The higher it goes, the riskier it gets

  • Open!
  • Risk grows
  • No gains from hanging on
  • More volatile than oil and gold
  • In the mailbag

We didn’t think there was anything that could take the market’s attention off the US Federal Reserve.

We thought the markets would now, always and forever look to the Fed for direction, before making any kind of buying or selling decision.

Well, turns out that idea was wrong.

The Fed has shifted from ‘front seat driver’ of the markets, to ‘back seat driver’.

In its place is our old buddy, Donald Trump.

Don’t worry, we’re not going to subject you to another Trumpian essay. We just thought it was worth mentioning.

That’s not to say the Fed has suddenly lost all importance, because that wouldn’t be entirely true. But it is fair to say that with the Fed’s meeting on 14 December almost certainly a fait accompli to raise interest rates, the markets have a new focus for their attention.

We’ll see how this all plays out. Just when you must have thought the market was getting boring and predictable, Trump strikes. Now on to the rest of the show, with nary a further mention of the US President-Elect…

Markets

Overnight, the Dow Jones Industrial Average gained 59.31 points, or 0.31%.

The S&P 500 added 1.78 points, for a 0.08% gain.

In Europe, the Euro Stoxx 50 index closed down 12.19 points, for a 0.4% fall. Meanwhile, the FTSE 100 fell 0.03%, and Germany’s DAX index lost 0.48%.

In Asian markets, Japan’s Nikkei 225 index is up 200.77 points, or 1.11%. China’s CSI 300 index is up 0.39%.

In Australia, the S&P/ASX 200 index is down 1.96 points, or 0.04%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$48.03 per barrel. Brent crude is US$48.98 per barrel.

Gold is US$1,185.77 (AU$1,608.31) per troy ounce. Silver is US$16.30 (AU$22.11) per troy ounce.

The Aussie dollar is worth 73.72 US cents.

Open!

Before we get back to the markets, remember that the Port Phillip Publishing Alliance program intake is now open.

But it’s only open for a limited time. Once we hit our limit, that’s it, we’ll close the doors — regardless of how much time is officially left, and regardless of how many extra people want to join.

Once we hit the 500 limit, that’s it. No more.

So, if you want to join what I believe is the best value investment program anywhere in Australia, the time to do so is now. For details, go here. But be quick, spaces are running out fast.

Risk grows

The Dow Jones Industrial Average is at another new record high.

But if you happen to think that everything is fine with the world’s markets, the world’s economy…and the world’s banking system, think again.

This story from the Financial Times should remind you that very little has changed:

Three of the biggest US banks have been judged to pose greater systemic risks and had their capital requirements increased by global regulators in their annual rankings of the most systemically important institutions.

Citigroup, Bank of America and Wells Fargo all had their capital buffers increased several billion dollars, along with Industrial and Commercial Bank of China, in the annual systemic rankings published by the Financial Stability Board.

Maybe we’re reading this wrong — that’s always possible. But we struggle to fathom how the world’s economies can be supposedly doing so well, while the fragility of those economies increases.

But then again, when we think of it in one particular way, it does kind of make sense.

If we consider the world economy to be a balloon, it’s true that as the balloon grows bigger, it looks ever more magnificent. Yet, at the same time, the stretched balloon becomes weaker and more vulnerable to bursting.

Yes, that’s it. Now it does make sense. As we’ve suspected all along, the markets are in an enormous bubble. The moment when they will burst must surely be dramatically near.

No gains from hanging on

Citigroup Inc [NYSE:C] is among the banks to ‘pose greater systemic risks’ according to the FT. Not that Citi’s stockowners appear to care that much.

The stock price continues to rise. It’s up 17.7% in the past two weeks. It’s up 450% since the March 2009 low.

Although, lest we forget that it’s down 90% from its December 2006 high:





Source: Bloomberg
Click to enlarge


We don’t write that to gloat. We write it to remind investors that holding onto a losing position doesn’t always guarantee that it will recover sometime soon…if ever.

More volatile than oil and gold

In local news, Bloomberg writes:

LNG market is at an “inflection point” with an abundance of new supply and new buyers including Egypt and Pakistan entering market, Woodside CEO Peter Colman says on Bloomberg Television.

