Can you beat 24 minutes and 3.45 seconds?

  • No offsets
  • It’s time to look at China again
  • Tiny stocks on the move
  • In the mailbag

How long can you hold your breath?

20 seconds? 30 seconds? A minute?

According to Guinness World Records:

The longest time breath held voluntarily (male) is 24 min 3.45 secs and was achieved by Aleix Vendrell (Spain), in Barcelona, Spain, on 28 February 2016.

Aleix Segura Vendrell is a professional freediver. The attempt took place at the 17th Mediterranean Dive Show.

[Speechless]

To be honest, we thought the record may have been three or four minutes…five minutes tops. But 24 minutes…and 3.45 seconds!

Regardless, even that won’t be long enough. You had better start practicing holding your breath, because, according to The Age, by 2050, the Victorian state government plans to hit a target of zero carbon dioxide emissions:

Victoria will emit no carbon dioxide by 2050, if a target announced by Premier Daniel Andrews on Thursday morning is met.

The goal would mean no more burning coal for power in the Latrobe Valley and a big shift in how business operates and people run their homes.

Not reported in The Age is that it would mean people and animals would have to stop breathing…forever. 24 minutes and 3.45 seconds seems impressive now, but just you wait. That record will be smashed 34 years from now, when breathing (apparently) will be illegal in the state of Victoria.

No offsets

You’ll probably say we’re being childish by noting that the plan involves zero ‘net’ carbon dioxide emissions. Not according to The Age article.

There is no mention of any offsetting oxygen output from plants. It simply states that Victoria will have a target of zero carbon dioxide emissions in 2050.

Now we have the evidence: The lunatics really are running the asylum.

Markets

Overnight, the Dow Jones Industrial Average gained 66.77 points, or 0.37%.

The S&P 500 added 6.99 points, or 0.33%.

In Europe, the Euro Stoxx 50 index closed down 20.93 points, or 0.69%. Meanwhile, the FTSE 100 added 0.27%, while Germany’s DAX index lost 0.69%.

In Asia, Japan’s Nikkei 225 index is down 162.82 points, or 0.97%. China’s CSI 300 index is down 0.41%.

In Australia, the S&P/ASX 200 index is down 8.08 points, or 0.15%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$51.63 per barrel. Brent crude is trading at US$52.83 per barrel.

Gold is US$1,263 per ounce. Silver is US$17.12 per ounce.

The Aussie dollar is worth 74.95 US cents.

It’s time to look at China again

Who said the China boom was over?

The Financial Times reports:

The chief economist for China’s central bank forecasts that the economy will grow 6.8 per cent in 2016, well ahead of independent estimates from the International Monetary Fund and most private economists.

After a bout of currency depreciation and weak data earlier in the year, sentiment towards China has improved in recent weeks as the latest data suggest government stimulus efforts have helped prevent a sharp falloff in investment.

For most of today, the Aussie market has been in the red.

Then one of China’s ‘reds’ says that economic growth will boom, and the market spurts higher.

But it won’t be easy. The Chinese will have to put in some hard work (assuming they won’t just fiddle the numbers regardless). As the chart below shows, the latest annualised number for China’s GDP growth was 6.7%.



chart image

Source: Bloomberg
Click to enlarge


What’s more, that’s 6.7%…and trending lower.

If you’ve tuned into this publication, and other Port Phillip Publishing investment advisories, you’ll know that your editor is a long term China bull.

We believe that, over the next 20–30 years, China’s economy will become bigger than the US economy, and with that growth will come extraordinary investment opportunities.

In fact, we see the opportunity in China today approaching the opportunity we last saw in 2014.

In early 2014, most investors were talking about an impending crash for Chinese stocks…that its economy was a bubble, and that slower growth would hit the market for six.

We thought differently. We looked at the longer term price chart of the Chinese market, and argued that, in early to mid-2014, Chinese stocks were down nearly 64% from the 2007 high.

When folks spoke of a crash in Chinese stocks, we explained that the crash had already happened.

As it turns out, we were right. Far from Chinese stocks crashing, over the next year, the CSI 300 index gained 153%:



chart image

Source: Bloomberg
Click to enlarge


Of course, we can’t crow too much. We didn’t predict the 153% gain in Chinese stocks — not over that short timeframe anyway. We were hoping for big triple-digit gains like that…but over the course of two or three years…not a handful of months.

Because, like any bubble, a rapid rise can’t last. The chart shows you exactly what happened next. From June 2015 to February 2016, the CSI 300 index fell 46%.

Since then, it has made a modest recovery, gaining just over 11%.

So does that mean the Chinese bear market is over? And following the announcement about China’s growth for this year, are Chinese stocks heading towards new highs?

Nothing is guaranteed. But our goal is always to buy stocks low. Even though the Chinese market is still above the lows of 2012 through to 2014, our view is that Chinese stocks are starting to look attractive again.

So much so, that we’ll get Emerging Trends Trader analyst Ken Wangdong on the case. Having grown up and worked in China, Ken knows the country and its economy like the back of his hand.

We’ll see what he has to say. He may tell us that it’s still too soon…or he may say that beaten-down Chinese stocks are ripe for investing.

We’ll ask him. And then let you know what he says.

