It’s a high

  • For eight days only
  • Not bearish enough
  • Below par
  • Podcast
  • In the mailbag

What else do you need to know?

The US market has hit a new all-time high. And not just one index either. It’s the whole lot of them. As Bloomberg reports:

All four major U.S. equity benchmarks climbed to record highs as oil jumped on optimism OPEC will agree to cut output. The yen rose as markets digested reports of a tsunami warning in the Fukushima region.

The S&P 500 Index, the Dow Jones Industrial Average, the Nasdaq Composite Index and the Russell 2000 Index rallied together to their all-time peaks for the first time since 1999.

There you have it. And today the Aussie market is putting on a spurt too, up more than 1.3% as we write.

Good times, right?

For a long time, we’ve told you that there are reasons to be fearful about the market at this high level, especially when the fundamentals remain weak.

So, with stock prices and bond yields rising in optimism, does it make sense to continue issuing our dire warnings?

We’ll take a stab at answering that below…


Overnight, the Dow Jones Industrial Average gained 88.76 points, or 0.47%.

The S&P 500 closed up by 16.28 points, or 0.75%.

In Europe, the Euro Stoxx 50 index gained 12.14 points, for a 0.4% rise. Meanwhile, the FTSE 100 gained 0.03%, and Germany’s DAX index gained 0.19%.

In Asian markets, Japan’s Nikkei 225 index is down 4.06 points, or 0.02%. China’s CSI 300 index is up 0.26%.

In Australia, the S&P/ASX 200 index is up 71.36 points, or 1.33%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$48.72 per barrel. Brent crude is US$49.38 per barrel.

Gold is US$1,218.39 (AU$1,647.75) per troy ounce. Silver is US$16.79 (AU$22.72) per troy ounce.

The Aussie dollar is worth 73.94 US cents.

For eight days only

Before we take a closer look at the new US market highs, a reminder about tomorrow’s important event: the re-opening of the Port Phillip Publishing Alliance program.

As I explained in yesterday’s Port Phillip Insider, the Alliance program is an initiative we introduced three years ago.

It was the answer to a problem to which we had thought there was no answer: How to provide our best research to our subscribers, for life, without them having to pay huge annual fees?

It didn’t seem possible. It’s not cheap to run an online publishing company. We have to pay salaries to our editors, analysts, and support staff. We have rental and other office costs. We have IT costs, taxes, and systems costs.

All up, it costs us eight figures per year to do this. Don’t worry, we’re not asking for your pity, or for donations. We know the only way for us to attract revenue is to provide the best service we possibly can.

If you like what we do, you’ll subscribe and then renew your membership. If you don’t, you’ll unsubscribe and you won’t pay us anymore.

However, three years ago, we figured that there was a third kind of subscriber. That was the subscriber who loved what we did, but they couldn’t possibly, or didn’t want, to pay us thousands of dollars each year in subscription fees.

We understood that. But what could we do? We couldn’t give our services away for free. Our business wouldn’t last long if we did that.

That’s when we came across an idea that was ridiculous in its simplicity. We would create a series of membership levels that would give subscribers access to a whole range of subscriptions for a once-off fee (and a tiny annual maintenance fee).

We called this the Port Phillip Publishing Alliance program.

The latest available Alliance membership level includes all of our current subscriptions, except for two: Microcap Trader and Quant Trader (because we have to limit subscription numbers for these services).

Not only that, but there’s a ‘kicker’ to the Alliance service that many of our current Alliance members find to be the most valuable. I won’t reveal it here. You’ll find out all the details tomorrow.

Now, you may think: how can this make business sense? What if everyone becomes an Alliance member, what happens to your revenue to run the business?

If you’re thinking that, it’s a good question. And it’s easy to answer. First, history tells us that even though Alliance membership is just about the best value investment package available anywhere in Australia, fewer than two in every 100 of our subscribers will join.

Why? Many reasons. But we can boil it down to two key factors.

First, many think that it’s too good to be true. Simple as that.

Second, some folks are just happy with their current one or two subscriptions, and don’t want anything more than that (even though it may still be monetarily worth their while to join the Alliance over the long run).

And third, we can limit the intake. We can, and we do. It’s one reason that it has been a year since we last accepted new memberships.

This time, we’re placing a limit of 500 spots. And we’re only opening up for new memberships from tomorrow until midnight 30 November.

If applicants chew through those 500 spots before midnight on 30 November, then we’ll stop taking members, the doors will close, and I can’t be sure when we’ll reopen them.

Anyway, don’t just take my blathering on about the benefits of joining the Alliance. A couple of weeks ago, we asked current Alliance members to share their views on Alliance membership with us.

The result is a 38-page document (in 11-point Calibri font), containing more than 15,000 words. To put that in context, a typical monthly issue of Australian Small-Cap Investigator contains 3,500 words.

