Charting around Asia

Worlds Collide

by John Needham, The Daniel Code Report | June 6, 2008

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This week highlighted the collision of worlds that is inexorably grinding towards that moment when it will finally become obvious to all, that the Emperor has no clothes. In today’s story we will briefly touch on a whole range of Emperors ranging from the great and the good at this week’s UN food conference to the poor and starving on the Indian sub continent, the heartbreaking plight of Burma and China’s victims of natural disasters and the fiscally helpless and clueless down under. 

What could possibly unite such a disparate series of events? The dawning realization that our leaders are simply opportunists, and not the lofty men of vision that the media spin machine embraces. Actions have consequences that can sometimes be deferred but never avoided.

At the United Nations food conference in Rome this week, members adopted a final declaration vowing to “eliminate hunger” caused by soaring food and fuel prices but shelved the contentious issue of biofuels because of unbridgeable differences. As usual this is rubbish. The French continue to maintain the highest farm subsidies in the world, closely followed by Belgium and other EU countries, Ed Schafer, the US Agriculture Secretary, said that export restrictions caused inflation. “We understand that countries want to protect their food supply and make sure that there’s enough food for their own citizens, but when there’s a lock-out from the market place prices go up,” he said. 

What wasn’t reported so prominently was his intransigence on the bio fuel debate. “It’s good for American farmers and we’re going to keep doing it” he said. That unfortunately is not the true argument. Bio fuel growing is good for US and European farmers only because their farm subsidies and tax concessions distort the pricing system. As long as I can remember developed countries have tried to pry open markets of developing countries so they can wring the last coin out of their hungry hands. In fact the UN conference achieved nothing as all comers fought to defend their corner. These are not statesmen. Just pernicious merchants in disguise.

In India, Malaysia and Indonesia, governments finally had to deal with the dawning that they could not afford large scale subsidies of fuel and cooking oil. While strictly a populist political policy, this too distorts market price signals. While it sounds unpalatable, OECDs statement this week that “The soaring cost of oil is welcome as it sends a clear signal to consumers and firms to curb their use of fuel”, is correct. Speaking at the annual meeting of the world's richest nations, Angel Gurria said it would be "disastrous" if they cut fuel taxes or subsidised prices. "The best solution to high oil prices is high prices" to cut demand, he said.” At some stage over exploitation and over use of resources will be stopped and it will be the markets that stop it. Market discipline is ultimately harsh and as I have written over other matters it is the weakest and most vulnerable who suffer. Governments generically and systemically fail to protect those members of society, the poor and the needy, who most need protection. KUALA LUMPUR, Malaysia (AP) - Protests broke out in India and Malaysia on Thursday as consumers reacted angrily to sharp fuel price hikes that could undermine governments in both countries. With global oil prices soaring, authorities in the two countries said a day earlier they were slashing fuel subsidies that were draining government coffers.

Burma that bedeviled country has quickly slipped off the western media’s radar as the dreadful plight of China’s earthquake victims has taken center stage. Again we are warned that our leaders can offer no protection against nature’s forces. In Burma, where meager resources are siphoned off to maintain the position of the military junta the victims are effectively abandoned. International aid is not even a band aid. 

In the lands Down Under, Australia ignores the storm clouds gathering over the world’s largest and longest lasting property boom and continues to insist that mining activity alone will save it. Having depleted the southern continent’s greatest water resource the Murray-Darling Basin, government continues to subsidise rice growing, the most water intensive crop, in the driest continent on earth! Across the Tasman in New Zealand, the Reserve Bank has finally faced the obvious, that when fiscal policy and politics collide, don’t bet on the bankers. Having encouraged the housing bubble with sloshing liquidity and a complete abrogation of even reasonable lending standards in common with other developed countries, NZ Reserve Bank Governor Alan Bollard said house prices may fall by as much as 13 per cent from their 2007 peak. This fall in house prices rises to 22 percent when inflation is taken into account. After the first oil shock in the 1970s real house prices fell 38 percent, the bank noted. Bollard's predictions of house price falls are contained in his statement published today outlining how the economy is expected to contract in coming months. The Reserve Bank today said it expects the annual inflation rate to leap to 4.7 per cent this year, the highest level in 18 years, but Bollard still signaled a cut in interest rates.

So far it hasn’t happened. Auckland real estate company Barfoot & Thompson says the average sale price increased 2.7 per cent to $534,254 from $520,380 in April. This, says Barfoot & Thompson, is the highest monthly average so far this year, however a mere plateau in the insane housing price spiral has the Labour government facing defeat at the next election. This you can be sure underlies the Reserve’s nonsensical decision to announce an interest rate easing cycle in the face of the highest inflation rate in recent memory. Emperors. Clothes. Nonsense!

In Hong Kong the market rallied to its 50% mark at 26231 and has spent the past month holding at its Danielcode retracements.

The Nikkei has made it to its first Daniel number at 14485 which has been on this chart for 5 weeks but is still below its 50% retracement in black. 

China’s Shanghai index was turned back by the first Daniel sequence retracement level at 3737 and was not able to close above that price target. Targets are much lower if the existing low doesn’t hold.

India’s SENSEX was turned back at its first Danielcode target and is right at two degrees of DC support at 15436. This market needs to show some strength soon or it is going to test the lows again. 

Charts for Korea’s KOSPI are not available due to a data problem but will be posted at the Danielcode Online free charts page as soon as it has been corrected.

Australia’s SPI 200 is following its DC numbers to perfection. After rallying precisely to its first DC target at 6010 it is now at the 50% retracement of its recent range, a common parking spot for large equity indices as they wait for the next shoe to drop!

Oil continues to be strong on the weekly chart and higher targets are on the chart

Rice has made the smallest correction that is normal in commodity markets, having corrected the swing from the start of the fast move as is normal.

Corn, the market at the center of the bio fuel debate made a minor correction to the 50% mark of its previous swing and is now making new highs.

Generally we can say that there is no real relief in food markets which continue to react to inflation, untrammeled liquidity and shortages largely caused by government policy. Wheat is down 45% from its March highs but is still at historically high prices. None of these markets look like capitulating any time soon and Gold is maintaining a strong position at $890. 

Asian equity markets with the exception of the Kospi are generally weak and a downturn in US and UK markets which maintain strong positions is a present risk.

CAUTION-The Daniel numbers on these charts are from historic sequences that may not be current at the time of publication. They are appended for historic interest only. Do NOT use these numbers to trade markets. Current Daniel sequence numbers for most currency crosses are available to subscribers at the Danielcode website.

Copyright © 2008 John Needham
Asia Editorial Archive

John Needham is a Sydney Lawyer and Financial Consultant. He publishes The Danielcode Report and writes occasionally on other markets. He lives with his family in Australia and New Zealand.

“The fox knows many things, but the hedgehog knows one big thing. A Hedgehog Concept is not a goal, intention or strategy to be the best. It is an understanding of what you can be best at. The distinction is absolutely crucial”. ~ Isaiah Berlin, The Hedgehog and the Fox

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John Needham | The Danielcode Report | Taupo, New Zealand | Email | Website

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