What’s your plan in a falling market?

Wednesday, 4 July 2018
Melbourne, Australia
By Bernd Struben

  • Gaining insight…after 500 million years
  • Exploiting ‘the gold window’

Same story…different month.

Yesterday, the Reserve Bank of Australia (RBA) governor Philip Lowe announced that official interest rates would remain unchanged. That makes 23 months in a row of record low 1.5% rates.

The reasons will sound familiar.

Wage growth in Australia remains essentially non-existent. By some estimates the average Australian isn’t earning any more in real terms today than they were back in 2009.

Then there’s the old debt issue. Household debts persist at near record highs. When you add in mortgage debt, Aussies are the second most indebted people in the world.

That’s not good news at the best of times. But when house prices are rising you can at least view those mortgages as solid investments. Rising house prices lead to something you may have heard called ‘the wealth effect’.

When people feel wealthier, because their house or stock portfolio is gaining value, they tend to spend (and borrow) more. As about 60% of Australia’s GDP relies on consumer spending, the wealth effect shouldn’t be ignored.

Alarmingly, Australia’s highly leveraged housing market is teetering. And we’re talking about a market valued at roughly $6.9 trillion. As mentioned yesterday, Sydney’s average dwelling prices are down 4.5% over the past year, according to CoreLogic. Overall, average capital city home prices across the country are down 1.6%.

Part of that can be traced to tighter lending restrictions on investors and interest only type loans. But part of it also stems from higher borrowing costs for the banks themselves.

The RBA doesn’t make policies in a bubble. As the Fed continues to raise interest rates in the US, it’s driving up offshore borrowing costs.

Contrary to what many people believe, Australia’s commercial banks don’t borrow their money directly from the RBA…or only do in times of emergency when they really need it. Banks — like CBA, NAB and the others — fund around 60% of their loans from deposits, and they borrow the rest offshore.

So Aussie banks are not immune to rising rates in the world’s largest economy.

Add in the stagnant wages and it’s little wonder that we’re seeing sluggish consumer spending growth. Lowe highlighted this potential economic flashpoint at the RBA meeting, saying:

One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high.’

ASIC has also been cautioning about excessive debt levels. Particularly Australian’s $45 billion in credit card debt, where interest rates are commonly more than 12 times the RBA’s 1.5% official cash rate.

According to ASIC, some 20% of credit card holders are having difficulty making their repayments. As The Australian Financial Review reports:

ASIC said 550,000 Australians are in arrears on their cards, with an additional 930,000 with persistent debt, and additional 435,000 people repeatedly repaying small amounts.’

ASIC is urging tighter lending requirements, as it should. But let’s not forget that Australia’s economy — like almost every nation in the world — is built on debt.

If the $6.9 trillion Aussie housing market keeps slipping under the pressure of increasing rates, flat wages, and record debt levels it will almost certainly take the ASX down with it.

The ASX 200 has had a decent run of late. The index is up 7.97% since hitting a low on 3 April. Though its performance for the calendar year is more muted. The index is only up 2.46% since 2 January.

Either way, that’s still positive. But even taking the potential of a full-blown trade war out of the picture, the year ahead looks shaky…at best.

At time of writing the ASX 200 is down 0.53% in intraday trading.

Which leads me to ask, do you have a plan to save your capital if the market crashes? Do you know the leading warning signals to watch for…or how to hedge your portfolio against a sudden market correction?

More importantly, are you prepared to actually make money from falling stocks if the market well and truly crashes?

With today’s fragile economic outlook, these aren’t rhetorical questions.

You can learn more about how you can potentially make outsized gains even as the wider market tanks here.

But don’t wait too long. According to market veteran Kris Sayce, the bull run in equities is about to come to an ugly ending. He explains what you can do to potentially capitalise on the coming crash here.

Now to the markets.

Markets

Overnight the Dow Jones Industrial Average closed down 132.36 points, or 0.54%.

The S&P 500 lost 13.49 points, or 0.49%.

In Europe the Euro Stoxx 50 index finished up 34.13 points, or 1.01%. Meanwhile, the FTSE 100 rose 0.60%, and Germany’s DAX gained 110.97 points, or 0.91%.

In Asian markets, Japan’s Nikkei 225 is down 47.28 points, or 0.20%. China’s CSI 300 is down 0.64%.

In Australia, the S&P/ASX 200 is down 32.60 points, or 0.53%.

On the commodities markets, West Texas Intermediate crude oil is US$74.71 per barrel. Brent crude is US$78.06 per barrel.

Turning to gold, the yellow metal is trading for US$1,260.06 (AU$1,698.65) per troy ounce. Silver is US$16.12 (AU$21.73) per troy ounce.

One bitcoin is worth US$6,455.46.

The Aussie dollar is worth 74.18 US cents.

Gaining insight…after 500 million years

On Monday you heard from my colleague Ryan Dinse.

