The little stock market that could
Thursday, 22 March 2018
By Bernd Struben
- Stars aligning for higher gold prices
- Another US government shutdown?
- Job growth hype is ‘sensational’
- Important reminder
Well, Jerome Powell went and pulled the trigger.
No surprises there.
At 2pm New York time, the new Fed Chairman officially raised the US cash rate by 0.25%. That brings the US target rate to 1.5–1.75%.
It also marks the first time since 2000 that the US rate exceeds the RBA’s cash rate, currently at 1.5%. Powell indicated two more rate rises were on the cards this year. That should soothe some nerves, as rumours had been circulating about four possible rises this year.
RBA Governor Philip Lowe, on the other hand, is likely to keep rates in Australia at record lows for most, if not all, of 2018. That could have some serious implications for international money flows into Australia. But that’s a story for another day.
Though widely expected, US and European markets broadly fell on the news. Both the Dow and S&P 500 shed 0.18%. That leaves the Dow down 7.10% since hitting a record high on 26 January.
New Zealand’s NZX 50 Index, on the other hand, closed for a new record high just yesterday.
I haven’t written much about New Zealand’s stock market in Port Phillip Insider. My apologies, as that may well be to your detriment.
While so much focus has been on US markets hitting record after record, the NZX 50 — composed of 50 of the largest financial products on the NZX Main Board — has been quietly booming.
Just have a look at the one-year chart below:
Source: Google Finance
Click to enlarge
After gaining 1.44% yesterday, the NZX 50 is up 22.01% since 22 March last year.
By comparison the Dow is up 19.71% year-on-year. While the ASX 200 has struggled to deliver a gain of 4.43%.
One way to get exposure to the NZX 50 is through the NZ Top 50 Fund. It aims to match the performance of the NZX 50. Of course, past performance is no guarantee of future performance. But if you’re looking for some more diversity beyond Aussie stocks, this is one to consider.
Now to the markets.
Overnight, the Dow Jones Industrial Average closed down 44.96 points, or 0.18%.
The S&P 500 lost 5.01 points, or 0.18%.
In Europe, the Euro Stoxx 50 index finished down 11.04 points, or 0.32%. Meanwhile, the FTSE 100 fell 0.32%, and Germany’s DAX gained 1.82 points, or 0.01%.
In Asian markets, Japan’s Nikkei 225 up 102.22 points, or 0.48%. China’s CSI 300 is down 1.06%%.
In Australia, the S&P/ASX 200 is down 15.17 points, or 0.25%.
On the commodities markets, West Texas Intermediate crude oil is US$65.43 per barrel. Brent crude is US$69.47 per barrel.
Gold is trading for US$1,331.76 (AU$1,713.32) per troy ounce. Silver is US$16.54 (AU$21.28) per troy ounce.
One bitcoin is worth US$8,900.73.
The Aussie dollar is worth 77.73 US cents.
Stars aligning for higher gold prices
Yesterday I mentioned Greg Canavan’s new gold report, ‘The Great Bullion Breakout’. I also touched on his latest recommendation, intended to make the most out of the sharply rising gold price he’s forecasting. And by ‘make the most’, we’re talking about a potential 100% gain by October for early investors.
If you haven’t followed up on that yet, you can do so here.
As Port Phillip Publishing’s head of research, Greg doesn’t make these kinds of forecasts lightly. But he makes a very strong case for why gold is about to embark on the kind of bull run it’s only enjoyed twice before in history.
One of the things that should send gold to new heights is sustained weakness in the US dollar. Remember, a weak US dollar almost always correlates to high gold prices.
And following the Fed’s meeting the US dollar extended its losses, as you can see in the graph below:
Click to enlarge
It might seem counterintuitive that the dollar fell following a 0.25% interest rate rise. But that’s simply because currency markets had already priced in the rise. And many punters had expected Powell to indicate four possible rate rises for the year. When that didn’t happen, the US dollar sold off.
