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Trade Trends with Bollonger Bands and Twiggs Money Flow

Archive through May 17, 2010

Chart Forum » Hilarius' Hall Of Fame » Our Daily Bread » Archive through May 17, 2010

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cat_lady
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Username: cat_lady

Post Number: 693
Registered: 10-2006

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Friday, May 14, 2010 - 11:10 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 dean

we are not the chosen few.

http://www.theaustralian.com.au/business/opinion/swan-doesnt-appreciate-the-impa ct-of-tax/story-e6frg9lx-1225866331341

pls note the section that stresses that although macquarie stresses that the note was the opinion of the analyst (not them) they did not deny the crux of the matter. ie. swan didn't "get it".

cheers
cat lady


Without my morning coffee I might as well be a dog

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deanrosario
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Friday, May 14, 2010 - 11:11 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)




market_mad wrote on Friday, May 14, 2010 - 10:53 am:

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.




I'm sorry that I gave that opinion.

Yes, it's true, I'm very strongly committed to social justice issues and I am ashamed and often disgusted that so many humans reamain oblivious to the inequities in society.

However, I am completely indifferent about this proposed tax, and, based on the FACTS, the market also appears to be indifferent at this stage since:

... mining operators in Australia are not faring any worse than mining operators outside Australia

Based on some of the postings I've read on this forum in relation to the Mining Tax, I'm truly shocked by the poor level of understanding of basic market principles and market dynamics.

For anyone to suggest the price of commodities, which:

a) have been sourced outside Australia and

b) will never come anywhere near Australia

will still be impacted by an Aussie Tax has me totally stunned.

(Message edited by deanrosario on May 14, 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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eblode
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Friday, May 14, 2010 - 11:38 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)



MM,
I still believe you're an analyst for MQG. As far as the Super Tax is concerned it's all hot air blowing in the wind. Tony Abbot will be voted in for sure. How do I know? I spoke to my cleaning woman and she is the voice of the people and she is really fed up with Rudd. Which reminds me of the great comic movie producer of the 1920's, Mack Sennett of the "Keystone Kops". He would bring his chauffeur to the previews of his movies. He then noted when he laughed and in that way he said he could judge the humor of the public. If he didn't laugh the scene was cut out. I've got Joan, the cleaner to direct me as to the public's judgement of current issues.

Eugenio


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market_mad
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Friday, May 14, 2010 - 11:54 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)



Eugenio,

I wish I was!! I don't know whether to take that as a compliment or not!!! You still holding your MQG shares?

Cheers
MM


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eblode
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Friday, May 14, 2010 - 12:21 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)



MM,
As is my custom if a stock doesn't perform and bring me a profit within a few weeks I say "tah tah" and look for another share. So it was bye bye for MQG and hello to CSV, DCG, and KCN. So far they are all performing, if not they go and join MQG in the "dog basket".

Eugenio


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eagle
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Friday, May 14, 2010 - 12:31 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)



Re Resources Tax. I'd like to try this experiment (but can't fully) but you're all invited to this parallel universe for your views.

You're all bid managers for your mining company. You all know a piece of dirt has good prospects and that your company would like to win the "dirt" for various reasons - prestige, financial reasons, personal gains within company etc etc. Part of the bidding conditions are: if your company wins the "dirt" AND it becomes a successful project HOW MUCH are you prepared to pay as a super tax and at what profit level does it cut in?

I have and do many bids (particularly with gov't) - the conditions are not necessarily fair but they are the rules of the game. My 'masters' want me to win despite what are sometimes seen as onerous conditions.

Unfortunately with this forum we can't have everyone send in their proposals in a sealed envelope so the game falls down. But consider - what would you do in their shoes - would you say I'm offering no supertax as it's unfair or alternatively how high would you go to ensure you won it? How high would your competitors go? (Chinese co's, other int'l co's, other Aussie co's large and small).

If Rudd&co (or any gov't - I don't like to tackle these things from a political perspective - they're economic questions - the gov't is just another economic player) could follow this market game - do you think the gov't would get more or less than 40% at bond rate?


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deanrosario
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Friday, May 14, 2010 - 01:02 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 Eagle - I like your experiment and would be interested in further discussion.

Perhaps, it would cause fewer rumblings if you started a new thread about this issue so that no one complains that you've "hijacked" this thread?

I reckon, such a discussion would be enlightening and would actually stimulate our minds beyond simply re-reading reams of opinions from some unknown analyst, sourced from other websites.

Best wishes
Dean


"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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Friday, May 14, 2010 - 01:12 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)



Dean,

You are obviously having a go at me - so kindly keep your opinions to yourself if that is what you choose to write.

This is a forum where we are free to post what we like (within the rules of the forum). So don't get up me pal just for posting information that I think is useful for others, other than yourself quite obviously, to see.

I realise that you have got your opinion - you've stated it many times now and its obviously not going to change - which is fine. But can't you just leave it alone??? It's getting tiresome and quite frankly child like.

MM


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cat_lady
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Friday, May 14, 2010 - 01:16 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)



Dean

no need to take your bat and ball elsewhere, this particular thread has no bias on subject matter posted.

for those interested in this topic I cut and paste below an article by a mineral economist from today's australian.

QUOTE:

I CAN understand the justification for mining royalties but the proposed resources rent tax makes no economic sense.
According to the traditional theory of the mine, royalties are levied as a payment to the owner of a resource to compensate for the depletion of that resource. The royalty is a price signal reflecting the fact that production subtracts from the value of a resource. Under simplified conditions the royalty on a unit of ore should be equal to the value of the same amount of ore in the ground immediately prior to depletion, appropriately discounted back to the present. This amount is hard to calculate in practice but the principle is clear.

By signalling that ore in the ground has a future value, royalties encourage conservation. The higher the royalty the more likely it is that production will be deferred into the future, perhaps to a time when resource prices are higher. In Australia, royalties are often received by state governments, which claim the legal ownership of minerals. But they can also be received by companies and individuals. Royalties would still be paid in a fully free enterprise system and, in the language of economics, they are required for inter-temporal efficiency, or efficiency over time. They also allow the owners of a resource to maintain their asset position; as their resource in the ground depletes, the royalties give them a flow of funds to purchase other and similarly valued assets.

Australian economists have tended to regard royalties as disreputable, perhaps because of the influence of the US approach to mineral economics. The theme of US mineral economic theory, which originated during the Depression, was that resources would always be plentiful and cheap without ever becoming exhausted. If ore sitting in the ground has no value, and the mining industry can always operate at constant cost, then mineral royalties would be just another government imposition and more resource misallocation. Yet the theory that once made sense in the US is highly anomalous in modern Australia. If there are excess profits in the Australian mining industry it is only because ore bodies do have a value.

In fact, the tax has no particular connection to mining or resources at all. If it were really appropriate for the mining industry, it should be equally appropriate for all other industries and for the same reasons. Excess profits are general, not industry specific. Additional 40 per cent taxes could be levied, with as much justification, on the excess profits of banks and the financial sector, farmers, shops, industrials, hotels or any other group we envied or disliked.

A resources rent tax is less efficient than a royalty precisely because the rent tax doesn't correct inter-temporal misallocation. The case for the resource rent tax is that it is neutral, meaning that it will not discourage investment. This is correct in the instance of a theoretical resources rent tax, which observes precise mathematical rules. It would tax the profits of all mining companies at 40 per cent but then it would have contributed40 per cent of the total wherewithal to bring these companies to production. The government would pay 40 per cent of the total costs of the mining sector, but it would get 40 per cent of the total return. Conversely each mining company would put in only 60 per cent of the total costs, but each would take only 60 per cent out, leaving the company in the same position except that its scale would be reduced. The company would get less but it would also need less of its own finance to get a project started. The government would forgo tax receipts until its 40 per cent share accumulated, but eventually, if there were excess profits, it would be rewarded for years to come. But we have been talking about a theoretical resources rent tax, and between the theory and the fact there lies a large gap.

A theoretical resources rent tax resembles a sovereign wealth fund. A sovereign wealth fund would be even better than a theoretical resources rent tax because it would allow the government to select its investments. After all, the mining industry has more than its share of liars, lairs and lunatics and the government is not really in a position to invest 40 per cent across the whole sector without consideration of the details of any project. The differences between a theoretical resources rent tax and a sovereign wealth fund are:

(i) If someone wins the lottery, and if the government has paid for 40 per cent of all the tickets and gets 40 per cent of the prizes, then it has levied a theoretical resource rent tax.

