They knew this would happen

  • Better than gold!
  • That and more
  • Hyperinflation in India
  • Narrowing
  • In the mailbag

The building boom continues. As the Financial Times notes:

A 73-storey tower will become the tallest building in the City of London after its developers were given the go-ahead to build the skyscraper next to the Gherkin and the Cheesegrater.

The new office block, 1 Undershaft, will be slightly shorter than the Shard on the south bank of the Thames, which at 310m is the tallest building in western Europe.

That the boom continues isn’t a surprise to the folks at Cycles, Trends & Forecasts. To Phil Anderson and Callum Newman, it’s all part of the ‘Grand Cycle’.

It’s all part of the explanation behind what causes economies to boom…and then bust.

As Phil and Callum often explain to their readers, if you don’t understand the role that land prices play in the economic cycle, you can’t possibly understand what moves markets — all markets, including stock markets.

But rather than your hapless editor trying to explain things, here’s what Phil and Callum wrote in their latest monthly issue, released today:

The world economy is NOT going to collapse anytime soon. All of the current statistics and stock market action bear out this conclusion.

Really, the recent spikes in gold — prompted by the Brexit vote on 23 June and Trump’s election win on 9 November — are classic signals of a bear market: a rise in price in a very short space of time.

It’s not always easy to do, but such spikes should be shorted, not bought.

Unless you really have some substantial assets to hedge or protect, owning gold is pointless in our view.

Much better to own the land, to which all the benefits of human progress MUST eventually flow. Often, all you need to do is absolutely nothing — except have a government-enforced licence to say the land is yours.

We now have a real estate mogul taking over the White House for at least the next four years, as of January 2017.

A few weeks ago, Bloomberg reporter Brian Chappatta happened to be at the same burger joint as Trump. He wrote:

“When our meal ended, we wandered over to the front bar room. An hour later, people lined up to see Trump and his family exit. (An NBC video would show him saying ‘we’ll get your taxes down’ as he made his way out).”

Lower taxes go straight into higher land values — what a cycle we’re going to see. A repeat script right out of 1976, if you’ve read Phil’s book.

To find out more about Cycles, Trends & Forecasts, go here.

Markets

Overnight, the Dow Jones Industrial Average fell 54.24 points, or 0.28%.

The S&P 500 fell 11.63 points, or 0.53%.

In Europe, the Euro Stoxx 50 index lost 31.58 points, for a 1.04% drop. Meanwhile, the FTSE 100 fell 0.6%, and Germany’s DAX index lost 1.09%.

In Asian markets, Japan’s Nikkei 225 index is down 68.66 points, or 0.37%. China’s CSI 300 is up 0.98%.

In Australia, the S&P/ASX 200 index is flat, neither up nor down.

On the commodities markets, West Texas Intermediate crude oil is trading for US$46.80 per barrel. Brent crude is US$47.94 per barrel.

Gold is US$1,191.90 (AU$1,594.00) per troy ounce. Silver is US$16.61 (AU$22.22) per troy ounce.

The Aussie dollar is worth 74.77 US cents.

Better than gold!

Speaking of Callum, he wrote the following in the 3 November issue of Money Morning Trader:

At last week’s “Great Repression” conference, there was one commodity everyone wanted to know about. In case you haven’t guessed, it was gold. Here’s one problem with the general fixation on the yellow metal. It blinds you to other opportunities in the commodity space.

For example, who cares about gold when another commodity is up 53% this year? It may not be sitting in Swiss vaults or dangling from ears around the world, but it’s time to pay attention to…zinc.

Arguably, we should already be paying attention. In November 2015, mining sleuth Barry Fitzgerald flagged zinc as having one of the best supply/demand fundamentals among the metals.

By that, he meant you want an imbalance to drive the price higher. Zinc is mainly used as an anti-corrosion agent, which also coats iron and steel. Supply is a worry, however, because old mines have run out. And until recently, the price has discouraged new investment.

That’s the classic mining mix to look for. High prices attract new investment. Until those mines come online though, there can be a scramble to lock up the current supply. That can lead to a bull market. Zinc’s been on the move all year. As of this week, it has reached fresh highs not seen since 2011.

Incidentally, it’s not just Barry Fitzgerald who has been bullish on zinc. Our own resources expert over at Resource Speculator, Jason Stevenson, has been all over zinc.

You can see from the chart below that the zinc price is up 85% over the past year:



chart image

Source: Bloomberg
Click to enlarge


Since 3 November, the zinc price is up 16.6% alone.

And today, the Australian Financial Review reports:

The rally in metals is showing no signs of slowing down. The Bloomberg Industrial Metals sub-index posted the biggest five-day gain since 2011, as zinc touched a nine-year high. Prices rallied after China’s top economic commission approved a $US36 billion ($48.2 billion) plan on new rail links around Beijing, boosting demand for industrial raw materials.

Of course, as a contrarian investor, anytime we see someone write that something shows ‘no signs of slowing down,’ we immediately presume that it will soon show a sign of slowing down…and then, in fact, slow down.

Regardless, zinc has been a good speculation for resource stock investors. Subscribers to Jason Stevenson’s advice will know that…as will those who follow the daily insights from Callum Newman in Money Morning Trader. Details here.

That and more

If you want to try out each of the investment advisories we’ve just mentioned, feel free to go ahead and try each one individually.

Alternatively, you could try each of them — and the rest of the eligible services that comprise our Alliance program. In total, the Alliance program includes $16,003-worth of annual subscriptions, at a price far below that number.

How far below? I’ll tell you. But you have to go here to find out.

Hyperinflation in India

Before we get to the mailbag, an appetiser from subscriber Marcus:

I have been enjoying your subscriptions now for nearly 10 years! I’m always looking out for different opinions and especially ones that challenge my current beliefs. I am concerned on a few of your write ups referring to the removal of the 500 and 1000 rupee notes in India. In all of these articles I have read there has been no reference to the fact they are replacing them with a new 500 and a 2000 note.

I do believe there is a war on cash by those who wish to control all our transactions and steal a slice. I however hope you are not leaving out the new notes because it doesn’t support your theory.

This would be disappointing and not something I would expect from PPP!

Marcus is right. The Indian government is withdrawing 500 and 1,000 rupee notes. It will replace them with new 500 and 2,000 rupee notes.

What does that mean for the war on cash? And is it a ‘war on cash’ at all if the government is replacing old notes with new notes?

The answer to the second question is that yes, it’s still a ‘war on cash’. The answer to the first question is that the policy of replacing one paper currency with another has the real potential for hyperinflation.

How?

It works like this. In India, according to the World Bank, only 53% of adults have a bank account. It means that roughly half the adult population relies on the cash economy.

That’s a problem for those without a bank account, who hold their savings as physical cash. It’s a problem because, if they happen to hold the 500 or 1,000 rupee notes, those will become worthless, unless they change them at a bank.

However, given the number of these notes in circulation, and given the extreme poverty in which many in India live, it’s likely that a significant number of the population won’t even know the government is making their savings worthless, let alone understanding that they can switch their notes at a bank.

That creates the potential for hyperinflation. As the new notes start to be used alongside the old notes, the old notes will trade at a discount. Few will accept them, except, of course, those who know they can exchange them at a bank.

So, instead of getting 500 rupees-worth of goods, someone using an old 500 rupee note may only get 400 or 300 rupees-worth of goods, or less. That’s inflation, and if the value of the old 500 rupee note falls excessively, that’s hyperinflation.

And in bad news for India’s underclass, they only have until 30 December to exchange their notes at a bank. Because of the size of the cash economy, it’s likely the poor will continue to use the old notes among themselves.

And, no doubt, some well-connected money-changers will use connections to allow themselves to keep vacuuming up old notes and exchange them for new notes.

But the upshot of the Indian government’s policy will be to punish the poor. Those the government says it’s targeting (tax evaders and criminals) will do just fine. In fact, the criminal element will probably flourish and gain the most from the policy.

So, yes, it’s a war on cash, and it’s a war on the poor, too. Good one!

Narrowing

That may not be the only war on cash. Based on a report today from Bloomberg, another war may be brewing. This time, though, between hedge funds and the Aussie dollar:

Australia’s yield advantage over the U.S. has all but evaporated, and that’s enough for hedge funds to start bailing on the local currency at the fastest pace in four years.

Leveraged investors cut bets on gains in [the] Aussie dollar by 25,257 contracts in the week to Nov. 22, the steepest such shift since 2012, the latest data from the Commodity Futures Trading Commission show. And with the Federal Reserve seen raising interest rates at least twice within a year while Australia’s central bank stands pat, Credit Agricole SA says sell the world’s fifth-most trading currency as it’s poised to drop about 6 percent to 70 U.S. cents.

