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The S&P/ASX 200, the U.S. economy and Australian tourism.

July 8th, 2009 · Greg Atkinson · 15 Comments

The ASX S&P 200 appears to be moving sideways, the U.S. economy is a mess and overseas tourists are not flocking “Down Under” like they once did. What does all this mean and will Australia win the Ashes series?

There are two “crazy” seasons when it comes to the financial markets. One is around the end of the year when fund managers, investors etc. try to lock in profits,write off losses or polish up their portfolios so their calendar year performance figures look good, the other is during the transition from one financial year to another when the same sort of performance massaging occurs. 

Therefore as I mentioned in A technical look at ASX All Ordinaries Index the stock market can tend to be pretty flat this time of year and so far this seems to be the case this year.

It might seem a lot is happening but if you look at the chart for the S&P/ASX 200 we have been moving basically sideways for a few weeks in the range of about 3800 – 4000. I would guess it will be another few weeks before we work out if another rally will take shape or if we could possibly test the lows of March. I tend to think the market will rally again but then again who really knows?

S&P/ASX 200 Closing Prices Chart

sp-asx-200-6-month-chart-jul-09

Recently our market has been suppressed by the falls on Wall Street and the continued stream of pretty poor U.S. economic data. But at some point people will become comfortable with the fact that the U.S. is not the only nation on the planet with an economy and that there are a lot of consumers outside the U.S.

The U.S economy has been over hyped for years and the U.S. consumer has been over spending buoyed by the belief that America was somehow a cut above every other nation. It isn’t, it has just had a lot of luck and good fortune.

In The U.S. auto industry bailout and some inconvenient truths. I highlighted how  the United States pretty much got a decade or so head start over most major economies after World War 2. While other nations were rebuilding devastated cities and economies, Americans were enjoying a post war economic boom and using ex-Nazi scientists to develop rockets for moon missions.

President Obama is now doing a good job of trying to keep Americans convinced that the best years for the nation lie ahead them, but they probably don’t. What lies ahead for the U.S. is a big pile of debt that needs to be paid off and some painful lifestyle adjustments. Government services will be cut, taxes raised and slowly but surely the U.S. will have to start cutting back on military spending. Maybe time to stop blowing things up and then rebuilding them?

But life across the rest of the world will go on. A weaker U.S. will probably mean a stronger Europe, a more confident Russia and an Asia where more focus is put on nations working together as opposed to relying on U.S. leadership. The world is a big place, much bigger than the U.S. and so just because the U.S. economy is a basket case does not mean the rest of the world will be dragged down over the long term. Eventually the economies across the world will adjust to this new reality.

On a slight different topic I was bemused to read how various officials and economists explain the plunge in the number of tourists visiting Australia. The economists focused on the stronger Australian dollar and said Australia was becoming expensive for tourists while tourism officials suggested the  decline in the global economy meant people has less money to spend on trips, or that swine flu has stopped travellers in their tracks.

All good reasons but they overlook one simple truth – Australia as a tourist destination is boring and does not always leave visitors with a favourable impression of the nation.

Years ago I transited through Cairns Airport and watched as dozens of Japanese tourists were subjected to some of the rudest customer service I have ever seen. Instead of a friendly smile and some appreciation that many Japanese may not be masters of English, I witnessed staff at a snack bar openly be quite rude and hostile towards the Japanese simply because of some language difficulties.

After I arrived in Sydney I thought about the whole Australian experience as if I were a visitor from another country. If  Cairns left a bad impression on the Japanese than Sydney would have convinced them that Australia is somewhere you visit once, see the beach, hold a koala and never visit again.

The taxi rank at the international terminal sums up the city…it functions…barely, but on the global scale things it is not something you want to experience again. Yes I know all cities in Australia are not like Sydney but think about;  is there anything terribly exciting about moving between Australian cities when you could travel the same distances in Europe and move between Rome and say Budapest?

