Who’s telling the whoppers now?

  • Fakers
  • ‘Load of crock’, ‘crap’, or just ‘brilliant’?
  • It means one of two things
  • You can’t trust the numbers
  • In the mailbag

An interesting insight from the Holy Father, Pope Francis. The Financial Times reports:

The Pope has warned of the dangers of the spread of fake news and half truths, comparing the media’s desire to create scandal with the sickness of having an obsession with faeces.

We wouldn’t say this, but some may: When it comes to ‘fake news and half-truths,’ even the most devoted worshipper would have to admit that holy texts contain more than a few whoppers that most would agree could never have happened.

But hey, organised religion has a product and a narrative to sell, just like the rest of us. So good luck to them. Even so, we’ll call out hypocrisy when we see it…


Overnight, the Dow Jones Industrial Average gained 297.84 points, or 1.55%.

The S&P 500 added 29.12 points, or 1.32%.

In Europe, the Euro Stoxx 50 index closed up by 41.48 points, for a 1.34% gain. Meanwhile, the FTSE 100 added 1.81%, and Germany’s DAX index gained 1.96%.

In Asia, Japan’s Nikkei 225 index is up 156.88 points, or 0.85%. China’s CSI 300 is up 0.09%.

In Australia, the S&P/ASX 200 is up 58.3 points, or 1.06%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$49.95 per barrel. Brent crude is US$53.06 per barrel.

Gold is US$1,175.85 (AU$1,571.48) per troy ounce. Silver is US$17.15 (AU$22.92) per troy ounce.

The Aussie dollar is worth 74.82 US cents.


We issue a warning:

Politicians, the establishment, and the mainstream media have launched an all-out attack on what they call ‘fake news’.

But don’t be under any illusions about what the attack is really all about.

Sure, there are many news outlets which appear to provide nothing more than clickbait rubbish and questionable, even entirely made up, news stories.

But that’s not the real target of the attack. The real target is the alternative news media…those online outlets that provide an antidote to the mainstream’s vested interest agenda.

The mainstream press has been dying for years. It has lost out as consumers have eschewed newspapers and instead sought alternatives online.

Traditional media companies have tried to make up for lost advertising and subscription revenue by instituting ‘paywalls’, so that people have to subscribe in order to read the content.

For the most part, the strategy hasn’t worked.

Fairfax Media Ltd [ASX:FXJ] has seen revenues collapse from $2.9 billion in 2008, to $1.8 billion in 2016.

Over the same time, profit has slumped from $369.7 mln in 2008, to a loss of $893.5 mln in 2016.

The formerly mighty New York Times Company [NYSE:NYT] has seen revenues drop from US$3.3 billion in 2004, to US$1.5 billion last year.

Profit has collapsed from US$444.7 mln in 2001, to US$63.2 mln last year. Forecasts for the current year put profit at just US$54.4 mln.

If not dead, then dying…

It’s no wonder the mainstream media is making such a big deal about so-called ‘fake news’. Their intent is obvious — to advocate for and demand an increase in regulation on news media.

In short, the mainstream media is fighting for what every established and threatened industry fights for — government regulation to create barriers to entry for upstart businesses.

Don’t underestimate the threat. It’s real, and the survival of the mainstream media depends on it getting what it wants. That means censorship.

‘Load of crock’, ‘crap’, or just ‘brilliant’?

Our latest documentary exposé on a key and shocking event in Australian politics has certainly ruffled a few feathers.

Subscriber, Ian, writes:

Quite frankly this Special Investigation was the biggest load of crock I have heard in a long time and insulted my intelligence requesting I listen to the boring monotone which revealed absolutely nothing!!

Subscriber, Lawrie, writes:

Gough Whitlam — member for whatever and that is all he was elected to be.

I have tried to respond to the continuing misrepresentations by Port Phillip Publishing concerning the dismissal of Gough Whitlam. The messages are blocked by your system.  I am sure that you don’t want to hear but I hope that this address is an open one which will receive the message I send.

I strongly recommend that Kris and the host of others in your organization plugging the Gough was the democratically elected PM line read the Australian Constitution. The first obvious thing will be that Ministers are not democratically elected to do anything other than represent particular electorates. Not many of them do that job very well. If they are selected by a very undemocratic process to be appointed to a ministerial portfolio that process is not very democratic and in the context of the choice of the people of Australia is totally undemocratic. One only needs to look at the list of reassignments of port folios to see just how hopelessly unqualified these appointees are for the jobs they are given by their mates.