Ryan wears a lot of hats in Port Phillip Publishing, in that he spearheads four separate investment advisory services.

This Monday he was wearing his small-cap hat, writing to you about his latest research over at Exponential Stock Investor. Specifically, about the four ASX listed stocks he believes could ride a new revolution in biotechnology to 10-bagger plus gains.

I wrote to you about that last week as well. You may recall it revolves around an ambitious new genetics project called Project Shivom.

As a quick recap, Project Shivom plans to use blockchain technology to enable scientists across the globe to collaborate. It’s intending to become the largest genomic data-hub on the planet to provide biotech researchers with a vast new trove of data. Importantly, when it comes to medical data, blockchain technology will ensure it’s all kept secure.

To be honest, I hadn’t been paying much attention to the world of genetic medicine in recent months. But as so often happens, once something like this comes to your attention it starts to crop up everywhere.

This week alone two stories caught my eye.

First this, from Monday’s The Sydney Morning Herald:

A quest to find a treatment for the Hendra virus infection following the tragic death of Queensland vet Ben Cunneen has led a team of Australian scientists to a remarkable discovery that could see new treatments developed for influenza, arthritis and even cancer.

The team, from Australia’s national science agency CSIRO, have identified a new gene that plays a critical role in regulating the body’s immune response to infection and disease.

The breakthrough – which builds on decades of work in infectious diseases by CSIRO – has identified a previously poorly described gene…

When the team switched off the new gene, with the name of Chromosome Six Open Reading Frame Number 106 (C6 for short), they noticed there was an impact on the Hendra virus replication…

Lead author Dr Rebecca Ambrose said 15 years after the human genome was first fully sequenced, there were still thousands of genes that very little was known about.

“It’s exciting to consider that C6 has existed for more than 500 million years … but only now are we gaining insights into its importance.”

Then there was this article, in Tuesday’s The Sydney Morning Herald:

After five years work, scientists have cracked the genetic code of the koala in a breakthrough that is expected to help the long-term survival of one of the country’s most beloved animals and could offer medical spin-offs for humans…

What started as a small collaboration among Australians expanded to include researchers from 29 institutions in seven countries for a complex project likened to cutting up an encyclopaedia, throwing the pieces on the floor and reassembling them in order.

From curing chlamydia in koalas to uncovering new treatments for — and potentially curing — influenza, arthritis and cancer in humans. Gene therapy and tailored medicines are an incredibly exciting new field. One that could not only see an end to most diseases but could extend our lifespans by decades…or more.

Yet as Dr Rebecca Ambrose points out, 15 years after the human genome was fully sequenced, there are still thousands of genes we know very little about.

And as the genetic breakthrough in koala DNA demonstrated, this is not the kind of project a single scientist, or even a single institution can take on. Their initial small Aussie collaboration ‘expanded to include researchers from 29 institutions in seven countries’ before they finally succeeded.

At the moment they’re all still collaborating the old-fashioned way. Without the revolutionary new blockchain based data sharing potential offered by Project Shivom.

You can see why Ryan Dinse is so excited about the project’s potential, writing:

In my opinion, it will revolutionise the entire biotech sector. And if it lives up to even half of its promise, it could send the speed of biotech research into overdrive. And certain stocks into the stratosphere.’

Ryan’s pored through the ASX to identify four small-cap stocks he believes will benefit massively from the rapid pace of advancement in genetic medicine.

He explains it all here.

Turning to gold…

Exploiting ‘the gold window’

Gold ticked up 1.54% since I penned yesterday’s Port Phillip Insider. That’s a nice little overnight gain. Though at US$1,260.06 per ounce it’s still far short of where gold experts Jim Rickards and Shae Russell see the yellow metal heading.

An increasing gold price is one of the reasons they recommend you hold around 10% of your investable assets in gold. Bullion is also a good hedge against any weakness in the Aussie dollar, as gold is priced in US dollars.

But Jim Rickards and Shae Russell have a far more exciting — and risky — way to invest some of your money. It involves exploiting a very rare, and historically very lucrative, gold window.

And if history repeats as they expect, their method could see you pocket gains of 2,200% over the next two years.

Intrigued?

They explain everything in detail in Agora Financial Australia’s ‘Project Prophecy’.

This four-part investment series commences this Sunday, 8 July on a restricted VIP website. But they’ve agreed to allow paid subscribers of Port Phillip Publishing to sit in for free.

You just have to register your interest so they can hold a spot for you. You can do that…and learn more…here.

Finally, here’s the latest on politically correct investing from The Australian Tribune:

‘Global Elites Add Aussie Companies to Climate Change Hit List’

One of the first rules for any investor is to know what you’re investing in. If you don’t understand how a business makes money, and will ideally grow its revenue, don’t put your money into it.

Arguably, if you don’t like what a business does, you could also reconsider investing in that stock. That could see you turning your back on potentially lucrative companies involved in the defence industry, or those…’

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