I won’t even mention what a debacle it is trying to get through customs and quarantine at Sydney Airport…it all just makes me fear flying back to visit family and friends.

So what is my point? Well it is that Australian’s are becoming complacent and think that just because our nation is blessed with natural resources, unique animals and great beaches that this somehow makes us winners. Actually it doesn’t, it just makes us lucky and we are really pushing our luck recently.

Of course just like the U.S. our leaders want to convince everyone that all is going to be okay. Worried about billions of dollars in government debt? No problems they tell us, that will all be paid off in no time thanks to commodities exports. China will save us so there is not need for the nation to be innovative, work harder or create new industries.

Maybe I am being a little harsh, but I wonder how often we look at our our nation using the same critical eye as we cast over other countries. Are Australia’s best years yet to come? Or like the United State have we perhaps already peaked?

As for the Ashes series against England all I can say is I am worried with Binger and Stuart Clark both out of the Australian side for the First Test.  Stock market routs I can handle,  losing the cricket to the English would be too much to bear!


15 responses so far ↓

  • 1 George // Jul 8, 2009 at 10:33 pm

    Greg,
    re: your post at Daily Reckoning

    Comment by Greg Atkinson on 8 July 2009:

    To be honest I cannot recall what the West are annoyed at the Iranians for in the first place. Is it because they never filled out their application form correctly to have a nuclear reactor? If that is the case I do not recall India or Pakistan filling out an application form to have nuclear weapons either.

    The democratically elected president of Iran, sometime in the 50’s or thereabout, was going to nationalize the Iran oil industry. The CIA deposed him and installed the Shaw. The Shaw ran a very repressive regime from which Sadam took notes. In the 70’s Iatolah Kolmeni led the Iranian revolution. Students invaded the U.S. embassy and took some 40 hostages. The bottom line is that the U.S. brought on the animosity themselves.

    you may e-mail me if you want more info, but you can probably get it from Wikipedia more accurately.

    George

  • 2 Greg Atkinson // Jul 8, 2009 at 11:02 pm

    Thanks George. I recall the exit of the Shah and the U.S. Embassy saga. The U.S. does seem to have a history of shooting themselves in the foot so to speak.

    I wonder if the U.S. is angry because Iran may have assisted some of the insurgents in Iraq? Perhaps this is the real reason U.S. – Iraq tensions are so strained these days?

  • 3 Ned S // Jul 9, 2009 at 10:18 am

    I have absolutely no idea if it makes real sense or not but there has been a thought floating around for years that both Iraq and Iran made/make(?) themselves less than loved by the US by insisting on rabitting on about selling oil in currencies other than USD. The stated “theory” is that would have a significant impact on the USD’s global reserve currency status? The world doesn’t need to buy USD to buy oil – Bye bye USD???

    Putin even hopped on the bandwagon (before the GFC blew up?) by stating he’d like to sell Russian oil in rubles. Although I didn’t get the feeling that many players really warmed to the idea.

  • 4 Dan // Jul 9, 2009 at 11:53 am

    Just on the article above (on the ASX 200), it looks to me, from a technical point of view, that the chart has been testing two lines of resistance – an ascending high and an up-drifting low point. That is, there is increasing volatility with time (more obvious profit taking?), but from what I can see the lower line of resistance has been broken through, suggesting that the rally could be nearing its end, because there are enough people willing to sell at below the apparent line of resistance for it to show on the ASX 200. But the real story lies in individual sectors, of course, which I havent looked at lately.

  • 5 Greg Atkinson // Jul 9, 2009 at 12:14 pm

    Dan there is certainly something about 3800 and 4000. I guess a lot of people (like me) are sitting on their hands just waiting for a clear trend to emerge but quite happy to take some profits if the opportunities arises.

    Personally I am watching the data from Japan very closely to see if demand in China and Asia is going help drag the Japanese economy up a little. I have written off the U.S and Europe for this year and don’t expect much good news from those parts of the world until later this year early 2010.

