Upsize or downsize?

  • Disappearing sales
  • Two grand events
  • The biggest cartel
  • On the roof
  • Check it now
  • In the mailbag

We don’t think much of the super system. Each new government creates a new set of rules that makes a complicated system even more complicated.

The latest effort involves the supposed ‘downsizing measure’. The argument is that house prices are high, partly because a bunch of old-timers own big four-bedroom homes, when they only really need a one or two-bedroom place.

So, in order to encourage the oldies to move out — and into something smaller — the old folks will be able to sell, and then deposit up to $300,000 into their super fund, without paying excess contribution penalties.

Here’s the problem. What’s the definition of ‘downsizing’?

Is it my square meterage, or is it by value?

And what if ‘downsizing’ in space actually means ‘upsizing’ in value?

Or what if ‘downsizing’ in value actually means ‘upsizing’ in space?

We’ll say no more. Except to say that Frankenstein’s monster, also known as superannuation, has taken an even uglier turn.


Overnight, the Dow Jones Industrial Average fell 23.69 points, or 0.11%.

The S&P 500 fell 5.19 points, for a 0.22% drop.

In Europe, the Euro Stoxx 50 index lost 22.19 points, or 0.61%. Meanwhile, the FTSE 100 gained 0.02%, and Germany’s DAX index fell 0.36%.

In Asian markets, Japan’s Nikkei 225 index is down 119.27 points, or 0.6%. China’s CSI 300 is up 0.5%.

In Australia, the S&P/ASX 200 is down 57.24 points, or 0.97%.

On the commodities markets, West Texas Intermediate crude oil is US$47.88 per barrel. Brent crude is US$50.82 per barrel.

Gold is trading for US$1,225.11 (AU$1,660.35) per troy ounce. Silver is US$16.32 (AU$22.12) per troy ounce.

The Aussie dollar is worth 73.79 US cents.

Disappearing sales

From Bloomberg:

Asian stocks declined on concern about the appetite of U.S. consumers to keep spending, while bonds and gold extended gains.

When there is an opportunity for your editor to look on the bearish side of the markets, it’s not often that we choose to turn the other cheek.

Instead, we’ll thrust both cheeks (all our cheeks if we could) fully towards it.

US markets opened much lower overnight, before rallying for the rest of the day and only closing marginally lower for the day.

The upshot is that the markets should be worried about the ability of US consumers to keep spending. The stock of US retailer Macy’s Inc. [NYSE:M] fell 17%.

Again, from Bloomberg:

Macy’s, the largest department-store company, posted a 4.6 percent decline in comparable sales last quarter. Analysts had estimated a 3.5 percent drop. Earnings also came in well below projections, suggesting that cost-cutting efforts aren’t moving fast enough to offset the shrinking sales.

For the 2016 financial year, Macy’s revenue was US$27 billion. For the 2017 financial year, it was US$25.8 billion.

It won’t be news to you, nor anyone else, that bricks-and-mortar retailers are bleeding revenue. More retailers have closed stores over the past year than during the 2008–09 financial meltdown.

Even so, after a strong 2016, for total offline and online sales, there are doubts that online sales growth will compensate for declines in offline sales.

After peaking in January this year, total retail sales, according to the Federal Reserve Bank of St Louis, have declined for the past two months.

That in itself isn’t so unusual. Spending tends to pick up towards the end of the year, especially in the US, with the Thanksgiving and Christmas holidays.

But what may concern the markets is that, again, according to the Federal Reserve Bank of St Louis, online sales as a percentage of all sales didn’t increase from the third to fourth quarter of last year.

Again, this may not be a big deal. But it is the first time since 2010 that online sales didn’t increase market share during those comparable quarters.

It is perhaps no coincidence that in November 2010, during the fourth quarter of that year, the US Federal Reserve revealed its second bout of money-printing – QE2.

But of even more interest to our bearish mind is the following chart. It shows the Bloomberg US Weekly Consumer Comfort Index:

chart image

Source: Bloomberg
Click to enlarge

It’s currently at the same level as it was in early 2007…just before stock markets hit a peak…and just before the whole global financial system began to unravel.

For your enjoyment, we’ve highlighted the corresponding stock market tops. We wonder, given the current level, whether we should take the plunge and pre-emptively draw a nice red circle around May 2017.

But the wise trader will perhaps point out that without the benefit of hindsight, it may have been tempting to draw circles in 1986, 1997, 1998, 2005, 2006, and 2015.

Doing so, and bailing out of the market early, could have resulted in missed gains.

To which, we’ll counter, that it could have also resulted in banking smaller gains early, instead of taking big losses later. Perhaps.

We get that sales are shifting online. We get it that Inc. [NASDAQ:AMZN] is snagging a bunch of sales revenue from traditional bricks-and-mortar retailers.

But we also understand that shopping through is all about convenience. It’s about the perception — and maybe the reality — that shopping online is cheaper.

No one wants to pay more for something than necessary, but could it be possible that the growth in online retailing masks the possibility that the consumer is becoming ever more desperate for a cheap deal?

If so, that desperation may soon cause them to stop spending altogether.

Now, give us that chart again; we have the urge to draw a big red circle.

Two grand events

The next few weeks look set to be a busy time in terms of how we plan to grow our investment advisory offerings.

