Thanks to Labor, the ASX200 Index Flounders while the Dow Jones Index Booms

The Dow Jones Industrial Average closed at 12,980 points on 1^st March 2012.

The last time the Dow Jones was above 12,980 points was back on the 16^th May 2008 when it closed at 12,986 points.

The Australian benchmark index – the S&P/ASX 200 - closed at 4,255.5 points on 1^st March 2012.

On the 16^th May 2008, the S&P/ASX 200 - closed at 5,931 points.

So while the Dow Jones has recovered, the ASX200 is 1,675.5 points or 28.25% below its 16^th May 2008 closing price.

So why is the ASX200 index floundering while the Dow Jones index is Booming?

There are three key reasons.

1)      The RBA/US Fed interest rate differential.

2)      The AUDUSD strength

3)      The systematic political risk of the Gillard government

It is fairly obvious from the chart above that the once highly correlated Dow Jones and ASX200 indices started to break down around May 2010 when the then Prime Minister Kevin Rudd along with Treasury Wayne Swan surprised everyone with their planned introduction of the Resource Super Profit Tax (RSPT). As we all know it went down like a lead balloon especially with the mining companies who had probably single handedly saved Australia from the death throes of the GFC.

Ultimately the RSPT cost Kevin Rudd his Prime Ministership. Interestingly, the S&P/ASX200 index closed on the first Monday (23^rd August 2010) after the federal election at 4,429 points. So since Julia Gillard has been Prime Minister, our stock market has done nothing. In fact we’re down 173.5 points or 3.9% since the 21^st August 2010 federal election. The AUDUSD incidentally was at $0.8930 and as of 1^st March 2012 the AUDUSD closed at $1.0802 – some $0.1872 higher (+20.96%).

Since Julia Gillard’s election as Prime Minister on 21^st August 2010, the correlation between the Dow Jones and ASX200 has deteriorated even further. We all know Julia Gillard lied when she said 5 days before the 2010 federal election that “there would be no carbon tax under a government I lead”. The lie became reality on the 24^th February 2011 when Julia Gillard struck a deal with the Greens to introduce a $23 per ton (the highest in the world) carbon tax on 1^st July 2012. The Carbon Tax law passed in the House of Representatives, 76 to 74 on 12^th October 2011 and passed into law by the Senate, 36-32 on 8^th November 2011.

Also, Greens leader Bob Brown told the world on 26^th June 2011 that the carbon price has to result in shutting down the Australian coal industry. Such a statement would make any foreign investor assign Australia as a “sell”.

The divergence between the Dow Jones and the ASX200 has never been wider since Labor has been in government. Sure we can lay part of the reason at the feet of the RBA for holding interests rates too high against the rest of the world and the subsequent overvalued AUDUSD. But the overwhelming reason for our poor underperformance of our stock market compared to the USA’s stock market can be laid squarely on the “economic and investor confidence destroying” polices – namely the mining tax and the carbon tax - of the Gillard government.

With federal treasurer Wayne Swan ranting on about his Anti-Market Socialist Ideology you don’t need to be Einstein to know that investors are voting with their wallets and have decided Australia is a “sell” and the USA is a “buy”.

Just follow the money.

 

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Comments

[Clinton Mead]

1.

I think your graphs are slightly deceptive, because you're comparing oranges with apples by measuring the Australian index relative to Australian dollars, whilst pricing the US index relative to US dollars.

If you measure them on the same criteria the difference closes by 10%.

[Andy Semple]

2.

Clinton I suggest you re-read the post again.

Re the graph. Currency isn't a factor. It's a straight point for point comparison.

Facts are the asx hasn't moved since Gillard became pm and we're 1675 points lower today than what we were in May 2008, whereas the Dow Jones has recovered.

[Arthur Dent]

3.

I wouldn't be surprised if you had a pin-up of Alan Kohler on your wall at home Andy.

[bluebell]

4.

What's wrong with that? I subscribe to his Business Spectator online content and learn a hell of a lot from him and his co-editors. In fact they should make it compulsory reading in high schools.