Coleman went on to tell Bloomberg:

We think 2017 is probably going to look a lot like this year with not a lot of change in pricing, supply and demand and some repositioning. From 2018 onwards we should start to see it pick up.

If Coleman is right about a market pick up in 2018, then colleague, Greg Canavan is right about buying into the LNG (liquefied natural gas) sector now, or 2017 at the latest. As that’s when he sees the best opportunity for investors.

As Greg writes in a recently released report:

For years, Australia’s gas market has been on the ropes. Supply gluts and stagnant demand have kept a firm lid on prices.

But as you’re about to see, the LNG story is changing at a rapid pace. Investors who act quickly could bank some potential huge gains in the months ahead.

As I type, a ‘perfect storm’ of soaring demand and locked-tight supply are simmering inside the east coast gas market.

Combined, these factors will almost certainly send gas prices vertical in the New Year.

You can see on the chart below that the natural gas price has had a good run this year.





Source: Bloomberg
Click to enlarge


Based on our experience of natural gas and natural gas stocks, both the commodity and stocks can move fast when they get some wind in their sales.

We saw that during late 2008 and 2009. Some of your editor’s best ever stock picks came right after global markets crashed. We spotted a handful of opportunities, primarily in the natural gas and LNG sectors.

Even before the commodity price turned, we knew it wasn’t an opportunity we could miss. We told investors about a bunch of stocks that we saw were trading at fire-sale prices.

We told investors to buy them. Then we sat and watched. As we expected, the natural gas price and stock prices went mental. As the natural gas price more than doubled, some of our stock picks tripled, quadrupled, and more.

Our best winner clocked up a 458% gain. We picked up a bunch of those gains in less than 12 months.

But, it’s a volatile market. You can see that from the chart, too. The other thing we learned is that when you have a handsome profit staring at you — take it.

The natural gas market and natural gas stocks are about as volatile as it gets — more so than oil and gold, in our view.

That’s another reason why it’s worth checking out Greg’s latest report. The top dogs at Woodside Petroleum Ltd [ASX:WPL], say the commercial market may not pick up until 2018. That may be true, but even so, it’s possible that any gains for commodity and stock traders could happen a long time before that.

Check out Greg’s research here.

In the mailbag

Let’s rummage through the mailbag. It’s still full to the brim with comments about climate change.

By the way, your editor is hijacking Callum Newman’s podcast again this weekend. And we’ve invited our resources expert, Jason Stevenson, to join us and chat about climate change.

We think Jason may be even more of a sceptic on the matter than your editor. We’ll see. If you don’t already subscribe to Callum’s podcast, just search for ‘The Newman Show’ in your podcast player.

And look out for news next week when we launch our own podcast. Details soon. Now, on to the mailbag. First, this letter from subscriber, Roger:

Well aware you guys love some speculation and even some gentle ribbing but you really are on the lunatic fringe with climate change conspiracies. I won’t harp on, I’m sure you’ve had an earful from many, except to note that in support of your theory;

You use a bias amateur crackpots homemade school assignment graph — without the reference data!

You use a graph from the Australian Academy of Science and assert an incorrect deduction from a visual that is quite obviously presenting another story across the time reference, now that is just wilful, scotomatic, confirmation bias.

And if you would actually bother to read some real science from a real scientist, or at least read the book and come to your own conclusions, rather than using home made unverified data from someone who is already bias and plainly a member of the tinfoil hat brigade.

And this from subscriber, Graham:

The only warming I’m experiencing is an ever increasing warming towards you guys!..I loved the latest comments re the G.W. “swindle”…as anyone who knows anything about this planet will tell you, it’s been warming and cooling, cyclically, since it’s birth…ask any geologist.. the so-called “science” that is ‘in’ has been proven as a fraud by many people…Lord Monckton has a lot to say on it, also, there’s a documentary around titled “The Great Global Warming Swindle” which gives chapter and verse on what it’s all about…

Love your work…keep it up!

Also…I’ve been keeping track of your stock recommendations since joining and have an appointment with my bank to set up a trading account next week, so…here’s hoping!

Finally for today, subscriber, Randall writes:

I’m glad you guys are prepared to question and challenge the conventional wisdom that has developed around climate change.

The climate change debate brings to mind the relatively unknown fourth little pig — he laid a nice concrete foundation, but sadly proceeded to build a house of s**t somewhere else.