So that’s the equivalent of more than four months’ of issues. Here’s a sample of the feedback we received. This from Alliance member, Kim:

I cannot believe my lucky stars that I joined the Port Phillip Alliance when you first offered it. Like many at the time (and how transparent of you to publish those emails) I thought it must be nothing more than a money grab by a company that could see it was going to go out of business.

How wrong I was!!

Not only has the quality of those original publications improved over time, you’ve added more and more high quality publications every year. Being an Alliance Member has opened my eyes to so many different ways of thinking and I’m a far better (and richer) investor for it. And it’s not just the PPP publications, it’s also books that have been recommended like WD Gann’s Tale of the Tape…

One other thing I should congratulate you on is your willingness to admit you were wrong and either cancel or change tack on the various publications. Too many people make a decision and then refuse to change it despite the evidence that it was always a bad decision or a good decision that turned bad…

This from Alliance member, BG:

Words can’t express how much PPP has turned my life around. To this day I am still unsure how I stumbled across your publications Money Morning but I’m glad I did.  From there my first subscription was Aust. small caps and Drillers and Diggers. Wow, I was a bit hesitant at first, spending hours each night sitting in my Donga at camp in the middle of nowhere reading every night (this is coming from a bloke that hated reading all his life, I am 36) These days there is nothing better I look forward to than coming home wherever that is to read the many emails that come daily.

As for the recommendations I have read and invested in, trust me on this I am sitting pretty. The emails you send have not only improved my bank balance but have enriched my life, and those of others. I talk a lot and trust me, on the bigger projects LNG processing plants, Power stations, Refinery upgrades there is a lot of time to talk. Some blokes get sick of my fascination with global macro issues, but those who listened and took my advice about PPP and subscribed, have been enriched as well and have thanked me for doing so.

Then there was this from Alliance member, Shane:

Outstanding value for the original proposition. I am not a clubby type of person but my need for accurate unbiased information has been matched by the rigorous attention to detail in the numerous writers in your portfolio.

Along with The, the, my Alliance reading consumes at least 2 hours per week and I have never looked back. I look forward to the chats in my head with your writers. As an expat, I particularly enjoy the view of Aussie growth when the rest of the world is so chaotic. It keeps me grounded.

And this one from Alliance member, Geoff:

Kris does a great job of pulling it all together both in content and management.

Oh, how did that get in there? How embarrassing. I’m blushing. Onwards…this from Alliance member, Aaron:

At the risk of sounding like a genuine nutter and simply providing overhyped positive feedback to feed yours (and each contributor’s) egos — my decision to upgrade my membership to Alliance is by far the best financial/educational decision I have made in my life.

And finally, from another Alliance member named Kim:

I think [Alliance is] the best investing investment I’ve ever made. If I’d had this sort of resource 10 years ago I’d be a lot richer now. Of course I have my favourites and not everything I receive is of interest to me and also of course I don’t read everything. However, I do skim read all the information I get and frequently find gems there as well.

Places are limited to 500 for the next Alliance intake. Applications open tomorrow. Do not miss your chance to join. It could be another year before the next intake.

Not bearish enough

Now let’s get back to those sky-high US markets.

Despite the bullishness on Wall Street, are we still worried about a potentially major and disastrous stock market crash?

Channelling our inner Sarah Palin, ‘You betcha!’

During the last quarter, US companies as a whole reported the first quarterly rise (barely) in earnings since 2014.

But as the familiar chart below shows you, analysts’ earnings forecasts are still a long way ahead of actual earnings:

Source: Bloomberg
Click to enlarge

As a refresher, the white line to the left of the green line records actual earnings results for the US S&P 500 index. The white line to the right of the green line shows forecast earnings.

In order for the S&P 500 to hit these forecasts, earnings have to rise 18.7%. That’s a tough ask when you consider earnings are down 2.3% over the past year, and were up just 0.57% over the last quarter.

So, we’re not buying the euphoria.

We’re also sceptical when we look at the earnings forecasts for the component companies of the Dow Jones Transportation Average. Check out the earnings chart below. It’s in the same format as the chart above:

Source: Bloomberg
Click to enlarge

Far from being bullish about earnings, analysts covering Dow Transport stocks are decidedly bearish.

If we believe analysts are overly optimistic when it comes to S&P earnings, we should apply the same tone of caution here. In this instance, we would proffer that while bearish, analysts aren’t nearly bearish enough.

It’s no doubt why the Transportation Average has lagged the Dow Jones Industrial Average in recent years.

Why do we pay attention to transportation stocks? Simply because shipping, airline, and road transport companies can provide a clue to the real health of the economy.

Even in a digital economy, companies need to ship things to the end user. Even if people buy from rather than from Target or Woolworths, it still involves the shipment of goods.

If goods aren’t moving, then folks aren’t buying.

Furthermore, we wonder just how much households and businesses will be in a position to buy anything as interest rates seemingly continue to rise.

