The system is rigged
Tuesday, 24 April 2018
By Bernd Struben
- Keep your eye on this tech race
- The best way to invest
- How can I get ‘The Paradox of Prosperity’ video package?
‘The system is rigged. This will be the first new generation to have less prosperity than their parents.’
So said Dr Marc Faber, aka ‘Dr Doom’, presenting at Port Phillip Publishing’s Paradox of Prosperity conference in Melbourne last week. Or at least that’s the quote I scribbled down in my notebook.
This was the second time I had the opportunity to hear Faber give a keynote presentation. (The last time was four years ago.) And once again I was reminded why he commands such a large audience…and a sizeable speaker’s fee.
Not only does he have a wealth of financial and geopolitical wisdom to share. But he’s not afraid to call a spade a spade. And no, I’m not referring to the controversial comments he made to the media about the benefits of Europeans settling the US rather than Africans.
In a nation where painting your face black for a costume party can see you vilified, I won’t go there.
So what did Faber mean when he said the system is rigged?
It all has to do with the last decade of easy money. The near zero interest rates, central bank asset purchases and money printing intended to lift the global economy out of the post GFC slump also ushered in unprecedented income inequality.
While governments in developed nations across the world bemoan low inflation, the inflation they’re talking about is related to consumer items. (CPI stands for consumer price inflation.)
Asset inflation, on the other hand, has taken off. Just look at the Dow Jones. It’s up more than 255% since March 2009. And that’s after the recent correction.
And I don’t need to tell you what house prices have been doing in Australia’s capital cities. While rents might not have quite kept pace with the blistering spike in values, they’ve certainly ramped up as well.
That’s all good news to those who owned property and stocks — and had spare cash and good credit ratings to invest in more — before the decade of easy money kicked off. But it’s far from good news to those who were renting back then and living pay cheque to pay cheque.
Not to mention the younger generation.
According to Faber’s figures, the 25–34 year-old age group in the US earned an average $50,910 per year in 1989, adjusted to 2013 dollars. By 2013 that figure had fallen 20%, to $40,581.
And it’s not just the US.
Home ownership among low to middle income earners in the UK has plummeted since 1997, falling from roughly 58% down to 25%.
This extraordinary asset inflation and unparalleled income inequality won’t end well.
And that’s the type of message you might expect from a man known as Dr Doom.
Yet Faber’s global outlook was actually surprisingly optimistic.
More after the markets.
Overnight the Dow Jones Industrial Average closed down 14.25 points, or 0.06%.
The S&P 500 nudged up 0.15 points, or 0.01%.
In Europe the Euro Stoxx 50 index finished up 18.86 points, or 0.54%. Meanwhile, the FTSE 100 gained 0.42%, and Germany’s DAX climbed 31.89 points, or 0.25%.
In Asian markets, Japan’s Nikkei 225 is up 168.41 points, or 0.76%. China’s CSI 300 is up 1.93%.
In Australia, the S&P/ASX 200 is up 37.50 points, or 0.64%.
On the commodities markets, West Texas Intermediate crude oil is US$68.94 per barrel. Brent crude is US$74.89 per barrel.
Gold is trading for US$1,329.40 (AU$1,747.36) per troy ounce. Silver is US$16.77 (AU$22.04) per troy ounce.
One bitcoin is worth US$9,219.32.
The Aussie dollar is worth 76.08 US cents.
Keep your eye on this tech race
Despite its own staggering debt load, Marc Faber was surprisingly upbeat about the outlook for China. As well as a number of other emerging Asian nations.
He noted that China has overtaken Japan as Asia’s leading high tech exporter, including goods like medical equipment and aircraft parts. And with their patent applications soaring, now well ahead of even the US, this trend is likely to continue.
Faber also presented a striking slide — one I’m not at liberty to reproduce here — showing China’s massive investment in robotics. Sometime around mid-2012, China’s annual spending on robotics surpassed that of North America. Having previously passed Japan a year earlier.
And the Chinese tech splurge shows no sign of easing up.
From The Wall Street Journal:
‘Chinese President Xi Jinping has outlined an updated vision for China’s future as an Internet and technology power, pledging more state support for sectors caught in the crosshairs of a trade fight with the US.
‘Speaking at a two-day conclave on cyberspace that ended at the weekend, Mr Xi called on officials, enterprises and researchers to redouble already extensive national efforts to achieve breakthroughs in “core technologies” like semiconductors — an area where China still lags behind the US.
‘The development of new information technologies “presents the Chinese people with an opportunity you rarely see in a thousand years,” Mr Xi said.’
All of this paints a promising picture for China heading into the 2020s. It’s the kind of innovative planning the Aussie government would do well to imitate. That is once they settle the more pressing matter of who can have sex with who within their ranks.
The best way to invest
Faber wasn’t the only speaker bullish on China and select other Southeast Asian nations.
On Friday we heard from Dr Jim Walker. Jim is the founder and Chief Economist at Asianomics, and the editor of the newsletter Wealthy Nations.
Jim subscribes to the Austrian school of economics. And he told attendees never to look at consumer led growth when assessing your investments.
Because it’s the last phase of the growth cycle.
Profits are the key factor in generating the business cycle. And, somewhat counterintuitively, when you see business engaged in aggressive cost cutting this is often a bullish signal. One which can start the upswing…whereas overinvestment drives the downturn.
Below you can see one of the slides Jim showed detailing the growth timeline:
Click to enlarge
The next time you hear mainstream financial news trumpeting high consumption levels, remember that, in terms of profit, the ship has already sailed.
While positive about the Indochina region in general, Jim recommended caution in the Philippines.
Malaysia, on the other hand, topped his list in terms of where it is in the business cycle.
‘But I have trouble convincing anyone to invest there,’ he confided in me after his presentation.
Too many people, it seems, are waiting for consumption to kick in.
How can I get ‘The Paradox of Prosperity’ video package?
As mentioned yesterday, discounted pre-sales of the conference video, audio, and transcript package ended at midnight last Friday.
If you did not order your copy yet…hang tight. We’ll let you know when you can purchase the complete package that reveals everything that was said in Port Phillip Publishing’s last ever blockbuster investment conference.
And finally, we’ll leave on this high note from The Australian Tribune:
‘Pot Smokers Could Save Australia’s Budget’
‘It’s no secret the global war on drugs has been an abysmal failure.
‘In Australia, illegal drugs of all varieties remain readily available to those willing to break the law. And the real (inflation adjusted) price of most drugs has remained steady or even fallen over the past decade.
‘The only real winners in this failed war have been criminals who’ve reaped billions in profits, and the law enforcement agencies tasked with stamping them out who’ve reaped billions in salaries.
‘The Greens’ plan…’
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