long enough to damage market expectations for 2011, and thus many stocks look excellent value on FY11 projections.

To illustrate this from an Australian context: global resources giants BHP Billiton (BHP) and Rio Tinto ((RIO)) were all of a sudden trading on FY11 multiples of 8, while Australian bank shares (Big Four) had fallen to up to 20% below their average price target.

Add a continuous undercurrent of solid looking economic data in the US and most places elsewhere and it is difficult to see how investors would be able to resist the lure of truly cheap looking high quality share prices. Once the obvious valuation gaps have been filled however, the same headwinds that were forming before mid-April will still exist.

Over the past two weeks I have been highlighting that earnings expectations for the main Australian-listed companies have started to go backwards. April marks the reversal and May has, thus far, simply brought us continuation. Though it must be noted Iress ((IRE)) and Telecom New Zealand ((TEL)) were noticeable exceptions on Monday.

Economic data in Australia have been rather soft lately, and the RBA remains in tightening mode, albeit with an anticipated pause first. China too is expected to start generating signals soon that government policies are having an impact. In other words: Chinese data should be close or even past their peak for this year.

None of this suggests risk assets cannot deliver positive returns over the quarters ahead, even though most share markets have now fallen back in negative territory for this year.

However, the fact that equities have struggled to accumulate positive returns after more than four months, and with economic growth poised to start slowing down from here on, it is hard to see where those fierce rallies should come from that some market bulls are predicting - other than after a pullback like we've experienced in January and now again in April.

All of the above is symbolised by the US ISM Manufacturing report for April. For the first time since 2004, the index has now surged above 60. This is a truly remarkable feat, not just because of the speed of the recovery following one of the most remarkable crises in history, but because an ISM reading above 60 is a rare event in itself.

In the past two decades, only the years 2003 and 2004 have generated readings above 60. The reason why such strong readings are rare has probably to do with the fact that the index starts from scratch each month and thus very strong momentum is required against the previous month (and not against twelve months earlier which can be much easier following a deep crisis).

Above all, however, an ISM reading above 60 signals a peak in growth momentum is now likely upon us. The future should now bring a slowdown, though we don't know as yet as to how slow this slowdown will turn out to be. In the aforementioned 2003-2004 period, the index remained above 60 from November 2003 through June 2004 (with one reading of 59.9 for February in between). This is not the only time in history this has occurred.

Ultimately, however, momentum wanes and share markets tend to respond accordingly. This is especially the case since share markets try to lead both the build up in momentum as well as the slow down.

I have written in the past about how market strategists use the US ISM as a contrarian indicator. For those subscribers who have missed my previous update, there is a reference at the bottom of today's story.

It is probably a good idea to point out that a peak in the US ISM does not necessarily imply that the future can only hold negative returns on equities and commodities from here on. History shows investment returns tend to be far more modest after the US ISM peaks above 60, but modest retuns can still be positive returns.

Recently, market strategists at BTIG conducted their own research into the matter, and on their calculations:

1.) The average performance of US equities after 12 months following the first ISM cross above 60 is 4.28%; over the two years following the event it is 11.92%

2.) Post-1970 returns are notably weaker than pre-1970 returns

3.) US equities tend to rally strongly in the year leading up to the ISM cross above 60

Note: the third conclusion suggests share markets tend to price in some of the upside prior to momentum reaching a peak, after which a period of consolidation becomes inevitable, while headwinds build on slowing momentum.

Sounds a lot like 2010, doesn't it?

Here are the previous five references (all calculations done by BTIG), note that 1987 is oft regarded non-representative by many an economist:

- date ISM first crossed above 60: 31/12/2003 - return year prior: 26.38% - return year after: 8.99% - return two years after: 12.26%

- date: 30/09/1987 - return year prior: -23.23% - return year after: -15.51% - return two years after: 8.49%

- date: 29/07/1983 - return year prior: 51.80% - return year after: -7.32% - return two years after: 17.45%

- date: 31/05/1978 - return year prior: 1.22% - return year after: 1.84% - return two years after: 14.34%

- date: 30/01/1976 - return year prior: 31.02% - return year after: 1.16% - return two years after: -11.51%

Note that BTIG sees strong similarities between our current experience (US equities rallied 37% prior) and what happened back in 1983 and 1976. In both cases the strong rally prior to the peak above 60 for the US ISM was followed by either a negative result (1983) or a barely positive result (1976).

Note also that economists at JP Morgan compile a global ISM index these days. Their most recent update for April showed a modest fall from March, suggesting that even if we concentrate on the world instead of the US, the principle might still be the same.

Subscribers can access my previous story on the US ISM Index, published in March this year, titled "Why A Global Peak Could Be Near" on the FNArena website under Rudi's Views.

Subscribers may also want to read: "History Suggests No Great Return For Year Zero", December 2009.

Note all consensus forecasts and Price-Earnings ratios are instantly updated on the FNArena website and 24/24 available to subscribers.

(*) The quote on top of today's story is mine. Harsh? Maybe, but true nevertheless.

This story was originally written on Monday, May 11, 2010. It was first published in the form of an email sent to paying subscribers on the day.


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market_mad
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Post Number: 332
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Wednesday, May 12, 2010 - 11:25 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

Great to have you back on board!!

Twaz wondering if you had been abducted by aliens or if Bernanke or Merkel had called you into office to give them some advice!

Good to see you back

Cheers
MM


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rdumas
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Post Number: 3408
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Wednesday, May 12, 2010 - 11:41 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



ETF GOLD Doubt

I just got word from musketeer Andrew that suggested that we may have completed subwave 5 of wave 3 this morning when it peaked at $134.36. What has confirmed this view is his short term cycle analysis which indicates that a short term cycle completed this morning.

For that reason thinking that discretion is the better part of valour I took profits a few minutes ago as the likely retrace will be down to around $128 between now and late May. At that time I will re-enter. Sorry for what may have been a false lead.

The 1 hour POG chart chart below shows that the index hit the top of the channel and will more than likely retrace.





I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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market_mad
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Wednesday, May 12, 2010 - 01:01 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Banks reversing after this news;

SYDNEY (Dow Jones)--Australia's banks are facing legal action from customers for
the repayment of penalty and late fees deducted from their accounts over the last six
years, IMF Australia Ltd. (IMF.AU), which will bankroll the action, said Wednesday.
IMF said the claims will relate to honour fees and dishonour fees on bank accounts over
limit and late payment fees on credit card accounts.
It said the Reserve Bank of Australia says that banks in Australia charged exception
fees of almost A$1.2 billion in the 2008 financial year. No figures are available for
prior years, it said.
Earlier Wednesday, The Sydney Morning Herald reported that customers will try to recoup
at least A$400 million from banks for allegedly being overcharged for some A$5 billion in
exception fees over the past six years.
The newspaper said IMF will pay for more than 10 separate class actions against the
banks, including Commonwealth Bank of Australia (CBA.AU), Westpac Banking Corp. (WBC.AU),
Australia & New Zealand Banking Group Ltd. (ANZ.AU) and National Australia Bank Ltd.
(NAB.AU), in what it said could be Australia's biggest ever corporate class action.
Another seven banks are expected to be targeted, including Bank of Queensland Ltd.
(BOQ.AU), Bendigo and Adelaide Bank Ltd. (BEN.AU) and Suncorp-Metway Ltd. (SUN.AU), the
newspaper said.
It said IMF will test the legal basis of the banks taking exception fees, which the
report said are at many multiples of their actual cost.


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rdumas
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Post Number: 3409
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Wednesday, May 12, 2010 - 01:43 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



XJO Price Action

Things should start getting interesting soon.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Post Number: 4969
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Wednesday, May 12, 2010 - 03:08 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Don't allow yourself to be kidded

Rudy's excellent chart shows just how difficult it will be for the Australian market to rise against the odds.