[Arthur Dent]

5.

er, um....it was an attempt at humour bluebell.
There is a dearth of humour on this site.

[bluebell]

6.

We hardly find it humorous when we are right. The problem with you socialists is it takes conservatives to clean up the trail of destruction you leave behind. Looking forward to a cleansing of battered neglected Queensland soon, followed by that nest of incompetents in Canberra...:-)

Andy and I have our chilled wine ready to go.

[Arthur Dent]

7.

Did you have a "joh for pm" bumper sticker on your car in 1986 bluebell?

[John Angelico]

8.

I venture to disagree with the analysis - somewhat. [In the words of King Guiseppe in The Gondoliers "Don't be alarmed, it's nothing serious!"]

I pinpoint the divergence as commencing about Nov 2009, around the Climate Change Conference. This was the Copenhagen failure - also the high point of Australia's conference contingent, as it happened.

That conference, and the Climate-gate email scandal which broke just prior, saw a major draining of confidence and optimism in the views of experts - especially white-coated scientists.

Prior to that, the measures taken to ameliorate the so-called Global Financial Crisis, which were all Keynesian nonsense, sowed the seeds of our present moribund state.

The cash splash and all the other measures represented a big-spending attempt to re-inflate the economy. A short term and very large dose of "the hair of the dog that bit you".

It's not proven that the rest of the world needed it, but Australia certainly didn't. And neither did we need the Bank Deposit Guarantee Scheme (whatever the hell that stupid thing was called) because the RBA Lender of Last Resort facility would have protected the entire financial system, not just the banks. If you don't believe me have a read at the RBA website http://www.rba.gov.au/fin-stability/about.html .

Instead, the Guarantee distorted our financial markets, locking up money people had lodged in non-preferred institutions, and handing the Big Four Banks a handy market edge. This makes the government's bank-bashing over "huge profits" (which aren't really) largely hypocritical - since it was their measures which shovelled money towards those banks.

So now we have the re-inflation hangover as a continuation of the so-called GFC hangover. But the consequent inflation has not gone into consumer prices, where we most often look for it, nor into the stock market, the most liquid of asset markets, after cash deposits.

Instead, it has been pumped into real estate. Property markets have managed to survive the GFC almost unscathed, as our rate notices can well attest.

So I suggest that we don't necessarily want to see the stock market over-priced again, representing a ready haven for hot money coming into Australia due to our interest rate differentials.

Somehow we have to unwind the whole re-inflated mess that the government (aka the Rudd-Swan Axis Powers) landed us in when it panicked in 2008-09.

Here I pause in my wide-ranging rant against government economic policy...

[bluebell]

9.

Retirees who had their money in mutual funds like Prudential suffered mightily because their funds were frozen. All caused by Labor's kneejerk panic to the GFC.

[Philip Dowling]

10.

I am not sure of all of the reasons. However it is quite clear from the comments of the wizened veteran cabbie to brokers' newsletters that there is a continuing crisis of confidence in the economy caused by the Fed Gov. The impression of a large ship being steered by a series of feuding adolescents matches the economic turns of the Labor Government.
Snatching defeat from the jaws of victory is a skill which various Labor identities are continually finessing.
I would suggest that there is a certain skittishness among both domestic and foreign investors when it comes to Australian shares.
This is feeding a negative feedback cycle. Of course, Wayne Swan's latest outburst hasn't helped. Business generally prefers the softly softly approach.

[bluebell]

11.

Swann reminds me of Godzilla - destroying all before him in a fit of wounded rage. His outburst on Palmer even raised the eyebrows of my world weary husband. Sure Palmer wasn't exactly a good choice for National Treasure - but for a senior politician to say it 'sickened him' was an appalling display of this man's small minded malevolent attitude...it was on display during Rudd's spectacular downfall as well. What a nasty little man.

Back to National Treasure:

Minoque hasn't lived here for decades.