(ii) If the government simply buys 40 per cent of the lottery tickets and takes its own chances, then it has established a sovereign wealth fund.

(iii) If the government claims 40 per cent of the prize after the event, offering to pay 40 per cent of just the one winning ticket, then it is a levy on capital.

The implementation of the tax will doubtless combine the theoretical resource rent tax with a capital levy but, whereas the neutrality of the resource rent tax has been emphasised, the capital levy will be the more significant part of the package. The theoretical resources rent tax is simple to express in general terms but it is extremely complex to implement. A government that tried to implement the pure form would not just subsidise contemporary exploration, but would pay its full 40 per cent share of all historical costs. It would offer 40 per cent subsidies for all the exploration that has previously occurred in Australia, and for all the past development and the infrastructure spending. The government would track down the mining firms that had failed and disappeared - the losers of the lottery - and offer their shareholders 40 per cent of their past expenditure. Alternatively it would offer the winners a risk premium, a substantial multiple of what they had spent, because they had climbed the investors' wall of worry while the government held back. But the government is not in a position to act in this way or on this scale. Nor do I believe that the government would want to outlay more money than it received for years to come.

Confiscatory capital levies do not have the properties of a resource rent tax and they are not neutral with respect to investment, enterprise and risk. Commonsense and experience suggest that a pseudo resources rent tax would substantially discourage mining investment. If it were perceived to be part of a pattern of confiscation it would discourage investment in all Australian industries for a long time to come. Would the reader still keep their money in a bank that had commandeered 40 per cent of the depositors' cash balances? It is not sensible to tax another 40 per cent of the value of the entire Australian mining sector, offer crumbs in return, and expect no repercussions on investment.

So what should the government do if the resource rent tax is abandoned? I believe state royalties are too low so there is room for the commonwealth to impose profitable ad valorem royalties (calculated as a fraction of the value of the mining output rather than dollars a ton) and good reason to put the money not into general revenue, but a sovereign wealth fund.

This should be structured to have resilience against downwards movements in the resource industry, for no one knows the future, and it should also be used to buy Australians a part ownership of the mining sector. That policy, unlike the resource rent tax, would be consistent with efficiency and economic growth.

Athol Fitzgibbons is a mineral economist.

END QUOTE

cheers
cat lady


Without my morning coffee I might as well be a dog

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market_mad
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Friday, May 14, 2010 - 01:28 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)



Hi Cat Lady,

I think from Dean's previous post one could conclude that he does have a bias on subject matter posted. Hence the continual battering he gives to someone who posts information or their views that the resource tax is not good for the economy.

I for one would welcome the subject being "carried on" in a different thread.

Cheers
MM


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deanrosario
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Friday, May 14, 2010 - 01:34 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)




market_mad wrote on Friday, May 14, 2010 - 01:12 pm:

Dean,

You are obviously having a go at me - so kindly keep your opinions to yourself if that is what you choose to write.




MM - I certainly did not have you in mind when I made that comment.

To be honest, I've hardly ever read any of your posts - you seem to have joined the forum in Sep-09; and I haven't posted or even read anything on this forum between Sep-09 and April 2010.

I only reviewed this thread in May 2010, when I read strange comments about the impact of the Mining Super Profit tax and felt compelled to post.

To be honest, I'm happy to stop posting.

A forum, to me, is a wonderful medium to compare ideas and stimulate our minds and simply re-reading pasted articles is something I can do with a Google search every morning.

catlady I'm happy to have that discussion anywhere, but thought others may prefer to have this thread restricted to general market analysis rather than specific debate about the Mining Super Tax.


"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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Friday, May 14, 2010 - 01:45 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)



So what do you search for when you do a google search in the morning? "resource tax is good"?

I know I benefit from what others paste on here because I don't have the time to do random goole searches in the morning and I'm sure other don't have the time either.

Pasting on here what is in the news is a fantastic way for people to keep up to date and get information they may not have the time to search for themselves. If you find it these posts irrelevant nobody is asking you to read them

Cheers
MM


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rdumas
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Friday, May 14, 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)



It's a tough call for the XJO


The chart below doesn't really give us much of a lead on what may occur on Monday.



We have support (of sorts) from a descending trend line, overhead resistance from an ascending trend line and numerous other overhead resistance points as well as an inviting gap to fill. If you check out the volume on the rally that's been taking place from Friday week's low you will find that it has been decreasing throughout the rally.

Couple that with the problems with the overhead resistance in the S&P500 that has to be face tonight and you will understand why I decided to play safe and pull out of my WBC and STW trades. There is just too many uncertainties for me to feel comfortable hanging onto them.




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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Friday, May 14, 2010 - 06:37 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)



Dean, - I agree with those who feel that there is no particular reason why discussion about the resources tax should occur on another thread. I do wish, though, that you'd open your mind rather more to the possibility that you view the matter in quite the wrong way. You may find it startling to be told that mining companies elsewhere may go down in sympathy, so to speak, with Australia, but such market events are in fact frequent and normal. You have not produced a shred of evidence to gainsay this scenario. Yes, it is true that resources companies had been going down before the Australian government's announcement, but that does not mean that that announcement had no impact. It clearly did.

In general, I feel that p3t3 had very well dealt with your thinking, but you have totally ignored his post. In particular, I would draw attention to his comment "While uncertainty reigns exposure to the whole sector is reduced." What you do not seem to be able to accept is that uncertainty about the sector does not just affect Australians, but also people elsewhere. For example, as p3t3 made plain, there is inevitably speculation that, if a big resources tax is introduced here, that may happen elsewhere too. The logical consequence of that is, then, that resources companies elsewhere would also go down. Again, you may like to think that events in Australia make no impact elsewhere, but in the case of a big resources tax it is extremely unlikely that your conclusion would be right, as Australia is a very major operator in this area.

Finally, you seem to find it inconceivable that (a) the price of commodities would be priced down in Australia as a result of a big resources tax being announced in that country, and (b) that people elsewhere would similarly lose their appetite for pricing resources up. Yet that is indeed precisely what does happen: pricing of resources is not, I can only repeat, simply a matter of supposed Chinese demand, but also of whether or not investors see a buck in the sector. As p3t3 explained very well: "While uncertainty reigns exposure to the whole sector is reduced."

That, indeed, is a general fact about market conduct. And if you fail to understand that you will not do well in share markets, as you underrate the extent to which they are steered by sentiment rather than (supposed) knowledge about demand and supply. Just check the prices of commodities whenever there is lack of confidence in share markets: you will find that they go down. Does that result from any knowledge that suddenly there is no Chinese demand? Of course not: it is produced by global sentiment - nothing else. And any factor that undermines confidence will have an impact. It may be fear about Greece, about Chinese inflation, about a resources tax, etc. In recent weeks ALL of these factors appear to have made a contribution. You simply cannot, in logic and fact, neatly isolate prices for resources in your discussion as though they are not subject to a whole multitude of factors. To think that a major resources tax in a major resources producing country would not have an impact on attitudes to resources globally is what I, for one, would see as "shockingly" naive and ignorant. I do not suggest, however, that the other factors I have mentioned have not also had an impact. But, unlike you, I do not see one factor as incompatible with another.

So I fear that I thoroughly disagree with your whole notion that the fact that resources stocks were falling before the tax was announced and that they subsequently continued to fall in tandem somehow "proves" that the resources tax was not a factor in the decline. However, it is clear to me that whatever anyone here - or presumably elsewhere - says about the harmful impact of this tax is not going to make any impact on you, so I don't really expect that this post will do so either.


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rdumas
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Friday, May 14, 2010 - 06:55 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)



Hey MM and Ody,

Time that you guys spoke to your friendly jockey. He'll tell you that it's a waste of time 'floggin a dead horse'. When it's dead, you can flog it all you like......it ain't going to move.


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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Friday, May 14, 2010 - 07:19 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)



Ok, that's enough for me.

I now realise why I haven't posted for the past 18 months.

Only one poster - eagle - has actually understood the reality of this issue but, I daresay, his intellectual challenge will be beyond many.