And just as our current offerings provide something for the bulls as well as for the bears, our two new services will continue that tradition.

(As an aside, members of our Alliance program should note that both of these premium services will be included automatically in your Alliance membership, for no extra charge.)

The first, which we’re hoping to launch in the next two weeks, will be decidedly bullish. Not necessarily on the entire market, but specifically on the special stocks in question.

I can’t go into any detail here, because the launch of this service depends on external events that are beyond our control. But if everything falls into place at the right time, we’ll launch the service with perhaps only a few days’ notice.

Sorry for the cryptic nature of this message, and for not being more specific. But when we launch it, you’ll understand why.

As for the second service, it will be decidedly bearish…but with a twist. We’re making progress on the launch of this project, which will coincide with an important emergency market briefing.

Again, precise details on the time and date of this briefing are still up in the air. But we’re talking weeks, rather than months. Stay tuned. We’ve never launched anything like this.

But I say this unequivocally: This is like nothing we’ve ever introduced you to before. In fact, I believe it will be the most important event we’ve ever held in the 12-year history of Port Phillip Publishing.

Keep an eye on your inbox for more details.

But before that, look out for details on the first of our launches. This should be within two weeks. Hopefully, I’ll be able to give you more details before then.

The biggest cartel

The Financial Times reports:

France’s president-elect Emmanuel Macron will push the EU to adopt a tougher stance on trade and foreign investment in an early bid to win over domestic critics calling for greater protectionism.

It’s funny. The political elites and mainstream in Europe have spent the past few months decrying US president Donald Trump’s ‘America first’ policies.

Yet, despite all the talk about the European Union being in favour of free trade, the reality is that it’s the world’s biggest economic cartel. Bigger than OPEC.

Rather than promoting free trade, all trade within the EU is highly regulated. The Common Agricultural Policy (CAP), with its farm subsidies, is the biggest example.

Plus, you only have to look at the vitriol from the EU towards the UK, as part of the exit negotiations, to see that, rather than seeking a ‘free trade’ deal between the EU and the UK, the message from Brussels is about how much it can punish the UK for leaving.

Free trade? My foot!

On the roof

It seems that the more we talk it down, the higher the share price goes.

We are, of course, referring to our stock nemesis, Tesla Inc. [NASDAQ:TSLA]. Now the market has more reason to get excited about Tesla. From Bloomberg:

Tesla Inc. has begun taking $1,000 deposits for its remarkable solar roof tiles — to be delivered this summer at a price point that could expand the U.S. solar market.

Tesla will begin with production of two of the four styles it unveiled in October: a smooth glass and a textured glass tile. Roofing a 2,000 square-foot home in New York state — with 40 percent coverage of active solar tiles and battery backup for night-time use — would cost about $50,000 after federal tax credits and generate $64,000 in energy over 30 years, according to Tesla’s website calculator.

That’s more expensive upfront than a typical roof, but less expensive than a typical roof with traditional solar and back-up batteries. The warranty is for the lifetime of your home.

Nice. Of course, here’s the thing: Most existing homes don’t typically replace all the tiles on their roof when they install a solar power system.

So, an existing homeowner could pay $50,000 for a roof-full of new solar tiles…or they could just keep their old tiles, and pay $5,000–10,000 for an alternative solar panel system.

Decisions, decisions.

But heck, we’ve been short-selling Tesla all the way up from around US$230 per share. It closed this morning at US$323.10 per share.

One thing. As with the batteries for its cars, Tesla provides a lifetime warranty for its new solar roof system. That’s a long time.

It’s not a major expense for Tesla today, but five or 10 years from now? That could be a different story.

Check it now

If you prefer to invest and trade based on cold, hard algorithms (who doesn’t?), make sure you check out Jason McIntosh’s Quant Trader system.

There truly is nothing else like it in Australia. Jason is a ‘quant’. The only place you usually find a ‘quant’ is in the trading room of a big Wall Street bank.

But we’ve saved Jason from that fate and, instead, he’s working for us…helping you to trade the Aussie market. If you haven’t caught his work yet, you can do so now.

All you have to do is click this link for details.

In the mailbag

Subscriber P writes:

In yesterday’s edition you stated “when Glaucus Research said to short sell, we said we couldn’t agree more“.

I have searched my file and cannot see any comment on Quintis in any of the Port Phillip Publishing newsletters which I receive. As I have now trashed about $10,000.00 on this stock I am fairly confident that I would have read your comments with great interest. I don’t check prices every day but I read the newsletters for guidance. Could you please send me a copy of the one in which you said that “you couldn’t agree more”? Thank you.

Of course. You can read our write-ups of Quintis Ltd [ASX:QIN] here, here, and here.

And in more potential bad news, Bloomberg this afternoon reported:

Meanwhile Bannister Law has announced that it is investigating a potential class action on behalf of shareholders against Quintis.

In a statement, Bannister Law said it was investigating whether the directors and officers were in breach of the company’s continuous disclosure obligations in only announcing the Galderma contract termination to the ASX on May 10, 2017.

To jog your memory, Quintis’ subsidiary, Santalis, was made aware of the contract termination…on 16 December last year.

As we’ve noted many times: We don’t get everything right, but when we do, we’ll shamelessly shout it from the rooftops — even a Tesla rooftop!