A special upside-down edition of Port Phillip Insider

  • In the mailbag
  • LIVE event — announcement soon!
  • Tarnished gold

Today’s Port Phillip Insider takes a different format to usual.

Instead of general market commentary and analysis at the top, and the mailbag at the end, today, we’ve flipped things around.

First you’ll get the mailbag. Then you’ll get some half-baked financial commentary from your editor, direct from the British Airways lounge at Heathrow Airport’s Terminal 3.

On with the show…

In the mailbag

Today, a long and nicely written letter from subscriber, SG, followed by my response to one of SG’s observations:

Firstly, thank you for your very interesting articles. I do have some comments about your newsletters, that I’d like to share with you, and also my reading of how the market as I see it.

The Good Stuff

I enjoy reading about a different view and reading of the stock market. It is interesting and has a good feel to providing commentary rather than providing a confusion provided by newspapers wanting to provide a range of contrasting views.

I’ve subscribed a number of your newsletters, and they’ve been great in increasing investing returns or increasing my investing knowledge. In some cases, I’ve had successes, and some failures, but, irrespective of the portfolio return, it’s been informative and enlightening.

Fully appreciate some of the conviction you put behind some of your views in articles.

Interesting market data sets, which I don’t usually see in other publications.

I enjoy the alternative viewpoint, and particularly liked the insight on the 5400 level breakout for ASX200.

I really liked Vern Gowdie’s article on lessons from investing. They were good to read.

I acknowledge your good analysis on gold so far, and note the consistency with which you and PPI supported gold even in late 2015, when gold was hitting rock bottom. So, for it now to turn is a strong vindication of the analysis you’ve done.

The not so good stuff

The fear mongering. I am beginning to wonder if fear mongering is used to drive the business for your newsletters?  I note the wording in one of the recent newsletters, “Where is the fear?”

The conspiracy theories — People love a good conspiracy theory. I think I can find heaps in the Port Phillip newsletters. For me, it’s just as unacceptable as the gross bullish “invest in stocks” information that floats around.  Digital money — a scenario where bank balances are changed arbitrarily just is an example of that. You know, bitcoin’s been in existence for more than 5 years and happily chased around by people! So, digital money isn’t a new concept. Yet, I struggle with the floating bank balance notion you’ve espoused to scare people in newsletters. I guess anything’s possible, but in the end, the acceptability of any idea is limited by the number of people who end up rebelling against it (cue memories of Atlas Shurgged/people raising slogans against street passport checks by the Australian Borders Force in Melbourne). I suggest enough people will rebel in the street for such an idea to be put in the bin. In the end, there’s no proposal in front of the RBA/government suggesting such a proposal. So, to use that as a strawman argument against monetary policies is frankly ordinary. Please show concrete proof of such a proposal next time you bring it up (i.e. proof in terms of a consultation paper, etc. in front of the Australian government, and not some loon sitting overseas or in a leftist university library).

I subscribe to a number of Port Phillip newsletters, including the resource speculator by Jason Stevenson. In a recent report, he responded to front running allegations saying Port Phillip does not engage in that. And I believe him. Why? Because if even a hint of truth exists about such allegations, and it becomes public — the PPI newsletters will be toast in terms of returning customers. So, a reputation loss is a major risk to any business above any profits that may come by front running. Similarly, RBA is clearly targeting inflation setting above anything else. Repeatedly in recent newsletters, you’ve suggested that the interest rate reduction is primarily for reduction in AUDUSD rate. While it is true that RBA has jawboned the AUDUSD in the past, it’s always been true that their primary responsibility is with inflation setting and interest rates have been set with inflation/unemployment, etc. in mind. Notably, no such jawboning has come forth since the Jan/Feb 2016 crash. So, when the RBA says it is targeting inflation, I believe them.  For you to imply that interest rates were changed with AUDUSD rates in mind, above the inflation as a target, is to come up with accusations similar in nature to the ones being levelled against your publications.

Some recommendations

Demand and supply — investment runs on demand and supply.  Yet, I am yet to see a proper demand and supply forecast graphs. So many of port phillip’s analysis is linked to economics, but no supply and demand graphs. They really do clear up the mind. In a previous workplace, I was privileged enough to see some paid economics research, and it was clear when looking at them that certain stocks were never going to make it. Amazingly, those stocks shot up on speculation, and then crashed spectacularly exactly because of demand and supply scenarios.

Tone balance — A wise man said to me, “to always argue from the point of being right means the other position is always starting from wrong.” Perhaps in some cases, it is worth acknowledging what others are trying to do, and then identifying where certain policies may have unintended consequences or failures. To summarily dismiss the viewpoint of others, can result in overlooking of certain aspects on any issue.

