Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.

 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate


On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.


RSS 2.0

Picking up pennies in front of steamrollers

By Murray Dawes - posted Monday, 18 October 2010

The huge moves in the market at the moment are sending a big warning signal to those who are willing to listen.

The threat of a new round of quantitative easing (QEII) by Federal Reserve chairman Ben Bernanke has set off a chain reaction in world markets that can only end in tears. Emerging market economies are being placed under extreme pressure as their currencies appreciate under the weight of hot money looking for a home.

Thailand announced on Tuesday that it will impose a 15 per cent withholding tax on interest and capital gains made by foreign investors on Thai bonds. Export dependent economies like China, Brazil and Japan have been trying to fight back huge flows of capital chasing yield. Brazil last week raised a tax on foreign portfolio inflows into bonds.


Korea has been rumoured to be intervening repeatedly in the currency markets and in the Philippines, government officials are saying that the rise of the peso is a matter of concern.

Australia has even had to react to the flow of money by delaying the raising of interest rates to keep the interest rate differentials between Australia and the USA to a minimum.

Global imbalances are increasing in response to the ridiculous attempts by Bernanke to reflate the system. All he is managing to do by threatening QEII is to force investors to search for a safe haven for their money while Bernanke tries to trash the currency.

Hard assets are of course the desired destination and the huge spike in the Australian dollar and rally in commodity markets are seeing this race accelerate.

Bernanke’s desire is to stoke lending in America and inspire investment and job growth. I assure you that printing money is going to do no such thing.

Long term interest rates in America are at generational lows already and banks are unwilling to lend and consumers and businesses are unwilling to borrow. Lowering the 10-year bond by another half a percentage point is not going to miraculously change this situation.


Instead of inspiring more lending at home it is going to inspire capital flight out of America and into high yielding currencies as is happening right now.

What will be the outcome of commodities going through the roof?

Input costs for businesses are going to go up and disposable income for consumers is going to go down. There is a lack of demand anyway so why would a business invest to increase production when his input costs are going up and he has no pricing power because the end demand is so weak.

  1. Pages:
  2. Page 1
  3. 2
  4. All

First published in Money Morning on October 14, 2010.

Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

3 posts so far.

Share this:
reddit this reddit thisbookmark with Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Murray Dawes started out on the trading floor in Sydney in 1993. After two years working in the three- and ten-year bond and options pits for Swiss Banking Corporation, Murray specialised in SPI futures and options, before moving on to work for Bankers Trust Australia. Murray moved to Melbourne in 2001, working as a hedge fund trader, where he developed a proprietary technical trading system. Now he heads up the technical analysis desk at Port Phillip Publishing, contributing to regularly to the free e-letter Money Morning Australia and his YouTube channel Slipstream Trader.

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 3 comments
Print Printable version
Subscribe Subscribe
Email Email a friend

About Us Search Discuss Feedback Legals Privacy