Straight to the point…

  • Mainstream takes the bait…again
  • Boom or bust?
  • Wine up
  • Overheard conversation
  • In the mailbag

Make sure you check your email inbox tomorrow morning.

You’ll receive an invite. An invite to learn about one of our most popular — and, according to some, our best — premium investment services.

There’s nothing more to say about it. We’re often criticised for blathering on and not getting to the point. So here’s the point. Watch your email inbox tomorrow morning.


Overnight, the Dow Jones Industrial Average gained 7.91 points, or 0.04%.

The S&P 500 fell 2.03 points, or 0.09%.

In Europe, the Euro Stoxx 50 index closed up 12.67 points, or 0.38%. Meanwhile, the FTSE 100 fell 0.34%, and Germany’s DAX index closed down 0.31%.

In Asian markets, Japan’s Nikkei 225 is down 110.26 points, or 0.57%. China’s CSI 300 index is down 0.05%.

In Australia, the S&P/ASX 200 is down 11.31 points, or 0.19%.

On the commodities market, West Texas Intermediate crude oil is US$53.46 per barrel. Brent crude is US$55.76 per barrel.

Gold is trading for US$1,238.72 (AU$1,608.01) per troy ounce. Silver is US$18.07 (AU$23.46) per troy ounce.

The Aussie dollar is worth 77.02 US cents.

Mainstream takes the bait…again

What a fun way to spend an hour of our day this afternoon — watching US President Donald Trump’s latest press conference.

To say that he lit a fire under the mainstream press is an understatement. It was a complete immolation.

And playing right into Trump’s hands is The Age newspaper. The Age headlines, ‘“Wild and unhinged” Trump rants, raves and deflects the blame’.

Well, what do you know? It’s just as Trump predicted in his press conference:

Tomorrow they will say, “Donald Trump rants and raves at the press!” I’m not ranting and raving. I’m just telling you, y’know, you’re dishonest people. But I’m not ranting and raving. I love and I’m having a good time doing it, but tomorrow the headlines are going to be: “Donald Trump rants and raves.” I’m not ranting and raving.

The mainstream hasn’t understood Trump from day one. They still don’t understand him. We’re kind of glad. It’s certainly more entertaining that way.

Boom or bust?

So, is the Aussie economy booming, or is it heading for recession?

A glance at today’s market gives both the bulls and bears reasons to stick with their respective views.

First, this from Bloomberg (for the bulls):

Australia & New Zealand Banking Group Ltd. first-quarter cash earnings rose on a stronger performance from the lender’s domestic businesses, while the outlook for bad debts has improved.

Hurrah! An economic rebound abounds.

But wait. Postpone that tickertape parade for at least a moment (for the bears):

Virgin Australia Holdings Ltd. deferred delivery of 40 Boeing Co. aircraft worth $4.4 billion as the airline swung to a first-half loss.

Whoa! Those are two big numbers — 40 new aeroplanes (Boeing 737s) and $4.4 billion.

As we write, the stock is now trading for less than 20 cents. Its market capitalisation stands at a meagre $1.6 billion. The company’s first-half revenue was $2.61 billion. For the same period last year it was $2.63 billion.

The company lost $36.1 million in the latest quarter, compared to a $45.7 million profit for the previous corresponding period.

Looking at Virgin Australia Holdings Ltd’s [ASX:VAH] balance sheet doesn’t provide much cause for optimism either. The company has debt to the tune of $3 billion. You can offset just over $1 billion in cash, but we can only assume there’s as much as $4.4 billion of debt to add to the borrowings, depending on how the deal is structured.

But, regardless, Virgin Australia is making a big bet on a growing Australia. Or should that be a sustainably growing Australia?

Getting back to the Australia and New Zealand Banking Group Ltd’s [ASX:ANZ] results, we’d argue (you got it, we’re bearish even when the results are bullish!) that, while a rise in lending may support the case for a growing Australian economy, it doesn’t necessarily mean it’s ‘good’ growth.

After all, a boom precedes every bubble. The fact that an economy is growing doesn’t necessarily mean that it’s a reason to cheer. We’d argue that’s exactly the case here.

What’s more, even when the headline looks positive, the investor reaction isn’t. Something which ties into a key theme that colleague and Port Phillip Publishing’s Head of Research, Greg Canavan, has covered recently.

We’re talking about the ‘Crunch Point’ in the Australian natural gas industry.

The latest results from Santos Ltd [ASX:STO] show just how hard it is to plan for and invest in big capital expenditure projects years in advance, and still make a return when the revenue starts flowing.

As Bloomberg reports:

Santos Ltd., Australia’s third-biggest oil and gas producer, posted a 29 percent rise in full-year profit after booking record production and sales volumes.

Underlying profit, which excludes one-time items, was $63 million in the 12 months to Dec. 31, Adelaide-based Santos said Friday. The mean estimate of 12 analysts surveyed by Bloomberg was $23 million. The company’s net loss, which includes a writedown on its Gladstone LNG project, narrowed to $1 billion from $1.9 billion.

You can trace the Gladstone LNG project back to at least 2008. That’s when the natural gas story first popped up on my radar. It took seven years from the early stages of planning until it finally produced LNG from its facility.

As you’re fully aware, a lot can change in the economy in seven years. That was true for Santos — and the other LNG players in Queensland. And for the Santos share price, well, no doubt the huge capital investment has had a big influence on the share price.

chart image

Source: Bloomberg
Click to enlarge

For your information, the Santos share price is down 77% since that 2008 peak. Zoiks!

But while the likes of Santos and others slide, Greg has focused his attention on specific niche plays in the sector — where he believes rapid growth lies ahead.

Plays that Greg says are ripe for big returns as the natural gas and LNG market dynamics move into a new phase. We’ll see how it plays out. But Greg’s analysis and advice makes a lot of sense based on what we’ve seen of it. We recommend checking it out here.

Returning to Virgin Australia, we wonder whether the airline could either learn from Santos’ capital investment woes, or whether it will just have to grin and bear it…and, more importantly, whether investors can learn anything from it.

Check out the Virgin Australia share price performance below:

chart image

Source: Bloomberg
Click to enlarge

For your information, the Virgin Australia share price is down 92% since that 2007 peak. Zoiks!

As a contrarian, we, and you, may be tempted to pile in at this sub-20 cent price. But, frankly, we can’t be sure the worst is over. Clearly Virgin has a commitment to buy the 40 Boeing 737s — hence the reason for postponing, rather than cancelling, delivery.

If this commitment results in a significant increase in the company’s debt, and if the oil price continues to trade above US$50 per barrel, the next two years could see this sub-20-cent stock slowly turning into a sub-10-cent stock.

We’ll continue to watch it with keen interest. But watch it is all we’ll do.

Wine up

We’re always looking for an excuse to be bearish. [Reader’s voice: Really? You don’t say.]

The folks at Bloomberg have served up an excuse for us:

Prices for wine have climbed to their highest levels since October 2011 on speculation that equities near record highs are poised to drop. The Live-ex 100 Benchmark Fine Wine Index, a pound-denominated gauge tracking the 100 most sought-after wines’ prices, is enjoying a 14-month win streak after five straight annual declines. “Prices to most buyers still look cheap in historical terms,” said Chris Smith, an investment manager at the London-based Wine Investment Fund Ltd.

Here’s the chart.

chart image

Source: Bloomberg
Click to enlarge

Is the relatively high price of wine a signal that the market is set to fall? We’ll see.

Overheard conversation

Whilst dining at our Arlington, Texas hotel, we heard the following comment during a conversation on an adjacent table about which morning TV news show to watch:

Watch Fox & Friends, that’s what Trump watches.

See what we mean? The mainstream underestimates the popularity of Donald Trump.

In the mailbag

Subscriber Patrick writes:

Cycling uniforms aren’t dumb. I have no love for golf but I do have the common courtesy not to write off an entire sub-section of the population with small-minded insults.

Crass boorish sweeping generalizations are dumb.

They’re not dumb. They’re fun.

Anyway, aside from the silly little uniforms, our biggest beef with bike ‘merchant bankers’ [Ed Note: Know your cockney rhyming slang] is specifically with those who insist on riding in car lanes, causing traffic to slow, even when there is a perfectly decent dedicated bike lane less than a metre to their left.

That’s arrogant. That’s self-absorbed and self-important. Oh, and it’s dumb, too.

Another letter, this one on another of our favourite subjects — climate change. It tells an interesting tale. Here’s the letter, from subscriber Jean:

Re your email this morning that you need to attract more female readers, here’s one female reader who’s with you all the way on your stance on climate change.

Every time it’s a bit hot (of course, it’s so unusual to have hot weather in Australia), all the media screams HOT, HOT, HOT. Any record cold temperatures are mentioned very quietly and never referred to again.

When cherries first came into my Sydney supermarket earlier this summer they were very, very expensive. I hadn’t heard any reason for this, but later caught sight of a paragraph tucked away on a weather site saying that the crop was very poor this year because of record cold weather in NSW, Victoria, Tasmania and South Australia – the whole of south-eastern Australia – and that made them expensive. If the crop had failed because of excessive heat they’d have been shouting it from the rooftops.

A friend of mine in the Czech Republic says that an observatory in Prague has been keeping daily temperature records since 1775 – the second longest time in the world after London – and the January just past had the coldest average temperature for that month for 77 years. But of course they said as little as possible about that because it doesn’t fit in with the global warming theory.

I have shares in a company that sells barbecues (bought through one of your paid advisory services). Yesterday I saw a report which said their sales had been lower than usual in Australia the last half-year because the hot weather had been late coming in most states. Yes I had seen a report claiming that we had had a hot spring — contrary to my experience here in Sydney.

So it goes on. Dr Goebbels would have been proud of the propaganda. Tell a lie often enough and it becomes the truth.

Keep up the good work, Kris. We deniers need you!

Before the climate change fanatics start up their ‘fake news’ ritualistic chant, we can almost completely confirm Jean’s story. As the Prague Daily Monitor reports:

This past January has been the 7th coldest since 1961, when overall temperature averages started to be recorded on the territory of the present-day Czech Republic, Petr Dvorak, spokesman for the Czech Hydrometeorological Institute (CHMU), told CTK on Thursday.

He said that according to the preliminary data, the average temperature in January 2017 was minus 5.6 degrees Celsius.

The previous coldest January was in 2006, when the average temperature dropped to minus 6 degrees Celsius, Dvorak said.

The coldest January in the 56 years of regular measurements was recorded in 1963, when the temperatures reached minus 8.8 degrees Celsius, Dvorak said.

Well, well, well. Sure, it’s not the coldest in 77 years, but it’s the seventh coldest in 56 years. So much for the idea that temperatures across the world are rising.

And what’s even more amusing is that an article in the Guardian, reporting on Europe’s cold spell, doesn’t mention climate change once…not once. Need any more proof that the so-called science of climate change is a scam? We don’t. But we’ll keep exposing the climate change fanatics regardless.

Finally, just in, from recent subscriber David:

I have subscribed to Greg Canavan and Jason Stevenson research analysis. Let me just say I enjoy reading them and I find their style of writing very succinct, coherent, and to the point. It is such a change from what I have read in the past from other publishers.

Kudos to them!

Yes indeed. You won’t find us arguing with you.