Ye olde fake news

  • Ye olde deepe state
  • Familiar patterns
  • Dumb and dumber still
  • Speaking of which…

The term ‘fake news’ has been all the rage in recent months.

It’s such a new idea…that news could be fake. It’s all due to the internet, and social media. Maybe, but maybe not.

No doubt the internet has enabled the fast spread of both real and fake news. But the actual concept of ‘fake news’ turns out to be not so new at all.

In fact, the concept of fake news goes back at least hundreds of years. We discovered this on recently reading a biography of that infamous fake newster, Benjamin Franklin (who also happens to be one of the Founding Fathers of the United States).

As the Washington Post reported late last year:

But the most important [fake news during the American Revolution] was crafted in 1782 at a makeshift printing press in a Paris suburb. Benjamin Franklin, taking time out from his duties as American ambassador to France, concocted an entirely fake issue of a real Boston newspaper, the Independent Chronicle. In it, Franklin fabricated a story allegedly from the New York frontier.

And if you think that’s OK because Dr Franklin never became president, it turns out that America’s second president, John Adams, wasn’t averse to a bit of fakery in his lifetime either. Again, from the Washington Post:

In 1769, John Adams gleefully wrote in his diary about spending the evening occupied with “a curious employment. Cooking up Paragraphs, Articles, Occurrences etc. — working the political Engine!” Adams, along with his cousin Sam and a handful of other Boston patriots, were planting false and exaggerated stories meant to undermine royal authority in Massachusetts.

The more things change, the more they stay the same…


Overnight, the Dow Jones Industrial Average gained 6.24 points, or 0.03%.

The S&P 500 added 1.32 points, or 0.06%.

In Europe, the Euro Stoxx 50 index fell 15.42 points, or 0.43%. Meanwhile, the FTSE 100 dropped 0.71%, and Germany’s DAX index fell 0.23%.

In Asian markets, Japan’s Nikkei 225 index is down 38.78 points, or 0.2%. China’s CSI 300 is down 0.7%.

In Australia, the S&P/ASX 200 is down 8.68 points, or 0.15%.

On the commodities markets, West Texas Intermediate crude oil is US$49.36 per barrel. Brent crude is US$51.78 per barrel.

Gold is trading for US$1,265.19 (AU$1,692.42) per troy ounce. Silver is US$17.33 (AU$23.18) per troy ounce.

The Aussie dollar is worth 74.75 US cents.

Ye olde deepe state

On a similar subject, we’ve written widely about the ‘Deep State’. The idea that regardless of which political party gains power, a hidden ‘Deep State’ really runs the show.

That’s why nothing ever seems to change, and why the state only ever gets bigger and never shrinks.

On reading Thomas Jefferson: The Art of Power, a biography by Jon Meacham, it turns out the concept of a ‘Deep State’ isn’t a new-fangled idea either.

As Meacham notes:

‘[Alexander] Hamilton, who opposed both [John] Adams and [Thomas] Jefferson, was a complicating factor. He devised a fascinating strategy to deny his two rivals the presidency by urging Federalist electors in South Carolina to cast ballots for Adam’s choice for vice president, native son Thomas Pinckney, for president rather than vice president. Hamilton’s motive? [James] Madison wrote to Jefferson that Hamilton believed Adams “too headstrong to be a fit puppet for the intriguers behind the screen.”

The ‘Deep State’ is, and it appears, it always has been. Now, on to more important affairs…

Familiar patterns

More bad news for iron ore. Bloomberg explains:

Iron ore’s sell-off may be set to worsen. The world’s largest mining company says that global supplies are poised to increase in the coming years as low-cost producers add more tons to the market, delivering its warning just hours after a similar red flag from the World Bank.

“A significant amount of iron ore supply from the major producers in Australia and Brazil will hit the market,” Vicky Binns, vice president of marketing minerals at BHP Billiton Ltd., told an industry conference in Singapore on Thursday. Brazil alone is expected to deliver around 100 million tons of additional high-quality supply in 2018, including the ramp-up of S11D, she said, referring to Vale SA’s giant new mine in Brazil.

After the rapid drop, the iron ore price appears to have settled — for now, anyway.

Perhaps all the bad news is already built into the current iron ore price. Who’s to say it won’t rebound, with the BHP Billiton Ltd [ASX:BHP] share price following suit?

That’s entirely possible, but we have our doubts. Granted, we had our doubts when BHP shares were below $15 per share early last year. So take our thoughts and doubts with as large a grain of salt as you like.

But there is other evidence to support the bearish side. Again, from Bloomberg:

Iron ore’s recent tumble may trigger forced sales from the near-record mountain of stockpiles amassed at China’s ports, according to an industry veteran, adding to warnings that there may be an increase in outflows from the holdings in a falling market.

The report continues:

When prices drop and holders are in need of funds, there’s a risk the stockpiles will be unwound, Li Xinchuang, president of the China Metallurgical Industry Planning & Research Institute, which advises the government and mills, said in an interview. Traders own the majority of the hoard in the world’s top user, with a significant amount of funds tied up in the holdings, Li said on Thursday.

When the report says there are a ‘significant amount of funds tied up in the holdings’, what it really means is that there are a significant amount of borrowed funds tied up in the holdings.

A look back at a report in the Financial Times from last November, explains:

Chinese hedge funds are providing margin finance for leveraged bets on the country’s booming commodity futures market, in an echo of the practices that led to last year’s stock market boom and bust.

As a reminder of what that Chinese stock market boom and bust looked like, check out this. It’s the Chinese CSI 300 index from mid-2014 through to today:

chart image

Source: Bloomberg
Click to enlarge

From top to bottom, the market fell 46.7% in less than a year. From the top until today, it’s still down 36%.

The point is, if you were skilful enough (your editor is not) to overlay the one-year iron ore price chart over the Chinese stock index from late 2014 through to late 2015, you would see a remarkable similarity in the pattern.

chart image

Source: Bloomberg
Click to enlarge

The incompetent technical analyst within your editor would hazard a guess that, based on the pattern of the Chinese market during its boom and bust, the iron ore price should experience a short term recovery, followed by another slump, and finally (for now) a steady, but small increase over the next two years.

But again, please, do not take your editor’s chart reading skills seriously. Should you be foolish enough to speculate on the iron ore price based on this analysis you are…well…a fool.

Nevertheless, we don’t recommend you ignore it either.

As we see it, the commodity price action, both here in iron ore, and elsewhere — including oil and copper — reflects what we see as the final days (or weeks, or months) of the inflationary influences that have boosted all markets since late 2008.

Commodities boomed. They all boomed. Gold, copper, iron ore, wheat, and sugar.

They all went up, and to a greater or lesser degree, they’ve all fallen from their multi-year peaks.

Our bet is that, as the worldwide inflation draws to a close, as the money-printing and low interest rates become even less effective than they are now, the demand for, and prices of, commodities will fall too.

Not forever, of course. Just as nothing rises forever, nothing falls forever either.

But the length of the current boom should suggest that the length of the next bust and recovery will be equally as long, if not longer.

Consider, again, China’s boom and bust. The stock market soared higher in a matter of months. The bust happened in a matter of weeks…and the recovery is now running into years, and will likely take many more years.

If you want another example, consider the NASDAQ index. After the top of the market in 2000, the index collapsed. It then ground slowly higher over the following seven years, never recovering more than half of its losses, before collapsing again.

The recent extraordinary run, where it has gained nearly 400% since the 2009 low, is mostly the result of low interest rates and money-printing.

chart image

Source: Bloomberg
Click to enlarge

Will the gains continue when the money-printing and low interest rates end?

Star performer, Inc [NASDAQ:AMZN], despite its earnings growth, still trades on a price-to-earnings ratio of 127-times next year’s earnings. Analysts expect earnings to growth further, this year and next.

Yet, its US$2.4 billion of profits could be wiped out by a single economic downturn. Or not. Maybe is immune to such economic catastrophe…and to increased competition.

But we’ve strayed far off-course. This was a discussion of commodities, a subject close to the Aussie investor’s heart, and their portfolio. And on that sector, we remain bearish…very bearish.

Dumb and dumber still

It was a dumb idea for Australian state governments to shift away from fossil fuels to unreliable ‘green’ energy sources.

But it appears that the Australian federal government has taken dumbness to a new level. As Bloomberg reports:

Australia’s Prime Minister Malcolm Turnbull is taking a leaf out of U.S. President Donald Trump’s “America First” playbook.

Just days after announcing a crackdown on foreign workers and tightening citizenship rules, Turnbull announced an effort Thursday to restrict gas exports by energy giants to protect domestic supply.

Ah, good one. Talk about not providing an incentive for exploration companies to search for domestic gas supplies. If they know they can’t sell their product into the international market, why would they develop new projects here?

The counter argument would say that this policy would also increase prices, thereby providing an incentive, due to a higher profit motive. Perhaps, but not for long. If a government can curtail exports, it can cap prices too.

Easy. Austravenezuela, here we come.

Speaking of which…

More lunacy, again from Bloomberg:

Westpac Banking Corp., Australia’s second-biggest bank, has imposed tighter rules for financing new thermal coal mines in a move that would bar it from lending to Adani Group’s $16.5 billion project in Queensland state.

Financing for any new thermal coal projects will be limited to existing coal producing basins that are in the top 15 percent globally in terms of emissions, Westpac said in a statement Friday. The guidelines don’t apply to metallurgical coal.

It’s only a small step, but it is a step. It’s a step towards the green lobbyists’ dream to turn the world technologically back to the Dark Ages. Attack fossil fuels at all costs — even at the expense of progress and advancing civilisation.