Wealth Within - All Ords Report 2 March 2010
I have advocated for quite some time that the increasing debt levels Australians have been exposing themselves to means we could end up like America and subject ourselves to the same fate. Well it is now official. Australia has the highest level of debt per capita of any country in the world, and we have just surpassed Americans in borrowing more than we produce as a nation. All the while the Australian Government has been encouraging households to spend to keep the economy moving so that we do not fall into recession.
In addition, the first home buyer’s scheme has enticed home buyers to borrow to get into the property market which in turn has created rising house prices and reduced the affordability for those people the government was trying to help. Whilst Australia was encouraging spending, the US was actually cutting back in an attempt to reduce their high debt levels. Logic tells me we should not borrow more than we earn and yet the government’s stimulus measures have done exactly that, with the effect of adding to what was already an alarming situation in Australia. So where are we headed, and are we going to end up like the US in a few years?
So what can we expect in the market?
In my last report I indicated that it was possible we had seen the yearly low on 9 February 2010 especially since the market appeared to have found support around the all important 4500 point level. I also indicated that to confirm the low we needed to see the market pull back for one or two days but stay above the 4500 point level before rising once again.
Since forming the low of 4483 points on 9 February, the All Ordinaries index moved up in a steady fashion over nine trading days to achieve a high early last week of 4732.7 points. The market then exhibited weakness falling away quickly and wiping off nearly 50 per cent of the gain it made since 9 February.
I have said before that we should be prepared for the unexpected and the sudden move down last week was just that. Given this we need to be patient as it is possible the yearly low that I have been expecting is still unfolding, therefore we need to expect that the market may fall for another one to two weeks to between 4300 and 4400 points.
That said, if the market rises this week, I believe it will continue to do so and the fall last week was just an opportunity to get into some good shares for those in the know. If this occurs the probability will be high for the market to continue to rise to around 5000 points and beyond over the coming month or so. As always, the key is to be patient and wait for the market to tell us what it is going to do rather than assume what it will do.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst