Inflation or deflation…get ready for a shakeup

Monday, 23 April 2018
Melbourne, Australia
By Bernd Struben

  • New Silk Road largely imaginary
  • Inflation or deflation?
  • Can you still buy the video?

If you want freedom you have to have personal responsibility. If you want the government to give you everything, they will also take everything.

Dr Marc Faber speaking at ‘The Paradox of Prosperity’

Wow.

Port Phillip Publishing’s last major conference wrapped up on Friday afternoon. And my brain is still sorting through the wealth of new insight provided by our Australian and international speakers.

Not all of the presenters at ‘The Paradox of Prosperity’ shared the same outlook. A scenario our regular readers certainly have come to expect.

The world is a fluid place, after all. And investors look at market opportunities in myriad ways. This will be influenced by their wealth, age, risk appetite, and a range of personal factors.

That’s one of the reasons why we only provide you with general financial advice and urge you to do your own follow-up research. We make no claims to know anything about your personal situation.

And we’ll never shy away from providing conflicting viewpoints, so long as those views are thoroughly researched and plausible. At the end of the day, it’s up to you to decide whose views makes the most sense. And then allocate your investments accordingly.

More after the markets.

Markets

Over the weekend the Dow Jones Industrial Average closed down 201.95 points, or 0.82%.

The S&P 500 fell 22.99 points, or 0.85%.

In Europe the Euro Stoxx 50 index finished up 7.60 points, or 0.22%. Meanwhile, the FTSE 100 gained 0.54%, and Germany’s DAX fell 26.92 points, or 0.21%.

In Asian markets, Japan’s Nikkei 225 is down 73.24 points, or 0.33%. China’s CSI 300 is down 0.18%.

In Australia, the S&P/ASX 200 is up 17.62 points, or 0.30%.

On the commodities markets, West Texas Intermediate crude oil is US$68.15 per barrel. Brent crude is US$73.84 per barrel. Both WTI and Brent are trading near their highest levels in three years. Can that continue?

Regular readers will know I’ve forecast oil will fall — and stay — below US$60 a barrel in the near term. In fact, I’m surprised it has not already. The main driver is North American shale oil.

At today’s prices, most shale producers are well into the black. And we should expect to see more production coming online. That limits OPEC’s ability to cut supply and drive the price above US$80, where the Saudis would like to see it.

Donald Trump, for one, has been a long time proponent of cheap oil. And why not? I’ve never understood how more expensive energy is good for anyone…save the producers and their shareholders. And, of course, governments eager to stoke inflation.

Here’s what Trump tweeted back in 2012:



chart image

Source: Twitter
Click to enlarge


And here’s his tweet from this Friday:



chart image

Source: Twitter
Click to enlarge


Despite what his own ego might be telling him, Trump cannot dictate the global oil price with a few tweets.

However, he does have a large number of levers he can pull to increase supply. First, he controls the US Strategic Petroleum Reserve. A reserve that holds more crude oil — ostensibly for emergencies — than any other nation in the world.

Trump also has the ability to push through more drilling permits in the US. And to offer incentives for increased exploration and production.

Lower prices will be celebrated by his core supporters, regardless of where the oil comes from. Cheaper energy will also spur on US manufacturing, a sector Trump is working hard to revive.

Adding it all up, I still expect a steep retracement in the oil price. Especially if Trump can work with Vladimir Putin to turn down the heat in Syria. An event I also believe you’ll see unfold later in 2018. (More on that another day…)

Turning to gold, the yellow metal is trading for US$1,333.87 (AU$1,738.39) per troy ounce. Silver is US$17.07 (AU$22.25) per troy ounce.

One bitcoin is worth US$8,888.69.

The Aussie dollar is worth 76.73 US cents.

New Silk Road largely imaginary

Before diving into a few choice parts of the ‘Paradox of Prosperity’ conference, I’d like to say it was great meeting some of our Alliance members. Apologies if I was a bit rushed and didn’t have more time to chat to you.

It was also good to see a number of attendees had brought their high school and university aged kids. I know Vern Gowdie — the editor of Gowdie Family Wealth — would give you a thumbs up for that.

Now let me share a few snippets from the speakers.

China, not surprisingly, was a hot topic. And not everyone agreed on its mid-term outlook.

