Climate change lobby caught out again…

  • Buy, hold, then sell
  • Cutting a bad sign?
  • A good sign?
  • New trades

You can trust the government, right?

You can trust scientists too, right?

After all, they’re looking out for your interests.

They tell the truth. Neither participates in the scoundrel-ridden depths of so-called ‘fake news’.

Er, not so fast. As the Daily Mail reports:

The Mail on Sunday today reveals astonishing evidence that the organisation that is the world’s leading source of climate data rushed to publish a landmark paper that exaggerated global warming and was timed to influence the historic Paris Agreement on climate change.

A high-level whistleblower has told this newspaper that America’s National Oceanic and Atmospheric Administration (NOAA) breached its own rules on scientific integrity when it published the sensational but flawed report, aimed at making the maximum possible impact on world leaders including Barack Obama and David Cameron at the UN climate conference in Paris in 2015.

The report claimed that the “pause” or “slowdown” in global warming in the period since 1998 — revealed by UN scientists in 2013 — never existed, and that world temperatures had been rising faster than scientists expected. Launched by NOAA with a public relations fanfare, it was splashed across the world’s media, and cited repeatedly by politicians and policy makers.

But the whistleblower, Dr John Bates, a top NOAA scientist with an impeccable reputation, has shown The Mail on Sunday irrefutable evidence that the paper was based on misleading, “unverified” data.

Oh dear. If facts can’t support the climate change hysteria, it seems they’ll just make stuff up. We aren’t surprised.

We’ve known all along that the climate change theory is just a rort to screw money from the taxpayer in order to fill the pockets of globalists and vested interests.

The Daily Mail’s report confirms it.

Markets

Overnight, the Dow Jones Industrial Average closed down 19.04 points, or 0.09%.

The S&P 500 fell 4.86 points, or 0.21%.

In Europe, the Euro Stoxx 50 index dropped 34.8 points, for a 1.06% fall. Meanwhile, the FTSE 100 lost 0.22%, and Germany’s DAX index fell 1.22%.

In Asian markets, Japan’s Nikkei 225 index is currently down 51.84 points, or 0.27%. China’s CSI 300 is down 0.32%.

In Australia, the S&P/ASX 200 is down 6.88 points, or 0.12%.

On the commodities markets, West Texas Intermediate crude oil is trading for US$53.19 per barrel. Brent crude is US$55.72 per barrel.

Gold is US$1,234.76 (AU$1,616.84) per troy ounce. Silver is US$17.74 (AU$23.23) per troy ounce.

The Aussie dollar is worth 76.37 US cents.

Buy, hold, then sell

The Age reports:

After a long pause, the auctioneer commissioned to sell a Sydney beachside apartment for in excess of $800,000 puts his gavel away, unable to entice a single bid.

Across town, in the city’s trendy inner western suburbs, the owner of a warehouse converted into a three-level home drops his reserve price for the property’s sale. There are just two potential buyers at the auction, and they have declined to enter the kind of bidding war that has caused home prices in Sydney and Melbourne to double since 2009.

The auction stand-offs may indicate that the Sydney market, which has been defined by researcher Demographia as the second most unaffordable in the world after Hong Kong, has finally hit a peak. As the buyers have drifted off, the sellers have also started to back away and the number of home listings is down 25 per cent from a year ago, according to CoreLogic RP Data.

Bad news for house prices? But wait. From Property Observer:

The CoreLogic measure for home price increase will grow by just 4.9 per cent in Sydney, while for Melbourne it will be 4.3 per cent, a far cry from the 15.5 per cent growth for Sydney and 13.7 per cent for Melbourne in 2016.

House prices up or house prices down? Heck, don’t worry. Buying houses is money-for-jam based on this little timeline, also from Property Observer:

‘[The Portsea house] came on the market at $1,925,000 with the underbidding from a woman with a State of Escape handbag.

Wachtel, a past president of the International Fiscal Association, went and got his ANZ chequebook from his black BMW after the auction which had three bidders.

The Armadale barrister James Mighell and wife Alison had owned the home since 1997 when they paid $247,500…

The late Sun newspaper columnist Jack Cannon and wife Judith sold it in 1997, some 17 years after paying $45,000 in 1980.

Buy a house. Hold on to it. Sell it for a whacking great profit some years later.

That house bought in 1980 for $45,000 has just been bought for $1,925,000. That’s a gross profit of $1,880,000, or a 4,177% return.

That’s an approximate compounded annual growth rate (CAGR) of 11%, almost double that of the All Ordinaries.

In which case, that’s pretty good. So why bother doing anything else?

We guess the answer to that is fairly straightforward. This extraordinary run for Aussie house prices is just that, extra-ordinary. It’s not ordinary. It’s not normal.