In terms of actual economic facts, too, there is hardly any incentive for share markets to rise. I am not suggesting that "The Daily Reckoning" is always right, and I am aware also that it has a commercial agenda of its own. But that is not a big one, and it is more often right than wrong. Its economic insight is not only vastly superior to that of Rudd, Swann, and Henry, but also less inspired by political or financial bias.

At all events: judge the following extract for yourself. And weight what you read here against what you know about such things as the resources tax, Rudd's generally ignorant and reckless, imprudent management, and reactions of share markets to certain events. It will be difficult to keep up the Labor faith and rage if a sober appraisal is made:
---------------------
From Dan Denning in St. Kilda:

--There is something really distasteful and perverse about the amount of attention the Australian press dedicates to analysing the government's annual budget. It's obscene in some undefined way, and offensive at some visceral level we can't quite define.

--Maybe it's the implication that state tax and spending policies have such a huge sway in our everyday lives that we have to pay attention to them whether we like or not. Maybe it's how seriously the politicians take themselves while exhibiting a comprehensive level of stupidity about markets.

--Either way, the whole thing makes us want to gag. Literally, the gorge is rising in our throat just thinking about having to analyse it. So we won't. You can read that everywhere else anyway. But we will confine ourselves to two things you should know about yesterday's fiction announced in Canberra.

--First is that it projects a return to surplus in 2012 and 2013 - three years earlier than last year's budget - based on a tax it hasn't passed and assumptions about wage and employment growth that haven't happened and probably won't, if we're right about what's going on in China.. And lest we forget with yesterday's fiscal triumphalism, the so-called improvement in next year's figure is STILL at $40.8 billion deficit. That's a fail.

--The current Prime Minister, Kevin Rudd, took the airwaves to explain why the deficit was necessary in the first place. "Remember," he intoned, "the job of government when the private economy is under stress is to expand the role of government so that we keep people in jobs."

--Gag. With policy makers like this, who needs morons? It's odd that so many people still celebrate a return to deficits and wasteful government spending as a policy triumph during the GFC. You could only really say this if it wasn't your money that was being wasted.

--Keeping people in jobs might help you win elections. But the government ultimately reduces the productivity of the economy and the growth of the work force when it consumes a larger share of private capital. The Prime Minister's position is textbook sanctimonious Keynesianism, so we wouldn't expect anything less from someone who believes in government more than he believes in markets.

--At least he's consistent. But it does show, in our opinion, how little he understands about wealth creation and how little he respects wealth creators. To be fair, he IS proving to be a first class wealth-confiscator/redistributor.

--But the real blind-side in the budget forecasts and the second big point is what Wayne Swan calls the "commodity boom II". That's the projected scenario where GDP grows faster than expected over the next three years and terms of trade drive return to 60-year highs and produce huge growth in national income and where the resource rent tax captures a "fair share" of rising resource prices for the government to parcel out like a haughty but benevolent Auntie on Christmas Day.

--Good luck with that. Obviously our position on the durability of the China-driven resource boom is now a matter of public record. If you haven't seen the "Exit the Dragon" report yet, you can read it here. But yesterday's budget simply highlighted how much the Australian political establishment is counting on China to deliver good times and delay tough decisions about domestic spending and the realistic services Australians can expect from their government in the coming years.

--As an investor and a free person, you don't have the luxury of counting on China to solve all your personal retirement problems. So we'd suggest taking a closer look at them now and deciding if you can afford to base your retirement plans on forecasts that assume there is no credit bubble in China. If there IS a credit bubble in China, then the government's forecasts and its projects are exactly what you'd expect: rubbish.

--So is there a credit bubble in China?

--"China's Bubble Risk Adds Tightening Pressure Amid Debt Crisis," reports Bloomberg . China's accelerating inflation and surging house prices are adding pressure on policy makers to raise interest rates and allow yuan gains even as their concerns over Europe's debt woes persist.

Property prices rose at a record pace in April, consumer prices climbed at the fastest rate in 18 months and new lending exceeded the forecasts of all 24 economists surveyed, figures showed yesterday."

--If you believe - all things being equal - that stock markets lead the economy, please note that the Shanghai Composite index is down 21% from its highs last November. It was down 1.9% yesterday. So is the stock market telling that China's policy makers are going to tighten credit to pop the speculative bubble in real estate?
---------------------------------------------------

Me (Ody): that is certainly possible, and moreover is something that ought to happen. And I agree with the general argumentation of the article. I think this is a very dangerous period for shares. Not least, I think the Rudd government is exceptionally incompetent and imprudent, as well as totally "up the creek" in its assessment of matters economic.


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jaded
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Wednesday, May 12, 2010 - 03:53 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Isn't the Daily Reckoning an anarco/libetarian 'Front'?
Above seems a bit Ann Rand-ish.
Certainly the DR and our Dan Denning are following American Anarco "Philosophy",which is amusing seeing as being an Anarchist and ticking that box on a US visa application is grounds for denial of entry.[French/English even Brisbane! Anarcho is 'better']

Did you know the Yanks banned the Salvation Army on this basis in the early 20th Century?

Ody it's very biased,quite 'clever' but does the Daily Reckon ever suggest Positive Action or does it just 'snipe'?


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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rdumas
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Wednesday, May 12, 2010 - 04:07 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

I seem to be missing the post that you appear to be responding to in your post 4969. I have to agree however with the sentiments expressed in the article that you provided in your post as it (the Rudd/Swan resources 'rob the wealth creators tax) also created a similar gagging feeling in my throat as well.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Wednesday, May 12, 2010 - 04:22 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Rudy: post 4969 is not actually a response. The beginning, the "intro" (one might say!), is mine, and I then quote a substantial portion from a piece in today's circular of The Daily Reckoning. That piece is in part a response to yesterday's budget. Hope I haven't confused the issue further. While I have got your ear ... many thanks for all your comments on ETF GOLD!

Jaded: I have difficulty following you on this occasion. I think you may be a bit confused as to what The Daily Reckoning may be a "front" for. I would in any case judge any statement on its own merits, not by its real or supposed origin. There are times when Kevin Rudd speaks sense, for example, and much though I detest him by now I would not reject all the says. Anyway, the following material from Wikipedia may be of some use to us about The Daily Reckoning. Maybe other posters knows more. But I quote:
------------------------
Bill Bonner is an author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing,[1] and the principal author of a daily financial column known as The Daily Reckoning. Bonner is also a contributor to the news and opinion blog Lew Rockwell.com[2] and has written articles for Money Week magazine.[3]

Bonner co-authored Financial Reckoning Day: Surviving The Soft Depression of The 21st Century and Empire of Debt with Addison Wiggin. He also co-authored Mobs, Messiahs and Markets with Lila Rajiva which won the Get Abstract International Book Award for 2008[4]. He has previously co-authored two short pamphlets - with British media historian, John Campbell and with Financial Times editor, Lord William Rees-Mogg, and has co-edited a book of essays with intellectual historian, Pierre Lemieux.

In his two financial books and in The Daily Reckoning, Bonner argues that the financial future of the United States is in peril because of various economic and demographic trends, not the least of which is America's large trade deficit. He claims that America's foreign policy exploits are tantamount to the establishment of an empire, and the price of maintaining such an empire could accelerate America's eventual decline. Bonner argues in his latest book that mob and mass delusions are part of the human condition.

Bonner attended the University of New Mexico and Georgetown Law School and began work with Jim Davidson, at the National Tax-payer's Union. Bonner has received awards for renovating historic buildings along with his project manager Jean Hankey.
-----------------------------------------
Frankly, Jaded, I cannot quite reconcile this with what you appear to be associating with The Daily Reckoning. But perhaps I mistake?