Olivia Newton John left a trail of destruction when her Koala Blue empire in the US collapsed. She left her investors high and dry and walked away smelling like a rose. Even some of her closest friends lost everything. Hardly what I call a role model.

They got it right with Margaret Ollie. She deserves the title.

There are dozens of people I could call a National treasure....but Palmer isn't one of them.

[Andy Semple]

12.

Only when the "humour" comes from you, Arthur. You're about as funny as cancer.

[dante]

13.

Ops ... caught out fiddling the figures again!!! The graph in this article differs from the one readily available by following this link (http://au.finance.yahoo.com/q/bc?t=1y&s=^AXJO&l=on&z=l&q=l&c=&c=^AXJO&c=^DJI) ... I wonder why? Is this to justify why unprofessional sites like yours need to be overseen?

To the 3 reasons offered to explain the diverging graphs, a professional reporter reporting the truth (in case you have a problem with this word, please look it up in the dictionary!) would have added (i) the size of the Australian market, (ii) Australian market mix, (iii) dominance of mining in the Australian market, (iv) the long list of mining investment in the pipeline (http://www.switzer.com.au/the-experts/john-abernethy/spending-on-mining-projects-set-to-soar/), (v) political risks associated with a hung parliament, (vi) continuous talking down of the Australian economy by the Opposition, etc.

But I understand that a large portion of people on this site obtain a warm feeling by blaming everything on Gillard, so enjoy your lies. This reminds me of Charlie Brown defecating in a brown suit, it gave him a warm feeling but nobody noticed.

[dante]

14.

WRONG Mr Fiddler!!! WRONG, http://au.finance.yahoo.com/q/bc?t=1y&s=^AXJO&l=on&z=l&q=l&c=&c=^AXJO&c=^DJI

[dante]

15.

Education comes by sourcing materials from a variety of sources ... indoctrination comes from reading materials from a single source. You are not educated, you are indoctrinated ... I would say 'brainwashed' but that would imply something that you may not have!!

[bluebell]

16.

Your self congratulatory superiority is truly appalling. However, why would anyone in this forum be surprised. You have ridiculed everybody not of a socialist bent, including the editors of this forum. For you to tell me that I gain my life experiences and information from a single source is pure and utter garbage. As for you last sentence - pure left wing 'intellect' on par with the Circle panel!! Cretin...!

[dante]

17.

My dear lady, I've ridiculed all those that expose themselves, starting from the editors of this site. I expose false and misleading information. You said you subscribe to Business Spectator and that you learned a lot from from their materials. I suggest you spread your wings a bit wider, just as I suggest you open your mind to the possibility that you are being indoctrinated. I've no problem reading Das Kapital and opposing views, just as I have no problem reading the Bible and the Quran and anything in between. Unfortunately your comments clearly demonstrate your limited and narrow views, typical of indoctrinated persons.

I compare you to a football fan. There are those that see only their team and whatever their team does is perfect, and if they don't win is not their fault ever. And then there are those like me that enjoy the game and can appreciate the game for what it is without being "married" to a jersey and just that jersey.

You may label my political stand whatever colour you like but in my 40 years of voting I have changed my vote depending on the policies the parties have and how they have implemented their policies in the past. I bet you have never, ever changed your vote because to you everything the Right does is good and everything the Left does is evil. Just as you believe Muslims are despicable and Christians are good, and whites are better than negro, etc etc.

You are welcome calling me a cretin as long as that distinguishes me from you. I'll even be happy to enter a truce with you. You stop commenting my I write and I'll stop commenting on your crap, agree?

[Andy Semple]

18.

Dante,
My chart is from www.marketwatch.com
It’s a comparison of the dow jones against the asx200. You do know what a comparison is don’t you?

Your link is just of the ASX200 alone which by the way proves how our market since Gillard has been PM has DONE NOTHING.

You really are a desperate wannabe.

Even when to think you have found an error, like Gillard, you monumentally screw-up. The one defining constant of progressives - FAILURE

[Andy Semple]

19.