Blind Freddy would understand that in the only democratic election we hold those vying for a seat in the less democratic House of Representatives are democratically elected despite the fact that almost 50% of the electorate is disenfranchised by the process. Compared to the Senate process where disenfrancisement at the last election was limited to well under 10% of the total voting public and someone should be asking serious questions. But yes Gough Whitlam was democratically elected to Parliament. So were a whole lot of other very much less talented people. In too many seats, Bill the Goose or a drovers dog would win because of the stupidity of individuals who vote for a party’s lap dog without regard for any other factors.

Once it is in the mind of so called analysts that Ministers are not democratically elected in any generally understood manner, the next look should be for the role of the Prime Minister. The people who occupy these positions are in Constitutional terms figments of their own imagination. There is thankfully no mention of this position in our Constitution. People such as myself voted against John Howard’s attempt to rewrite the Constitution not because of opposition to the rule by the monarchy but because of the manipulation of the system to construct a role for themselves which they haven’t got but exercise through a stupid and compliant commentary system.

If you get rid of the crap about the democratically elected leader of the country I might be inclined to take your “investigation” seriously. While ever it is tied to such basic status quo lies you don’t establish much credibility for anything else set out in your “investigation.”

Naturally, we disagree with both of those views. We wouldn’t have released it if we didn’t stand 100% behind the content and its claims. We believe the team behind it have done a brilliant job.

But don’t just take my word for it, or those of our readers, check it out for yourself. You can watch it here.

It means one of two things

The impact of Donald Trump’s election win is now clear.

It was good for stocks, and bad for bonds.

The chart below shows you that stocks (white line) have increased in value by around US$2 trillion since early November. At the same time, the value of bonds (blue line) has decreased by roughly the same amount:

chart image

Source: Bloomberg
Click to enlarge

That was the ‘Trump Trade’ — buy stocks, sell bonds.

It explains why the Dow Jones Industrial Average and S&P 500 are trading at, or near, all-time record highs.

But why?

It may appear to be a simple and simplistic question, but we’re truly puzzled. OK, we’re not that puzzled. We get it. But the reasoning is puzzling.

Stocks have risen because president-elect Donald Trump has promised to ‘Make America Great Again’. How will he do so? Easy. By spending trillions of dollars…of borrowed money.

This will funnel trillions into the American economy and American businesses. That will ‘Make America Great Again’.

But here’s the puzzling part: As stocks have risen, bond prices have fallen. Because bond prices move inversely to bond yields, it means bond yields have climbed.

Check out the chart below. The white line is the yield for the iShares iBoxx Investment Grade Corporate Bond ETF [NYSE:LQD]:

chart image

Source: Bloomberg
Click to enlarge

The yield on this ETF has risen from 3.2% to 3.35%. It’s not a huge move, but it could become more significant if rates continue to rise and debt levels continue to grow.

As we see it, the current situation is unsustainable. We don’t believe it’s possible for stocks to rise, bond yields to rise, and for debt to rise…and for the US economy to continue to grow without a crash.

The way we see it is that one of these factors must change.

If yields and debt rise, stocks must fall, as higher financing costs eat into margins.

But what if debt rises and yields fall? Could that happen? That would, and could, be good for stocks, right?

Sure. But, as we see it, there’s only one way for that to happen, and that’s if the US Federal Reserve expands its balance sheet by buying more bonds. A return to quantitative easing (QE). Surely that couldn’t happen…

Or could it?

We don’t see there being any other way, if stocks are to continue rising. It’s simple; either the stock market must fall as yields rise, or the Fed must print money in order to keep financing costs low.

You can’t trust the numbers

But heck, what does it matter? Forget the fundamentals. Forget the financials. Just check out the charts.

That’s what our old pal Callum Newman at Money Morning Trader extols us to do.

Earlier this week, Callum reminded us of his 30 November issue of Money Morning Trader. In that issue, he wrote:

The world moves fast, but so many of us can be slow to adapt to the new realities. Here’s why it matters to your investing. The accounting standards that underlie how companies report are outdated and flawed. But investors can cling religiously to the results and numbers regardless.

The Australian Financial Review cites a new report which shows that the percentage of ASX top 500 companies using “non-standard” financial measures has doubled since 2000.

How companies present their numbers — often in inconsistent and confusing ways — is “defeating the purpose of having accounting standards in the first place.” Investors are increasingly unsure about which numbers they need to focus on, or if management is misdirecting them.

The entire premise of fundamental analysis is based on analysing company accounts to gauge the real performance and outlook for the business. It’s by nature backwards looking, but increasingly not even relevant information.

This is not unique to Australia. A new book called The End of Accounting says that financial metrics are losing their predictive powers when it comes to stock prices. The shift from an industrial economy to the information age is partly to blame.

The arcane accounting rules and regulations aren’t suited to a world where intangible assets, as opposed to physical assets, are increasingly creating shareholder value.

