Cautious…not paralysed

Monday, 4 September 2017
Melbourne, Australia
By Bernd Struben

  • Lulled into complacency
  • Effective charting rules

Well here we go again.

Another week. Another round of earth-rattling threats exchanged between North Korea and the West.

Of course, in North Korea’s case it was more than just earth-rattling threats. The regime’s latest nuclear test — claimed to be a hydrogen bomb — caused a 6.3 magnitude earthquake.

Although market reactions have been fairly muted, many investors were once again caught off guard by the latest provocation. I hope you’re not among them. I hope you’ve taken my advice over the past five weeks and had a close look at your portfolio.

As I wrote to you before, it’s not time to panic, sell everything and head for the bush. But it is a time to be cautious…not paralysed. That includes looking at adding gold bullion as well as a few of the best gold stocks to your holdings.

Gold bounced 0.9% on the latest news from North Korea. The yellow metal hit US$1,335.80, a 10-month high. As at writing it’s slipped a fraction, down to US$1,333.49. Stocks on the other hand, broadly lost ground. Japan’s Nikkei is down 0.92% at time of writing.

With Japan pretty much at ground zero in any military conflict involving the Koreas, the Nikkei is particularly sensitive to any escalation in tensions. I expect more volatility in the Nikkei, and other global exchanges, in the months ahead.

And yes, I did say months. Keep that in mind, when the mainstream media flips the switch back to ‘complacency’ later on this week.

More after the markets…

Markets

Over the weekend, the Dow Jones Industrial Average climbed 39.46 points, or 0.18%.

The S&P 500 gained 4.90 points, or 0.20%.

In Europe, the Euro Stoxx 50 index closed up 22.41 points, or 0.65%. Meanwhile, the FTSE 100 gained 0.11%, and Germany’s DAX index rose 0.72%.

In Asian markets, Japan’s Nikkei 225 index is down 181.37 points, or 0.92%. China’s CSI 300 is up 0.08%.

In Australia, the S&P/ASX 200 is up 16.49 points, or 0.29%.

On the commodities markets, West Texas Intermediate crude oil is US$47.43 per barrel. Brent crude is US$52.45 per barrel.

Gold is trading for US$1,333.49 (AU$1,675.45) per troy ounce. Silver is US$17.95 (AU$22.55) per troy ounce.

One bitcoin is worth US$4,554.79.

The Aussie dollar is worth 79.59 US cents.

Lulled into complacency

Journalists are always on the lookout for the next big headline. ‘Markets fall after North Korean nuclear test’ is a good one. But that only sells for a day or two.

Failing another missile launch or incendiary tweet from Donald Trump, investors get complacent. And the mainstream happily feeds this short-sightedness.

Like the following headline, from Saturday’s Business Day, ‘Spring Returns to ASX’s step’.

The article continues:

Early on Tuesday morning, investors in Australia and around the world were blindsided by renewed tensions on the Korean peninsula after North Korea fired a missile over Japan for the first time since 2009.

The move sent equity markets around our region into a tailspin for a day as investors fretted about potential repercussions and bought safe havens such as gold and, ironically, the Japanese yen.

However, a surprisingly mellow reaction from US President Donald Trump and better data out of the US soon saw markets back on track…’

Again, I hope you weren’t among those ‘blindsided by the renewed tensions’ last Tuesday. Those tensions, after all, never subsided in the first place. They’d simply slipped from the headlines for a week or two. Only to pop back up ‘unexpectedly’ with Sunday’s latest nuclear provocation.

As diplomats on both sides work to defuse the dangerous situation, those tensions will likely slip off the mainstream radar once more. Meaning, the next time Kim Jong-un launches a missile or detonates a nuclear device — and I have no doubt he will — you’ll once more read that investors were caught wholly off guard.

Of course, that won’t be the case for all investors. Some will regret the news, as we all will, before quietly reviewing the performance of their gold stocks.

If you haven’t already, you can check out some of the most promising gold stocks here.

Effective charting rules

In Port Phillip Insider last week, we covered a number of techniques Time Trader’s Phil Anderson uses before buying or selling any new stocks.

When it comes to specific stock selection, Phil brings in a lot of technical analysis. Far more than we can cover here today…even if I could claim to understand it all. But at the core of the process, sits time. Phil has studied cycles impacting the markets in greater depth than anyone I know…or anyone I’ve even heard of.

There are a lot of cycles that come into play, with the real estate cycle foremost among them. As Phil writes:

200-plus years of cycle history are still playing out as anticipated. That’s because the rules of the game remain in place. These rules — the rules of land enclosure — are most unlikely to change anytime soon.

There’s an erroneous belief that markets are random. They are not. You only have to start looking at the world in terms of the 18.6-year real estate cycle to know how misleading this view is.

In the end, all of this led me to formulate some very effective charting rules, which have stood me in good stead over the years.’

It’s all about the rules of land enclosure. Something few people are aware of and even fewer bother to study.

If you managed to score tickets to Port Phillip Publishing’s Great Repression Conference in Port Douglas last October, you’ll have heard Phil address this issue. You’ll also have heard his shocking suggestion that we can do away with all other taxes — and indeed with government — simply by taxing the land.

(If you didn’t make it to The Great Repression Conference, we recorded the entire two day event, including every breakout session. Details here.)

Now, Phil’s not the first one to suggest this. Henry George wrote about abolishing other taxes in favour of a land tax back in the 1870s. As Alan Kohler notes in today’s The Australian, George believed that ‘government should be funded by a tax on land rather than taxes on labour.’

His reasoning was simple. And still holds sway today.

From The Australian:

“Taxes levied upon the value of land cannot check production in the slightest degree, until they exceed rent, or the value of land taken annually, for unlike taxes upon commodities, or exchange, or capital, or any of the tools or processes of production, they do not bear upon production.”

Taxes on the earnings of the labourer or the returns of the capitalist “render the one less industrious and intelligent, the other less disposed to save and invest”.

Taxes on “things of unfixed quantity” (that is, GST or import tariffs) increase prices and are shifted from seller to buyer, increasing as they go.

Land taxes, he argued, not only don’t check production, they “tend to increase production”.’

Sounds simple, right? But as Phil says, the rules of land enclosure are unlikely to end anytime soon. There are simply too many vested interests that would stand to lose money during the transition from income and sales taxes, to a broad-based land tax.

And so the cycle continues playing out very much as Phil has managed to forecast with uncanny accuracy. A cycle that enabled him to formulate the charting rules he uses to great effect in Time Trader.

You can discover just how effective those charting rules are right here.

Cheers,
Bernd