Global Bust Round II; Australia Mining Contagion; Vindication for Steve Keen Coming; What about the Loonie and Australian Dollar?

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Nations that resist the tax urge may attract investment. South Africa taxes mining companies at 33 percent, Canada 23 percent and China 30 percent compared with a forecast 58 percent in Australia after the tax, according to Citigroup data. Canada’s Finance Minister Jim Flaherty said this month he’s opposed to raising taxes and the Australian levy makes Canadian companies more competitive. BHP vs. Copper

The decline in mining shares is not completely related to the tax. Some of it is related to global economic weakness and falling commodity prices in general.

A few charts will show what I mean.

High Grade Copper Daily Chart

BHP Daily Chart

BHP peaked in early April, right along with the price of copper. Now, let’s consider the Australian composite stock market index and the Australian dollar.

Australia ASX Index Weekly Chart

Australian Dollar Weekly

Note that the Australian dollar peaked along with the price of copper. However, the big slide did not occur until the “Super Tax” passed on May 2. A daily Chart shows this better.

Australian Dollar Daily

A reasonable conclusion is that the Australian stock market and Australian dollar are affected by commodity prices with an unknown kicker related to the “super-tax”.

Given that correlation is not causation and also because there are timing issues, it is not reasonable to assign exact percentages to each.

However, it is certainly unreasonable to blame all of these recent declines on the mining tax alone.

Property Bubbles

While on the subject of commodity producing countries, I would be remiss to not bring up the subject of huge property bubbles in Australia and Canada.

Both are poised to pop. When they do, it is highly likely to further weaken the Canadian Loonie and Australian dollar.

As a word of caution, the weekly charts show plenty of room for further large declines.

Vindication for Steve Keen Coming

My friend “HB” comments:

The Aussie banks are so loaded with real estate loans, it’s obscene and embarrassing to discuss.

Aussie real estate could fall 50-60% before the carnage is over.

Australian economist Steve Keen will be vindicated many times over but will not get credit because he missed the timing due to overt attempts by the Aussie government to reinflate the property bubble to keep the party going a little while longer.

Finally, the huge speculative infrastructure and property bubbles in China are due for an enormous spill. That too will weigh on commodity prices and in turn currency valuations of the commodity producing countries.

Global bust round II is now in progress. However, the declines have been extremely fast. We can easily see a relief rally at any time.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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