What’s your take on technical analysis? The idea that prices can be forecast from charts seems counterintuitive, let alone at odds with the Markets and Money philosophy. Well, working alongside Murray Dawes, our trader here in St Kilda, would change your perception rather quickly.

Maybe that’s because Murray isn’t the ‘typical’ trader you might imagine. Murray uses the same type of top down analysis that Dan Denning does in Markets and Money and Australian Wealth Gameplan. He is one of us, even if he doesn’t always agree on our outlook.

The difference is that Murray looks to charts for an additional guide. It’s how he identifies turning points like the April high in stock markets around the world.

The saying goes “markets can remain irrational longer than you can remain solvent”. Murray’s analysis deals with this point exactly. It can warn you about upcoming moves, even when they aren’t in line with your longer term conclusions. You profit, regardless of being right about the big picture. And when you are right, you profit big time, like Slipstream Trader subscribers did in April.

The best part about Murray’s service is that there’s nothing new to the picture. No CFDs, options or voodoo. It’s about buying and selling blue chips that you probably already own. You won’t have to change your outlook on life or how the world works. Just be prepared to see bigger profits.

Consider how the mainstream views you as a Markets and Money reader. We can proudly inform you they put you on the “lunatic fringe”. So maybe a sneak peak at what Murray is up to could provide a whole new insight into your financial life, even if you think technical analysis is a crazy concept.

For more details on how Murray can help you wring more money from blue chip stocks, click here.

I’m starting with the man in the mirror

This from makes good reading:

Former Victorian Labor premier Steve Bracks has been approached to lead an investigation into the federal Labor Party’s internal crisis in the wake of the election. In what could rival the Hawke/Wran post-mortem following Labor’s loss in 2001, the inquiry is expected to engage in a sweeping investigation of the party’s failures…

While the same people who campaigned remain in power, what do you think the conclusion of the investigation will be? Poor policy? Yeah right!

Apparently Australians enjoyed the hung parliament debacle anyway: The Australian has published a poll with the following details: “Primary vote support for both the Coalition and Labor has dropped since the election, while backing for the Greens and “other” candidates has surged in the three weeks of independents’ haggling over the hung parliament.”

Wouldn’t it be amusing if the populace surprised everyone and voted in three years time, or before, for an even more hung hung parliament.

Then again, hopefully the government will last the full three years, or feminists will be up in arms. Three females running the country is truly an achievement. The Queen, her representative and Julia Gillard. The Poms came close in 1979…

On the other side of the political aisle, Malcolm Turnbull is back. They say “money never sleeps” and this former Goldman Sachs banker has the NBN in his sights. This, keep in mind, is after the emissions trading scheme debacle. “Trading” being the operative word. The former banker just couldn’t resist supporting a scheme that would make financial boffins rich.

And in local news, we see where your stimulus dollars ended up – with state governments. The Financial Review reports: “The federal government’s stimulus program pushed Victoria’s operating surplus to $644 million last financial year, four times the amount originally forecast.”

But wait, it gets better: “The handouts from Canberra did not stop treasurer John Lenders taking credit. Instead, he attributed the bumper result to the “tough decisions” Victoria made to “fight the Global Financial Crisis head-on”.

So apparently a government surplus is a good offset to a financial crisis. Someone should tell Obama. But with a man named Lender taking credit for the surplus which he gets from the federal government, who knows what’s what anymore.

Property is a policy failure

Tim Colebatch at The Age wrote a Markets and Money worthy article with the following highlights, including quotes from a new study for the Australian Housing and Urban Research Institute:

High house prices act as a drag upon growth and competitiveness, have exaggerated inequities of wealth and intergenerational equity, and they will eventually increase the welfare burden on the community.

All of us who own a home feel good about seeing its value rise – until we have to buy another home, when we find it’s just inflation. The wealth it confers is illusory, unless you take your money out of housing, and invest it somewhere else.

It has been a classic case of policy failure – the more so, as the Reserve Bank has pointed out, because the tide of rental investment that has pushed up prices is essentially tax-driven.

Holy dooley. Will Tim find himself classified as belonging to the “lunatic fringe” before long? The comments on his article certainly sound like Markets and Money readers too.

Golden coating

“Gold for December delivery touched a record of $1,276.50” – Yahoo News

Yes, yes, we have been yelling it off the rooftops. But to be honest, gold isn’t really meant to be the big winner in your portfolio. It’s the insurance. Not the AIG kind of insurance though. It’s the kind that lets you sleep at night. As Dan Denning noted in Wednesday’s DR (quoting the Golf Digest) “Gold has a reputation for preserving wealth. Then again, we’re only going back 5,000 years.”

Yes, if you happened to be immortal and went to sleep with one hell of a hangover from the stone henge opening night party, your gold would have preserved its value up to today. There is a more credible calculation involving Italian suits, but frequent Markets and Money readers will be sick of hearing about it.