  • 6 Dan // Jul 9, 2009 at 2:29 pm

    Well, more that the lower line of resistance was once 3600, then it was 3700, then it was 3800.. and one would expect, 3900 as the new price support. Instead it’s a M shape.. and 3900 is the new upper resistance .. it looks bearish again!

    I agree the US economy is a total flop – I can’t see any future in it for the next few years unless there is a war or some other seismic shift in world events. Europe has more intrinsic value because it still has a manufacturing sector and an educated population, plus it has markets it can reach by air, sea and rail, which is better than the US can do.

  • 7 Greg Atkinson // Jul 9, 2009 at 3:51 pm

    Dan I agree with you on Europe. If you include parts of Russia then there are around 800 million people in Europe, that is a pretty large market and as you say it is connected well into other markets.

  • 8 Senator13 // Jul 10, 2009 at 4:22 pm

    Good point about Russia – I don’t think they should be overlooked. Over the last decade they have really come along way to pick them self up and look really determined to get their nation back on track.

    As for the Ashes, let’s hope the Aussies can keep batting the way they did last night! Go Australia!

  • 9 Greg Atkinson // Jul 10, 2009 at 8:41 pm

    Senator these days it seems the Australian media think Europe = the U.K, Asia = China and everything else is the U.S.

    Russia is in a pretty good spot actually..sitting between Europe and Asia. I see a lot of news for example about Russia ramping up commodities exports to China and Japan so it should be an interesting few years.

  • 10 Greg Atkinson // Feb 20, 2010 at 8:21 am

    Seems I am way ahead of the curve compared to the mainstream media who are just picking up on the reasons the Japanese are not coming to Australia: http://www.smh.com.au/travel/travel-news/insensitivity-makes-waves-with-japanese-tourists-20100219-olzn.html

  • 11 Greg Atkinson // Nov 27, 2010 at 6:21 am

    It seems finally even the tourism sector in Australia has acknowledged there is a problem as per this article: The holiday is over published online today.

    So the industry has been in decline for a decade and finally the people managing the tourism sector think they need to do something…talk about a slow response! I guess they have given up blaming the strong dollar, GFC etc.

  • 12 Biker // Nov 30, 2010 at 2:02 am

    Interesting talking to Canadian visitors about _their_ tourism issues. Our visiting couple live on Vancouver Island, which has experienced immense US tourism for six or seven decades.

    The falling US buck, relative to the Canadian loonie, means that Americans no longer clog their highways seasonally. Falling catches of salmon haven’t helped, but our visitors say US petrol prices (still cheap by Canadian standards!), the GFC, and the blown US buck have reduced tourism to almost zero. Yanks, used to getting up to a quarter more for their greenbacks, are staying home in droves.

    Our guests actually couldn’t stop grinning about that… . 😀

  • 13 Ned S // Nov 30, 2010 at 8:10 pm

    Even a lot of Aussies don’t holiday in Oz any more.

  • 14 Greg Atkinson // Dec 1, 2010 at 7:55 am

    Yes, when the dollar is doing okay people head overseas it seems. Funny how many ‘patriots’ complain about jobs going overseas but don’t see the irony in having a holiday in Bali. It’s a funny old world.

  • 15 Biker // Dec 1, 2010 at 3:42 pm

    Holidaying in Oz? We do. But I don’t associate our annual jaunts OS with a lack of patriotism.

    Our recent FNQLD trip cost us several times what a Balinese, Thai or Vietnamese trip would cost us.

    I don’t think we can blame Aussies for getting more bang-for-their-buck. Nor do I think many would see their Asian trip as unpatriotic. There are many other behaviours, such as attempting to undermine confidence in Australia’s economy (a la DRA) which might qualify as unpatriotic, if _any_ of its editors were, in fact Aussies, rather than failed Brit gits… or Americans posted OS for economic warfare. 😉

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