The inconsistencies and conventions that don’t make sense are numerous. For example, investments in future growth are treated as expenses, without future benefits.

The numbers reflect management decisions on how to treat items like depreciation, and not “facts”. Company accounts can’t record (or keep up with) new regulations, deals, trials and competitive pressures that can drive the share price.

This is why charting is so important. Too many investors get caught up in trying to pin a company to some “intrinsic value”, instead of letting the market guide them to where the growth is happening.

Callum used Amazon.com Inc. [NASDAQ:AMZN] as a classic example.

From 2012 to 2015, Amazon.com has generated total revenues of US$332 billion. From that, it has recorded cumulative profits of just US$590 mln. That includes two years in which it lost money.

Cumulatively, that gives Amazon.com a profit margin of 0.17%.

Put another way, for every dollar invested four years ago, the company has returned less than two-tenths of a cent in profits!

That’s bad.

Yet, look at what has happened to the share price:

chart image

Source: Bloomberg
Click to enlarge

For your information, the stock price is up 334%. So, what’s the deal?

As Callum says, ‘Too many investors get caught up in trying to pin a company to some “intrinsic value”, instead of letting the market guide them to where the growth is happening.

Callum goes on to say:

The market is about pricing future earnings and growth, not bean counters and accounting conventions.

But Callum isn’t the only one to take a shot at fundamental analysis, or, rather, the reporting of data that feeds into fundamental analysis.

The Australian Financial Review reports:

The use of non-standard financial measures by listed firms is out of control, with the regulators and investors being played for fools by greedy and short-term-focused management.

That’s the view of one veteran investor who is alarmed by research that showed more than 40 per cent of ASX top-500 companies now use non-standard measures such as underlying profit to promote their performance to the market.

“I am very concerned with the increased use of not-statutory measures because the so-called accounting is not uniform across companies, it is not always transparent and basically it’s become a free-for-all,” said Peter Morgan, who made his mark as a star stock picker at listed wealth group Perpetual.

We’re not sure that Mr Morgan is a charting man, but he’s certainly validating Callum’s view that you can’t rely on reported numbers. According to Callum, you can (mostly) rely on the numbers in the charts.

Check out Callum’s work. He does a great job. Go here.

In the mailbag

Subscriber Aaron follows up on our climate change debate. He sent an article published yesterday on News.com.au, headlined, ‘There could be just two years left before the North Pole disappears’.

Ha, ha!

Interestingly, the article publishes the chart we’ve shown you from the Danish Meteorological Institute. You remember the one. Except, they didn’t bother to publish the updated version. They used this one, from a Twitter feed:

chart image

Source: News.com.au
Click to enlarge

The article opined — handkerchiefs at the ready:

MY SIX-YEAR-OLD asked me about Santa the other day. Luckily, it wasn’t the moment where his innocence is shattered forever.

Instead, he was wondering how Santa was going, preparing for his annual voyage around the world, dispensing plastic junk from China to all the world’s least-needy kids. (I added the last part, but you get the drift).

I painted the picture that my parents had passed on to me. I explained to him how the night is slowly descending across the North Pole at the moment, and by the time Santa sets off on his sleigh across the ice on Christmas Eve, it will be shrouded in continuous darkness, lit only by his Christmas candles, and one shiny red nose.

My son is very interested in fashion, and so we talked at length about Santa’s warm red jacket. The sad thing that I didn’t have the heart to tell my son is that, at the moment, Santa’s big red jacket is probably too warm for Santa himself, even at the North Pole.

Santa is a fantasy but climate change is not, and it’s started to do truly alarming things to the North Pole.

Sniff, sniff.

Of course, it would have been nice if they had updated the chart from the Danish Meteorological Institute. But if the mainstream media won’t publish the updated version, we guess we’ll have to do it:

chart image

Source: Danish Meteorological Institute
Click to enlarge

Two weeks later, it doesn’t look so bad. And so much for the mainstream media being the bastion of fact-telling news. Don’t fall for it for a second.

Looks as though the North Pole may be just fine for a few more years yet.

Oh, and what’s this? From Climatedepot.com:

Antarctic sea ice had barely changed from where it was 100 years ago, scientists have discovered, after pouring over the logbooks of great polar explorers such as Robert Falcon Scott and Ernest Shackleton. Experts were concerned that ice at the south Pole had declined significantly since the 1950s, which they feared was driven by man-made climate change. But new analysis suggest that conditions are now virtually identical to when the Terra Nova and Endurance sailed to the continent in the early 1900s, indicating that declines are part of a natural cycle and not the result of global warming.

We guess that, if things get too warm for Santa at the North Pole, he could always make the South Pole his new home.