Other points

There are a few issues with world markets, one being the irrational 1–3% inflation target around the world. If I take Japan to be an extreme example, they are targeting 2–3% inflation rate, when their population is reducing by 0.2% per year. If we look at the working age demographic, it means basically an average Japanese paying more and more for things with stagnant wage growth. Just won’t happen. On the other side, India is a country with approx. 2% population growth rate, meaning there’s always going to be an increasing demand for goods, which are perfect for business. They are targeting CPI of 3–4% (actual is running at 4% plus). Again the contrast against Japan’s population growth becomes stark. China has now adjusted its one child policy, because eventually they figured out the contradiction between inflation rate target vs population growth. In my view, the inflation targets, at least anecdotally need to be more flexible and reflective of conditions, and not be a “hard coded” number lacking any firm basis other than tradition and history.

Another issue is the age old supply demand factor. Dealing with engineers, I understand sometimes things get over engineered conservatively, meaning excess supply. So, perhaps some built too much and too fast (or was it a strategy to loss lead)?

Another issue is the demographic mix. An increasingly aging population will switch their investment mix from growth to conservative investments (or cash) as they near retirement.  Perhaps that little “hump” caused by investment mix change is causing lower investment as well?

Thanks

I’ll only address one of SG’s points: The reference to fear-mongering.

Given that I authorised the publication of Vern Gowdie’s book, the End of Australia, last year, and given the fact that we’ve sold around 25,000 copies in paperback and eBook form, it would be hard to deny that highlighting ‘fear’ is part of what we do.

So why deny it? I won’t.

We do use fear in our editorial and promotional letters.

In fact, not only won’t I deny it, but I’ll say that every one of our 45,000 paying subscribers, and 150,000 free e-letter subscribers, should be thankful that we do highlight fear.

Without understanding that there are things of which you should be fearful, I believe you would not only be a worse investor, but I believe you would be a poorer investor too.

Maybe not today, tomorrow, or next year, but without appreciating that there are things to fear, how would you know if trouble was brewing?

You wouldn’t.

Furthermore, would that also suggest that, if we believed there was something to fear, we should keep quiet about it?

That doesn’t seem like the right thing to do.

Of course, no doubt some would argue that issuing warnings is fine, but it shouldn’t be a constant refrain of fear…that we should carefully pick and choose our fear-mongering topics so that it doesn’t cause unnecessary worry.

That’s fine. The problem, of course, is this: Who would decide which fearful things to highlight and which to ignore?

Should that be my job as publisher? Maybe. But who’s to say that I’m any better than anyone else in knowing which potentially fearful events will eventuate, and which won’t?

Like my colleagues, I’ve warned you about many things over the years. Some have occurred, others haven’t.

Besides, it’s wrong to say that we only focus on the fear. We highlight positive opportunities, too. Our current promotion for Matt Hibbard’s Options Trader service is predominantly a positive message — how experienced investors can scalp regular cash payments from the stock market…sometimes without even buying a stock.

If you’ve missed it, you should check it out. Go here.

That’s not all. Our Australian Small-Cap Investigator, Revolutionary Tech Investor, and Microcap Trader services are inherently positive.

I met up with the editor of those three services in Dublin yesterday. As usual, the guy was bouncing off the walls with excitement.

Cycles, Trends & Forecasts and Time Trader guru Phil Anderson was in my office last week. As he was leaving, our chief researcher, James Woodburn (you’ll hear more from James next week as we announce a special live event) asked Phil when Australian property prices would crash.

To paraphrase Phil, he said, ‘Don’t hold your breath.’

That’s hardly fear-mongering.

Yes, in certain circumstances, we use fear to sell newsletters and trading services. But, when we do so, I believe we do so honestly, and only when we have good reason.

As I frequently say, our relationship with our readers is purely voluntary. If you don’t like some of our fearful messages, ignore them…or close one eye when you read them. That way the message will only be half as scary!

But in all seriousness, with the way governments and central banks are manipulating the markets today, you should be fearful.

You should understand that jumped-up bureaucrats are trying to destroy your wealth. They want to impose central bank-controlled digital money on you, in order to take away your freedom to save or spend on your own terms.

The mainstream has long claimed the Reserve Bank of Australia (RBA) is the best central bank in the world. Local commentators slurp over every word that vomits from central bankers’ mouths.

Look at the comments from outgoing RBA governor Glenn Stevens, as reported in the Sydney Morning Herald:

“Let me be clear that I am not advocating an increase in deficit financing of day-to-day government spending,” he said.

“The case for governments being prepared to borrow for the right investment assets — long-lived assets that yield an economic return — does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances.

“The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt. Foreign visitors to the Bank over the years have tended to raise questions about household debt much more frequently than they have raised questions about government debt.”

Be clear about what Mr Stevens means. He means the government should go further into debt. The Australian government is already in debt to the tune of $431 billion. By this time next year, government debt will be over half a trillion dollars.

If that isn’t something worth worrying about, I don’t know what is.

After eight years of rampant, debt-fuelled government spending, there doesn’t appear to be any end in sight. Expect that number to keep growing.

