Investors are betting ‘master of the deal’ is bluffing

Tuesday, 6 March 2018
Melbourne, Australia
By Bernd Struben

  • Disaster or boom?
  • 17 months without moving

Phew!

Did you hear that?

That’s the sound of millions of investors breathing a sigh of relief.

Forget everything I wrote yesterday.

Don’t bother reviewing your portfolio for stocks that may be overly reliant on imports or exports.

Don’t bother adding to your gold exposure. And don’t waste your time considering some of Australia’s top junior gold miners as a hedge against global uncertainty. (Not to mention the potential triple digit gains on offer.)

Fears of a Trump inspired trade war that saw investors heading for the exits last week — and yesterday in Asia — have withered as quickly as they bloomed.

All the major indices in Europe and the Americas closed well into the black in Monday’s trading. At time of writing, Aussie and Asian markets are also enjoying a stellar day.

And gold is down 0.02%.

From Bloomberg:

Asian stocks were set to rally Tuesday after a rise in U.S. equities and the dollar as concern eased on President Donald Trump’s proposed tariffs…

The S&P 500 Index advanced for a second day after hedge fund billionaire Ray Dalio called the threat of a trade war “political show” and House Speaker Paul Ryan urged the president to reconsider tariffs on steel and aluminium.

Well, there you have it. It’s all just a political show. Just more Trump bluster you can safely ignore. Time to shake our heads in collective bemusement and carry on.

Or is it?

Also from Bloomberg:

President Donald Trump declared that he won’t retreat from his plan to impose tariffs on steel and aluminium imports after House Speaker Paul Ryan rejected the plan, saying the U.S. economy could suffer.

Asked Monday about the remarks from Ryan’s office, Trump was undeterred. “No, we’re not backing down,” he told reporters at the White House, less than an hour after the speaker’s office aired his concerns.’

Will he, or won’t he?

Answering that question correctly could mean the difference between big gains in the market or heavy losses.

But as the self-described ‘master of the deal’, keeping his opponents guessing is a good tactic.

There’s speculation that Trump’s steel tariffs are aimed at bringing Canada and Mexico to their knees in the prickly NAFTA renegotiations.

Canada is the number one supplier of both steel and aluminium to the US. Mexico is the fourth biggest supplier of steel.

Both nations, like Australia, have sought exemptions from the latest round of tariffs. But Trump’s playing hardball. Yesterday he tweeted, ‘Tariffs on Steel and Aluminium will only come off if new & fair NAFTA agreement is signed.

It’s unclear if a ‘new and fair’ North American Free Trade Agreement would see tariffs lifted on nations like China and Germany. And I imagine his ambiguousness is deliberate.

But the whole point may be moot. Efforts to update the 24-year-old trade agreement have stalled. And time is running short to reach a compromise.

Regardless, the most important takeaway here is that Trump has shown his resolve to follow through on his ‘America First’ policies. Policies that have already seen hefty tariffs slapped on solar panels, washing machines, steel, and aluminium.

It’s been less than two months since Trump marked his first year in office. Meaning he has almost three years — possibly seven — left to enjoy his starring role on the global stage.

While investors’ fears over a trade war eased overnight, you can be fairly certain Trump will stoke those fears again. Possibly before the end of this week.

That could mean more bad news for most commodities and the broader stock markets. Gold, on the other hand, should benefit.

As senior resources analyst, Jason Stevenson wrote to subscribers of Gold & Commodities Stock Trader:

The yellow metal has rallied into every financial crisis since 1971… Prior to 1971, gold was on a fixed exchange rate system. That said, adjusted for inflation, gold has surged into every financial crisis over the past 100 years.’

You can find out more about Jason’s three top Aussie gold plays here.

Now to the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 336.70 points, or 1.67%.

The S&P 500 gained 29.69 points, or 1.10%.

In Europe, the Euro Stoxx 50 index finished up 30.57 points, or 0.92%. Meanwhile, the FTSE 100 climbed 0.65%, and Germany’s DAX rose 177.16 points, or 1.49%.

In Asian markets, Japan’s Nikkei 225 is up 483.03 points, or 2.30%. China’s CSI 300 is up 0.24%.

In Australia, the S&P/ASX 200 is up 68.27 points, or 1.16%.

On the commodities markets, West Texas Intermediate crude oil is US$62.61 per barrel. Brent crude is US$65.64 per barrel.