In short, we don’t have much faith in government statistics. If the People’s Bank of China tells us that economic growth will be 6.8% this year, we’ll believe it when we see it.

But that doesn’t change our overall view. Long term, China remains a great investment opportunity. And with prices at these relatively low levels, it may be the right time to get back into this speculative market.

Tiny stocks on the move

As I write, the S&P/ASX 200 is down 16.28 points, or 0.3%. Meanwhile, there are a bunch of stocks that are putting in double-digit gains.

See table below:



chart image

Source: Bloomberg
Click to enlarge


As we always like to ask: Do you recognise any of these stock codes? We doubt if you recognise more than two or three.

Without verifying their names, just going by the codes, we think we recognise three of them. As for the rest, we’ve got no idea.

But that’s not surprising. There are over 2,000 stocks listed on the Australian Securities Exchange. Of those 2,000, you could reasonably classify 1,500 of them, or more, as ‘tiny stocks’.

That’s why the opportunity last year to set up an advisory service targeting ‘tiny stocks’ was too big an opportunity to ignore.

So that’s what we did. And so far, it has been a tremendous success. Now, for the first time in six months, we’re accepting new applications for this service.

We’ll make details available soon. But pay attention. If last year is anything to go by, we expect spaces in this service to fill up fast. Stay tuned.

In the mailbag

The War on Milk continues. Geoff sends us this letter:

Once upon a time we had a fair and equitable system called… Milk Quotas.

Excess milk was sold on the open market. It all worked fairly, except that when the boys became big Boys they began to manipulate the system, so enter the free market where they can manipulate.

All farmers are price takers. Fact. Take Monsanto and the fertiliser companies, they put up their prices often when the price of grains for example go way up. Free market working. The price then falls, farmers have paid huge input costs then struggle to make ends meet.

The Free market at its best! How can a farmer get 30 cents per litre and you pay from $1 to $1.90 litre say and more as they take more out of the milk! Someone in the middle is going very nicely at the expense of both ends. So much for the ACCC, I am a farm machinery manufacturer, a dying breed in Australia I assure you for many reasons.

The dairy industry is a large part of our business, one of our products we have not had a price rise in 4 years. Yes we have been able make manufacturing savings to assist us but our overall costs have risen and eaten into our profit margin. The Government are a big part of these fixed costs. Public debates love rules!

I have a lot of sympathy for dairy farmers, since when have you Kris and your team got out of bed 7 days a week at 5 am in the winter to work for a loss, and look forward to the next 12 months of the same?

I agree with Malcom and Mike, these guys are at the coalface like me. We are not pen pushers and manipulators of words. We work with bricks and mortar.

As all ready stated you are being over simplistic, farming is a way of life, if it wasn’t many would starve.

Long may the Canadian dairy farmers fight to keep their milk quota system!

I love emails like this, because they highlight the inconsistency of the pro-dairy farmer argument.

Geoff laments the passing of the milk quota system, and then rails against the free market for manipulating prices! What is a quota if it isn’t the manipulation of prices?

As an aside to that, it’s an oxymoron to say that there is price manipulation in a free market. The two cannot co-exist. It’s simple. If there is a free market in something, then there is no price manipulation.

If price manipulation exists in a market, then it is not a free market. In which case, you have to look for the root source of the manipulation. Inevitably, that source is always the same — government (or its central bank).

Geoff also claims that all farmers are price takers (‘Fact’, he adds). However, that’s not true. Perhaps now, farmers are price takers, when there is a glut of supply.

But that’s the same in any market. When supply exceeds demand, the buyer has more influence over the price. But before we extract our handkerchief from our pocket, in order to wipe away the tears, it’s worth pointing out that farmers aren’t always price takers.

When demand exceeds supply, or when a market is booming, the farmer is much more likely to be a price maker, than a price taker. Again, just as in any other market.

Geoff then asks when I or my team have woken up at 5:00am to work for a loss. Well, I wake at 5:50am every day. I do not, however, work for a loss. If coming to work resulted in me making a loss, I wouldn’t do it.

Now, the online publishing industry is different to a primary industry. We understand that, in a primary industry like farming or mining, it may make economic sense to produce at a loss.

Why? Because of the belief that the cycle will turn, and profits will follow. It’s not easy for a farmer to just stop producing if they’re incurring losses. A dairy farmer would have to stop feeding his cattle, or maybe sell them.

But what if the market turns? Then the farmer will have to buy new cattle. In which case, the farmer may have to pay more for the cattle than the cash he received for the cattle he sold.

But again, forgive us for the lack of tears. Good farmers should know that the industry can be cyclical. They should plan and budget for it.

Our bet is that most do, and that it’s the ones who don’t, or who over-borrowed during the boom years, that are doing all the whinging now, asking for government bailouts.

As for Geoff’s final point about Canada’s milk quota system: Maybe it is wonderful. But for whom? Not for the consumer, I’d bet.

According to Numbeo.com, one litre of milk in Canada is C$2.11 (AU$2.22). In Australia, a litre of milk is AU$1.47.

We’re sure there are a whole bunch of variables involved in pricing, but unless you enjoy stiffing the consumer, then we’d say the last thing Australia needs is a milk quota.

Keep the letters coming. There is nothing I enjoy more than defending the free market. Send your letters to letters@portphillipinsider.com.au.

Cheers,

Kris