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rdumas
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Wednesday, May 12, 2010 - 04:33 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

Thanks for explaining that. I managed to get out of ETF GOLD way below the peak today but I am more than happy with the wonderful profits that the stock has given me of late. It is very difficult to pick the exact top and I certainly didn't do it this time but made a nice profit on the recent trade and heaps on the preceding trade.

Whist the price action looks like it is going to keep going Andrew's cycle analysis indicates that we should get a short term retracement in the very near future (possibly starting tomorrow). The retracement should not last long as we expect it to bottom out between the 20th and 26th May before it enters the next significant leg which should take the price up to the target levels I mentioned this morning ($140~$145).


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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jaded
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Wednesday, May 12, 2010 - 07:04 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



well Ody,maybe you should wikipedia Libertarian Politics? or some such.
The following quotes 'scream' New York Anarcho "Plot"-

ody wrote on Wednesday, May 12, 2010 - 04:22 pm:

co-authored Mobs, Messiahs and Markets with Lila Rajiva which won the Get Abstract International Book Award for 2008




ody wrote on Wednesday, May 12, 2010 - 04:22 pm:

authored two short pamphlets - with British media historian, John Campbell and with Financial Times editor, Lord William Rees-Mogg, and has co-edited a book of essays with intellectual historian, Pierre Lemieux.




ody wrote on Wednesday, May 12, 2010 - 04:22 pm:

He claims that America's foreign policy exploits are tantamount to the establishment of an empire, and the price of maintaining such an empire could accelerate America's eventual decline. Bonner argues in his latest book that mob and mass delusions are part of the human condition.



jaded wrote on Wednesday, May 12, 2010 - 03:53 pm:

Bonner has received awards for renovating historic buildings along with his project manager Jean Hankey.




You missed out,Ody on the 'hey day' of Uni Newspapers 1967/73?

We are also talking about the Australian Version as espoused by Dan Denning.
"Latched Onto" the Yank one quoted by you,Ody.

Years ago I identified Dan Denning as a Libertarian.I have no problem with that,I'm one too.However he's from 'down South' and of d'Yank School that brought us Yippies.
Heard of them? Abbie Hoffman and the Yippies?

well they 'morphed' into the pie throwers,popular in Holland a decade or so ago.
I'm a Direct Action Subversive.Clowns/Pie Throwing ain't my 'bag'.

From memory the Australian Daily Reckoning went in for-
We can't give you the name of this wonder share BUT if you 'research' X and Y 'n' Z you'll find what we're talking about after ya send $500 for a Subscription etc etc blah

Ody not much above a Nigerian Email!!

So yes Libertarian Commentary is as useful,even more so,than general Media 'analysis' but I ask again,Ody-
Do they offer subscribers a Solution?
or just contribute to d'FEAR!!?>!!

Ody,heard of Mike Moore Documentaries?
Daily Reckoning is on par.

at least that's what I reckoned a few years ago on their "Act".
May have 'morphed' since?

Ody,some,I for one,may be a bit more 'tuned in' to this 'stuff' than you.

regards.


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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ody
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Wednesday, May 12, 2010 - 07:30 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi again Jaded,

Thanks for your attempt at elucidation.

However, I still don't feel particularly enlightened by what you tell me, not least because the term "libertarian" is used in completely different ways by different people, and also applied to entirely different people, both of the left and of the right. Not a very useful term, in my view.

As for the Nigerian scam idea: what you say is a bit extreme, but it IS the case that the Daily Reckoning does regularly tell you that you will get the name(s) of some wonderful share(s) if you subscribe. I do not like that practice - but it is a very common one among a large number of tipsters that try to gain your custom. So, although I do not feel tempted by The Daily Reckoning in that respect (I would need far more evidence of a clear nature of their record), I do not reject what they otherwise offer simply and only because they try to sell me their merchandise.

I find their analyses of the international econonomic situation, or the local one, often very good indeed, as in the passage which I quoted. That does not mean that I am a follower of some dark school of thought or belong to any political grouping. As I have said here before, if I had voted at the last election I would have voted for Rudd. I admit with shame that he struck me as plausible at the time. Certainly I erred gravely in my judgement, but at least you can see from this that I am not to be identified with any particular party or ideology.

My misgivings about Rudd were first stirred when he started to stimulate the economy. It's not as though I am so anti-Keynesian that I think there is never any case for the state providing some stimulus, but I did not like the way that Rudd did it. Every subsequent development has made clear to me that he is economically illiterate and incompetent, as well as very greedy about buying votes. If I happen to share that view with some rightists that I might on other issues disagree with, then so be it!


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baysider
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Hi Rudy

I notice that the 21 day MA is fast approaching the 150 day MA, should cross early next week I'd have thought which coincides with your timing for the next downward phase. Is this coincidence or a key aspect of your negative short term outlook?


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jaded
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rudy,
no doubt ETF's are fully within your ambit but
...well...I just don't take to Gold.

Word/Gossip is that
a] ETF's don't have REAL Gold backing[Try and get Physical Gold PayOff?]

b] Cash In is on the US $ rate ie subject to Currency 'risk'

c]ETF's COULD be New Age " Mortgage Bonds"?
["extreme"?]

Boils Down to?
that ETF's in Gold are not 'Secure' enough
for more than 'Play Money' activity.


" Hear what you Say...
But see what you Do!"

Sir Zelman Cowen c 1970.

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bridog
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Thursday, May 13, 2010 - 01:09 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Ody, good to see you back . .

Looks to me like once the miners supertax is a reality, investment in an Australian project will need a 40% better payoff to get the same return as an overseas project of the same cost where the tax regime is the same as previously existed in Australia.

How could this NOT affect Aussie mining projects going forward? No wonder they are all busy evaluating projects on the drawing boards.

Cheers


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bridog
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Thursday, May 13, 2010 - 02:06 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Article from Reuters Thomson News:

Taxes, royalties in Latin American mining nations
May 11 (Reuters) -

Australia has proposed taxing mining
profits by up to 40 percent, a move that could prompt
some mining companies to look more closely at mineral rich
Latin America.
Although experts say some Latin American governments
could be emboldened to make similar moves on their
patches, any new taxes or royalties are unlikely to be steep
enough to scare away mining firms who see big rewards in
the region as worth some degree of risk.
Below are some facts on the tax and royalty schemes in
Latin America's major metals producers.

CHILE
In Chile, home to 30 percent of the world's known copper
reserves, mining companies pay around $600 million per
year in royalties and contributed $24 billion in taxes to government
coffers over the last 5 years, according to figures
from the mining council. After this year's 8.8 magnitude
earthquake, President Sebastian Pinera's conservative government
increased royalties on miners to help pay for rebuilding.
The rise, which aims to collect some $700 million
over two years, would be voluntary and set by a sliding
scale. Experts say it is unlikely to hurt overall investment.

PERU
Miners in South America's top gold producer pay royalties
ranging from 1 percent to 3 percent based on revenues and
global prices, according to PriceWaterhouseCoopers. The
corporate tax rate in Peru is 30 percent and the government's
annual tax income totals about 15 percent of gross
domestic product. Miners can lock in tax rates for two decades
or more, preventing major changes that would cause
uncertainties for international investors.

BRAZIL:
Brazil, a major iron ore producer, levies royalties of up to 3
percent on miners. For iron ore producers the royalties are
2 percent of revenues compared to around 6 percent in
Australia, according to Barclays Capital.
Mining companies complain the overall tax burden in Brazil
is relatively high compared to other mining countries like
the United States and Australia. The tax take for different
metals and minerals in Brazil ranges from 20 percent to 40
percent, according to a presentation by Ernst & Young. Local
authorities have been mulling raising royalties or imposing
iron ore export taxes, but analysts see changes to the
mining code as unlikely this year. Policymakers have looked
to the oil and gas industry, which pays between 5 percent
and 10 percent in royalties, as a potential model for reforms.

