Going LIVE in eight days…

  • The news may not be bad enough
  • No intention to cut debts
  • In the mailbag

Earlier this afternoon you should have received an invitation to our upcoming live event.

We’re holding it next Tuesday evening. And yes, live means live. In the studio will be our senior researcher and master of ceremonies, James ‘Woody’ Woodburn. Joining him will be Jason McIntosh, the founder of Quant Trader, and Greg Canavan, editor of Crisis & Opportunity.

It’s sure to be the must-see event of the year. We held a similar event last year for our Options Trader service. It was a roaring success.

Listeners got to find out the inner workings of Matt Hibbard’s income-boosting strategy. Most of all, they got to fire questions at him, live.

However, as good as that live event was, it’s fair to say that options trading remains something of a niche investment category. We wanted to hold a live event that would appeal to the masses.

And out of all the investment services we offer, the Quant Trader service seemed to be the best for the task.

For starters, the front man for the service — Jason McIntosh — is a former trader for a big Wall Street investment firm. He’s also one of the few algorithmic quantitative traders actively trading in the Aussie market.

What’s more, he’s one of the few professional traders happy to share his ideas, and his trading system, with regular investors.

Most chaps of Jason’s calibre wouldn’t go near regular investors. They prefer to rub shoulders at investment banking conferences, or hole themselves up with their computer systems, trading for a small number of wealthy clients.

But Jason is different. After leading a successful life as a trader, Jason left the industry and retired. Soon after, he’d had enough of retirement, and jointly established a successful trading advisory service in Sydney. This service focused on helping regular investors.

After making a success of that business, Jason retired again. But again, he couldn’t hold down retirement for long, before my colleague, Greg Canavan, tempted him out of retirement.

That’s when we devised and launched the Quant Trader service in 2014. Since then, it has been one of the most successful — if not most successful — trading services we’ve ever launched.

But the nature of the service means there is a lot of mystique to it. After all, it’s not every day that a former trader for a Wall Street investment bank shares his trading methodology with regular investors.

Since launching the service, Jason has received a barrage of questions, asking him exactly how it works, and whether regular investors really can use Wall Street tactics to make unheard of gains.

That’s why Jason, and his Quant Trader service, was the ideal fit for our next live event. It’s next Tuesday, and it’s live. You should have received an email invite today.

If you missed it, just go here to find out what it’s all about. I can’t emphasise this enough. I’m certain you really won’t find a better opportunity to learn about Jason’s special brand of computer-generated stock trading.

His system has generated some of the best returns for traders in Port Phillip Publishing’s 11-year history. If you want to find out how he does it, register for the live event here.

Markets

Over the weekend, the Dow Jones Industrial Average closed down 37.05 points, or 0.2%.

The S&P 500 index closed down 1.74 points, or 0.08%.

In Europe, the Euro Stoxx 50 index fell 4.09 points, for a 0.13% drop. The FTSE 100 added 0.02%, while Germany’s DAX index fell 0.27%.

In Asian markets, Japan’s Nikkei 225 index is down 56.45 points, or 0.33%. China’s CSI 300 index is up 3.17%.

In Australia, the S&P/ASX 200 is up 6.89 points, or 0.12%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$44.83 per barrel. Brent crude is US$47.26 per barrel.

Gold is US$1,338 (AU$1,750) per troy ounce. Silver is US$19.80 (AU$25.89) per troy ounce.

The Aussie dollar is worth 76.5 US cents.

The news may not be bad enough

So, how much of the bad news is already built into stock prices?

We ask because, well, there’s a bunch of bad news hitting the market, and investors don’t appear to be much bothered by it.

For instance, Bloomberg tells us:

National Australia Bank Ltd.’s third-quarter profit fell 3 percent amid rising expenses for [non performing loans] and provisions for mining and agricultural loans, rounding off the most challenging reporting season for the nation’s lenders in six years.

Unaudited cash profit from continuing operations, which excludes one-time items, declined to A$1.6 billion in the three months ended June 30, the Melbourne-based lender said in a statement on Monday. The charge for [non performing loans] for the quarter rose 21 percent to A$228 million.

And how did the market react to the news that $228 million of loans are looking a little shaky? The three-day chart below shows you exactly how it reacted:



chart image

Source: Bloomberg
Click to enlarge


The stock is up just under 1% compared to Friday’s closing price.

Perhaps rising non performing loans don’t mean the same thing to banks as they did 10 or 20 years ago.

