The Dow is set for a tumble

The Dow Jones is fast approaching another resistance level at 13,000 points. After a good rally from 11,800 pts the Dow is set to return to those levels in coming weeks. I dont see it breaking 13,000 points. The reason is high oil prices and likely flagging consumer & business sentiment.
It is possible that the market might be encouraged by the prospect of Ben Bernacke not immediately raising interest rates, irrespective of whether this easy money is not supporting any new lending, not to business at least. What else can you do with easy money but speculate. Surely this money is going to end up driving gold prices higher, and probably oil, despite it at some point collapsing due to economic malaise. I would not be surprised if the market shrugs off high oil prices, higher inflation numbers and rallies through resistance.

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Andrew Sheldon www.sheldonthinks.com

Bond yields breaking downtrend?

Some interesting developments in markets of late. The real yields on long-winded treasuries have broken their downtrend after the US Federal Reserve engaged in subsidising of the banking system for a time. Does this herald a period of rising interest rates? If you are worried about gold investments, result assured that inflationary pressures will keep Ben Bernacke well behind the curve. I suggest these rates will pull back when new inflation numbers are presented. I think the Fed is not likely to raise rates just yet, and I think these yields will fall once again.

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Andrew Sheldon www.sheldonthinks.com

The outlook for an Australian economy

I congratulate Ross Gittins on his article “Everything's coming up roses” in the SMH Online (23/4/08) where he identifies the positive outlook for the Australian economy. There were several omissions though I would like to add:
1. He saids nothing about the positive outlook for Australian food exports, which will add to the glowing outlook for Australian minerals demand
2. Gittins and a number of other people talk about the 2 billion Indians and Chinese people as if they are one market. The notion that half the world’s population is growing at 10% is alluring I am sure, but lets not forget that a great many of them are living the same way as they always have. There is likely one member of the family working in the city sending back a paltry $1/day, given the higher cost of living in the city. The cultural difference between these regions is actually more important than the political boundaries.
3. We might wonder where the metal will come from to give the Chinese and Indians the equivalent standards of living in 20-30 years time. We can also be sure that they will achieve prosperity faster than any economy before. We should not forget however that some of that ‘productivity bonus’ will arise because we are using more compact electronic devices, which cost less but also use consume much less metal. Might we also expect higher recycling levels as we see greater standardisation of computer components. These are the aspect of the ‘growth story’ which are not discussed so much. Everyone only talks the upside. But these are great times for Australia to be sure.

In all other respects this is a good article and it should be read for some insights, or just as a reminder of Australia’s place in the world.

Dubious disclosure record by regulators

It was just last night I was discussing with someone why we shouldn't have taxation. Taxation = coercion = no accountability. More surprisingly still is when a journalist does some critical thinking, so my hat goes for to Michael West at the Sydney Morning Herald. If only they gave his looser deadlines so he could do some investigative journalism, so he might have exposed this story before the failure of yet another financial services company. See ASX & ASIC Disclosure.

I am well versed with the ASX's lack of interest in disclosure rules or guidelines, so it does not surprise me that they should have slipped up. I have just one experience dealing with ASIC. I registered a complaint against a company CEO for misleading the market in an attempt to raise capital. ASIC said there was no case to answer. I suggest because the evidence was not conclusive enough. The problem is that few resources are going to regulating compliance because it all goes on welfare statism which includes corporate subsidies as well. So in this case the best I could do was make this CEO hyperventilate at the company AGM. I doubt that will slow him down. He struck me as the type of guy with friends in the right place.

What a turgid, fascist world we live in....never mind the rhetoric that we have never been freer. The animal has just changed its chamouflage.
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Andrew Sheldon www.sheldonthinks.com

ASX All Ords likely to consolidate in short term

I see the Australian All Ordinaries Equities Index consolidating over the next week. I dare say there will be some volatility, but the market index will likely go sideways. The broader market will likely be weaker, but the resources sector should hold up reasonably well.
I actually see the current market as a good time to buy 'spec' resources, while I would be trading out of blue chips to re-enter the market in a few weeks. I made the point about 8 months ago that this was a traders market. Alot of volatility. This is NOT a market for the 'buy & hold' strategy.