MEXICO
Mexican mining firms are subject to the same 28 percent
tax rate as other industrial companies. Last year lawmakers
tried to pass a bill that included a 4 percent tax on mining
profits but the legislation has stalled in Congress.


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p3t3
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bridog wrote on Thursday, May 13, 2010 - 01:09 am:

Looks to me like once the miners supertax is a reality, investment in an Australian project will need a 40% better payoff to get the same return as an overseas project of the same cost



Actually return would need to be 66.67% higher. If return in country "X" is AU$100, return in Australia would have to be AU$166.67 (times 0.6 for after super profits tax amount) to deliver the same AU$100 to the project investor...quite a hurdle.


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ody
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Bridog and P3T3:

Great to see your posts. I think this enormous tax that Rudd is hell-bent on establishing is not only a greedy tax-grab to buy votes, but an exceptionally irresponsible step by any PM that will greatly hurt the nation s/he ought to look after. We shall in no sense be competitive with our competitors, and hugely lose ground to them. This is already happening, with even Australian companies taking their business off-shore, and foreigners withdrawing or not starting here. Several projects are being aborted or will not even be contemplated anymore. Earnings are certain to diminish hugely, and this is why the tax won't even remotely serve the purpose Rudd has in mind. He does not understand that in trying to grab the cake he also reduces it. There are many who argue that e.g. the Gorgon project was not harmed, but that is in the area of energy and was all along very much a foreign project anyway. A tax on BHP and other great Australian companies dealing in such things as base metals that we need to sell to China to make a living is a completely different proposition. The SIZE of the tax will prove one of its major problems. I have not the slightest doubt that unless this disaster gets averted Australia will suffer significantly. Of course, if Rudd had not decided so shamelessly to pamper the nation on taxpayers' "stimulus" money to begin with (the most heavily stimulated economy which moreover was already the strongest and least in need), he would not desperately need money from the miners, and his policy is simply one of trying to slug the rich - not realising that he is reducing their, and Australia's, wealth in the process. We also know that he will spend much of the money badly, on the evidence he has provided. This is certainly the most arrogant and reckless tax I have ever seen imposed in my lifetime in four countries, watching economic events since my teens, and now at 70.

Let us profoundly hope that opposition will grow to such an extent that this government will simply be compelled to change its decision. Currently it looks like an international laughing stock, for one thing.


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ody
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Thursday, May 13, 2010 - 06:57 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



A relief rally

Markets are rallying because Spain has announced austerity package and it is thus hoped that it will avoid problems like those of Greece ... how good are investors at deluding themselves! In neither country, given their intrinsic economic performance and work record, will such a package work. If Germany etc will still give them money regardless, that means impoverishment of those European nations that work and are efficient for the sake of the sluggards, i.e. averaging down to the lowest common denominator. European economic performance and prosperity are set to dwindle: it will not be a growth in wealth which we shall be seeing, but one in which the rich "help" the poor in the foolish belief that this will sustain their prosperity while they are in effect giving it away.


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rdumas
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Thursday, May 13, 2010 - 10:09 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Baysider,

Actually I use the 50 day EMA and 150 day WMA for my cross-overs. But this has nothing to do with my 'negative short term outlook'. The term 'short term' has all sorts of meanings of course depending your personal time frame. Precther would say that I had a bullish short term outlook.

I will try to put some times on it but remember that time frames have this nasty habit of slipping backwards and forwards and we have to re-adjust our analysis with any new information that comes to hand. The following chart probably gives the best idea of where I stand at this point in time.



I expect the XJO to be in an up trend for the next week and a bit. Not sure where it will peak but the 50% to 61.8% retrace levels are as good as any for first pass targets. I then expect the market to move down in it's C wave and bottom out sometime in June. From there I do expect a multi-month rally which will take us to new highs. It should not last anywhere near as long as the March 2009 rally but will terminate later this year. From there I expect a very large fall which will be more along the lines of what some of the other EW gurus are saying.

So with that information in mind, what would you call me......bullish or bearish? If my scenario plays out then I expect the bulls to reign supreme over the next week and a bit and then it will be the bears turn to gloat until early to mid June. Once the decline completes I will be 'going hard' on the longs for 3~4 months.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Thursday, May 13, 2010 - 10:15 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Jaded,

I recall posting an article on IC some weeks ago indicating the lack of gold bullion held to support gold ETF's so I agree with you that there are some risks. During the time that I have been trading ETF GOLD I have noticed that the turnover has been in the billions so I suspect that a lot of large fund managers also use a heap of 'play money' in the stock.

I will continue investing in this stock as the opportunity arises. I don't particularly like gold as a product either but can I make money out of it......you betcha I can.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Thursday, May 13, 2010 - 11:41 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Trades

Today I bought into STW and WBC for a short term play of around a week.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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deanrosario
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Thursday, May 13, 2010 - 12:09 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Let's see how some of the world's largest mining companies have reacted since the most recent highs in early April:

Change in share price from early Apr-10 to current:
ANGLO AMERICAN: DOWN 11%
VALE (CRVD): DOWN 16%
ALCOA: DOWN 18%
XSTRATA: DOWN 22%

BHP BILITON: DOWN 14%
RIO TINTO: DOWN 16%


Now, perhaps, I'm missing something so can some of you learned folk kindly explain to a simpleton, like myself ...

... why are BHP & RIO, who are, apparently, going to be at a huge competitive disadvantage as a result of the proposed Mining Super Profit Tax, not trading at a significant discount to their competitors?

Detailed calculations are not required, just a simple explanation that won't be too complex for a simple mind like mine!

(Message edited by deanrosario on May 13, 2010)


"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

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bridog
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Thursday, May 13, 2010 - 12:51 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Anyone heard any rumours about AXM?

I'd just about given them up for dead. They are pretty well out of cash and losing money on every ounce of gold with cash costs of around A$1400 oz (from memory).

Anyhow they are up 23% today with buyers clamouring for stock. There are no current announcements. Can't see it just being POG influenced. Bound to get a speeding ticket today.


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deanrosario
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Thursday, May 13, 2010 - 01:08 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Isn't it interesting how the weekly charts for some of the the world's largest Mining Companies show the same down trend since the 1st week of April-2010?

Could it be that the proposed Aussie Super Tax is impacting all the world's large mining companies or is there a more rational explanation - perhaps, investors are contemplating lower sales to the biggest customer of the mining industry?



(Message edited by deanrosario on May 13, 2010)


"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

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bridog
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AXM - It seems that there is some relatively serious money looking to buy.

In the top 2 lines there are 28 buyers looking for an average 1 million share purchase and 43 sellers with an average of 182k shares to sell.

Interesting


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rdumas
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Thursday, May 13, 2010 - 02:28 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



One to keep an eye on

For a short term play if MRM breaks through $2.80 it might go for a quick ride to $3.00.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Thursday, May 13, 2010 - 02:48 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



POG

The POG is staging a battle to remain above $1234.60.



I do expect it to fail and drop down to the next level.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Thursday, May 13, 2010 - 02:55 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



ETF GOLD

The worst combination for ETF GOLD is a falling POG and a rising AUDUSD. I have already suggested that the POG may fall. The following chart of the AUDUSD indicates that for the short term it is in a rising trend. These are a couple of reasons why I believe that the ETF GOLD will fall for a week or so before continuing on in it's rally.