Click the 5yr button and bingo, it's surprisingly the same as my chart.
You're such a retard, Dante.

http://au.finance.yahoo.com/q/bc?s=%5EAXJO&t=5y&l=on&z=l&q=l&c=%5EAXJO%2C%5EDJI

Keep digging that hole, Dante. It’s only getting deeper for you, dumbass.

[bluebell]

20.

It may surprise you to know that I voted for Keating and Hawke as a green teen and 20 something......then I grew up to a big girl and started thinking for myself. It's the same for today's kids being churned out of our universities. Nice little sausage factory that turns out indoctrinated little left wing GetUp clones. Most couldn't think themselves out of a paper bag.

As for Muslims - their historical reputation unfortunately precedes them. When you have a 7 month old baby beheaded in front of it's mother with little outrage coming from mainstream Muslims.....yet murderous outrage over some pathetic cartoon drawings you know that religion is seriously warped. The day I see credible self criticism coming from mainstream Muslims that will be the day I cut them some slack.

And the answer to your last question.....no!

[bluebell]

21.

Also you are an ignorant puss for thinking I only subscribe to the Business Spectator for my financial needs. I manage my own money, and I am doing a lot better than many of my friends who have financial advisers. You assume too much that I am an uneducated illiterate fool....fool. My only drawback is that I didn't attend university and get a degree. I was too busy studying nursing in our training hospitals to become an Registered Nurse. Now we train nurses in our universities and guess what......most can't even keep up with the old guard. Us old boilers who can run rings around these young upstarts thinking they are God. Is it any wonder why we are 16,000 nurses short nationally, with the average age of the Australian nurse being 56.....the government is DESPERATE to keep the old hospital trained nurses, because they know what will happen when we all retire. Try and keep up Dante, you might actually learn something from me rather than heap personal ridicule because I fail in your ideal as an 'intellectual'.

[John Mc]

22.

Keep digging that hole, Dante. It’s only getting deeper for you, dumbs.

He only turns up to smear poo on the walls; that's the limit of his intellectual capacity. Ban him. His presence degrades intellectual debate.

[Pia Robinson]

23.

What an abysmal lack of understanding of the financial markets!

[Faust]

24.

Shouldn't you be comparing the ASX to the S&P500? It is very difficult to compare two indices like-4-like.

[Andy Semple]

25.

sure, but everyone talks about the Dow so I used that.

[Andy Semple]

26.

Coming from you Pia I’ll take that as a compliment.
In all my time I have seen you troll here you have never had anything positive to say. What a misery guts you must be.

[Clinton Mead]

27.

Andy: No-one is wealthy because they have lots of points. I'm sure the Zimbabwe stockmarket would have shot through the roof during their hyperinflation. It doesn't make Mugabe a good economic manager.

A point to point comparison is like comparing a rugby league score of 16 to a basketball score of 104. Just because they're both called points doesn't mean they're at all related.

[Andy Semple]

28.

seriously Clinton, are you that dumb?

The graph converts the points of the dow and the ASx 200 to the same base and then it compares the two

The ASX 200 closed on 23/8/10 at 4429
The Dow Jones closed on 23/8/2010 at 10,174

The ASX 200 closed on 1/3/2012 at 4255
The Down Jones closed on 1/3/2012 at 12,980

The the dow is up 2,806 points and we're down 174 points.

Note 23/8/2010 was the monday after the 2010 federal election. Our mkt has done nothing since but the dow has boomed.

[Clinton Mead]

29.

What's the same base? Gold? PPP? A single currency?

Because if you're comparing Dow points with ASX points, that's not the same base. You need to convert the Dow points to ASX points (or vica versa), and that conversion rate changes with time, depending on the relative value of the currencies.

[barry]

30.

As you haven't replied to my previous question,, I'll as again......Why are you living here??

[Andy Semple]

31.

Both are converted to a zero starting base.
This is how you calculate a correlation.

Here, use the link below and prove it to yourself.

http://www.marketwatch.com/investing/index/DJIA/charts

Compare any index to the Dow Jones.

You're Welcome