Getting away with murder

  • He speaks
  • A special meeting
  • Costs to rise
  • No chance of a rate rise? Or is there?
  • Boom to end
  • Got out in plenty of time, what’s next?

He speaks. Stocks fall.

Well, one group of stocks in particular: pharmaceutical stocks.

Biotechnology giant Biogen Inc. [NASDAQ:BIIB] fell 3.6%. Pfizer Inc. [NYSE:PFE] fell 1.9%. Bristol-Myers Squibb Co [NYSE:BMY] fell 5.3%.

It was all due to the words that fell from the mouth of US president-elect Donald J Trump. He said, ‘Big pharma is getting away with murder.

Ouch! That’ll do it.

But what he says is true. And it’s not just big pharma; it’s the medical profession too. As a report in The Age this week noted:

Greed, fear of legal action, and widespread commercial influences are contributing to a costly global trend towards unnecessary and potentially harmful medicine, experts say.

An international group of leading doctors and academics say up to one-third of many medical procedures are now being done unnecessarily, causing physical, psychological and financial harm that could threaten the viability of healthcare systems.

A landmark report in The Lancet medical journal said more needed to be done to address inappropriate medicine, which includes deliberate over-servicing by doctors for their own financial gain.

You know where to pin the blame for this, right?

Government socialised medicine and health insurance…especially compulsory health insurance.

Big pharma can charge high costs because they know either the government or private health insurers will pick up the tab. And likewise, doctors will overprescribe medicines and procedures because they know that, in most cases, the patient won’t be significantly out of pocket.

And before any doctors reading this write in to say that it’s not true, don’t bother. It’s how the system works, and they make the most of it.

It’s no wonder that more and more people are turning to alternative medicines. They’re fed up with the medical profession, which exists now mostly for the benefit of lining their own pockets.

It’s also another reason why we caution folks about believing the climate change scare tactics. The medical profession follows the money by overprescribing. The science profession follows the money by building up the propaganda in favour of climate change.

Don’t fall for it.

Markets

Overnight, the Dow Jones Industrial Average gained 98.75 points, or 0.5%.

The S&P 500 closed up 6.42 points, or 0.28%.

In Europe, the Euro Stoxx 50 index gained 1.73 points, or 0.05%. The FTSE 100 added 0.21%, and Germany’s DAX index gained 0.54%.

Meanwhile, in Asian markets, Japan’s Nikkei 225 index is down 248.83 points, or 1.28%. China’s CSI 300 is up 0.22%.

In Australia, the S&P/ASX 200 is down 6.18 points, or 0.11%.

On the commodities markets, West Texas Intermediate crude oil is US$52.14 per barrel. Brent crude is US$55.06 per barrel.

Gold is trading for US$1,196.99 (AU$1,604.92) per troy ounce. Silver is US$16.82 (AU$22.55) per troy ounce.

The Aussie dollar is worth 74.58 US cents.

He speaks

Trump speaks. Gold climbs.

Surely that’s reason enough to like Trump!

But actually, gold has been on the up since late December. It had fallen to around US$1,125, but has risen to US$1,196 per troy ounce since then.

That’s a nice gain.

But why today’s rally? Well, it wasn’t so much about gold climbing as it was about the US dollar falling.

It’s that Trump thing. The markets had hoped Trump would use his press conference to talk about ‘tremendous’ projects, or ‘huge’ investments, or the ‘best’ plans.

Instead, the press and markets got a take-down of big pharma (‘getting away with murder’) and cable news channel CNN — ‘You’re fake news.

So, the US dollar fell, and gold rose.

But the gold price isn’t the only thing to go up in recent weeks. Where gold goes, gold stocks usually follow.

And, sure as heck, they have. Check out the two following charts. First is the US-dollar gold price (white line) compared to the US-listed VanEck Vectors Junior Gold Miners ETF [NYSE:GDXJ] (orange line):



chart image

Source: Bloomberg
Click to enlarge


Next is the chart of the ASX-listed VanEck Vectors Gold Miners ETF [ASX:GDX]:



chart image

Source: Bloomberg
Click to enlarge


It’s funny; the mainstream has crowed about the rise of the Aussie market since the US election in November. The S&P/ASX 200 is up 11.8%.

Well, guess what? The gold miners ETF is up 11.1%. It’s actually up 18.8% since hitting a low in December. (Since the same point in December, the broad Aussie market is up just 4.1%.)

It just goes to show you that, if you can pick the market just right, it’s possible to leverage your gains. Yes, that does mean taking on more risk.