I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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XJO Price Action Today

The XJO is slowly sneaking up on the 38.2% Fibonacci retracement level. Its mission is to break through that level and head for the 50% level. I have very little doubt that it will eventually succeed in the next day or two.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ody
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Mining stocks worldwide

Dean: I have already previously suggested that there is a connection between what happens to mining stocks worldwide. There is nothing surprising about this. If the prices for commodities fall, as they did along with BHP etc once the Rudd government targeted Australian stocks for attack, there is certain to be a flow-on effect to all other companies that operate in the same sector. It is just the same sort of phenomenon as we regularly see with banks: if those are seen to be vulnerable in one country there will be a ripple effect elsewhere too.

But - you may argue - what about the supposed advantages of the stocks in e.g. Brazil versus the Australian ones? Over time, those advantages will be very real. As the Australian mining sector is now the highest-taxed in the world, its performance will be weaker than in other countries. International money will flow to those resources companies which are best situated. Moreover, Australian companies themselves will invest more money in other jurisdictions than Australia.

So, while it may seem to you as though the fall in price of Australian mining companies has nothing to do with Rudd's resources tax, that is an illogical position to adopt. On the contrary, the fall was immediate and severe, and flowed on to other countries as well. That does not mean, alas for Australia, that companies in other countries will not benefit from the burden Rudd has imposed on operations of companies here. And our own companies will also reduce economic activity and prosperity in Australia by investing overseas.

It is an obvious fact that if you tax the mining companies in a country by 40% that will have consequences for those companies. The fact that for some time mining companies elsewhere are also under a cloud does not diminish that reality. And, indeed, the situation worldwide is made the worse by the fact that there are fears that China has way outpaced the speed it should be operating at.

If resources prices are doomed to fall - or are falling already - as a result of THAT, then Australia will DOUBLY suffer. It will suffer along with other nations because demand for resources will be less big than is so confidently expected by so many; and, as well, Australian companies will see their income reduced not only by that factor, but by the much higher tax imposed here. If these two factors were to coincide we would see a very sharp reversal in our economy. It is by no means unlikely that this will happen.

The time for Rudd to have taxed our resources industry (if there ever was any case for that) would have been well before now, and at a much more moderate level. To do it exactly now, and at so high a pitch, shows how poor his timing is, for one thing, and how little understanding he has of the risks.

It is important to keep various matters distinct in all of this. A hefty tax, by itself, will always prove a hefty disincentive. It has as a consequence shrinkage in the area that is taxed, and means that therefore the companies involved will earn less. As soon as such a tax is imposed the companies involved will lose value in the share market, as duly happened, as their earnings prospects have diminished. The impact, however, goes well beyond this.

(1) People think also of what will happen to other sectors of the economy in the country involved.

(2) The resources in question are likely to be hammered immediately - as happened. This will then also, at least temporarily, impact on resources companies elsewhere. There is simply no question of BHP getting hammered at once and a company elsewhere, selling the same resources, going UP.

(3) Furthermore, companies in Australia shift activities off-shore: the impact of this will be damaging particularly over time. Companies outside Australia move activities away from Australia, with ditto effects.

Of course, if Australia was, say, the ONLY country in the world that sells iron ore, it might dictate the price for iron ore singlehandedly, and a tax, though still damaging to companies - including shareholders (i.e. a very large number of Australian citizens) - would be less damaging, though still harmful. Where Australia is not a unique supplier, it simply gives itself a huge handicap - shoots itself in the foot - if it taxes the industry that is trying to supply the commodity in question in competition with other countries. Companies in other countries will fare better as a result, and Australian companies will only keep up by operating in countries where the tax does not apply. That situation is obviously damaging to Australians generally.


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ody
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Thursday, May 13, 2010 - 04:38 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Markets going up:

My previous post about resources etc - especially the impact of the proposed Rudd tax - was written about that particularly, and in a sense as a piece dealing with events over the last week or so.

My shorter post this morning was concerned with what is happening right now. I can only repeat what I said then: the general optimism in share markets right now is not a matter of resources, but of optimism about supposed solutions to the sovereign risk problems in Europe. The really big boost was caused by the decision on the part of European nations generally to set aside an astronomical sum to buy out Greece and other defaulters as needed. Then, on top of that - and this is the latest shot in the arm - Spain decided to introduce an austerity programme.

For the moment investors believe they are safe, and this sense is pretty well worldwide, just as the earlier - and increasing - "Greek" worries had become globalised.

As for the impact on resources, there are two likely ones. (1) If financial pessimism dwindles, people soon start spending, and as the resources sector is usually seen as associated with growth, they will buy stocks in that sector. Moreover, (2) to the extent that it is realised that the Euro can only lose in value as a result of the decision of the richer nations in Euro to accept less prosperity, there is likely to be a mood in favour of buying "real assets" - the phenomenon we know so well from events in the United States.

So there is nothing surprising about commodities stocks doing well, just now, along with the financials. For some days, at least, we may well see stocks go up across the board.

However, within a week or so worries are likely to return, as the solutions to sovereign risk in Europe are of a fundamentally "worrisome" nature, and not really a cause for joy at all. Moreover, the attack on the resources industry led by the Australian government will probably also continue, and thus will fester further, as well. Investors will probably for a while try to suppress their anxieties about both financials and resources, but ultimately not with great success, as no real problems have been removed.


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rdumas
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Thursday, May 13, 2010 - 04:43 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi Ody,

I am in total agreement with you both in regards to the fundamentals and that the market will in a week or two come to that sudden realisation and head south again. In the mean time I'll make some money on the misplaced optimism.


I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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market_mad
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Hi all,

Yes, I agree with Rudy and Ody.

The S&P500 is approaching key resistance levels around 1181-1183 (10-12 points from its close last night) which were key support levels for the index on both the 19th and 28th April.

If it can trade above here then there may be further to go in this rally but my guess is it will struggle to push through.

Really impressive finish on our market today. If we CLOSE above 4715 then I'm guessing that our market will be trading in a neutral pattern between 4500-5000 over the next few months.

If however, the market breaks down and can't close above this level then I still hold the view that we are heading to the 3900-4100 area.

So in summary I'd see the next few days as key to the future direction of the market over the coming months.

Cheers
MM


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rdumas
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XJO Price Action at Close of Business

Well I don't know about you folks but I think it was a creditable performance on behalf of our index. It closed just fractionally below the 38.2% Fib level today. So far, so good.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Thursday, May 13, 2010 - 05:26 pm:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Hi MM,

Just before I close up shop I do agree with you that the 1181 level is a crucial level for the SPX so it will be interesting to see what happens tonight. As you know I have the SPX and XJO bottoming sometime around the 4th June at this stage. That is in approximately 15 trading days from now (I can't recall if there are any public holidays between now and then).

Looking at the 2 indices we can see that the paths have been quite different. The SPX took 8 trading day to bottom its first wave down and has been going up for 4 trading days. Now if we assumed that the next move down was impulsive (and there fore pretty quick) and took about the same length of time as the first wave down then we have around another 5 trading days for the current wave B to complete. Now we know that wave B's have a habit of becoming complex so it could be that it stuffs around for a week or so without necessarily going too much higher.




The XJO on the other hand has taken a different path and took 15 trading days to complete its first wave down. My analysis has the XJO still going up for about a week or so which would indicate that the last leg down will be very quick in comparison the first leg down.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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ken
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Ody, re post 4972,

BHP and RIO are one thing, but maybe the government is looking forward to getting our "fair share" when Chinese Government-owned companies start mining our resources in a big way.

Also the dynamics may well change in the industry, as if BHP or RIO say we are not going to mine, then the government may argue that they should lose their mining lease to a junior miner who wants to get going using BHP and RIO's infrastructure.

I think in that situation BHP and RIO would continue mining and pay the tax, which is not through parliament yet anyway.