The US economy and dollar face other headwinds as well. Among those is the Fed’s engagement in quantitative tightening (QT). That comes after a decade of quantitative easing (QE).
By selling the bonds it’s been buying, the Fed plans to cut over US$1 trillion from its balance sheet over the next two years. This could tip the US into recession. Not to mention putting an end to the lengthy run up in US stocks.
Which, most likely, would be good for gold.
Another US government shutdown?
In case you missed it, the US government is almost out of money…again.
If a deal isn’t reached by midnight this Friday (US time) some government agencies will be shut…again.
The price tag of that deal?
US$1.3 trillion. And that’s just through to September.
From the RAW newswire:
‘Republican and Democratic leaders in the US Congress have unveiled a $US1.3 ($A1.8) trillion bill to fund the government through September, which includes an additional $US80 billion in national defence spending but fails to fund some of President Donald Trump’s immigration initiatives.
‘If passed by the House of Representatives and Senate by a Friday midnight (local time) deadline, it would avert the shutdown of many federal agencies and programs beginning this weekend, when existing funds expire…
‘The Republican-controlled Congress will need Democratic support to pass a bill that many Republican conservatives are likely to balk at because of its cost.’
A few things to note here.
First, if passed, this bill will see the US budget deficit soar to ever greater heights.
Second, a deal may not be reached by Friday, resulting in a partial US government shutdown. While that will surely only be temporary, it will only add to the building mood of uncertainty.
Third, the US$1.3 trillion will only fund the government through to September. That’s when yet another shutdown will arise. Any confidence investors may get when a deal is reached on the current funding bill will be fleeting.
And as investors become increasingly uncertain about the future, gold, the classic haven asset, is likely to see a big spike in demand.
If Greg’s analysis proves what he expects, that spike in demand should see gold rocket by as much as 50% over the next two years.
But well before then, he expects one specific stock to ride the rising gold price to early gains of 100%. And the longer-term gains could be 10 times that. You can get all the details here.
Turning back to Australia…
Job growth hype is ‘sensational’
Did you read the latest ‘sensational’ news on the Aussie jobs front? The number of people officially employed has now grown for 17 straight months. That’s a record run.
From the AAP:
‘Thursday’s figures showed 17,500 people joined the workforce in February…
‘“We have now seen for the first time ever, 17 months of continuous employment growth. That is sensational news for Australians,” Senator Cash told reporters in Canberra on Thursday.
‘She says such strength doesn’t happen by accident.’
Sounds impressive, right? Well, don’t get too excited.
This kind of strength indeed does not come by accident. And, in fact, the jobless rate nudged up to hit 5.6%. Part of that is due to more people actively seeking work but failing to find it, so they now count as unemployed.
But a big driver is Australia’s rapid population growth. Growth that far outstrips the number of new jobs created.
According to the Australian Bureau of Statistics, Australia’s population increased by 388,100 people from 30 June 2016 through 30 June 2017. That’s an average of 32,341 more people every month.
And the last time I checked 32,341 is a good bit higher than 17,000.
No matter though. So long as the government can claim it’s adding jobs. And that GDP keeps ticking up to continue Australia’s record long recession free run. No matter that on a per capita bases we’re sliding backwards.
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Right now, Ryan and the editorial team are putting the finishing touches on the report. I’m told it should be ready to publish on Monday.
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And finally, here’s this from The Australian Tribune:
‘Greens Backflip to Join Labor in Shorten’s Tax Grab’
‘Bill Shorten’s plan to change the way dividends are taxed for retirees and others who pay no income tax has drawn widespread criticism from the Coalition and seniors groups across Australia.
‘And, until recently, the Greens added their voice against the move. One many see as an unfair tax grab that will hurt vulnerable retirees just as much as skim some extra cash back from wealthy shareholders.
‘But now the Greens…’
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.
Sign up here to get The Australian Tribune delivered free to your inbox five days per week.
You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.