And what makes it worse, and more dangerous, is that so much of the growth has been achieved with debt. You understand the power of leverage. It’s great when it’s on your side. It’s not so great when it’s working against you.

Our bet is that where Aussie house prices are concerned, leverage about to start working against borrowers.

Cutting a bad sign?

Meantime, could the prospect of further interest rate cuts actually result in a house price slump?

Sound crazy? Perhaps. But we think back to a conversation we had two weeks ago with economist, Dr Jim Walker of Asianomics Group, based in Hong Kong.

Dr Walker suggested that one reason why businesses hadn’t massively increased borrowing despite low interest rates is that low interest rates act as a signal to businesses. It warns them that there is no economic growth.

In which case, even though low interest rates allow borrowers to borrow more, is it possible that low mortgage rates will start to act as a negative signal too?

Aussies are used to seeing house prices go up. But with the Aussie economy on the brink of recession, there is already a clear indication that businesses and consumers are being cautious.

The question is whether that caution could and would spread to the mortgage market…and as a consequence, to the housing market and house prices.

As we say, it sounds crazy. But not that crazy.

Remember the example of the US. Many people tend to think that the US housing market collapsed at the same time as the US stock market in 2008.

Not true. US house prices peaked in 2006 — a year before the stock market peaked, and two years before stock prices crashed.

Now, it’s true to say that the US housing market peaked after a sustained period of rising interest rates. The US Federal Reserve took the Fed Funds Rate from 1% in 2004, to 5.25% in 2006.

But the actual action of raising and cutting interest rates isn’t the full story. It’s not even the most important part of the story. The most important part of it is the effect it has on the market. In other words, the effect on people’s perception of the economy.

After eight years of low interest rates, it’s becoming harder and harder to look at a potential cut in interest rates as anything other than a sign of more bad news.

In that case, is that likely to act as an incentive for individuals or couples to apply for a near half-a-million mortgage to buy either a postage-stamp sized apartment in the inner suburbs, or a McMansion 60km out on the metropolitan fringe?

We don’t think so.

The reason we bring it up is that despite today’s non-move on interest rates by the Reserve Bank of Australia (RBA), the next move for rates could be lower.

As Bloomberg reports:

Australia’s central bank is more likely to cut interest rates than raise them if it moves at all this year, while an appreciating local dollar could make economic conditions tougher for industries outside mining, UBS Group AG’s Anne Anderson said.

“Should they need to ease, I think it’s more likely that they would have to take a more aggressive stance and move to 1 percent, so take half a percent off the cash rate,” Anderson, head of Australian fixed income at UBS Asset Management in Sydney, said in an interview with Bloomberg Television Tuesday. The Aussie dollar’s strength “could provide a headwind for our services sector, which is one of the major drivers of our economy,” she added.

We assume the argument there is that a stronger Aussie dollar will make it cheaper for Aussie services companies to buy materials for their business.

That may be true for businesses providing services domestically. But what about businesses providing services internationally? Furthermore, what does the higher Aussie dollar do for the Aussie economy’s biggest export — raw materials?

These are all priced in US dollars. Again, things are fine if commodity prices continue to rebound higher, but what if they don’t? Furthermore, it’s a mistake to think that the US dollar and commodity prices are always inversely correlated.

As you can see from the chart below, sometimes the iron ore price (white line) falls while the Aussie dollar (orange line) rises, and sometimes the iron ore price rises along with the Aussie dollar:



chart image

Source: Bloomberg
Click to enlarge


So, UBS thinks further interest rate cuts could be on the way. We actually tend to agree. But do we think it will do the Aussie economy any good?

Unfortunately, no.

A good sign?

We should stop calling it ‘currency wars’, and rename it the ‘Trump wars’.

As Bloomberg reports:

Gold futures surged to the highest in more than two months as investors grow wary about the possible impact of U.S. President Donald Trump’s domestic and international policies.

The price rise was significant. Again, from Bloomberg:

Gold’s rally has taken it back above the 100-day moving average for only the second time since October. On the last two occasions when the metal crossed and settled above the measure, prices then rallied at least 10 percent in the following five weeks.

Here’s the chart:



chart image

Source: Bloomberg
Click to enlarge


We’ve circled the last time it happened. If you go back five years, it has happened several times.

Your editor isn’t much into technical analysis, but when we come across something that favours a higher gold price, we suddenly grow to like it.

Who said we’re unbiased when it comes to gold? Not us.

New trades

By the way, as the currency wars (or ‘Trump wars’) continue to rage, our Currency Wars Trader service has just released the two latest trades.

To find out the details, go here.

Cheers,
Kris