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p3t3
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deanrosario wrote on Thursday, May 13, 2010 - 12:09 pm:

... why are BHP & RIO, who are, apparently, going to be at a huge competitive disadvantage as a result of the proposed Mining Super Profit Tax, not trading at a significant discount to their competitors?



Fair question.

So far all majors are being sold off on the back of increased uncertainties, including:

Shanghai Composite selling off - suggesting lower demand from China

Euro Zone uncertainties - China is a major supplier to Euro Zone countries. If European demand drops what will that do the Chinese resources demand?

Australian Super Profits Tax - if Australia "gets away with it" how big will the temptation be for Brazil and others (e.g. cash strapped African nations) to follow suit, if only with a slightly lower rate to maintain some costing edge

Australian Federal Government elections, due this year - will the current government be able to hold onto power and implement the tax?

Final legislation for the Tax is nowhere near settled. Federal Government currently in discussions with BHP and the South Australian Government over the proposed Olympic Dam expansion and the implications of the Tax. Wayne Swan has publicly told the mining houses to stop bitching publicly and start negotiating. Issues - retrospectivity, the fairness of applying the Tax to projects started under very different financial assumptions ; the hurdle rate for cost recoupment, currently the risk-free bond rate of 6%. Most mining projects have a hurdle rate more like 20%.

While uncertainty reigns exposure to the whole sector is reduced. Fine tuning exposure to specific companies will follow as uncertainties are resolved.


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deanrosario
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Ody, let's see if I understand you.

You claim the Mining Super-Profit tax is having an impact on commodity prices!

Wow!! I don't reckon even the mining propaganda machine has tried to use that argument.

1. The universal way to quantify a company's future earnings is by assessing the company's share price.

* The simple FACT - not theory or opinion, but FACT - is that, mining companies with large exposure to the Australian market have not had their share price impacted to a greater extent than their competitors, who have lower exposure to the Australian market.

* This fact suggests that, according to the market/investors/traders, the future earnings of such mining companies have fallen since April be similar relative amounts (%) - irrespective of how large is the exposure to Australia and the Mining Company Super tax.

2. To say that commodity prices have fallen because of the potential Mining Super Tax has left me speechless (which is an extremely rare phenomenon) and not only defies logic, but also defies the economic theory of pricing based on the concept of "supply & demand".

* simply, if supply is reduced and demand remains the same, the price of the supplied item should rise

* So, if uncertainty surrounds the development of mining projects (as alleged by the Mining Lobby) in Australia, which is one of the world's biggest suppliers of commodities, it stands to reason that this risk to supply of commodities should push prices UP; if demand remains the same.

(Message edited by deanrosario on May 13, 2010)


"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

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ody
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Dean, - Did you not read p3t3's post? For that makes exactly the kind of points which you should have thought of before addressing your post to me.

Have you not observed during the last few years that there is regularly a close connection between commodities prices and the prices for companies which trade those commodities? That is surely a very obvious link. Prices do not go up and down according to a simple supply and demand equation, as you seem to think, but as a result of market sentiment. If investors are confident they push up prices both of resources and of resources themselves; if investors lose confidence then prices go down. If you have not seen that happen I really wonder what observation of markets you have engaged in since about 2003. This up and down effect depending on confidence - above all else - has been in evidence for several years now. There is nothing novel or odd about what I remarked.

Markets are often actually quite ignorant about what REAL demand and supply will be: they engage in a guessing game about such things. They will push prices up if they THINK they will make money - not necessarily because they KNOW they will. We are very likely to find out that people like Rudd and Swan, both of whom have a commonplace and pedestrian view of the Chinese economy, are quite wrong in their optimism about developments in that country. I do not mean that we shall see an ongoing resources crash; but some sort of significant fall as a result of overheating would not be in the least surprising. And if there were significant difficulties OUTSIDE China, then those would also impact upon it.

If the price of companies like BHP and RIO gets butchered, as it initially was, by a heavy tax, then it is not in the least surprising if during that process there is no strong price offered either for the commodities which they trade. And under such circumstances one certainly would not expect the prices of other commodities traders elsewhere to go up either.

What happened was that, indeed, for a while resources stocks EVERYWHERE went down, not just our own, as the prospects for commodities stocks suddenly looked very different.

In the longer run, it would be logical if our own stocks were to suffer a significant decline, as because of the Australian tax imposed upon them they cannot make as good a profit as companies elsewhere. Those will therefore benefit more from profitable trade in commodities than Australian companies will. This, of course, will be so no matter whether the prices for commodities per se will be high or low: the companies that are not taxed heavily are in a better position to make money for their shareholders. Thus this tax is not a boon for "ordinary Australians", but a curse, in that most Australians would hold BHP and RIO through super funds (at the very least).

In the short run it is frequently the case that markets worldwide do suffer from a kind of panic effect that is global and which in fact goes well beyond what should reasonably happen. It is only over time that one observes the more lasting impact of significant changes.

But, while the prices of commodities companies go down, it is obviously the case that the commodities themselves are also likely to be marked down, and there is surely nothing surprising about that. What we saw was exactly the kind of world-wide rout that I expected, and which in your confidence you did not. Similarly I am not surprised that now, after some lapse in time, stocks are doing better, and especially because they are bought as a result of confidence generated by European financial arrangements.

The fact that stocks are now doing rather better is thus simple to explain - but does not diminish in any sense the harm that the resources tax will continue to inflict on our resources companies and indeed the whole resources situation in this country, inasmuch as there will be less growth in the form of resources development in Australia than in countries where it will be easier to make money.

Interestingly, it is possible that the whole resources dynamic, worldwide, will change, with less money being made, and less development occurring, than if this tax had not been introduced. Indeed, Labor argues that this would be a good thing.



(Message edited by Ody on May 13, 2010)


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ody
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Interesting: Europe has done quite well, but the US is faltering at present, and the Financial Times in Britain warned that worries about Europe were again on the increase.

As well they might be, as either the Euro will fall considerably with the sovereign risk countries in it, or else some of the worst offenders will have to pull out, which would in essence destroy the concept of Euroland. A far from enviable position, and one in essence incapable of solution. Perhaps it is safest to assume a decline in the Euro in any case. This should favour both gold and the US dollar, which in any case should do well as the US is progressing somewhat (first into the recession and first out??); and fear of dangerous assets would send people, as always, to the US$ - whatever its drawbacks, it does remain a currency people ultimately seem to return to.

Most other currencies/assets should over some time prove much weaker, though we may well see some days during which investors will look - seem to be - bullish. Probably on a short-term basis (either because they want to be, or because they will be disappointed).

I am myself doing quite well with Australian hybrids (most still seem to believe interest rates will continue to go up and thus bid up the hybrids as carriers of that event); and there is an active interest in bonds of various kinds (though low-yielding bonds that are not dynamic like hybrids but fixed will suffer if rates go up). I am also quite happy with EFT Gold - up quite a lot with it. Yes, gold will have ups and downs, but probably more ups, under circumstances which will favour it as people won't feel truly secure about much else.

I am concerned about the Aussie dollar, which is weakening, not least because of weak commodities prices and our ill-conceived resources tax. If Abbott and the Senate were to block that I have no doubt our dollar would benefit. The government may not, after all, succeed, and opposition will be very fierce. Ultimately Rudd is a coward and if opinion turns against him sufficiently he would yield. However, on this occasion he may prove unusually stubborn, as he needs money to pay both debts and for votes. It's not difficult to see what he is playing at, and it is not protection of the poor, but buying himself votes, especially those from middle Australia or even more so those who are stupid enough to believe that it will be possible enough for "ordinary Australians" to enrich themselves by crippling the mining industry.