Tim Murray, for example, is quite bearish on China. Tim is the cofounder of J Capital Research. And he’s lived and worked in Asia for almost 20 years. He pointed out that it now takes $7 of credit to generate every dollar of economic growth in China.

Tim also surprised the audience by saying the majority of China’s One Belt One Road initiative is largely a ‘figment of the imagination’.

It’s much more about political control of the neighbouring countries than any global scale construction projects. As a local resources and iron ore expert, he says most of the work isn’t really happening. And China’s steel exports to neighbouring countries are actually down.

Wait a minute. The Chinese government fudging official figures? Perish the thought!

Inflation or deflation?

Even if you only just signed up to one of our newsletters, I’m sure you’re aware of the massive amount of central bank manipulation in the stock markets over the past decade.

Years of near zero interest rates, money printing, and asset purchases have managed to keep the global economy chugging along…at a cost. And Japan has been among the most active players in this game.

Gerard Minack gave an eye opening presentation. Gerard is the founder of Minack Advisors. Before that he was the Head of Global markets with Morgan Stanley.

Below you can see one the slides he showed during the conference:



chart image

Source: Bloomberg, BoJ, ESRI
Click to enlarge


I was aware the Bank of Japan was an active player in the Japanese stock market. But this graphic really drives the extent of their manipulation home. If you deduct the BoJ’s exchange traded fund (ETF) purchases, you can see there’s hardly been any growth in this sector at all since 2011.

With this, and many other factors in mind, Gerard expects a period of secular stagnation ahead across the developed world. One which will see persistently low inflation, or even modest deflation.

Not so Jonathan Pain, author of The Weekly Pain Report.

As small business confidence surges, he expects worker shortages and wage pressure to intensify. And he warns that you should brace yourself for a coming inflation shock. Not hyper-inflation, mind you. But inflation of 4% in the US next year. Which will put upward pressure on interest rates across the globe.

So who’s right? Well you could ask the ‘experts’ at the US Federal Reserve. But they’ve been left scratching their heads. As Bloomberg reported back in February:

Former Federal Reserve Chair Janet Yellen has called low inflation a bit of a “mystery.” So it was appropriate that at her final Fed meeting, she and her colleagues received a special briefing on what had gone wrong with the computer models they use to forecast price pressures.

The conclusion of the briefing: The models aren’t great for forecasting, but alternative options aren’t obvious either.’

Inflation or deflation…get ready for a shakeup.

Time Trader

Stock market veteran and cycles guru Phil Anderson also presented at ‘The Paradox of Prosperity’.

Phil expects markets to take a breather in the short-term, part of what he calls the mid-cycle slowdown. But he remains remarkably bullish in the run-up to 2026…when he expects a fairly epic crash.

He shared a few of his trading strategies in his presentation. These include buying high and selling higher. And, of course, knowing where you are in the property and stock market cycles at all times.

And in the one-on-one interview, he told me Perth property prices could be set for a strong rebound in 2019.

Regular readers will know Phil called Hobart as the likely best performer two years ago. Hobart home prices are up 13.4% over the past 12 months while Sydney’s are down 3.8%. So if you’re looking to invest in real estate, Perth is one to keep an eye on.

Phil’s premium trading service, Time Trader, brings together his lifetime of investing experience with his unrivalled knowledge of market cycles. Not to mention a support team of top notch analysts.

Time Trader is currently open to new members. But the doors close once more at midnight tonight. If you haven’t already, you can get all the details here to discover if this service is for you.

Can you still buy the video?

Pre-sales of our final blockbuster conference exceeded expectations. The video package will include every presentation, every breakout session, and the eight one-on-one interviews I conducted with the speakers. Plus we’re providing a complete typed transcript.

Congratulations if you jumped in early and secured all of this for a discount. Please be patient while our video and editorial teams put all of this together.

If you did not order your copy yet…hang tight. We’ll let you know how you can still get your hands on everything that was said in what I believe is the best investment conference ever put on in Australia shortly.

Now here’s this from The Australian Tribune:

Minister Slams “Morality Tax”

The spotlight thrown onto Australia’s banks over the past weeks has revealed some dubious practices, to say the least.

Sadly, the banks are far from alone in putting profits before fair play. Businesses large and small, if faced by the same scrutiny of the royal commission, would certainly cough up a surprising amount of dirt in how they get the most revenue from their customers.

So when it comes to the planned corporate tax breaks…’

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.

Cheers,
Bernd