You can see the spread has indeed narrowed in the chart below. The yellow line is the Aussie government 10-year bond yield, and the white line is the US government 10-year bond yield:



chart image

Source: Bloomberg
Click to enlarge


Today, the spread between the two bonds is around 0.38%. In percentage terms, the spread is relatively narrow, following the sharp rise in US yields compared to the shallower rise in Aussie yields.

And if, as some expect, Aussie interest rates actually fall next year, as the economy slows, the spread could disappear completely, and you could even see US yields higher than Aussie yields.

What will that mean for the Aussie dollar? It won’t be good.

In the mailbag

More on climate change. This, from subscriber David B:

What I read just now from Kris is very saddening. “The science of climate change is a dangerous and fanatical lobby group. It’s intent on turning civilisation back to the Dark Ages.”

I have lost the respect I had for a person who seemed to work on information and evidence (like a scientist), not on prejudice and deliberate ignorance.

And this, from subscriber Andrew:

I think climate change is real. People consume oxygen and produce carbon dioxide. Trees consume carbon dioxide and produce oxygen.

More people and less trees = disaster.

Many studies have shown that vegans have longer and healthier lives, than people who eat meat products.

You also believe evolution to be true. How did atoms (which have no intelligence) form into DNA (which exhibits infinite intelligence) by random chance, just by themselves?

It’s not possible.

The climate changed before people inhabited the Earth, and it will change after people finish inhabiting the Earth. To suggest that people have a greater influence over climate than anything else is unproven.

Then there’s this, from subscriber Peter B:

Well done Kris, it was a breath of fresh air to read your comments on the climate change rubbish.

So anybody with a physics degree is an automatic climate change expert is he? Ha ha ha. That should automatically make him an expert at a simple mechanical device like my car’s automatic transmission: my garage door is open for him…

Unlike him I have read extensively on climate change, but to a large extent have limited myself to paleo-climate scientists and paleo-geologists who are the ONLY people qualified to comment; funny how many of them are scathing of the “main stream” thought.

I’ve also read the leaked (hacked!!) emails of the climate-elite from Uni of East Anglia, talk about a disorganized rabble, they make the mafia look like they are ISO 2000 compliant.

As for the fish, you can’t formulate scientific theory by analogy, (if he is married he should already know that): our cat jumps on the bed 15 minutes before the sun comes up every day; what is going to happen when he eventually dies? I believe the sun is no longer going to come up and heat our flat earth.

The argument can be summarized in one sentence: “Science is not about consensus”. You don’t vote for scientific truths, they are absolutes and you have to prove them, usually by challenging the mainstream and always while facing the threat of the Spanish Inquisition.

Keep up the good work.

While we’re on the subject of climate change, some breaking news from the Daily Mail:

Global average temperatures over land have plummeted by more than 1C since the middle of this year — their biggest and steepest fall on record.

The news comes amid mounting evidence that the recent run of world record high temperatures is about to end.

The fall, revealed by Nasa satellite measurements of the lower atmosphere, has been caused by the end of El Nino — the warming of surface waters in a vast area of the Pacific west of Central America.

Some scientists, including Dr Gavin Schmidt, head of Nasa’s climate division, have claimed that the recent highs were mainly the result of long-term global warming.

Others have argued that the records were caused by El Nino, a complex natural phenomenon that takes place every few years, and has nothing to do with greenhouse gas emissions by humans.

The new fall in temperatures suggest they were right.

Well, well, well… In the interest of getting a balanced view, you’ll excuse your editor for a moment, while we check how The Age and the Sydney Morning Herald are reporting this development.

[Types and scrolls.]

Gosh. We’re not sure why, but we can’t seem to find any reference to it on either website. They’re usually quick to trumpet extreme weather events, such as when they syndicated the story from the Washington Post about temperatures above the 80th Parallel being 20 degrees warmer than normal.

Although, likewise, they’ve gone quiet on that story, now that temperatures are returning to the average, as evidenced by the chart below:



chart image

Source: Danish Meteorological Institute
Click to enlarge


The black circle indicates the timing of the hysterical Washington Post story.

Is it possible the temperature increase and spike was part of the El Nino effect? That it has nothing to do with humankind at all?

We stand poised with a shovel full of egg…ready to fling at the faces of the climate-change fanatics at a moment’s notice.

Cheers,
Kris