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ody
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Friday, May 14, 2010 - 09:31 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



No comment from me needed, I would think ...
---------------------------------------------------------

U.S. Stocks, Euro, Oil Drop; Treasuries Gain, Gold Retreats

By Rita Nazareth and David Merritt

May 13 (Bloomberg) -- U.S. stocks fell as probes of banks’ mortgage-bond deals widened and profit forecasts disappointed investors at Cisco Systems Inc. and Kohl’s Corp., while the euro slid on concern governments won’t cut deficits fast enough to halt the debt crisis. Oil and gold fell, while Treasuries rose.

The Standard & Poor’s 500 Index slumped 1.2 percent at 4 p.m. in New York after yesterday’s rally erased losses from its 3.2 percent plunge on May 6. The euro slid to a 14-month low against the dollar and sank to an all-time low versus the Swiss franc. Crude oil dropped for a third day, falling below $75 a barrel, and gold retreated from a record. The yield on the benchmark 10-year Treasury note slipped 4 basis points to 3.54 percent, while the Dollar Index increased 0.7 percent to 85.389, above its highest closing level in a year.

New York Attorney General Andrew Cuomo subpoenaed Goldman Sachs Group Inc., Morgan Stanley, UBS AG and five other banks to determine if they misled credit-rating services about mortgage- backed securities, according to a person familiar with the investigation. U.S. prosecutors and the Securities and Exchange Commission are cooperating in a preliminary criminal probe into mortgage-bond deals, the Wall Street Journal reported.

“Following a full glass yesterday, the glass is half empty,” said Alan Gayle, a money manager at RidgeWorth Investments in Richmond, Virginia, which oversees $63 billion. “The market is looking for additional information to support the recent gains and the data is falling short. And the news on an investigation of banks definitely adds to the concern about financials longer-term.”

Banks, Tech Companies

Gauges of financial firms and technology companies were the biggest drags on the S&P 500, as nine of its 10 industry groups retreated.

Cisco Systems lost 4.5 percent for the biggest drop in the Dow Jones Industrial Average as the sales forecast from the largest maker of networking equipment failed to live up to investor optimism about the technology recovery. Kohl’s, the fourth-largest U.S. department store company, fell 5.8 percent as its forecast signaled consumers are seeking discounts.

JPMorgan Chase & Co. and Citigroup Inc. retreated more than 2 percent after the Journal said they are among the banks being probed and have received civil subpoenas from the SEC. Deutsche Bank AG and UBS AG also are being investigated, the paper said, citing a person familiar with the matter. Goldman Sachs Group Inc. and Morgan Stanley are already being investigated, the newspaper said.

Default Swaps Rise

An indicator of U.S. corporate credit risk rose, paring what may become the biggest weekly drop in a year. Credit- default swaps on the Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, rose 2.83 basis points to a mid-price of 100.54 basis points, according to Markit Group Ltd. Swaps on most of the 125 companies in the index fell, led by General Electric Co.’s finance unit and Duke Energy Corp. The index trades independently of the individual companies.

The euro slumped for a third day as an almost $1 trillion emergency lending package fails to bolster confidence in the shared currency. The European Union announced the unprecedented rescue package for the region on May 9, including bond purchases by the European Central Bank, after borrowing costs surged in countries such as Greece and Portugal.

Central bank demand for euros fell today, according to Stuart Thomson, who helps manage the equivalent of about $100 billion at Ignis Asset Management in Glasgow.

The euro fell as much as 0.7 percent to $1.2527, eclipsing its previous 14-month low of $1.2529 on May 6, and traded for as little as 1.4005 Swiss francs, a record low.

‘Haven’t Been Seen’

“The ECB is on its way to quantitative easing, its reputation was damaged over the weekend, and the support it had been getting from central banks wasn’t spotted this morning,” Thomson said. “Central banks are normally in supporting the euro, but they haven’t been seen today.”

The MSCI World Index of 23 developed nations’ stocks dropped 0.6 percent.

SAP AG, the world’s biggest maker of business-management software, slipped 1.1 percent in Frankfurt after agreeing to buy Sybase Inc. for $5.8 billion, sending shares of the U.S. maker of software for mobile devices up 14 percent.

Crude oil retreated to a 12-week low, losing 1.7 percent to $74.40 a barrel in New York trading.

“The key driver for sentiment is uncertainty regarding growth in Europe and possible implications for world growth,” said Christophe Barret, an analyst with Credit Agricole CIB in London. “Crude stocks are pretty high. A range around $70 would be reasonable, given the economic outlook.”

Gold futures fell on sales by some investors following a two-day surge to a record amid turmoil in European debt markets, with the June delivery contract settling down 1.1 percent at $1,229.20 an ounce.

Asia Gains

The MSCI Asia Pacific Index surged 2 percent, its biggest gain in two months. Tokyo Electron Ltd., the world’s second- largest maker of semiconductor equipment, jumped 7 percent after forecasting a return to profit. Samsung Electronics Co., Asia’s biggest chipmaker, rose 3 percent in Seoul. Hyundai Motor Co., South Korea’s largest automaker, climbed to a record after Goldman Sachs Group Inc. boosted its rating on the stock.

Italian bonds rose after the government sold five- and 15- year securities at lower yields than existing debt. Italian 15- year bond yields dropped five basis points to 4.44 percent.

“The recent 750 billion-euro package and even more the European Union central banks’ repurchase program have proved extremely supportive for periphery,” Chiara Cremonesi, a strategist at UniCredit in London, wrote in a report today.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net; David Merritt in London on dmerritt1@bloomberg.net.
Last Updated: May 13, 2010 16:35 EDT


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deanrosario
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Friday, May 14, 2010 - 09:46 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Correct me if I'm wrong, but it appears your basic premise is: ...

... whenever the price of BHP & RIO falls/rises; the market reacts by also pushing the price of of commodities down/up?

As far as I'm concerned this is a totally topsy turvy view of market dynamics and a bit like thinking "The tail wags the dog".


ody wrote on Thursday, May 13, 2010 - 11:16 pm:


If the price of companies like BHP and RIO gets butchered, as it initially was, by a heavy tax, then it is not in the least surprising if during that process there is no strong price offered either for the commodities which they trade. And under such circumstances one certainly would not expect the prices of other commodities traders elsewhere to go up either.




1. Pricing of commodities

Why on earth should the price of commodities fall if BHP/RIO's share price is "butchered"?

The price of a commodity is governed by the supply & demand for that commodity.

Demand for commodities are driven by the customer not the supplier.

So, if customers (China, India) wanted rocks before the Super-Profit Tax then they're still going to want those rocks.

If anything, there could be a risk to supply if BHP/RIO put developments on hold, which would push the price of commodities UP not down!

Surely you would agree ...

If BHP and RIO went into liquidation tomorrow, and their share price dropped to zero, the price of commodities would skyrocket not plummet.

2. Competitive Advantage

Even the kid selling lemonade on the footpath understands ...

... if your competitor has a problem that is going to impact the bottom line, and you do not have that same problem, then you will perform better in the future than your competitor!

Conclusion:

The fact that all mining companies share price have fallen in unison and by the same relative amounts, means we have to look to at "industry-wide" causes for the fall in the share price and NOT "company specific" causes.

The proposed Super Profit Tax is a "company specific" issue, which only impacts companies with mining operations in Australia.

It's beyond belief that anyone would think that a proposed tax in Australia will have an impact on the price of commodities that are sourced in Brazil, Canada, India, Africa, Indonesia, Russia, etc. etc!


"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

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market_mad
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From Macquarie Bank which shows the incompetence of Swan...