"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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Saturday, May 15, 2010 - 01:43 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)



Way to go for the future? (source mineweb)

QUOTE
The United Arab Emirates press is reporting that the UAE has unveiled a gold bar vending machine, called the "Gold To Go", dispensing bars in denominations of one, five and ten grammes and one-ounce, along with different gold coin ranges including coins engraved with the Canadian Maple Leaf, an Australian Kangaroo and the South African Krugerrands. Reportedly "self-guarding" - it shuts down if anything appears to be untoward - it is located in the Emirates Palace Hotel in Abu Dhabi. The prototype for this machine was installed at Frankfurt Airport in June 2009, when gold was still only in triple-digits (approximately $940 at the time). The machine is coated with 24-carat gold and weighs half a tonne, largely comprised of stainless steel and molybdenum steel. Prices are updated every ten minutes. Slot in your cash and get a gold bar in return. In the febrile atmosphere of the current gold market it will be interesting to see just how many Dihrams find their way into this machine.
UNQUOTE

Sort of brings back gold as a currency again, particularly if it starts to get replicated. New world starting to happen?


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ody
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Saturday, May 15, 2010 - 03:16 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)



Huge falls on share markets

I did think that it would not take long for investors to realise that the planned astronomical European "bail-out" of Greece and other chronically indebted and underperforming nations was in fact a disaster, not a source of joy as bulls initially assumed.

However, I had felt that the markets might take a little while to understand the full horror of the decision on the part of successful European nations to squander ("if necessary") their hard-earned wealth on the parasitic nations of southern Europe (and possibly some other weak performers such as Ireland and the UK). But in the event it now seems that worries have come strongly to the fore, and from everything I read it is worries about sovereign debt in Europe that are playing havoc with the prices for stocks worldwide, tonight Australian time.

Assuming that this mood will not quickly change - and why should it? - Australia will almost certainly be affected on Monday as well. Yes, I know ... the Reserve Bank and others keep claiming that sovereign debt in Europe is not really a threat to Australia, but this view underrates the power of market sentiment and its rapid spread in our globalised world. It also underrates the very real financial impact which a rapidly diminishing Euro (and it really is tumbling!!) will have on world affairs generally.

Many, not least in Australia, have been very slow to perceive the very real risk of developments in Europe, but it does now seem as though the penny - or should one say the Euro? - is dropping.

Resources are also getting battered in this climate as confidence falters in many countries, a fact which will not help the climate here in Australia, and particularly not at a time when the Australian government is hellbent on destroying the resources industry in this country, supposedly for the benefit of "ordinary Australians".

A good old-fashioned rout, if we are seeing the beginning of that, may actually help to persuade the population of Australia to grasp that Rudd and Swan, aided by the ever out-of-touch Ken Henry, have got completely the wrong end of the stick. Recent polling is fortunately showing that now a slim majority of voters appear to understand that the resources tax is misplaced, and also that if an election were held right now there would be a good chance that the Coalition would win.

Matters are certain to be interesting indeed from here on.

One worry we must have, with declining prices for commodities, is that our dollar will quickly fall. Gold and the American dollar will probably be the best antidote.

With so much unrest, and sentiment turning negative, it will not require much for markets to fall the harder if further bad news were to emanate, or news that is not in fact bad but capable of being interpreted as such.

Rudy, to be perfectly frank I doubt that this is a time for a punt on share markets, and personally I am holding on to my ETF GOLD.


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rdumas
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Saturday, May 15, 2010 - 06:54 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,

I agree with you and you will note from my last post yesterday that I exited my long positions yesterday even though it was earlier than I expected as I did feel extremely nervous about the strong overhead resistances in both the US and Australian indices.

The XJO rebounded to the 38.2% Fibonacci level and that was as far as it could manage to go. This in combination with the fact that the rebound was relatively short lived is an indication of the selling pressure that is now in play. We have now entered the much anticipated 3rd leg of this correction.

The nature of this third down leg as it unfolds will reveal whether it is a corrective move that will lead to another market high once complete or a much more sinister crash such as predicted by Prechter and McHugh.

The first tell tale sign will be the size of the fall. If it is only a corrective move then the fall will more than likely only be similar in size to the original fall of wave 1 (597.8 points). That would take us down to approximately 4055.

If it is a more sinister pattern forming then it will fall much further.

You are correct also that the beneficiary of the market uncertainty will be the POG and especially the ETF GOLD that I have always raved about because of the double whammy effect of the rising POG and falling AUDUSD.


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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A word of caution for the Bears

I think that it is important not to lose sight of the fact that the corrective rally is another one of those dreaded B waves that has been proven so often in the past to be such tricky affairs.

For that reason bears should be aware that it is still feasible that the corrective rally leg could also still be underway but that is has a Flat pattern as part of its overall pattern. We should know in the next few trading days.

What makes me a little wary is the fact that the completion timing of the rally leg appeared to be a bit premature. Those bears who may be thinking that it's time to pile in with lots of shorts could be caught with a surprise bounce if this corrective rally hasn't completed yet. I have no doubt in my mind that a large 3rd down leg is coming but the exact timing is not clear.


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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\bWEEKEND MARKET WRAP}

Hi Folks,

Apologies to those of you on my mailing list but as this WMW was small in size and I wanted to clarify my two posts of this morning I thought that it should be published on our thread on this occasion.

application/pdf
140510 market wrap.pdf (376.7 k)



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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General overview from the Sydney Morning Herald

This is just for those who have not seem this or similar articles this weekend. I have nothing much to add, except that it does not change my predominantly bearish view of share markets just now. I note that futures for all share markets are down on Bloomberg, including - substantially - our own. It would require some very important positive news, I think, to send markets up at this stage - they are far more likely to go down further.

Of course, at any point there could be a move up - but the general pattern does not seem in that direction, and there appears to be little, present or forthcoming, that would expel the serious worries that many now have about the European situation. Increasingly, too, it is grasped that this constitutes a GLOBAL problem. Europe remains easily important enough for that, and there are plenty of weak economies which form part of that continent, and indeed the Eurozone.

One major question is: how low can the Euro go before a number of the stronger nations begin to protest, and to express a desire for a different "solution" to the one recently cobbled together which has unleashed the present sense of crisis? Will the Euro / the European Union necessarily survive, as such? Would it not have been easier to send Greece packing, and in general to stick to the rule that member states cannot bail each other out? Voters have made it very plain, in countries like Germany and the Netherlands, that they did NOT want their governments to go for a bail-out. Merkel had indeed refused it, but appears to have been rolled by Sarkozy and the southern nations known as "Club Med". Some form of a strong backlash against this silly decision by the politicians is quite on the cards. The situation is rife with tensions.
---------------------------------------------------

Euro concerns dent stocks, commodities and bonds
May 15, 2010 - 8:10AM

The euro slid to the lowest since the aftermath of Lehman Brothers' collapse and stocks tumbled, paring a weekly rally, on concern the sovereign debt crisis will trigger a breakup of the European currency. Oil fell to a three-month low, while US and German bonds rallied.


The Standard & Poor's 500 Index lost 1.9 per cent in New York, paring its weekly advance to 2.2 per cent. The Stoxx Europe 600 Index slumped 3.4 per cent and climbed 4.8 per cent for the week.

Crude oil retreated 3.8 per cent and copper dropped the most in a week as the euro sank below $US1.24 to levels not seen since October 2008. The yield on the 10-year German bund decreased 8 basis points, while the 10-year Treasury yield fell by the same amount to 3.46 per cent. The cost of insuring against corporate defaults rose. Gold declined from a record.

Australian markets are also pointed lower when they reopen on Monday. The SPI200 share futures index was down 79 points, or about 1.8 per cent, to 4531. On Friday, the benchmark ASX 200 share index lost 0.9 per cent, trimming the week's gain to 2.9 per cent - its best weekly result in 2010.

The Australian dollar was also lower, dropping to 88.6 US cents, 71.7 euro cents, 60.9 pence and 81.9 yen.

Deutsche Bank AG Chief Executive Officer Josef Ackermann said Greece may not be able to repay its debt in full, and former Federal Reserve Chairman Paul Volcker said he's concerned the euro area may break up. Sony Corp., the world's second-largest maker of consumer electronics, said it may suffer a ``significant impact'' if Europe's deficit spreads, while Chinese Premier Wen Jiabao said the foundations for a worldwide recovery aren't ``solid'' as the sovereign-debt crisis deepens.