Gold is trading for US$1,320.57 (AU$1,700.45) per troy ounce. Silver is US$16.40 (AU$21.12) per troy ounce.

One bitcoin is worth US$11,580.77.

The Aussie dollar is worth 77.66 US cents.

Disaster or boom?

When it comes to Australia’s housing market, everyone likes putting their two cents into the debate.

I’ve thrown my own two cents out there often enough to make for a few dollars, at least. Generally to note the crushing level of debt most home owners take on to buy into the Australian dream.

In a nation as dependent on property prices for its wealth as Australia, it’s little wonder the housing market comes under the microscope at the slightest hiccup.

With that in mind, two headlines caught my eye in recent days.

 First this one from The Age, ‘Disaster Warning on Housing’.

The article focuses on a new report from the Grattan Institute, warning of a potential catastrophe due to Australia’s record high home prices.

Home ownership rates among almost every age group — save those over 65 — are on the decline. The biggest falls in ownership is unsurprisingly among the younger generations. Outright home ownership has also fallen sharply since 1996. Even the 55–64 age bracket has seen outright ownership fall from roughly 75% down to 41%.

The Grattan Institute report blames several factors atop of the readily available cheap debt.

First is the Howard government’s halving of the headline rate of capital gains tax in the late 1990s, which made negative gearing more attractive.

Second, is that home building has fallen well behind population growth. Grattan Institute CEO John Daley stated:

It’s all very well running a strong migration program. But if you don’t build enough dwellings to back that up, the price of housing goes up.’

Erm…didn’t Tony Abbott say something along those lines only to get shot down left, right, and centre? Anyhow…

The second headline from The Australian Financial Review is decidedly more upbeat. At least for home owners and property investors.

It reads, ‘Get ready for the next property boom’.

While a record number of new apartments will hit the market this year, Bank of America–Merill Lynch economists don’t foresee a crash.

Instead they note:

‘[A] moderating property market will lead to fewer housing starts and sow the seeds of under supply come 2020.

“The stage is being set for the next property cycle,” BAML economists Tony Morriss and Alexandra Veroude write in a recent research note. “Forget oversupply,” they write, urging their clients to look beyond 2018: there are “risks of undersupply brewing”.

Cycles guru and stock market veteran, Phil Anderson must have had a chuckle when he read this.

Mostly because he could have told BAML’s economists this back in 2008. Or 1990, for that matter. Although Phil would say we’re getting set for the second half of the current cycle…not a new one. The current cycle is simply heading towards its mid-cycle slow down.

Phil has spent decades studying real estate investment and stock market cycles in the US, the UK, and here in Australia. And we’re not talking about doing some googling here.

The data Phil pores over goes back well over a century. And much of it is not available digitally. Meaning long hours trolling through library archives. But that didn’t stop him from putting together his comprehensive Grand Cycle Theory.

This theory has helped him to call past highs and lows in global stock markets and property prices with astounding accuracy.

When it comes to the current price falls in most capital cities, Phil is confident this is just part of the mid-cycle slow down. And he’s equally confident the powers that be will do whatever it takes to keep the housing market afloat.

Recent signs from APRA already support this.

As The Sydney Morning Herald notes:

The banking regulator has signalled it could ditch its 10 per cent cap on lending to property investors as the measure is “probably reaching the end of its useful life”.

Australian Prudential Regulation Authority chairman Wayne Byres said the speed limit, introduced in 2014, might be becoming “redundant” as bank lending standards had improved, while credit growth had dropped sharply.’

That sounds a lot like the government greasing the wheels to get the second half of the real estate cycle off to a smooth start.

And subscribers to Phil Anderson’s Time Trader service should find themselves positioned in the right stocks to make the most of it. Not to mention taking advantage of select short positions during the market downturn Phil forecasts for next year.

How is he making these calls already?

You can get the complete story on Phil’s ‘T.I.M.E.D. Stocks’ methodology here.

17 months without moving

Speaking of greasing the wheels…

The RBA has left the cash rate at its record low 1.5%. A level it’s held for 17 months now…and counting.

Now before you log off, here’s this, from The Australian Tribune:

Victoria Climate Change Forum Bans Nonbelievers

It’s shaping up to be the ultimate forum for confirmation bias.

A “debate” where all members believe the same thing. Where dissent has been handily banished. And where the outcome — stop the Adani mine and open the floodgates to refugees — is predetermined.

Half the candidates running in the federal Melbourne seat of Batman…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

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You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd