It has been leaked out that Kevin Rudd, the Australian Prime Minister, has written a 7,700 word essay on how neo-capitalism has failed. He argues that capitalism must be rescued by ’social-capitalism’ i.e. by state owned agencies (banks, public utilities etc) and regulation to curb capitalistic ‘excesses’. This has been taken to be a call to return to the Australia of the 1970’s - to the era before the revolution brought about by Hawke and Keating.

For some reason, the use of the word ‘government’ means that human nature changes - there is no incompetence, or greed and all works with remarkable efficiency. Unfortunately this picture fails to accord with reality.

In Australia, the NSW state hospital system is in tatters - there are insufficient funds to pay for medicine, doctors and the basic necessities normally associated with decent health care. The NSW railway service is a joke - as a friend said: “The trains are considered on time if they are only 30 minutes late’.

What Rudd proposes for Australia is one way of describing the USA. For all intents and purposes banks no longer have to worry about running a creditable business - after all Uncle Sam is there with his wallet,  and he has not imposed any restrictions on how his generosity may be used. In short, the Federal funds may be spent in any way the banks see fit. And so they have spent them on executive bonuses - bonuses when for all intents and purposes, the employer is bankrupt.

Moreover, it does not appear we can expect any semblance of realistic policies from the Obama Government - if the latest ’stimulus package’ is anything to go by. The Wall Street Journal in ‘A 40-Year Wish List‘ revealed the extent of the ‘porking provisions’. The one hope is the rumour that Obama will delete or amend the more extravagant provisions to get the Bill passed in the Senate.

But what has all this to do with trading?

Pete Steidlmayer said that “in the short-term, the perception of the fundamentals drives the market; in the long-term, the fundamentals drive the market”. In short, the fundamentals provide the context to technical trading. In my 18-day Swing (monthly trend) time frame, my best trades have been the ones where the technicals bear out the contextual framework.

The evidence piling up is that the Governments of the world, far from assisting the earliest possible exit from the recession are adopting policies that will send the DJIA to 761 or so, Gold to above $1000.00 and the US Dollar down against all currencies.

Refer this blog post to a friend or colleague…