``It's a classic risk-off trading day,'' said Win Thin, senior currency strategist at Brown Brothers Harriman in New York. ``Commodities are down, stocks are down, emerging markets are down. Europe still has problems. The euro breakup is not a base-case scenario, but I have to acknowledge that everyone else is talking about it. There's concern that if Europe implodes, the global recovery is jeopardized.''
------------------------
[Part of article only - it goes on well beyond this.]


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ody
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Vote of no-confidence in the resources tax

For what it is worth, on-line readers of the Weekend Australian are for the most part strongly opposed to the resources tax. Of 6477 people who voted (not a small number) 75% think it is a bad policy. The Weekend Australian is not exactly a low-brow paper; but then, what would such readers understand of "the reality of this issue"?

Even polls held among those Australians who are more
"ordinary" are now moving in the direction of disapproval more often than support. Currently there are strong signs that Rudd is in danger of losing this debate. Were that to happen, it is difficult to see how he will find a new way to hide or to regain his former support. His standing in opinion polls is continuing to weaken, and the coalition would on most of the evidence at this point get in if elections were held.

It is now, I think, a serious possibility that this will actually happen, i.e. that Labor will be voted out (a change of leader would not save it). Rudd himself is responsible for initiating this foolish move, in that although the idea is ex-Henry, he could have had the political nous not to put this before the electorate. He is supported - as far as one can see - by Gillard, Swan, Tanner, and others.

Rudd (and presumably those close to him) clearly thought that the voters of Australia would be so dumb that they could easily be persuaded to approve of a policy that supposedly would make them richer, and punish those naughty "foreign-owned" mining companies. It looks as though he may have seriously misjudged what the electorate would think of all this - ignoring, perhaps, that a great many "ordinary Australians" are investors in the major resources companies, either directly or through their super funds.

Also, people do on the whole have the brains to recognise a tax-grab when they see one, and they are well aware that this Labor government has shown little evidence that it can handle money responsibly.

In any case, with share markets and commodities prices down, the tax on resources companies is going to look less attractive again from this moment on, among the many ordinary Australians who possess sound common sense.


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ody
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What if Labor did lose the election?

I am not engaged in wishful thinking here, but simply of what is a real possibility, and what it would mean for investors.

Obviously, there would be no resources tax, and we would in all respects return to a more frugal government.

Is the idea worth banking on, from what so far still remains a "contrarian" point of view?

Perhaps so, if one has intrinsic confidence in the mining industry and resources. That would require, of course, some major assumptions about the health of China and other matters. It is not as though one can simplistically assume that the disappearance of the planned tax would guarantee success for Australia's mining companies.

But, unquestionably, if the tax did NOT get voted into law, there would be, at least in the short term, a huge flow of capital towards resources and resources companies by way of a relief rally, and plans that have at present been abandoned etc would be viewed quite differently. I think it is a reasonable assumption that stocks would, at least temporarily, go up fairly sharply, although the effect should not be exaggerated either, as many problems remain.

Nevertheless, for the brave who are willing to punt on a change of government there would surely have to be a very good chance of making some short-term money. I could easily see e.g. a 10% jump in the price of many mining shares.

I am myself not courageous enough to venture forth - doing fine as it is with my hybrids, ETF Gold, and high-yielding deposits - but for those with high earnings, the prospect of a punt in this direction could well be profitable.


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rdumas
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Hi Ody,

I realise that you are only looking at the potential response to a Labour loss at the upcoming elections to the performance of the materials sector. Naturally enough there are far more issues that will affect that performance over and above the upcoming election.

One other parameter is the economic performance of China itself. The Shanghai Composite is looking a bit vulnerable at present as you can see form the following chart.




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,

The main problem with your idea is that the date of the election is unknown and the shares you buy could go down a lot before the relief rally occurred. Too imprecise for me.

Ken


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pinkhat
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Hi Rudy,

I am new to this forum and also a novice investor. I have gained much from your posts and have been able to trade STW over the last six months with some success. Currently in ETF - Gold. Looking at your posted Shanghai chart any interest in the Asian ETF's?

cheers


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ody
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Rudy, Ken:

I think you are both right. Superficially there is something attractive about the idea of investing on the basis of the assumption that Rudd will lose, as I would imagine most people will - despite the polls - assume he will win. But the whole idea is actually impractical. Rudy is of course right that the price of resources stocks is by no means determined only by attitudes to the resources tax: indeed, one reason why I am not game to invest in them myself is that I live in fear of a downturn in China ...

And Ken, you too are absolutely right that the timing would be a major problem, even if a gain were to be assumed at some future stage.

Despite such handicaps, though, I think the factor is worth keeping an eye on. At present it is probably very widely assumed that the tax will be implemented and that Rudd will win, and this is sure to affect prices negatively. But the major problem about my idea is perhaps that by the time it is clearer that Rudd will lose (IF that becomes clearer!) others will also come to act on that sense. That means that one would have to be ahead of the majority AND that the prices would have to be so low that there is little downside risk. All in all too difficult a situation to envisage as presenting itself.

Oh well, an illusion the poorer!

Probably, for the time being one is best off assuming that the resources tax is one among several factors that will continue to weigh on the market, and to wait until the case for going in is a whole lot more obvious. Especially because the likelihood of a further decline is surely considerable - thinking for example of the European situation, and the risk of inflation in several countries, not least China. At the very least there does not seem to me to be much reason for not waiting, all things considered.


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ody
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pinhat and others: some investment possibilities

(1) I think that several of us are still happy with ETF: GOLD. I've had it since 17 February, and although for long it was not inspiring I am now more than 11% up. In principle, given the fact that many people will hardly trust anything else - including the Australian dollar - I think the prospects for gold remain good.

(2) I like the US$ the most of currencies at present. The A$ seems to me riskier, because ours is more of a commodities currency, and hence more speculative and vulnerable. In particular given the current fears. Any retreat from share markets and other perceived dangers should help the US$ a good deal more than most currencies. It remains very big, liquid, and recognised. Also, the US economy, even if based on fiscal and monetary stimulus, is not doing as badly as some others. I think that many Europeans will move out of the Euro and into the US$.

(3) In uncertain times like these a truly good manager can often steer us through difficulties if given enough opportunity. I like Kerr Neilson in this role, and my choice would be simply his Platinum International Fund. He has an excellent record of performance in bad times and good, with a nice grasp as to when it may be useful to short the market; where to look for value; how to avoid the stampede of the herd, etc. I think that indeed Asia - and probably the US - will for the time being offer more action and more variety than Australia. Australia is fine if matters go well for it, but we are vulnerable, and not sufficiently diversified. In other words, for investment away from Australia I would choose a manager rather than any particular country or any index fund. However, I leave it to Rudy to speak about them and the charts in different countries!


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rdumas
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Hi pinkhat,

One of the things that I like about both STW and ETF GOLD is that they have lots of volume so there is obviously a lot of people and funds trading those stocks. I notice that many of the other ETFs (including some of the Asian ones) have very low volumes and also high volatility.

As I do tend to use ETFs very much like a balanced portfolio for my SMSF I do put large proportions of my capital into them when I trade them and hence I need both high volume (because then I know that there is a very large pool of traders) and lower volatility (because I like to sleep at night).

Regarding the ETF GOLD, it has been a very good earner for me and Ody. I play it differently to Ody because I get out when I believe that a retracement is due and Ody just rides out the retracements. When I look at my results I probably would have done just as well using Ody's approach. My analysis does indicate that this ETF will possibly retrace back to the $128~$129 level in the near future which is when I will get back into the stock.

Good luck with your trading.


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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baysider
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Hi Pinkhat

I concur with Ody on the Platinum fund. Amongst a variety of funds I have in my super Platinum Japan was the best performer for me last year. I've since sold out out of that fund and have been waiting in cash for some time now for an opportunity to invest in the Platinum Asia fund. I might also add that Aberdeen Emerging markets and Asia funds (I opened these in the UK and don't know if they're available here) have also done very well indeed for me with about a 90% gain in the last 12 months. I sold 50% of those into cash last week as well. I don't trade these funds much, maybe once or twice at most a year which is probably why the results are better!!
The tricky part now is timing the re-entry and no better place than this forum to gain some good insights.