So for now, the highs in gold should be seen as a warning light for everything else. The curse of the gold bug…

But there may be more to the story of recent gold and silver moves. Remember the story about metal price manipulation by banks? Well, Infowars claims that the recent rise can be attributed to the fact that banks are winding down their proprietary trading in the metals.

Central bank interdependence

The central banks gathering in Jackson Hole, Wyoming, isn’t just for central bankers. Nor is central banking. For years, the academic and publicity line was about emphasising the need for central banks to be independent. ‘So they don’t just monetise the government’s debt’, was the reason. Each different central bank then decided to break this rule in different ways.

In 2008, Jackson Hole heard the following reality check from a US Treasury official: “Fiscal policy, monetary policy – what’s the difference?” Since then, the world has set about proving him right.

Oh, and we’re assuming he is referring to the fact the central bank Quantitative Easing (QE) policies monetise government debt, which is issued to pay for stimulus attempts. Because there are several obvious differences between fiscal and monetary policy. Perhaps we shouldn’t give a treasury official the benefit of the doubt.

The key spin off from aligning the concepts of monetary and fiscal policy is that this sets you firmly on the path of hyperinflation. Structural deficits that can only be supported by “structural money printing” create this scenario. (We hear that sees hyperinflation in the US within 9 months.)

The climate change section

The Financial Review on Tuesday (p6) gave us a prime example of how to deal with pollution appropriately. Climate change deniers and spruikers alike should take note, as this is the solution to both your qualms.

“Institutional investors are set to hit listed companies with a raft of shareholder resolutions on environmental issues this voting season, following a trend which has emerged overseas… “

This is the free market at work as it should be. Well, part of it anyway. If you want to reduce emissions then don’t go begging your local MP for CPRS legislation. Instead, force the polluters to change their ways directly. A shareholder resolution is a good start.

Even better is to hit a company where it really hurts. The bottom line: don’t buy their stuff if they pollute. Buy a Prius, fly with the company that will offset your emissions, boycott BP… In other words, use capitalism and the profit motive to your advantage. If Australians who believed in climate change did this, it would pay for companies to change and come up with cleaner products. Then, maybe your editor wouldn’t suffer as badly from hayfever.

But for now, we have a “complete policy vacuum” which is “deterring badly needed international investment in cleaner electricity generation” says the managing director of one of Australia’s biggest power providers.

Yes, believe it or not, the fear of government meddling stifles innovation and investment. And when you think government will solve the problem, you don’t bother doing anything about it yourself.

By the way, this isn’t just the solution to climate change. The world is making the same inroads on labour standards. “Legislative uncertainty is giving some corporations an excuse to just sit on their hind quarters and do nothing, but shareholder resolutions can actually force material change to corporate behaviour,” said Responsible Investment Academy Executive Director Louise O’Halloran.

Consumer sovereignty and shareholders rule in the free market. Not corporations. (If they don’t, it’s because government has made a mess of corporate law.)

But corporations do rule in a regulated market. Well, the big ones do anyway. That’s why last Thursday’s Financial Review has BHP CEO Marius Kloppers on the front page, advocating a price on carbon. It looks like he’s being altruistic. In reality, by making life difficult for miners, BHP assures its top spot. That’s because huge companies like BHP can shoulder the cost of compliance comparatively easily. The smaller miners would struggle.

And making the price apply only to large companies doesn’t change this one bit. It merely adds reasons for small miners not to grow and compete with BHP. Instead, acquisition becomes attractive…

Anyone who points to big business for proof of the failure of the free market has got their story backwards. The lack of a free market is what allows companies that are “too big to fail” to become too big to fail in the first place. That’s why you see executives from Qantas, Coca-Cola Amatil, QBE and Telstra on page 7 of the Financial Review, advocating an ETS. Smaller business execs know how disastrous it would be for them.

The Tea Party parties on

Vote results across America are falling to the Tea Party. And in substantial numbers. Established Republicans are having to deal with an insurgency into their party. (Some would say that the party is being taken back from them.) Even after the Delaware Republican Party Chairman said that a Tea Party candidate win would be a “complete train wreck” for the party, the candidate won.

You may not know who the Tea Partiers are. Sometimes they don’t know themselves, to be honest. And it wouldn’t make much sense if your editor tried to explain, because the terminology is all messed up. Essentially, they are self styled conservatives with classical liberal roots.

The point is that there is a revolution brewing, which could bring genuine change to the US. But the structural problems run too deep for the change to be quick and easy.

Chances are that politicking (which includes central banking) will determine the direction of financial markets to come. To deal with that sort of an environment, you need a strategy that takes this into account. Option 1 is to trade shorter term. Option 2 is to get in the know with a tried and proven forecaster of these types of trends.

Until next week,

Nickolai Hubble.
Markets and Money Week in Review

Nick Hubble
Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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