All Ords Report 08/09/2009

Following the conjecture over the past few weeks that interest rates may rise, the Reserve Bank has kept rates on hold, at least for the time being. Although the same cannot be said for the big four banks who are expected to raise interest rates in the near future in an effort to cover rising costs.

That said the Reserve Bank has indicated interest rates may rise before the end of the year in an effort to curtail inflation, which is interesting given that only a few months ago the government was talking about a possible recession. Yesterday it was announced that GDP had risen by only 0.6% in the past quarter, which certainly doesn’t indicate that we are in an inflationary environment, particularly when the growth was achieved because of the government stimulus package. You would have to wonder why the Reserve Bank would want to slow any economic growth by raising interest rates, when simply decreasing the government’s spending would achieve the same outcome and stop our nation from spiraling into further debt.

The government is still talking about a further stimulus package, which seems to me to like robbing Peter to pay Paul, as consumers will get something in one hand only to have it taken from the other. Attempting to stimulate the economy with another handout will also add to the already high levels of debt created by the government. I would much rather see the government spend less given that we have proven to be the most resilient western economy in the world. Something has to be said for Paul Keating putting us through the ‘recession we had to have’. If he had not done this, Australia would have been in a much worse position in the current global financial crisis.

So what can we expect in the market?

Over the past two weeks the market has been struggling to rise, which is in stark contrast to the previous four months where the market has been exceptionally bullish. Since mid August the market has displayed signs of indecision and apart from a few short bullish bursts, it is still trading around the same levels it was in mid August. The balance of both time and price are weighing more heavily towards the market moving down, which means we may be falling into the low that I have been expecting.

It is still possible that the market will make one last rise before the fall into the September low, but I would not recommend buying shares if the market does rally until the low is confirmed, unless the share exhibits very strong signs of being bullish. The move down into the low should only last for one or two weeks with it likely to occur around mid to late September, although I don’t believe it will be as significant as I originally expected. Following this, the market will rise into October to between 4600 and 4900 points, which I expect will be the high for the year, before it falls into a low in November.

Until next time
Good luck and profitable trading

Dale Gillham
Chief Analyst