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pinkhat
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Ody/Rudy/Baysider,

Thanks for your replies. I have been watching the South Korea EFT which has been on the up but Rudy is right there is very low turn over so I have not invested. With Gold I bought in late February and am looking to sell and get back into STW but its all about timing. Hopefully, I will get it right. I will look into Platinum Funds through my super if its available, currently all my super is in cash waiting for the next opportunity for the market to move up. This week should be interesting with the Europe problems further unfolding. I seem to remember reading some of the Greek payments are due on the 19th May, if my memory is correct, this could be crunch week if money does not come through for the Greeks.

Ody, with the possible change of Gvt coming up it may be worth looking for opportunities. Telstra may be one to look at. With 1.2 million voters holding shares this could be an influence on policy and also if Liberal get elected this could also change direction of the National Broadband rollout, it could be scrapped. Also, KRudd may get rolled by JuliaG in the mean time. There are many things that may change and provide good buying opportunities.

cheers


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ody
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Pinkhat, Baysider

Asian (and international) funds in general:

Like Baysider, I would in the case of Asia currently go for the Platinum Asia Fund (ex-Japan) rather than the Platinum Japan Fund. At the same time, just now I would not myself go into ANY share fund yet. So when I mentioned the Platinum International Fund that was in order to suggest that IF one wished to invest in a share fund just now that would be a good one as it is very versatile, and gives the manager a lot of choice as regards its action (I use "its" in the jargon-sense here, as Kerr Neilson does not run everything himself). But certainly in due course the Asian funds might - probably would - be an interesting choice as, mutatis mutandis, and ignoring the likelihood of a Chinese crash at some point, obviously in the next 5-10 years most probably far more money will be made in Asia than in the US and Europe.


Which Asian funds?

At the moment I would see Asia, including Japan, as rather too uncertain, and likely to be too influenced by events globally, for it to be an attractive area for investment. But when that changes, I'd look seriously at the Platinum Asia Fund, the Aberdeen Asian Opportunities Fund, and the K2 Asian Absolute Return Fund - in that order as regards safety.

Best places to be right now, in my view:

The best investments for the moment are not to be found in shares, as yet, I believe, but in gold (best bought through EFT Gold), and the American dollar.

Europe at present and later:

For the time being Europe is likely to be an absolute basket case, as both the Euro and European shares are likely to continue to plummet. The time will come that German shares, in particular, will be very attractive, though unfortunately what is at issue is not just German competence, but also the state of the dollar. This means that although at some stage some of the best companies in Europe will be available at a very low price, one has to be prepared to brave the wretched Euro in order to buy the companies - not an attractive prospect. Still, I would think some great opportunities will emerge, once we truly see "blood in the streets" and "the white of their eyes", to use those crude expressions.

Australian opportunities if the government were to change:

Pinkhat I agree with you that IF we are to punt on a change in government at some change then certainly Telstra would also become an interesting possibility. We are NOT in such a case looking at politics per se, but at the commercial possibilities that a change in government would very probably create. The difficulty of getting "set" will be in the timing.

General approach just now:

I think we are seeing interesting changes in the world which will throw up some great opportunities in due course.
For the time being, however, one's money should be in gold, American dollars, and Australian dollars held in high-yielding bank deposits, with a portion kept liquid enough to make rapid investment possible if something goes too low. Some of the cash management trusts/accounts (e.g. AMP) pay one a good yield combined with great liquidity (money within a day, i.e. overnight).


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ody
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From Bloomberg:

Euro Extends Declines on Austerity, Debt, Breakup Concerns

By Garfield Reynolds and Ben Levisohn

May 17 (Bloomberg) -- The euro fell to its lowest level since the collapse of Lehman Brothers Holdings Inc. on concern that the 16-nation currency may be headed for disintegration.

The shared currency extended its three-week slide versus the yen, the longest losing streak since February, as German Chancellor Angela Merkel said that Europe is in a “very, very serious situation.” Futures traders last week increased bets to a record that the euro will fall against the dollar, a day after European leaders announced a 750 billion-euro ($927 billion) bailout package in an effort to contain a sovereign-debt crisis that threatens to shatter confidence in the shared currency.

“The fact that European leaders have failed to restore confidence in the single currency is worrying,” said Khoon Goh, a senior economist at ANZ National Bank Ltd. in Wellington, in a note to clients today. “Markets are now focusing on the tough austerity measures that will come and the impact that will have on the euro zone economy.”

The euro weakened to as low as $1.2338, the least since October 2008, and traded at $1.2362 as of 6:21 a.m. in Tokyo, from $1.2358 on May 14 in New York. It slid to 114.11 yen from 114.38 last week. The dollar was at 92.31 yen from 92.47 yen.

European Central Bank President Jean-Claude Trichet called for a “quantum leap” in the way euro-area nations set their budgets and defended his decision to buy bonds from debt-saddled countries such as Greece and Portugal.

‘Quantum Leap’

“There is a need for a quantum leap in the governance of the euro area,” Trichet said in an interview with Spiegel magazine published on the ECB website. “There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by peers and ensure real and effective sanctions in the case of breaches,” he said.

The euro fell 3.1 percent last week against the greenback on concerns austerity measures to rein in budget deficits will undermine Europe’s economic recovery. The currency dropped 2.1 percent versus the yen.

The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on May 11 to 113,890 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the third consecutive week that the amount climbed to a record.

“No one wants to buy the euro,” said John Doyle, a strategist at currency-trading firm Tempus Consulting Inc. in Washington. “People looked at details of the plan and it wasn’t able to quell their concerns.”

To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.netBen Levisohn in New York at blevisohn@bloomberg.net.
Last Updated: May 16, 2010 17:28 EDT


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ody
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Analysing the European problem

The major problem in the world today is not one currently generated by the US, as so often, or even by Kevin Rudd's Resources Tax, although anyone who is looking can see that that certainly does not help resources. Sure, those are going down anyway, and would, as a result of what is the MAJOR current problem, viz. the situation in Europe. But I would hazard a guess that if suddenly Australia scrapped the planned tax, we would not see as heavy a fall in BHP etc as we are doing now - even with Greece etc being so serious a disaster.

But the disaster is not just Greece or the other weaklings in Europe: it is the great European bailout which is doomed to reduce wealth in Europe generally, with money passing from the successful performers to those that know how to borrow and waste money, but not how to make it. Most starkly put, as things stand Germany will simply give some of its money away to Greece, and both countries will ultimately end up the poorer - Germany definitely, as it will get nothing back for its gift. Greece, however, cannot cope intrinsically: the fact is that its debt is rising much faster than its ability to make or save money. The article below makes clear what SHOULD be done in such countries.

The following account from The Daily Reckoning is - no matter Jaded's dark language about "libertarianism" - to my mind both informative and entirely on the ball. More misery is certain to come, with harm to share markets, the Euro, and definitely also Australia (both fundamentally and in terms of both its share market and its currency). In other words, it is not an accident that our dollar is sinking rapidly against the US$, or that our shares - notably resources shares - are being savaged. I bought more gold this morning, and am holding on tightly with what I have. I am also in the process of converting some money into US dollars. Otherwise I am keeping what I have. My floating rate hybrids benefit from the sense that the RBA will still push rates up (likely, with inflation now set to spread worldwide as governments go further into debt). And my deposits are good and strong, except that I worry about a falling A$.

I was happy to buy more gold this morning, and although ETF GOLD is now tapering off a bit, even so it and the ASX are going in opposite directions. While this cannot go on for ever, I would think that the prospects for gold remain at least "reasonable", while currently those for the ASX seeem to me "horrendous". Sure, prices are sinking nicely for bulls, and some may be tempted to buy. But the sensible buyer will wait, and expect that the fall we are seeing at the moment will continue.

In loose technical terms, at a 10% fall from the top we'd have what is called a "correction" by many, while at 20% they would talk of the market moving into bearish territory.

I don't think there is likely to be much doubt about the "correction" (which is, actually, the opposite if you look at our market as still being in a bearish phase, since 2007, which it never left). Whether we shall go down by 20% remains to be seen.
--------------------------------------------------
Here is today's excellent essay from The Daily Reckoning:

Good Money After Bad
By Bill Bonner

Where do bad debts go after they die?

On Monday, investors seem to have convinced themselves that they just disappeared...like Amelia Earhart or TARP funds. But by Tuesday, they began to worry about ghosts.

As in the US, the specter haunting Europe is debt. In America, bad debt in the private sector - led by subprime mortgages - caused havoc on Wall Street in the autumn of 2008. It was as if all Hell had broken loose. The feds rushed to the rescue; but what could they do? They could not exorcise the evil spirits. They could only move the debts from one debtor to another - putting at risk an additional $8 trillion of the taxpayers' money.