And, based on the futures market, interest rates are rising. The futures market has now priced in a 100% certainty of the US Federal Reserve raising interest rates at its 14 December meeting.

The market is now priced for perfection. Market players see no chance of the Fed not raising rates.

That’s because investors are now convinced the US economic recovery is real. But is it real? And how real can it be when interest rates have been kept at a record low for eight years?

To repeat an over-used analogy, the junkie may seem fine when plied with methadone, but withdraw it, and their real physical and mental health soon becomes apparent.

The US economy has been on metaphorical methadone for eight years. The doctors (not real doctors, just economic doctors) at the Fed are now beginning the withdrawal program.

It seems like that we shall find out how much of the recovery was genuine, and how much was induced by the ‘drugs’, in very short order.

Below par

The chart below shows US GDP (gross domestic product) going back to 1947:

Source: Bloomberg
Click to enlarge

The period between the red vertical bars is from late 2008 through to today. During that time, GDP averaged 1.7% annually.

Taking the previous 20 years at random, the average was 2.7%. In other words, despite US government debt rising by more than 50%, and despite the US Federal Reserve buying trillions of dollars in US government bonds, US economic growth has lagged the previous 20-year average.

What will it do when interest rates rise and the monetary stimulus is taken away?

We shall watch with a keen eye.


For the past year or more, colleague, Callum Newman has pleaded with me to promote his podcast, The Newman Show. You can download it free from iTunes, here, or Stitcher, here.

Callum does a great job with the podcast. He’s had some cracking guests, including Jim Rogers, Gerald Celente, and Porter Stansberry, among others.

Unfortunately, whether out of pure absentmindedness or spite, your editor always seemed to forget to give it a plug. So today, I’m doing it. Consider it done.

Oh, by the way, and completely coincidentally, your editor, along with our research colleague, James ‘Woody’ Woodburn, ‘hijacked’ The Newman Show podcast last week with our own episode.

We discussed a number of things, but mostly related to Donald Trump. If you tuned into that episode, you’ll be pleased to know that we’ll be back with another episode this weekend. Based on the feedback we’ve received this week, expect us to make a comment or two about climate change! (See today’s Mailbag.)

If you don’t yet get this podcast, sign up now, listen to our first episode (and all Callum’s previous episodes, of course) and then wait for the next one to download to your podcast player automatically on Saturday morning.

And in other good news (or bad, depending on your disposition), if these two pilot episodes go well, we’ll launch our own weekly podcast very soon.

So tune in, see what you think, and then feel free to send us your feedback to and type ‘Podcast feedback’ in the subject line.

In the mailbag

When we spot a can of worms just lying there, we don’t know what it is about it, but we can’t help opening it! Maybe there’s something wrong with us. Several readers think so.

One of them, Alliance member, Mal, makes an interesting point:

I’d just like to remind you of a couple of concepts aired frequently and broadly through the Port Phillip publications.

Firstly, asymmetric trades: If your ‘trade’ is as a climate change believer, the worst outcome from being wrong is that there has been expenditure on unnecessary precautionary actions i.e. a bit of economic damage. This is, however, to some extent offset by benefits of technological development and other side effects.

If you ‘trade’ as a denier and get it wrong, the worst case outcome is devastation on many fronts.

Mal’s example here is also an example of Pascal’s Wager, a theory devised by French philosopher, Blaise Pascal.

He argued that if deciding on whether God exists, the best option is to go with that which has the best possible return and lowest risk.

If you believe that God exists, you will hopefully have a pleasant life during your lifetime, and when you die, you’ll go to Heaven, resting in peace in the afterlife.

If God doesn’t exist, you’ve lost nothing — except for a few wasted afternoons at church.

However, if you deny the existence of God, you may also live a happy life, but when you die, if God does exist, you’ll live in eternal damnation.

If God doesn’t exist, you’ve also lost nothing — except the ability to brag about being right!

Yet, when it comes to climate change, we’ll argue that Pascal’s Wager, or the ‘asymmetric trade’, doesn’t apply. It’s not as simple as saying, ‘Let’s do something to be on the safe side.’

For the simple reason that climate change isn’t about ‘playing it safe’. It’s about the transfer of wealth from the middle class and poor to the global elites.

Furthermore, there is no proof that the policies and actions put forward by the climate change fanatics will actually result in any long term benefit to anyone.

There is only one instance where the asymmetric trade analogy is apt in the climate change argument. That is, it’s a one way trade for the lobbyists within the industry.

For them, they have nothing to lose by pedalling the climate change myth. If they’re right, they’ve already received millions in government grants. If they’re wrong, they’ll simply say it was their actions that prevented climate change from happening.

It’s Y2K all over again, only on a much bigger — and for them, more profitable — scale.

We’ll have more letters on climate change for you tomorrow, both in support, and in opposition to our view.