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Aussie Stock Prices Stuck in the Middle

What a long, strange, boring, indecisive, inconclusive year it’s been for investors. There are big problems which don’t seem to have any solution. Yet collapse is not desirable and appears to be preventable, if you give a central bank enough room to cut rates and buy bonds through quantitative easing. Are we stuck in an endless rut? Or will things get worse, then better…or better, then worse?

This week will be a pretty good test of your investing character. If you’re prone to worry and addicted to data, you’ll love it. First off, the Reserve Bank of Australia (RBA) meets tomorrow. The RBA has cut rates by 1.5% in the last 12 months. At 3.25%, the cash rate is still above where it was at the high point of the panicked days of 2009.

But look at the chart below. Lower rates in Australia haven’t been the tonic for higher Aussie stock prices. True, higher Aussie interest rates have been the tonic for a strong Aussie dollar. And that’s brought billions in foreign capital in to the country. But the poor old stock market can’t seem to make up its mind whether to follow America’s lead or China’s lag.

Aussie Stocks ‘Stuck in the Middle With You’

Stuck in the Middle With You
Click here to enlarge

Source: StockCharts


You can pack too much information into a chart. But this one tells us three things. First, the Federal Reserve is pretty good at manipulating stock prices higher. Maybe it’s inflation, because it doesn’t seem to correlate to rising corporate profits. But stock traders can trade QE, if you’re playing in the right market.

Second, the Chinese have given up on speculating in the stock market to beat inflation. We’ve conceded that the US market is clearly manipulated by the Fed, at least to the extent that the Fed is the largest currency manipulator in the world and is actively screwing with bond yields to force people to take risk. But China’s dismal share market performance tells you that the market there isn’t really a market either.

To their credit, at least Chinese authorities have encouraged their citizens to own more gold and silver. They’ve gradually deflated bubbles in housing and stocks without inflating a bubble in social anger. That’s no mean feat.

But stuck in the middle of the successful fraud of QE and the slow-motion asset deflation in China is Australia. The share-market can’t seem to follow a lead, or it refuses to, and has stuck stubbornly to a third, middle, Australian way. Is this a reflection of the Australian desire to be pragmatic, non-ideological, and independent?

Well, it could be. Or it could be genuine confusion about what the data means for the Australian economy. For instance, later this week the national accounts figures will be released. They will show the terms of trade data, or Australia’s net national income (the difference between exports and imports). If the past is prologue, the terms of trade are falling.

They’re falling because commodity prices are falling. The main benefits of the investment boom in resources have been realised, too, although the Treasurer and the RBA both say economic growth will benefit from billions of dollars in projects in 2013. But if the data show a falling terms of trade and rising costs, will all those investment projects go through? Hmm.

But really, no one ever got rich by worrying to death. At some point, you have to put aside the things you can’t control and decide what to do with your money. As our mate Kris Sayce points out in his latest silver screen production, building wealth is about taking risks.

Regards,

Dan Denning
for The Daily Reckoning Australia

From the Archives…

William Knox D’Arcy: The Greatest Australian You’ve Never Heard Of
30-11-2012 – Callum Newman

Credit and Credibility
29-11-2012 – Greg Canavan

Nothing More than Feelings… For the Aussie Dollar
28-11-2012 – Dan Denning

The Thanksgiving Gift from the Feds
27-11-2012 – Bill Bonner

The Aussie Dollar Dilemma
16-11-2012 – Dan Denning

Dan Denning
Dan Denning is the Editor-in-Chief of The Daily Reckoning Australia and the author of 2005’s best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 as a small-cap analyst. From 2000 to 2005 he was the managing editor of Strategic Investment, where he recommended gold and warned of the US housing bubble. Dan has covered financial markets from Baltimore, Paris, London and, beginning in 2005, Melbourne Australia, where he is the Publisher of Port Phillip Publishing. To follow Dan's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
Dan Denning

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1 Comment

  1. Ross says:

    Below is a link that frontier spirit. It is called a racket for the soft handed that is dressed up as risk taking.

    When your frontiersman now has 70% of the world’s military spending backing him what sort of risk do you think he now thinks he is taking? A slam dunk decision after comparing that American risk versus that of your average Asian or Middle East or African or Latin American punter or sovereign nation right?

    Well wrong, unless your neo-intellectual elite reads history as badly as Zbigniew Brzezinski and follows his “The Grand Chessboard: American Primacy and Its Geostrategic Imperatives.”

    http://www.bloomberg.com/news/2012-12-03/treasury-scarcity-to-grow-as-fed-buys-90-of-new-bonds.html

    Praise the Lord for delivering us of our “investors” to keep interest rate near zero eh?

    But wait, who benefits most from the leveraged “investors” ability to take woefully collaterised and virtual free money positions to buy those UST’s?

    Ah yes, that would be, by means of “capacity building”, that same hyper leveraged “investor”.

    And who loses by only receiving unrisked and racket induced low rated yields? That would be anybody with real collateral like the savers.

    The question is this though: as those foreign sovereigns withdraw from the UST auction what happens to the dollar hegemony when the USD can’t be recycled with trade partners to generate US consumer purchasing power and keep the US CPI low? Stagflation via commodity prices? A collapse in the USD?

    The world’s biggest economy can stand in isolation like no other right? Energy and food resources, essential production, nobody has it like the US?

    The truth is, that by choosing a path leading toward US isolationism, they have everything but continuity in those jobs dependent on services, consumerism, and financialised assets.

    The problem is that the scale of that “but” is such that would it drive Anglosphere social anarchy and revolution.

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