Forex market attitudes to Australian PM candidates

Interestingly the Forex markets are signalling that Australia is confronting a bad choice of leaders - between two idiots to be sure. The NZD is surprisingly strong. I think the markets are anticipating a bad choice either way. Certainly there is no question that Gillard is dire news for the AUD in the short-medium term (say 0-5 years), whereas Abbot is the opposite I feel. Really its about the Gillard risk. The considerations are:

1. Resource Rent Tax - it will kill investment in the long term, but committed projects will continue. In the long term there will be balance of payments benefits in the Australian government receiving more money through extortion, but there will be a retained distaste in financial markets in the form of an interest rate risk premium for the extortion, and its surprise introduction.

2. Ideology - Gillard is a socialist who will invest long term in education. It will be inefficient spending, so considered a debasement of the currency value. Mind you? Any worse than Obama? The implication however is that wealth will unnecessarily be squandered.

3. Interest rates - I think both parties will have similar implications for interest rates - except for the Gillard 'tax premium' of say 0.25% x $750 billion of household debt for Australia. Basically they will have soft monetary policies because of the high housing debt, so they will let the exchange rate jump around with commodity prices and speculation about global economic growth.

4. Fiscal policy - Abbot could be expected to cut govt spending to repay debts.

Little surprise then that investors wanting AUD exposure are bidding up the NZD. Expect that disparity to correct after the election results.

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Andrew Sheldon www.sheldonthinks.com

Deflation:First Step, Understand It

Another fine article from our friends from Elliot Wave International.
Enjoy!!
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Deflation: First Step, Understand It
There is still time to prepare if deflation is indeed in our future.

August 16, 2010
By Elliott Wave International

"Fed's Bullard Raises Specter of Japanese-Style Deflation," read a July 29 Washington Post headline.
When the St. Louis Fed Chief speaks, people listen. Now that deflation -- something that EWI's president Robert Prechter has been warning about for several years -- is making mainstream news headlines, is it too late to prepare?
It's not too late.

There are still steps you can take if deflation is indeed in our future. The first step is to understand what it is. So we've put together a special, free, 60-page Club EWI resource, "The Guide to Understanding Deflation: Robert Prechter’s most important warnings about deflation." Enjoy this quick excerpt. (For details on how to read this important report free, look below.)

When Does Deflation Occur?
By Robert Prechter

To understand inflation and deflation, we have to understand the terms money and credit.
Money is a socially accepted medium of exchange, value storage and final payment; credit may be summarized as a right to access money. In today’s economy, most credit is lent, so people often use the terms "credit" and "debt" interchangeably, as money lent by one entity is simultaneously money borrowed by another.

Deflation requires a precondition: a major societal buildup in the extension of credit (and its flip side, the assumption of debt). Austrian economists Ludwig von Mises and Friedrich Hayek warned of the consequences of credit expansion, as have a handful of other economists, who today are mostly ignored. Bank credit and Elliott wave expert Hamilton Bolton, in a 1957 letter, summarized his observations this way:

In reading a history of major depressions in the U.S. from 1830 on, I was impressed with the following: (a) All were set off by a deflation of excess credit. This was the one factor in common. (b) Sometimes the excess-of-credit situation seemed to last years before the bubble broke. (c) Some outside event, such as a major failure, brought the thing to a head, but the signs were visible many months, and in some cases years, in advance. (d) None was ever quite like the last, so that the public was always fooled thereby. (e) Some panics occurred under great government surpluses of revenue (1837, for instance) and some under great government deficits.

Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. The psychological aspect of deflation and depression cannot be overstated. ...

Read the rest of this important 60-page Robert Prechter's report online now, free! Here's what else you'll learn:

What Makes Deflation Likely Today?
How Big a Deflation?
Why Falling Interest Rates in This Environment Will Be Bearish
Myth: "Deflation Will Cause a Run on the Dollar, Which Will Make Prices Rise"
Myth: "Debt Is Not as High as It Seems"
Myth: "War Will Bail Out the Economy"
Myth: "The Fed Will Stop Deflation"

This article was syndicated by Elliott Wave International and was originally published under the headline Deflation: First Step, Understand It. EWI is the world's largest market forecasting firm. Its staff of full-time analysts lead by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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Happy Trading!!

Return Of The Robots

Once again I am purely a robot trader.Part of the reason is that my day job does not allow me to use company Internet or computing resources for the purpose of earning revenue. This is a sensible restriction even if my use would only have been to let me view charts and enter trades.Now I use the Internet at work purely to watch how my robot is doing. I don't enter trades, I can't access or