We’re not about to say that a portfolio of gold stocks is less risky than a portfolio of blue-chips. But, if you can cope with risk, and you want opportunities to boost your returns, a speculation on a handful of carefully-chosen junior gold miners could be just the way to do it.

Check out what our resident gold stock analyst has to say on the subject here.

A special meeting

Getting back to Trump, he merited a mention in our latest Financial Anarchists podcast.

We recorded it today, alongside an interview with Vern Gowdie.

Vern Gowdie is off to Baltimore, Maryland today — your editor follows on Sunday — to meet with none other than former US Federal Reserve chairman Dr Alan Greenspan.

In the podcast interview, Vern reveals the question he’ll put to Dr Greenspan, and we give our take on how we think he’ll respond.

If you haven’t yet subscribed to the Financial Anarchists podcast, search for it in iTunes or Stitcher and subscribe. Go ahead, it’s free.

Costs to rise

A major financial and economic collapse is coming.

But it won’t come until after everyone has regained confidence in the economy, and until interest rates are higher than they are today.

So, exactly when the collapse will happen is anyone’s guess. But maybe it will happen sooner than many expect.

As the Fairfax owned Domain.com.au website notes:

Interest rates are currently at 1.5 per cent — a record low that would have been unthinkable in 2007 when the rate was 6.25 per cent and had been rising for five years.

But while rates have been falling since 2008, experts warn that home loan costs are likely to get more expensive this year. And even a small rate increase could leave home owners hundreds of dollars out of pocket.

Some believe official increases in interest rates are coming sooner rather than later.

This includes Mortgage Choice spokeswoman Jessica Darnbrough and University of Queensland professor Clement Allan Tisdell, who both predict rates will rise in March 2017 in the latest Finder Reserve Bank Survey.

Make no mistake; an interest rate rise would be disastrous for the many Aussie homebuyers who have over-extended themselves in order to get a mortgage and buy a house.

At the moment, a 4.75% interest rate results in interest costs of $23,750 on a $500,000 loan. If mortgage rates rise to just 5.25%, the interest costs rise to $26,250.

That’s bad enough. Now imagine if the mortgage interest rate rises to 7.25%. That would take annual interest costs to $36,250.

Many borrowers already spend well over half their disposable income on mortgage repayments. What will happen if their mortgage costs increase by 50%?

And remember, because home mortgage repayments aren’t tax deductible, an increase of $13,000 in interest costs is the equivalent of $20,000 or more of pre-tax income — depending on the marginal tax rate.

For those who can afford that kind of increase, rising interest rates won’t make much difference. But for those already up to their eyeballs, higher rates could lead to disaster.

No chance of a rate rise? Or is there?

Looking at the latest probability for an interest rate rise, the experts quoted by Domain are in the minority.

According to Bloomberg, the latest futures contract prices have factored in a 91.4% chance of the Reserve Bank of Australia (RBA) holding rates steady at its March meeting.

There is an 8.4% chance of a rate cut to 1.25%, and a 0% chance of an increase to 1.75%.

So, no chance of it happening based on the pricing of the market. But funnier things have happened. Don’t count it out…especially if house prices continue to rise.

Boom to end

From the Australian Financial Review:

Sydney and Melbourne house prices will rise “solidly” again in 2017 but the five-year-long apartment-led construction boom will start to decline by the end of the year, according to HSBC chief economist Paul Bloxham.

The bank’s view is for capital city house prices to rise 3.4 per cent in 2017 and just 1.7 per cent in 2018 in a year in which it expects the Reserve Bank to lift interest rates by 50 basis points to a 2 per cent cash rate.

Trouble ahead? Could be.

Got out in plenty of time, what’s next?

Speaking of trouble, Bellamy’s Australia Ltd [ASX:BAL] resumed trading today.

If investors thought the worst of the falls was behind it, they were in for a shock. As we write, the stock is down 95 cents for the day, trading at $4.40.

It’s down 71.6% since it peaked in December 2015.



chart image

Source: Bloomberg
Click to enlarge


That’s a hefty drop.

A few weeks before Bellamy’s hit the high, Australian Small-Cap Investigator analyst Sam Volkering told his subscribers to get out and lock in a profit.

You’d think folks would be happy. Most were. But several wrote in saying that they would never sell…and that much bigger and better news was on the way.

We can only hope they had a change of heart soon after. The stock is down, the CEO is out, and profits have halved.

Maybe it’s time to buy now. But why guess? Instead of buying stocks on a whim, check out Sam’s current favourite small-cap picks. Go here.

Cheers,
Kris