I mean that with all seriousness. When the banks have the full faith and credit of the government and central bank behind them, do rising non performing loan levels really matter?

After all, how bad would things have to get before things got really bad? If you get my drift.

OK. There’s an element of flippancy in that comment. But the point is valid. Considering everything you’ve seen happen over the past eight years, how likely is it that the Reserve Bank of Australia, or the federal government, would let the Big Four banks get into trouble?

It’s another reason why we see the abolition of physical money, and the adoption of digital money, as a near foregone conclusion.

But it’s not just the banks that are in a spot of bother. As reported in today’s Age:

BHP Billiton will unveil one of the biggest losses in its history on Tuesday, and could be tempted to respond with higher than expected spending on growth.

The final word on arguably the company’s worst ever year will contain more than $US7 billion of exceptional items and drag BHP down to an attributable loss of about $US6 billion for 2015–16.

And how have investors reacted to this piece of not-so-good news? Not as well as NAB investors, as you can see on this one-month chart:



chart image

Source: Bloomberg
Click to enlarge


At the time of writing, the BHP Billiton Ltd [ASX:BHP] stock price is down 2.6% compared to Friday’s close.

But it’s still well above the January lows, when the stock price sank below $15 per share. Today, it’s trading at $20.16 per share.

Cynically, we could say there’s a big difference between bad news for a bank stock and bad news for a mining stock. The RBA would have no hesitation about standing behind NAB or any other major Aussie bank.

But would the RBA stand behind BHP, Rio Tinto Ltd [ASX:RIO], Newcrest Mining Ltd [ASX:NCM], or others? We doubt it.

That said, we did shudder at reading the opening paragraph of that Age article. The reference to BHP retaliating to a big loss by…spending more on growth.

We would think that after pouring billions into capital investment — some good and some bad — BHP should make the most of what it has, rather than chasing its losses.

The analogy with gambling is obvious, but it’s also clear. When you lose a chunk of cash at the casino or racetrack, it’s rarely a good idea to ‘double down’.

Usually, the right response is to cop the loss on the chin, and just walk away. We somehow doubt BHP will do that. Not when growth has been, and still is, the mantra that all executives live by.

No intention to cut debts

Also remember that BHP has a stack of debt. Based on the latest annual financial report, it stands at just over US$30 billion.

Granted, it’s not a huge amount for a company of its size. But these are the circumstances when debt becomes a problem.

Right now, it probably would make sense for BHP not to commit to a big capital spending program. Especially so, as, arguably, such spending is one reason why the big money companies are in the position they’re in now.

But take one of its debt issues as an example. BHP has a US$1.25 billion bond issue due for maturity in February 2017. It has a fixed coupon rate of 1.625%.

The good news for BHP is that the bond is currently trading with a yield of 1.103%. That means, assuming interest rates stay where they are until this time next year, BHP may be able to refinance at a lower interest rate.

That’s good news, right?

Only as far as it goes. The downside for BHP is that it’s still in debt to the tune of US$1.25 billion. And if we assume that interest rates can’t stay low forever, it may have been nice for BHP to pay down some of its debts now.

But who are we kidding?

The aim is never to pay down debts. The aim is to take on as much debt as possible in order to achieve perpetual growth.

It worked for a long time. From the 1970s through to 2008. Now they hope it will work again. Maybe it will, but something tells us not to bet on it.

In the mailbag

The letters on digital money are still coming in. If you have a view, comment or question, send it to letters@portphillipinsider.com.au, and we’ll aim to publish it as soon as we can.

In the meantime, we received this letter from subscriber, Ben G:

The ongoing debate regarding digital currency deeply concerns me. I am sure that your predictions and rationale are correct and the gentlemen’s email that referred to the fact that many central banks are privately owned only heightens my concern.

The one aspect that fascinates me most following the removal of cash is what subcultures are likely to emerge besides the obvious and no doubt illegal (by then) precious metal market and whether we will once again resort to a bartering system not due to a lack of sophistication but through a desire to actively manage and protect ones wealth outside of the system.

Ben makes the oft-repeated comment about privately owned central banks.

He’s specifically referring to the US Federal Reserve system. Most central banks are government-owned agencies. The Federal Reserve is different.

The US system is actually a decentralised central bank…if that makes sense. The composition is of 12 regional reserve banks, each owned through share ownership by the banks in those regions.

Of course, even though the idea behind the decentralised system was to avoid an all-powerful central bank, the reality is that one of the regional reserve banks is more powerful than the others. That’s the Federal Reserve Bank of New York.