Now it is the Europeans' turn to save the world. Their financial authorities had been seen as weak and reluctant. But last weekend, they were as bold and as bumbling as a crusader. Europe's debt is in the public sector - the debt of the subprime states around Europe's periphery. The $1 trillion bailout program calls for transferring this debt onto the taxpayers of the larger, more solvent states.

Rescues sometimes have happy endings. Households, companies, and even governments...with enough self-discipline and some luck...can sometimes be pulled back from the brink. But they must be at the brink, not beyond it.

Much is being made, for example, of Ireland. When world markets turned down in 2007, the Emerald Isle faced ruin. Like Britain and America, it had overdone it. Its banks, its households and its government had too much debt. At the brink, it took a knife to public spending, pledging to cut 7.5% of GDP out of the government's budget. There was some grousing and complaining. But generally, the Irish seem to be taking their surgery with good grace.

An important detail: it was not too late. The Irish have a national debt equal to only 50% of GDP - about a third of the Greek total. Roughly, with a modest GDP growth of only 2.5% annually the Irish could sustain their debt indefinitely. If they stick to the program, the debt problem could disappear.

There is also the example of South Korea. The Koreans faced disaster during the Asian Debt Crisis of 1997-'98. The banking sector had lent too much to the nation's conglomerates. When the latter couldn't pay, the former were in trouble. Emergency loan programs were put in place. The conglomerates were forced to merge, sell, or scale back. Most remarkably, the South Koreans showed a spirit of solidarity that revealed an alarming lack of cynicism. In 1998 the government began a campaign called "Collect Gold for the Love of Korea." Millions of people voluntarily turned in their gold jewelry in order to help the government pay off foreign loans.

South Korea was the best performing economy before the crisis. It was soon the best performing economy again. The national debt never rose about 30% of GDP and soon ceased to be a worry.

But how about the great European bailout? Will it make the debt problem go away? We will waste no time pussyfooting around the issue: 'No' is the answer. Many of the debts passed the brink between the living and the dead a long time ago. There is no way they can be revived. Europe is wasting its blood transfusions on a corpse.

The problem with Europe is that some of the peripheral states can't keep up with the interest on the money they borrowed. Greece, for example, is scheduled to have debt equal to 150% of GDP by 2011. Even at 5% interest, it will take GDP growth of 7.5% per year just to keep up with the interest payments. Since growth in Greece is not expected to come in anywhere near 7.5%, and will probably even be negative, it will sink further into debt. There are no reasonable assumptions you can make that show how Greece could ever repay the current debt, let alone more of it. The debt has gone bad. It is dead. It cannot be revived or repaid.

Bad debt doesn't disappear. Europe's leaders have merely passed it along to a broader audience. Now, the ghost of Greek, Portuguese, Spanish - and all the bad debt of the subprime borrowers - haunts the whole continent. And it will not go to its eternal rest until it is satisfied.

How do you satisfy a bad debt? The lenders - the bondholders - should write it off as soon as possible. Instead, the new bailout follows the pattern of modern macro finance. Small debts become big ones. Problems in the present are pushed into the future. And people who deserve to lose money are protected, while the public takes the loss.

It is hard to imagine how European leaders could have done worse. Money is transferred from the private sector to the public sector, where returns on capital typically are far lower and often negative. Walking debtors are allowed to borrow more, with no hope that it will ever be repaid. Overall, debt increases, as debt from the bailout is added to the original debt. Future industries are deprived of the capital now being re-allocated to bankrupt governments. And by paying off the bondholders, the government directs capital to people who obviously don't know what to do with it.

The ghosts multiply until pandemonium takes over.

Bill Bonner
for The Daily Reckoning Australia


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ody
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Karen Maley from Business Spectator is among the few commentators in Australia who has realised all along what the nature of the Greek crisis actually meant, for global finances. Even here on ODB concern about the issue has from time to time been pooh-poohed. And not that long ago the view that people like Rudy and I had of what we thought would inevitably happen was seen as incomprehensibly bearish ... Sure, we saw the decline coming as earlier than it has done, but our arguments for it happening seem to me increasingly to be vindicated in view of what has recently been, and still is, happening.

Just as eventually happened in 2007, when it was fully possible to foresee a meltdown. I do not think it will necessarily be as bad this time, but a very sizeable fall will nevertheless still be quite possible. Certainly the situation in Europe looks about as bad as it earlier did in the US, and arguably sovereign risk is worse than company risk.
----------------------------------------------------------

Karen Maley (Business Spectator)

Germany still fears a meltdown


Fresh European tensions are likely to emerge this week, with signs that Germany is determined to force other eurozone countries to commit to sharply reducing their budget deficits in a bid to stabilise the euro.

Germany is expected to press other eurozone countries to follow its own lead and introduce laws that require governments to virtually eliminate budget deficits, as the price for its reluctant support of last week’s $1 trillion rescue package.

Last year, Germany introduced legislation that prevents its federal government from running a deficit of more than 0.35 per cent of GDP by 2016, while German states are not permitted to run deficits after 2020.

Weaker eurozone members are likely to resist this initiative because it would force them to adopt even harsher austerity measures. There are already widespread fears that the tax hikes and wage cuts that Greece, Spain, Portugal and Ireland have already introduced will plunge their economies into deep recession, and could spark a double dip recession in the entire eurozone.

Yesterday, Angela Merkel, German chancellor, warned that the $1 trillion rescue package had only bought Europe time, and that further steps were needed to address the differences in competitiveness and budget deficits between the member countries.

In a speech to the annual German trade union conference, Merkel emphasised that speculation against the euro was only possible because of the huge differences in economic strength and the levels of debt between individual eurozone members.

Meanwhile, the head of the European Central Bank, Jean-Claude Trichet, emphasised that it was urgent that eurozone countries rectify their budget deficits.

In an interview with the German magazine, Der Spiegel, Trichet said that the world was now facing “the most difficult situation since the Second World War – perhaps even since the First World War. We have experienced – and are experiencing – truly dramatic times.”

He said that after the events of 2007-8, “private institutions and markets were about to collapse completely”. That triggered governments to step in with very bold and comprehensive financial support.

The problem was that markets were now questioning whether some governments could afford to repay their debts.

“This is a problem for almost all industrialised countries. In the G-7, the major economies have a yearly deficit of around 10 per cent of gross domestic product (GDP). In the euro area as a whole it averages 7 per cent of GDP. In this situation with extremely elevated deficits across the globe, the markets have singled out a weak link: Greece.”

Faced with this atmosphere of crisis, Trichet expressed confidence that governments would take the appropriate steps to cut their budget deficits. “They are committed to accelerating the consolidation of their budgets. They know what is at stake now,” he said.

But markets continue to be assailed by doubts over whether the $1 trillion 'shock and awe' eurozone rescue package will work. Last Friday, eurozone share markets tumbled, with Paris dropping 4.6 per cent, while Madrid was down 6.6 per cent. London and Frankfurt both finished slightly more than 3 per cent lower.

Many economists are concerned that spending cuts and tax hikes will force countries into recession, which will slash the government’s tax receipts and make the task of cutting the budget much more difficult. In addition, some argue that austerity measures do not address the basic problem that Greece, Spain and Portugal face, which is a lack of competitiveness. They argue that the best remedy for restoring competitiveness would be for the weaker eurozone countries to temporarily leave the euro, and adopt a lower exchange rate.

There are also questions as to whether Greek, Spanish and Portuguese voters will agree to long-term austerity.

These doubts were fuelled by comments made by Josef Ackermann, boss of Germany’s Deutsche Bank, on German television late on Thursday where he said that he was not convinced Greece could overcome crippling budget deficits and repay its debt.

"I consider it doubtful whether Greece over time will really be in a position to achieve this," he said. But he added that restructuring Greece’s debt was a last resort, because it could result in “a type of meltdown”.


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gdd3
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Hi "Our Daily Bread" team...