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Andrew Sheldon www.sheldonthinks.com

Dow heading back to 11,650 point level

The Dow Jones took a tumble in Friday trading from 12,579 to 12,325, a fall of 254 points. The fall confirms previous sentiments that the Dow would fail to break out into a new uptrend. Instead we are looking at the Dow heading back to 11,650 pt support set on the 23rd January 2008.

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Andrew Sheldon www.sheldonthinks.com

Nikkei 225 rally will be short lived

Nikkei-225 is up 172 pts today to 12,697.99 after a 200+ rise yesterday. This might suggest that the Nikkei has found a bottom. I dare say I think this market is going lower, and that this rally will be exhausted. The 12,000 level is a strong support, but I still think its going to 11,000 pts. The reason will be a deterioration in confidence by Japanese buisness and consumers, and that will be caused by a weaker USD (stronger yen) and other bad news from the USA. So how long is this rally likely to be? I would suggest this rally will peak at around 13,000 pts, as that was a previous support level, and thus it will prove to be a strong resistance.

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Andrew Sheldon www.sheldonthinks.com

Re: Federal Reserve could make substantial rate cuts

Cuts by the Fed might have some temporary 'feel good' impact on markets but it will do nothing. Thats why they are doing it. They know it will be perceived as action, so they are covered, as 'they did all they can'. But think about it, who borrows money when an economy is contracting and asset prices are falling. No one - except banks who can't fund their short term liabilities because of a run on the banks. The Fed surely has deep pockets there since they can always print money, which just erodes the value of the money you have, so hidden increase in tax.
See More: Federal Reserve could make substantial rate cuts
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Andrew Sheldon www.sheldonthinks.com

Nikkei 225 good buy off 11,000 support

People are pretty worried about the current state of equity markets. Those whom are waiting on the side are also worried about whether they will get the right timing. In the case of the Nikkei-225, we are still far away from the best time to start reinvesting. We have seen a number of USA financial institutions fail. We have heard nothing from Japan. Their time will come. It will come in 2 forms:

1. Financial institutions who have exposures as counterparties to foreign institutions
2. Financial institutions which have dodgy investment portfolios, that is they are holding bad positions on their books.

The best time to enter the Nikkei-225 will be when it reaches 11,000 pts. We are still at 12,482 pts, so that suggests a significant fall ahead. The 12,000 level is another important level, and the Nikkei has already rallied from that level, but I think it will be short-lived. I think it will exhaust itself by 12,500 pts. The reason I expect the 11,000 level to be achieved is because it has been a major support/resistance for the last 5 years. If that is broken, then we might be looking at 10,000pts. That is an even stronger support, but I dont see that being achieved. The outlook for Japan does not strike me as too bad relative to other markets.

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Andrew Sheldon www.sheldonthinks.com

The All Ords destined for 4800 pts

I actually think the Australian market is in pretty good shape, but I think its futile telling the market that. I think the market is looking for reasons to touch 4880 level support.
I think there is the possibility the market will touch 4880 pts, but the ASX will finish the week above 5000 pts. Resources will be the biggest source of strength, as well as food & farming-related stocks.

The justification for reaching that level will be the prospect of a number of interest rate increases in future and the impact that will have on domestic spending. Technically the market is just not ready for a move above 5300 pts since last week it was repealed trying to break that level. I would however be particularly interested to see how the market opens in Australia because the market did not close above its previous low. If it opens strongly I take all that back. You will get very early guidance on this one. Just checking the Dow Jones Index. It was up 120 pts earlier, but now I see its just up 21 pts, placing it slightly below 12,000 pts. Thus I see broad weakness with strong resources, particularly gold.
Mining companies are looking at healthy metal prices irrespective of the strong $A. We will be looking at parity between the $A and $US, so dont even think about exporters or companies with a significant portion of their earnings derived from offshore. The best performers will be the gold producers, but with the greatest gains coming from the emerging producers rather than the established miners which have found support in the market already. So check out my Specs blog. This is buying time people in gold, silver, palladium and platinum. Not oil at this point, and selectively with other metals and coal.

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Andrew Sheldon www.sheldonthinks.com