"On the so-called 'raid' of sovereign funds by the Australian government, may I suggest care in commenting without more background. Australia has four sovereign funds. The 'Future Fund' is Australia's main sovereign fund and currently holds about $70b. It has not been accessed by the government. There are three other minor funds tagged specifically for education, infrastructure and health representing about 20% of total sovereign funds of which the government used 75% for their originally targeted purposes. The total proportion of sovereign funds accessed in the 'raid' is about 15% which was used to successfully inject activity into the economy during the GFC in areas that had been severely neglected by the previous conservative government. We have the choice here of shades to left or right of centre. Labor governments have largely been the economic reformers but bigger spenders. Liberals have been frugal, sequestered funds but run down services and infrastructure. I'm very critical of both sides as being not good enough for this country, but if the current government by your description is 'socialist' then the other side are neo-Thatcherite free market ideologues. I don't find all this hyperbole very useful."

Eoin Treacy's view Thank you for this balanced email. I sympathise with your view because Australia is not the only country where people feel disserved by the political classes. I don't pretend to be an expert on Australia's fiscal position, but I am wary of emotional commentary in any market during the run up to an election. As the polling date approaches the debate on the current government's actions with regard to the financial crisis and its aftermath will inevitably become increasingly acrimonious.

Let's not forget that Australia was held up as a paragon of how to deal with a crisis in 2008. The collapse of a number of financial houses that had leveraged up on the assumption that the flow of cheap credit would last forever shook the economy. Interest rates fell to historic lows and the government stepped in an effort to supply liquidity at a time when the financial sector was in disarray. Since then, the stimulus package has been picked through and unsurprisingly some glaring mistakes have been unearthed given the speed with which it was cobbled together.

Stimulus measures need to be paid for at some stage and I suspect the main challenge of the next administration regardless of who wins will be to introduce measures to contain the fiscal profligacy engaged in to avoid recession. Personally, I view the focus on a mining tax and carbon tax as symptomatic of one view on how to achieve these goals. The other would be to cut back on expenditure which, in a democracy, people seldom vote for unless given a compelling reason to. Australians get to make that decision in a week.

From an investment perspective, Australia is at an interesting juncture because of the uncertainty such a large spread in how alternative governments view cost saving and/or revenue raising policy options.

The ASX 200 Index is dominated by the Basic Resources (33.1%) and Financials (30.43%) sectors. In turn, the six largest companies on the Index are all from these two sectors: BHP Billiton (15.05%), Rio Tinto (9.37%), Commonwealth Bank of Australia (5.7%), Westpac Banking Corp (4.82%), ANZ (4.08%) and National Australia Bank (3.66%). These sectors highlight the fact that while Australia avoided recession it was not immune from the leveraged credit business models that led to the crisis but also that it is a commodities powerhouse leveraged to infrastructure and economic growth in Asia. This article by Jacob Greber for Bloomberg, dated August 4th, may be of interest.

BHP Billiton more than doubled from its 2008 low to retest the pre-crisis high near A$45. It has since pulled back into a somewhat larger consolidation below the peak, but a sustained move below A$36 would be required to indicate that supply has regained the upper hand beyond the current prospect for a pause in the region of a major area of psychological resistance.

Rio Tinto has been ranging mostly between A$60 and A$80 since October. It has sustained a short-term progression of higher reaction lows since May and a sustained move below A$65 would be needed to question potential for continued higher to lateral trading within the range.

In the financial sector Commonwealth Bank of Australia lost momentum from mid-2009; having soared to retest the 2008 peak. It pulled back sharply in early May and has since ranged below A$55. A break below A$47 which lasts more than a day or two would look like a Type-2 (extreme reaction against the prevailing trend) with right-hand extension top, as taught at The Chart Seminar.

Westpac Banking Corp lost uptrend consistency from late 2009 with a larger reaction and subsequent much more volatile ranging. A sustained move back above A$25 is now required to indicate demand has regained the upper hand.

ANZ has been ranging between A$20 and A$25 since October. It has sustained a short-term progression of higher reaction lows since May and a sustained move below A$20.50 would be required to question scope for some further higher to lateral ranging.

National Australia Bank has posted a succession of lower rally highs since October and a sustained move above A$25 would be required to question potential for an additional test of underlying trading.

These six shares occupy 42% of the ASX200. Just about all of them have paused following an impressive gain from the 2008 lows. Some of the banks in particular look vulnerable to some additional consolidation. Even export leaders with remarkably strong balance sheets such as BHP Billiton have paused. The Index will need to sustain a move above 4600 to clearly indicate that demand has returned to dominance.