A few Macquarie analysts attended a breakfast meeting with Wayne Swan yesterday. One of the analysts asked why the 40% "Super Profits Tax" kicks in at the long term bond rate which is currently 5.75% (that means that a company will pay this new tax on top of the company tax rate if they earn a return on investment above 5.75%). She asked why the tax did not kick in at a higher rate that was closer to a companies weighted cost of capital (normally about 10%). Anyone who has studied finance knows that a company will not invest in a new project unless that project will generate a return on investment above the companies cost of capital. The cost of capital is the cost of the companies funds and comprises both debt and equity (see definition http://en.wikipedia.org/wiki/Cost_of_capital).

Apparently Wayne Swan did not understand the question.

Apparently Wayne Swan thought that the long term bond rate was a companies cost of capital.

The Macquarie analyst then asked if Swan would rule out a super tax on banks. Wayne Swan would not answer the question directly and skirted the issue.

Our analysts also workout that this "Super Profits Tax" applies to anything dug out of the ground. That includes clay, sand, fertiliser, silica etc. It hits the fertiliser, building and construction industries.

The "Super Profits Tax" is not just a tax on resources but a broad based tax which will also hurt the construction/building and housing industry and all industries where any kind of Australia natural resource is an input to the cost of production.

I am not normally a person to make political comments to my clients and what I am about to say are my own views and not the official Macquarie line. I have a duty to give you my honest opinion on anything that has the potential to significantly affect the markets and your investments. The governments response to the Henry Review has me deeply shocked. Our market is falling for a 3rd straight day in a row. The share market is a bell weather for the direction of the state of our economy and the market is saying to us right now that Kevin Rudd is pursuing an agenda that is going to destroy economic growth in Australia.

I have listed my analysis of the Labor governments response to the Henry Tax Review as follows:

1. If the Macquarie analyst is right Wayne Swan is financially illiterate and has demonstrable incompetence.
2. The "Super Profit Tax" title is misleading and dishonest. This is a tax on ordinary profits, not super profits. 28% Company tax is still payable along with the 40% "Super Profits" tax, i.e. both are payable at the same time on a return above the bond yield (5.75%).
3. The chart Wayne Swan showed to demonstrate that taxes paid by the resource sector were falling while mining profits were increasing excluded company tax payments. This is a dishonest manipulation of tax data designed to deceive.
4. The proposed increase in super contributions will be offset by a fall in the value of superannuation assets
5. We can safely assume that Labor has privately considered introducing a super tax on banks, especially if taxes from resources dry up
6. Raising taxes increases the likelihood of cost push inflation, i.e. new taxes may be passed onto consumers in the form of higher prices for products and services.
7. Foreign investors in Australia are alarmed. Australia is now seen as being a high sovereign risk destination to invest. There is a significant risk of major capital flight out of Australia .
8. Capital flight out of Australia would be disastrous for our economy. It will destroy investment, jobs and growth.
9. I saw no tax incentives in the Henry report to encourage innovation and investment in research and development into IT/medical research/renewable energy or any other industry that could be built up to sustain our nation once the resource boom is over. There is no incentive to make the non resource rich Australian States competitive. We will strip our natural resources to pay for our high standard of living while we fail to build the global competitiveness our nation needs when the mining boom is over.
10. I saw no attempt to divert any "super" taxes into a new Australian sovereign wealth fund that could be used to preserve the huge cyclical profits from the mining boom. A new Sovereign Wealth fund could then re-invest real super profits back into building other industries that have the potential to sustain economic growth post the mining boom. Instead all the super taxes will be spent to win votes.

The fall in the value of resource and resource related stocks in the last 3 days has wiped billions of dollars off the value of superannuation and is proof that foreign money is already withdrawing from Australia. An exodus of foreign capital is not something that happens overnight. It could take months to play out. The new "super profits" tax is supposed to generate $12b in 3 years. More than $12bn has been wiped of the market in 3 days.

China is trying to slow its economy down to prevent its economy from bursting as it overheats. Every week we are seeing the Chinese tighten money supply to slow themselves down. Now is not a time to destroy the resource sector while China is at risk of tapping the breaks too hard and slowing itself down too fast.

The big winner out of this will be the US markets. Stocks with strong $US earnings will benefit from a falling $A while money comes out of this country. Stocks like CSL, WDC, QBE, NWS, JHX will benefit and defensives like WOW and WES will be supported too.

If the current government of Australia persists in pursuing its agenda as laid out by its response to the Henry Review then I think the only thing that will save Australia from a serious economic slowdown in the next 2 years will be a change of government at the next general election later this year.


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rdumas
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Friday, May 14, 2010 - 09:51 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



As MM and I suggested yesterday the S&P500 was coming up to some pretty strong resistance and didn't even get to the really heavy resistance at 1181. The lower level overhead resistance at 1175 got in first. At this stage the only positive sign in the chart is the higher lows for each retrace. The 1150 level is going to be very important for this index tonight. If that doesn't hold ..................




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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rdumas
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Friday, May 14, 2010 - 10:22 am:Edit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Opening XJO Price Action

It will be interesting to see how the XJO performs for the rest of the day. The ASX200 futures foretold of the drop in the morning and the ascending trendline remains in place at this stage.




I've given you my view based on what I know now. In another 5 minutes that view might change because of additional information. It's the best I can do - Rudy

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deanrosario
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MM a very interesting post. You may choose not to answer any of these questions, but I'll pose them and it's up to you if you feel inclined to answer.

a) Are you an analyst at Macquarie Bank?

b) Were you actually in this meeting with Wayne Swan, or are you relating things someone else told you?

c) Are the comments made during the Macquarie meeting recorded anywhere else, or are we the only fortunate investors/traders outside Maq Bank to know of this?

Finally, is it your contention that:

... if the Mining Super Tax had not been announced, commodity prices would not have fallen during the past 6 weeks?







"Never commit yourself to anything you can't walk away from in 30 seconds." Neil McCauley (played by Robert de Niro) in 'Heat'.

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market_mad
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Hi Dean,

1. No, I'm not an analyst but a customer at Mac Bank

2. No, I wasn't at the meeting, these are the comments that the analyst at mac Bank reported on (sorry, should have made that clear)

3. I've got no idea if they are recorded anywhere else, but any clients of Mac Bank would have received this also.

Finally, no I don't believe that at all - as you have pointed out, commodity prices and the share prices of other resource companies were beginning to fall before the news on the super tax was introduced.

I just think that the resource super tax is not good for Australia where you obviously think it is. I don't see the need to keep harping on and on about whether it is good or not - everyone has their opinion but you seem to be defending your opinion quite vehemently over and over.

MM

(Message edited by market_mad on May 14, 2010)

 
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Our Daily Bread » Archive through June 23, 2010rdumas50 23-Jun-10  09:16 am
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Our Daily Bread » Archive through June 16, 2010ody50 16-Jun-10  04:11 am
Our Daily Bread » Archive through June 11, 2010rdumas50 11-Jun-10  10:34 am
Our Daily Bread » Archive through June 07, 2010rdumas50 07-Jun-10  09:57 am
Our Daily Bread » Archive through June 03, 2010rdumas50 03-Jun-10  08:13 am
Our Daily Bread » Archive through June 01, 2010rdumas50 01-Jun-10  01:39 pm
Our Daily Bread » Archive through May 28, 2010rdumas50 28-May-10  11:04 am
Our Daily Bread » Archive through May 26, 2010ody50 26-May-10  12:20 am
Our Daily Bread » Archive through May 21, 2010jaded50 21-May-10  03:06 pm
Our Daily Bread » Archive through May 19, 2010magnus50 19-May-10  09:16 pm
Our Daily Bread » Archive through May 17, 2010eblode50 17-May-10  07:42 pm
Our Daily Bread » Archive through May 12, 2010rdumas50 12-May-10  09:51 am

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