And if you’re not planning your investments to factor in the potential for a coming government and private sector debt disaster, you really are doing yourself, and your family, a disservice.

There endeth the lesson.

Markets

Overnight, the Dow Jones Industrial Average closed up 117.8 points, or 0.64%.

The S&P 500 closed up 10.3 points, or 0.47%.

Meanwhile, the Euro Stoxx 50 index climbed 30.57 points, or 1.01%. The FTSE 100 index added 0.7%, while Germany’s DAX index gained 0.86%.

In Asian markets, Japan’s Nikkei 225 index is up 181.2 points, or 1.08%. China’s CSI 300 index is up 0.55%.

In Australia, the S&P/ASX 200 index is up 5.4 points, or 0.1%.

On the commodities market, West Texas Intermediate crude oil is trading for US$43.43 per barrel. Brent crude is US$45.93 per barrel.

Gold is US$1,346 (AU$1,745) per troy ounce. Silver is US$20.08 (AU$26.05) per troy ounce.

The Aussie dollar is worth 77.09 US cents.

LIVE event — announcement soon!

Last year we held our first ever live training event.

It was a resounding success. In that instance, I sat down for a conversation with Options Trader guru, Matt Hibbard.

The event was live…as in, LIVE. Not pre-recorded and broadcast on delay to make it seem live. It was warts and all live action.

We had a rough idea of what we would say, but it wasn’t scripted. That allowed us to ‘freestyle’ to some degree, and answer the questions LIVE, as they came in from the thousands of listeners.

Well, the good news is that we’re holding another LIVE event. This one isn’t for Options Trader. It’s actually for what is currently our most popular trading service.

It’s also the service that boasts one of the best track records of any of our premium investment advisories.

Full details of the training session and LIVE event will be in your inbox next Monday. I urge you not to miss it. It’s a rare chance for you to ask questions of a former trader at one of the world’s biggest trading houses.

I’m telling you, regular investors just don’t get access to traders of this calibre. So when you get the chance to listen in and understand the mindset of successful traders — and to submit your questions to get answers — you’ve just got to grab it.

We’re putting the final touches to the event now. On Monday, you’ll receive a special invite. I recommend you accept the invite straight away. In order to avoid the potential for a system meltdown, we may need to cap the number of attendees.

Remember, this event is LIVE. It’s not recorded. And anything can happen when it’s live. Sure, we don’t expect a Census style debacle, as we don’t expect millions to tune in.

But we do expect thousands (yes, thousands) of our readers to tune in to this special LIVE event. So, when you get the email on Monday, inviting you to join us LIVE, don’t ignore it, get on to it straight away.

We’ll reveal the exact time and date of the special live event in Monday’s email. Stay tuned. I don’t want you to miss out.

Tarnished gold

A glance at the Financial Times lying on the table in front of me reveals the headline, ‘Fears mount for pensions as gilt yields touch negative territory’.

For the uninitiated, ‘gilts’ are UK government bonds. They’re known as gilts because, back in the good old days of paper bonds, the bonds had a gilt edge (hence the full term, gilt-edged securities).

By a gilt edge, it means the bonds had a gold leaf edging, marking them as a quality investment.

Knowing the history of the term, it’s therefore hard to rationalise that with the quality of today’s UK government gilts.

A two-year UK gilt currently trades to yield 0.142%. A three-year gilt trades to yield 0.127%.

For those investors seeking a [cough] high yielding gilt, how does the 0.535% yield on a 10-year gilt taste? Delicious? No, not so.

UK gilt yields have collapsed in recent months — notably since the Brexit vote on 23 June. As you can see from the chart below:



chart image

Source: Bloomberg
Click to enlarge


Prior to the Brexit vote, UK two-year gilts traded to yield 0.5%. Today, the yield is barely a quarter of that.

This is a problem, as the FT notes:

Pension funds are some of the biggest investors in British government bonds, which offer a safe and reliable source of income that can be used to pay out future benefits to retirees.

The accelerating collapse of yields has widened already substantial gaps in many big pension funds, which use the rates to estimate how much additional funding they will need to meet benefit payments.

Unlike Australia, the UK still has a big defined benefit pension system.

However, you should assume that, if ultra-low interest rates came to Australia, it wouldn’t be a problem for retirement savings accounts.

Just as pension funds have to invest in order to meet future pension fund obligations, those with defined contribution funds need to invest in order to meet their future pension needs.

Australian government bonds are low and, although they aren’t as low as the yields on UK gilts, the trend is clear. Check out the chart below:



chart image

Source: Bloomberg
Click to enlarge


At the end of April, Australian two-year government bonds traded to yield over 2%. Today, the same bond trades to yield 1.421%. That’s a significant fall.

And based on the sounds coming from the RBA, and the opinion of commentators, you can expect that yield to sink further.

Good job central banks. And to think, governments and mainstream commentators want to give them more power through the digitalisation of national currencies.

No thanks.

See you on Monday, on our return from Ireland and the UK.

Cheers,
Kris