It’s complicated, but there seem to be a few conclusions we can come to with a fairly high degree of certainty:

1. We’ve been in a natural warming cycle since the mid-1800s following the end of the Mini Ice Age — so when Chicken Little shrieks that this year will be the hottest year in the last 200 years I can’t get excited and figure that is basically to be expected.

2. The International Panel for Climate Change (IPCC) is an unaccountable global bureaucracy that has been ideologically hijacked — the evidence is there to see, in great volume, but true believers just don’t want to know, which is fascinating in itself.

3. There seems to be an inverse relationship between knowledge about climate change and belief in the diatribe that is being fed to us by the IPCC — the less people know, the more strongly they believe — and sadly that is a feature of humanity.

4. The claim that “the science is in” shows ignorance at best and outright deceit at worst. It would be fine if you added “some of the” at the beginning, but sadly people never do. It’s true that the science of carbon dioxide is in and it’s probably fair to call it a “greenhouse gas” and yes it does result in some warming, but that’s where the debate should start, not finish! The science of natural climate change is complicated and not yet fully understood, although as noted above, we seem to be in a natural warming cycle – there’s the sun of course, which goes through multiple cycles of its own, but there’s also some other really interesting stuff like “precession” and “eccentricity”, which help explain why the earth has never been in a state of climatic equilibrium and never will be. Then there is the science of feedback loops – as temperature rises naturally (with a bit of help from increasing CO2) it increases the amount of water vapour in the atmosphere. Water vapour is tricky because although it also acts as a greenhouse gas (positive feedback), it results in additional cloud formation and additional reflection, which has a cooling effect (negative feedback – like the old nuclear winter fear). As the earth has been hotter than it is now and we are here to talk about it, it seems logical to conclude that the water vapour feedback loop is negative overall and will bring us to a new equilibrium rather than spiraling out of control like many suggest. Given that water scarcity is a real issue, a bit of extra rain will probably be a good thing anyway. So no, the science is not in, and that is a fact.

5. Sadly, the projections that are thrown at us derive from a bunch of climate models that are selected by the [ideologically hijacked] IPCC and incorporate assumptions about natural climate change and feedback loops (and probably a heap of other stuff) that are basically pulled out of thin air and cannot be challenged because the science is not in. It is these assumptions that produce the scary numbers. The old adage about models is more relevant today than ever before: s**t in, s**t out! And it doesn’t help that an eager press then focus on the worst case scenarios – “temperature rises of UP TO…”

One of your readers repeated the conventional wisdom that 97% of scientists are on board with the whole climate change thing. I looked into that claim long ago and found an extraordinary story of a second rate survey being massaged to get the result they wanted. The strangest thing about it was that even I would have answered “yes” to the question that was asked, so I can’t understand why it wasn’t 100%.

And they may not be able to say 97% for much longer anyway, as the tide appears to be turning [Ed: geddit?!] against the climate change cronies.

As the Guardian reports:

‘[James] Lovelock has been Britain’s leading independent scientist for more than 50 years. His Gaia hypothesis, which contends that the earth is a single, self-regulating organism, is now accepted as the founding principle of most climate science, and his invention of a device to detect CFCs helped identify the hole in the ozone layer.

A veritable climate change ‘greenie’ if ever there was one. Except…the Guardian notes that Lovelock’s view on climate change has, well, changed:

What has changed dramatically, however, is his position on climate change. He now says: “Anyone who tries to predict more than five to 10 years is a bit of an idiot, because so many things can change unexpectedly.” But isn’t that exactly what he did last time we met? “I know,” he grins teasingly. “But I’ve grown up a bit since then.”

By the way, Lovelock is 97 years old. The story continues:

Lovelock now believes that “CO2 is going up, but nowhere near as fast as they thought it would. The computer models just weren’t reliable. In fact,” he goes on breezily, “I’m not sure the whole thing isn’t crazy, this climate change. You’ve got to look at Singapore. It’s two-and-a-half times higher than the worst-case scenario for climate change, and it’s one of the most desirable cities in the world to live in.

Ah, where is that tinfoil hat? Doesn’t matter, it appears we won’t be needing it. As for the climate change junkies, we suggest they get ready for their fitting. They’ll soon need it.

Cheers,
Kris