Bit hard to argue with what the chart of the XJO is showing at present and with what most are saying here on this thread. An update on a chart I submitted back in Feb. 2010 hasn't ready changed that much...some sort of Broadening/Megaphone Top* in place(shown by pink lines) ... that bounced recently at what I have called point 6. Now point 6 can be after the 2nd low(pt.4 of the pattern) or at the trendline support and you get a small rally to point 7. This may have occurred, right or we may get a bounce in the new few day's to provide us with our last chance to exit any exposed XJO positions before the pattern eventually breaks(close below pt.4) that should signal a swift and decisive move that many are predicting. I favour, because of **'classic' measured moves of such a pattern a little lower that most have mentioned here, i.e. towards 3905 - 3750 range.

Also of interest on my chart is the apparent importance of my 'Decision Line'(drawn in thick blue); parallels of this could also form supports on the way down, one coming in agin ~ at the 3905 level as well! It also gave us, along with the 38.2% Fibo level, our recent retracement high.

*A Broadening Top is powerful chart reversal pattern. It is comprised of three peaks at successively higher levels and, between them, two bottoms with the second bottom lower than the first. Broadening tops occur frequently in the later part of over extended bull markets.

**Measured moves for Broadening Tops vary between the height of the broadest part of the pattern, i.e., distance from pt.4 to pt.5 and project down below the level of pt.4(shown as prink line objective at 3905 on my chart) or 2/3rds of range of the whole 'bullish' move to pt.5 high(thats shown in orange and is referring to the move from the Mar.2009 low to the April 2010 high).



Cheers
Dolphin


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ody
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Monday, May 17, 2010 - 03:27 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)



Dolphin, - What you say does not sound at all implausible to me. Although currently slightly less fierce (things never go in a straight line), I think this is a significant sell-off, and it is still almost certain that most underrate what could - probably will - happen. A sell-off to 4000 or more for the XJO would not surprise me in the least. Indeed, if the European disaster drags on, it could all get much worse than that, in the sort of way that you mention.


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ody
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Monday, May 17, 2010 - 04:36 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)



No harm done in my case

This is a case of conservatism really paying off - quite literally. I suffered no loss whatever, and in fact all in all made a slight paper gain, notably on my ETF GOLD, including the "fill-up" I bought fairly early in the morning.

Meanwhile the Australian share market is down by a very substantial figure, and it is a fair bet that a good many investors would have lost more than the average (on paper, at least), as at certain times certain sectors are favoured by sections of the investment community. The average bull would often have stocks in exactly those areas which today were hurt the most.

Here is further good comment from The Daily Reckoning:
-----------------------------------------------------------

As Credit Agricole CIB analyst Daragh Maher puts it:

"The preoccupation remains the ongoing fiscal stress in the eurozone and the contagion thereof, which is no longer confined to considerations regarding the likes of Portugal, Italy and Spain. Instead, it has spread across continents and asset markets, much in the same way as the ripples of the (US) subprime crisis extended far beyond initial expectations."

Got that?

And more importantly, what should you do? Well, if you're really spooked, you know what my answer has been in the Daily Reckoning: cash and bullion.

---------------------------------------------
[Abridged]


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gdd3
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Monday, May 17, 2010 - 04:37 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)



Ody,

Forgot to mention, breaks of support(close below second lower low...i.e., interestingly, almost where we closed today) of Broadening Top Patterns(B.T.P.) usually result in very swift moves, hence I agree with Rudy that a swing low could come in place as early as next week or early June(as sort of indicated by my yellow arrows on the chart submitted).

Also, of interest, was that today's volumes are not necessarily high(say compared to the strong consecutive daily falls falls during the week May 3rd - 7th...but watch this change if we 'gap-down' tomorrow(under the B.T.P. support).

See what tomorrow brings...but Thank the (trading) Gods for a "flight to quality"...Gold stocks!

Cheers
Dolphin


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rdumas
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Monday, May 17, 2010 - 04:45 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 Dolphin,

I've been out all day so missed out on all of the fun. As mentioned in my Weekend Market Wrap document I do expect a bounce somewhere near the lower boundary of the Fog Horn pattern which should give us a bit of a rally in the next day or so. The labeling used in the chart below has nothing to do with EW counts but purely to once again point out the similarity of the wave structure of this move down and the preceding move down. We are in the midst of the 5th wave and most of the damage of this leg has been done.



I do expect that the bounce will probably last just a few days and take us towards the level of point 4 before it then moves into its final leg down which may be of a similar range of the move from the upper boundary of the Fog Horn to the lower boundary (point 3).

As mentioned previously I do expect the bottom of this completed pattern to be over sometime in early to mid June.


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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gdd3
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Monday, May 17, 2010 - 04:56 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 Rudy,

Agree with what you have just pointed out and thats exactly what I was alluding to with my 'alternative' pt.7 locations in my chart above. She's almost a 'perfect' BTP/Megaphone or Foghorn pattern as I see it but as soon as you 'rely' on such statements it comes back to bite you!

Interesting day's ahead!

Dolphin


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ody
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Today's damage

IF a bounce of any significance occurs in the next day or so "ordinary Australians" may feel some relief. Today they would have been greatly distressed.

Among the top-size stocks the miners or mining-related stocks really did rather excel:

BHP (miner) lost 4.53%, FMG (miner) 6.50, LEI (in some senses mining-related) 7.16, RIO (miner) 5.66, WOR (mining-related) 3.51; WPL (energy miner) 3.46.

The clear fact is that ALL the major miners went down heavily, whatever one wants to argue about LEI and WOR.

Admittedly, Australia's highest-regarded two banks also went down sharply, with CBA losing 3.11 and WBC a staggering 6.47.

As many of these stocks are household names and held by virtually any major super fund not self-managed - I think of BHP, CBA, RIO, WBC, WPL especially, but one can hardly reject the others as not popular - there are certain to be some very nervous people around. I would suggest that it is at least as likely that the savaged stocks will inspire fear as that they will be bought in a mini-rally, though only the event itself will reveal what will happen.

It is, of course, impossible to blame just Kevin Rudd and Labor. Most people would understand that this rout is for one thing international. Even so, those looking at their BHP, FMG, RIO, and WPL will for a moment, at least, dwell on the 40% super tax and ask themselves whether it is so good an idea, after all, to see the much chatted-up pie grow smaller in front of their eyes, with their inevitably losing money (even if "only paper losses").


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ody
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Monday, May 17, 2010 - 05:24 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)



Further falls ahead?

While I shan't deny we could see a small rally-in-reaction tomorrow or so, I would still point out that a further decline, even then, is not at all inconceivable.

One argument for seeing today's damage as limited is that the total volume of 1,935,500,310 was not high. That is a fairly reasonable point by itself: one cannot yet speak if a uniform rush to the exit, as otherwise the total volume might well be higher. On the other hand, the question also has to be how this volume was divided. And then it is surely telling that down volume was 1,330o,509,919 - a very high percentage of the total.

Furthermore, the decliners, at 877, far outpaced the advancers at 236.

FINALLY, THE FUTURES FOR MARKETS WORLDWIDE ARE VERY BAD. FOR OUR MARKET THE FIGURE IS A VERY SUBSTANTIAL 115 POINTS.

Under these circumstances surely the possibility of our market falling further - perhaps more so because of the futures than the total volumes - must surely be taken seriously.


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ody
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Monday, May 17, 2010 - 05:35 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)



Leighton Holdings

Leighton declared a very positive set of figures today. I cite one particular statement by Wall King, who is an excellent manager:
----------------------------------------------------
"These are strong results for the nine months which reflect solid performances in mining and infrastructure, offsetting the difficulties in property and the Middle East – particularly Dubai," Leighton chief executive Wal King said in a statement to the Australian Securities Exchange (ASX).
----------------------------------------------------

Why, then, did the market sell off this stock, after so good a performance in - of all things - not least MINING?

Surely there is just one simple explanation for this.

THE MARKET DOES NOT EXPECT THIS PERFORMANCE TO CONTINUE, AND ESPECIALLY NOT BECAUSE LEIGHTON BENEFITS FROM *DEVELOPMENT* IN MINING. MANY SCHEMES HAVE BEEN, OR ARE BEING, PLACED ON HOLD, OR SIMPLY ABANDONED. SUCH EVENTS WOULD HEAVILY IMPACT ON A STOCK LIKE THIS, AND HENCE IT IS NOT UNFAIR TO SEE THE SELL-OFF AS FOR ONE THING CAUSED BY FEAR OF THE CONSEQUENCES OF THE INTRODUCTION OF THE RESOURCES TAX.


