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ASX All Ordinaries drifts sideways, the NBN and political turmoil

November 25th, 2010 · Greg Atkinson · 4 Comments

Over the last few months it has become increasingly difficult to write about the Australian stock market simply because not much has been happening.  During the last 12 months the market has basically moved sideways with just the occasional dip or rally to break up the boredom.

If we look at the chart below, it can been seen that we are essentially at the same place now in November 2010 as we were in November 2009.  Yes we are well above the lows of early 2009, but the rally from the bear market bottom ran out of steam by late 2009 and the ASX All Ordinaries Index has been moving in a fairly narrow range between 4600 – 5000 since then.

ASX All Ordinaries XAO – 3 year chart

all-ordinaries-3-year-chart-nov-10

Funnily enough the market is trading around the range I suggested was the logical bottom of the market back in 2009,  so it seems I might have been onto something.

Based on my reasoning the stock market is indicating that the economy is closer to a recession than a boom.  I would guess I am one of the few market watchers who would dare suggest such a thing since most people seem to be pumping out articles about how well the economy is going and how the Government needs to manage the boom.

However I don’t see any boom reflected in the chat above.  Do you?  Even Gerry Harvey of Harvey Norman fame is complaining about business conditions these days.

Perhaps the mining sector, housing and consumer spending are helping to wallpaper over some pretty nasty cracks in the economy?  Is the Australian economy enjoying a golden age or are people just oblivious to the dangers ahead.  I tend to think the latter is the case.

To reinforce my point  let’s have a look at a chart you will not see much in the mainstream media.

ASX All Ords vs Dow Jones Index – 3 years chart

all-ords-vs-djia-3-years-chart-nov-10

Over the last 3 years the recession plagued U.S. stock market has outperformed the Australian stock market.  Of course we can take a bit of the shine off U.S stocks because of the weaker USD and the billions of dollars pumped into stimulating the American economy, but nonetheless the Dow Jones is still ahead of the All Ords by a fair margin.

I am not suggesting the Australian economy is in the same shape as the U.S economy, what I am saying is we should perhaps be a little more cautious about the path ahead and not get caught up in all the ‘boom’ talk.

Just on the subject of keeping our heads, let’s look at gold prices again in AUD terms by using the chart of the ASX listed Exchange Traded Fund – ETF: Gold.

ETF GOLD vs BHP Billiton – 1 year chart

etf-gold-vs-bhp-1-year-chart-nov-10

Despite all the pro-gold stories spewed out by the media the fact remains that in AUD terms gold prices have basically not done that much and BHP shares would have actually been a better investment this year since you would have received some dividends along the way.  Remember cash in the bank can earn over 5% so in terms of risk, neither gold or BHP shares have been what I would call star performers.

I don’t hold any shares in ETF GOLD and a week or so ago I sold the remainder of my BHP shares.  I reckon both look expensive to me.

The last chart I have included is a long term view of the ASX All Ordinaries.  It is somewhat depressing to look at this chart and realise we are today, at a level seen back at the beginning of 2006.  I wonder how long it will be until we see the All Ords over 6500 again?

ASX All Ordinaries XAO – 10 years chart

all-ordinaries-10-year-chart-nov-10

Now onto  the NBN.  I really don’t have  much more to say on the subject of the National Broadband Network (NBN) because events are unfolding just like I suggested they would more than a year ago.

Back in February 2009 while the media and Federal Opposition were asleep I wrote in post entitled:  The national broadband debacle: all hail to Senator Conroy. that:

” There are two major obstacles in getting a true broadband network rolled out across Australia. One is the Minister: Senator Stephen “never held a private sector job in my life” Conroy, and the other is the bizarrely named Ministry he heads up; the “ Department of Broadband, Communications and the Digital Economy ”.

As of November 2010 nothing much seems to have changed.  The only place where some form of national broadband network is operating is in Tasmania and this network was built before the NBN Company came along – they simply purchased the existing broadband infrastructure and claimed it as their own.

So the biggest success Senator Conroy’s NBN scheme has had so far was achieved because he had nothing to do with it.  I think there is a message in that, but I doubt Conroy will ever get it.

However the biggest issue facing investors is not the NBN debacle, but rather the unstable political situation in Australia.  There are dozens of issues now just hanging out there with no clear policy direction.

Will the mining tax ever be implemented and if so, in what form?  What has happened to Rudd’s grand health reform?  Is the Henry Taxation Review on the table, off the table or shredded?  Will there be a carbon tax or won’t there?  What sort of banking system reform will there be?  What is on the top of Julia Gillard’s policy agenda and can Gillard actually get anything through parliament and the Senate anyway?

The political landscape looks very messy and without doubt this is keeping investors away from the stock market.  If I had to guess, I would say that the All Ords/ASX 200 would probably be near or over 5000 now if we had some clear policy direction in Australia.

Frankly I don’t see the situation improving at all this year so it looks like the market at best will end flat and I for one will not be expecting a rally towards the end of the year to push the market over 5000.


4 responses so far ↓

  • 1 Vince. L // Dec 1, 2010 at 5:56 pm

    Looks like the market keeps moving sideways and I guess the discussion about GDP today will not give stocks boost.

  • 2 Greg Atkinson // Dec 13, 2010 at 9:11 am

    Vince it looks like we are still stuck in the 4400 – 5000 range despite a few good days on the market and an economy which is apparently in danger of over-heating. I doubt we will get out of that range this year.

  • 3 Joy // Dec 13, 2010 at 8:44 pm

    It might rally to 5,000 before end month, but will it keep going after December or drop back to the mid 4,000’s for range trading? I think its anyones guess. If no political unrest or extreme circumstances swing the market I think it could possibly reach 6,000 by March next year.

  • 4 Senator13 // Dec 15, 2010 at 4:43 pm

    The market is very tough to tell at the moment. I think it will keep moving around the 4600-4800 range.

    Internationally there is not that much great news coming from the US/Europe…

    Domestically I don’t think this Gillard government can help but fiddle with things which always creates uncertainty…

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