The failure of the ASX SP200 to make new all time highs at 6851.5 whilst US stocks are at all time highs is highlighting problems for the Australian economy and may even be the ‘canary in the coalmine’ for all stocks. This divergence reflects Australia’s national issues including lack of diversity in its production base. It reflects the ending of the mining boom along with the high demand for US dollars sucking cash from peripheral nations to the centre.
Currently battling resistance at 5900-6000 it would appear that any international downturn at this time will bring the ASX S&P 200 down towards our initial long term target of 2295 – 3075. We’ll reassess from there. However, for now there is a long way to get back to all time high territory. And this reveals the major weaknesses and restructuring needed in our economy. We can anticipate the ASX S&P 200 moving to the 6000 level over the next several weeks finishing the final stages of it’s upmove since 2009.
A case can be argued that the Reserve bank of Australia over extended its mandate to control inflation and unemployment during the commodity boom that came to an end in 2012-2014. By maintaining higher than needed interest rates the RBA at that time, funds were redirected to higher yielding investment opportunities in the mining sector at the expense of other, lower performing sectors such as housing. This put stress on banks, the mining industry and its supporting industrial base as oil and iron ore prices have fallen through the floor.calling into question the viability of many of the projects initiated in the last 7 years. This is the hubris of central bankers and politicians alike and what Nobel Prize winning economist FA Hayek called ‘the pretense of knowledge’.
Shortly we will see global stock markets completing their major tops. We believe our prediction for a major cyclical top spanning over 200 years is on target. We had projected this top occurring between 2015 – 2018. Indicators are now warning that this top is completing now. By late October we shall see front page headlines as financial markets capture people’s attention once again.