It alone has the authority to trade in US government securities. It’s also the only one of the regional reserve banks to have a permanent vote on the Federal Open Market Committee (FOMC), the body that sets US interest rates.

However, it’s a mistake to say that the problem with the US Federal Reserve is that it’s a privately owned body. That would assume a government-owned central bank (such as the European Central Bank, Reserve Bank of Australia, or Bank of Japan) would somehow do a better job of managing interest rates.

The problem isn’t that the Fed is privately owned, it’s that it has become a de-facto agency of the US federal government…and acts in accordance with the demands of the government.

If central banks were really private, that would be good, providing they had competition…in which case, they wouldn’t really be central banks at all. They would just be banks, which issued their own money, backed by gold.

So my word of advice is to not fall into the trap of criticising the structure of the Fed, just because it’s a privately owned institution. Folks tend to point out this fact because it’s a good conversation piece, and because few realise the Fed is privately owned.

But, as I say, the private ownership structure isn’t the problem. The problem is that central bankers have a monopoly on their national currencies. And with that monopoly, they have destroyed the value of paper money by 90% or more over the past 45 years.

And now an interesting view on low interest rates from subscriber, Vincent:

Just a humble observation about continued reduction in interest rates.

I assume that these are intended to stimulate a flagging economy?

But there is a demographic issue.

Who has saved all their life to provide for their retirement?

The Baby boomers of course.

So who holds a significant amount of cash, those same people.

How are they likely to act under decreasing interest rate pressure on their savings?

They are already in low spending mode and now they are fighting to preserve their capital.

Under these circumstances they are not likely to go on a spending spree to stimulate the economy, in fact quite the opposite.

Increasing interest rates on the other hand would give them the wherewithal to spend. Thus stimulating the economy.

I believe Vincent could be right. It’s the point I made earlier this year when I wrote about the paradox of low interest rates.

Governments and central banks believe the best way to stimulate the economy is to cut rates, because that will discourage saving and encourage borrowing.

I argued that cutting interest rates could have the opposite effect. As Vincent says, if someone needs a certain amount of money to get by, low interest rates could actually curtail their spending.

They will either spend the same amount, forcing them to eat into their capital, rather than spending the interest on savings, or, more likely, they will spend less in order to preserve as much of their capital as possible.

All up, contrary to popular belief, low interest rates may not actually stimulate the economy at all. And could in fact hasten the recession (or depression) that governments and central banks say they are trying to avoid.

Finally for today, subscriber David offers some spiritual advice. Although he freely admits, it may not be good financial advice:

I would like to share some verses from the New Testament of the Holy Bible which I believe have a direct relationship with the subject of digital money. You may be aware of these already?

Revelation: Chapter 13, Verse 16 : (Is regarding the image of a Beast ,probably a government or organisation): “He also forced everyone small and great, rich and poor, free and slave to receive a mark on his right or forehead, (verse 17) so that no one could buy or sell unless he had the mark, which is the name of the beast or the number of his name”.

Verse 18: “This calls for wisdom, if anyone has insight let him calculate the number of the beast  for it is mans number”. “His number is 666”.

YouTube is full of opinions to explain these verses. e.g some say VISA = 666.  I have no opinion on this, except maybe an RFID chip.

The point of sharing this is to realise that this seems to be the future for our planet,and amazingly it was predicted 2000 years ago. Between A.D. 54-79.

This prophesy, no matter how much people want to discount it, absolutely  can’t be dismissed, because it is unfolding right before our eyes, which to me gives it validation.

Source: The New International Version (NIV) Study Bible. The Zondervan Corporation 1985.

I have known this information for over 25 years and I wonder if the verses were a prophesy, or is it that someone is just following the script.  e.g Zionists, Illuminati, Rothschild’s etc.

To finish on a sobering note : Revelation  Ch 14 Vs. 9 If anyone worships the beast and his image and receives his  mark on the forehead or on the hand he too will drink of the wine of Gods fury which has been poured full strength into the cup of wrath.

This might not be good financial advice, but good spiritual advice.

Well, Goldman Sachs Group Inc. [NYSE:GS] Chief Executive Officer, Lloyd Blankfein, did apparently once tell the Times that he was ‘doing God’s work.’ Maybe he was muddled. Maybe it was the Devil’s work.

Where the current banking system is concerned, we’re more likely to believe the latter than the former.

Cheers,
Kris