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ody
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Monday, May 17, 2010 - 05:43 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)



Commentary - from Business Spectator
2:23 PM, 17 May 2010
Robert Gottliebsen

Bears gain the upper hand

As I write, the Australian and the Shanghai sharemarkets are both down around 2.7 per cent [it got worse, - Ody] with the Shanghai index 21 per cent below its November peak.

While as the day and night proceed, trends could change, the two obvious questions are: 'what does this mean', and 'why it is happening?'. In short, it means that the big rally we saw in the share market last week was a 'dead cat bounce' – dangerous rallies that interrupt bear markets.

There's no doubt that we are now in the midst of a bear market. Just where it will end is yet to be determined, but today was bad news. Traders who believed we had a bull market ahead were liquidating their positions, thus multiplying the fall.

Why is this happening? There is just too much bad news and uncertainty out there. Given that the Shanghai index is leading the world down that’s where we must start. China’s stimulation after the global financial crisis was the biggest of all countries, and much of it was driven by banks being given monthly quotas to lend money. Any one who wanted a loan was urged to accept twice and three times what they were asking for so the bank manager could meet his quota.

This crazy situation is now being unwound and the Chinese market is nervous as to just how far the slow down process will go. It will reduce the demand for metals. Not surprisingly most metals except gold fell between 1.5 and 2 per cent today and the Australian dollar followed them down.

Australia is China multiplied by two and so when they boom, we surge. When they start to slow, our markets go into reverse.

Add to the China pot the fact that we have Europe where it is, it is clear that we are going to see a massive contraction of activity as Portugal, Italy, Ireland, Greece and Spain slash their big deficits. Almost certainly we will see a European recession and in some areas it will be a depression. That means that demands for Asian exports to Europe (which are greater than Asian exports to the US) will fall – adding to the slow down in our region.

And of course we have bears that fear the whole rescue package will fall over causing great harm to European and world banks.

Then, in the US, we also have massive deficits at the federal and state levels and a set of problems. Europe and the US cannot lead the world out against that, the governments and central banks of the world are keeping a close eye one the situation and will do what ever is required.

But with so much bad news floating around, it's not good news for sharemarkets. Of course, in Australia, we have a government that has just prepared a budget on the most optimistic global scenario possible and then has taken to our biggest export industry with a tax axe. Could you ever think of anything crazier in a bear market with commodities falling?


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jaded
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Monday, May 17, 2010 - 05:44 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)



Sentiment Factor to 'kick in' is Tax Loss Selling.It's that season.
There's been some Office Ruling on this that I'm not really up with.
I think it's that one has to actually sell On Market and not indulge in transfer/paper shuffling.

Tax Loss Selling used to be used as a 'dodge' but that was when share capital losses were deductible from General Income.
Now with the Investor Education re 'Stop Loss Using',it's become more 'Legit'.
These days Tax Return 'Time' acts as a Motivation to clear the Bottom Drawer.

So this FActor will add to any 'Panic'/Price Downturn.
One should try and calculate how many shares have recently Deeply Dropped to ascertain possible Tax Losers.
I suggest that Cockatoo COK as a not 'travelling' too bad on this track.

regards.


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

Sir Zelman Cowen c 1970.

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ody
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Monday, May 17, 2010 - 06:29 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)



Resources fall and the Australian dollar

For some time now there has been more risk aversion, but here I want to concentrate on that sentiment towards resources, which have been going down for some time (starting, it will be remembered, even before the resources tax was announced).

I am not myself greatly worried by the fall in resources and resources stocks (with the exception of gold and several gold stocks), as I had foreseen it and am not exposed to the process (except through gold, which has been going up, not down).

The main reason for the fall in resources worldwide is not our resources tax, though that certainly has contributed to the process, as was evident through the causal connection between the announcement of the tax and the plunge that followed. Nor is it the result of tax selling, as Jaded is suggesting: it is as yet too early for that, as the tax year finishes at the end of June.

No, the really big reasons - which explain why this rout is worldwide - are two. One is, of course, the European situation, which has savaged confidence worldwide. The other one - probably the more important one of the two - is fear of what is happening in China, the "heartland" of resources, and this is not often enough analysed in Australia - of all countries the one that should look most critically at the developments in that country.

Among the comparatively few Australian analyses of the Chinese economic threat is the following by FnArena's editor Rudi, writing in the latest Eureka report. This is only an extract, but I think it is helpful and illuminating:
-----------------------------------------------------------
It probably won't have escaped anyone's attention that together with most equity markets worldwide, industrial commodity prices seem to have peaked in April. Apart from a retreat in global risk appetite, certain developments in China have been just as responsible for the easing prices of miners as the Resources Super Profits Tax.

Chinese policy makers are fully intent in causing a hard landing for their domestic property market, which is showing all signs of a liquidity driven bubble; it won't bring down the economy, but it will teach speculators a lesson.

It is this realisation that has made investors increasingly gunshy when it comes to buying more exposure to copper, nickel and iron ore, for example. This is one very good reason not to bid up the prices of the miners of such commodities.

Share prices of BHP Billiton (BHP) and Rio Tinto (RIO) may well look ridiculously cheap on current forecasts for 2010-11, but it is a telling sign that both have only bounced back from the recent carnage in a rather measured manner.

Technical analysts will add that the recent selloff has pushed the share prices of both below the 200 day moving average – not a positive sign.

Observe also the Australian dollar has been unable to surge back above US90¢, another sign that global investors have become more cautious. (The overall mood is not supported by newswire headlines swirling across the internet that the Chinese stockmarket has this week “officially” retreated back in bear market territory).

Bottom line: none of the above proves that the underlying trend in earnings forecasts is about to turn into a barrier instead of providing support, but risks are on the increase and thus extra caution seems warranted.
-----------------------------------------------------------


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jaded
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Monday, May 17, 2010 - 07:33 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)




ody wrote on Monday, May 17, 2010 - 06:29 pm:

Nor is it the result of tax selling, as Jaded is suggesting: it is as yet too early for that, as the tax year finishes at the end of June




Ody I'm only saying that Tax Loss Selling is a Contributing Factor NOT the Sole/Major Cause.

Further I can't cut'n'paste some "Authority" only say that the Tax Loss "Season" starts in about March/April.

Ody that's when Tax Accountants are called on to do Planning and Plotting.
NOT at the last minute/June Ody.Trust me.

In fact it has been observed that in some years Tax PROFIT Taking occurs in June by Institutions and Sophisticated Investors.

This seems to be so as to take advantage of the Hoi Polloi's attitude to Minimise Tax at any cost.[a la d'Greeks!!]
A share in substantial profit in June can have limited Supply so the Sophisticated get a Premium by "pumping and selling' these Winners in JUNE.

When the Bull was running a few years ago,one could notice a JULY sell off happening.This was to 'get d'Money In' so you had 18 months before paying tax.

Ody,might I suggest that the Fact you no longer pay Tax on your super 'windfalls' has taken tax considerations out of your ambit?
No doubt,Dean the Social Justice Activist,could propose that this Superannuation SweetHeart Deal should be jettisoned perhaps to make/pay for concessions on the Resource Tax?



So one can see that Cockatoo over the last year doesn't have too many 'pilgrims' in d'Red.
Two Years ago is another matter but can one 'assume' they Tax Loss Sold last year?

Actually COK 'indicates' that it may RUN in June and get sold off in July.

but it's not blessed 'important' like BHP or Rio,hey Ody? you'd rather dabble in Gold,right?

anyhow,just didn't want tax loss selling as a Contributing Factor to be so caverlierly dismissed.
regards.







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

Sir Zelman Cowen c 1970.

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eblode
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Monday, May 17, 2010 - 07:42 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)



Ody,
Your posts are reaching into high places. I have a friend who works at Credit Suisse in Geneva and I forward your posts to him and he requested me to continue to do so as his staff is fascinated by your comments as well as getting feedback from Australia. I too feel your posts are very informative but really biased towards the negative. Today we had a bad day, but bad days come with the territory. Last week I cleaned up a mint and will do so again. Europe will get it's act together very shortly, the US is starting to go gangbusters with production up, manufacturing up, and retailing beginning to move in a very positive direction. We shall see 5000 plus easily by the end of the year and these little hic cups are part and parcel of any market. Take advantage and buy up the goodies that the "girlie boys" have dumped today like MRM,TPM, and SEK...not to mention ABC. It's like Christmas came early.
Next week we'll be laughing....betcha.

Eugenio

 
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