When you’re looking for danger…you’ll find it

Monday, 18 February 2019
Adelaide, Australia
By Bernd Struben

  • Bear market, we hardly knew ye
  • What’s ‘doctor copper’ telling us?

The single engine plane flew a lazy circle 300 metres offshore. It dropped close to the water and banked for another circle.

Then its siren sounded.

What’s that for, Daddy?’ my five-year old daughter asked.

We’d parked on the beach, about four kilometres from Goolwa’s bitumen parking lot. It was a stunning day. And as you can see in the snapshot below, it’s not hard to find a stretch of sand to yourself in South Australia.



chart image



My daughter waved enthusiastically at the pilot. The plane circled a final time before switching off its siren and flying onwards.

My wife cocked an eyebrow, wondering how I’d explain the siren.

Ironically, I’d just gotten through telling my wife that one of the great things about this beach is there are hardly ever any sharks. And there has never been a reported attack in the area.

At least, not yet…

He’s letting us know he saw a big fish,’ I said cryptically, not wanting to scare my daughter out of going boogie boarding.

You mean a shark?’ she asked. A big fan of all stories related to mermaids, she saw right through me.

Erm…yes. But don’t worry. It’s a big ocean. There are always going to be sharks swimming by. If you put enough planes in the air, you’re bound to spot some.’

And that’s the thing, really.

When I lived in the area 10 years ago, there were very few shark spotting aircraft. And so very few sharks were ever spotted.

Today — on weekends during the summer — you’ll see several fixed wing aircraft alongside a few helicopters cruising up and down the shore. Little wonder then that the amount of shark sightings has ramped up.

The patrols are intended to make people feel safer. But it seems they’re doing the opposite.

The sirens — which we heard again the following day — drive people from the water and remind them of the sinister threats that lurk just beneath the surface. Threats they would rather not dwell on during their day at the beach.

And I wasn’t at all convinced a shark of unknown species passing by 300 metres offshore posed any real threat at all.

Nor was the fisherman I spoke to.

Probably a bronzie,’ he dismissed. He was referring to a bronze whaler, a shark that’s not generally dangerous to swimmers.

Whatever it might have been, the ocean beckoned us in louder than the siren warned us off. After all, I reasoned, if we’d come on a Monday rather than a Sunday there wouldn’t have been any spotter plane. And no siren warning of danger — real or imagined — to stir our primal fears.

So we gave the big fish a few more minutes to move on before hitting the waves.

And that, dear reader, brings us to the world of finance.

You see, plenty of investors are sitting on the sidelines today, scared out of the markets by a host of financial shark spotters. But in seeking safety they’ve missed out on some potentially lucrative gains.

US markets appear to have slain the bear and are back in bull market territory. And the ASX is trading at four month highs.

In another positive sign, ‘doctor copper’ has been trending higher since early January.

We’ll get back to what’s driving these rebounds — and the sharks that could sink them — in a moment.

But first…

Markets

Over the weekend, the Dow Jones Industrial Average closed up 443.86 points, or 1.74%.

The S&P 500 gained 29.87 points, or 1.09%.

In Europe the Euro Stoxx 50 index finished up 58.59 points, or 1.84%. Meanwhile, the FTSE 100 rose 0.55%, and Germany’s DAX closed up 210.01 points, or 1.89%.

In Asian markets, Japan’s Nikkei 225 is up 372.53 points, or 1.78%. China’s CSI 300 is down 2.28%.

In Australia, the S&P/ASX 200 is up 26.10 points, or 0.43%.

On the commodities markets, West Texas Intermediate crude oil is US$55.86 per barrel. Brent crude is US$66.47 per barrel.

Turning to gold, the yellow metal is trading for US$1,321.12 (AU$1,850.57) per troy ounce. Silver is US$15.78 (AU$22.10) per troy ounce.

One bitcoin is worth US$3,595.31.

The Aussie dollar is worth 71.39 US cents.

Bear market, we hardly knew ye

As you can see above, US and European stock markets finished the week on a bang. As of writing today, Asian and Aussie markets are following their lead higher.

Last week, I wrote to you the S&P 500 crossed over its 200 day moving average (MA) in Tuesday’s trading. It continued on this trend, closing above its 200 day MA on Friday, the fourth consecutive day.

Even with my limited technical analysis skills, I can tell you that’s a bullish sign.

The Dow Jones and the tech focused NASDAQ are also on a tear. Both indices have recorded gains for eight weeks running. In fact, the NASDAQ is up more than 20% since its late December lows.

Goodbye bear…hello bull.

But with so many financial analysts — including some of Port Phillip Publishing’s top editors — calling the 2018 turndown just the beginning of a momentous crash, you’d be forgiven for having pulled back from the markets.

Or staying out of the financial waters, to stretch my earlier analogy a bit further.

So why the stellar turnaround in 2019?

I’d say there are two primary drivers.

First, the simmering US–China trade war looks like it’s winding down.

Regular readers will know I’ve long said the two sides will reach a mutually acceptable middle ground early in 2019. I won’t rehash all the rationale for that forecast here. But it boils down to the simple fact that both US President Donald Trump and China’s President Xi Jinping have more far compelling reasons to resolve the issue than they have to keep it running.

And both leaders are making positive noises after two days of high level trade negotiations wrapped up on Friday.

From Bloomberg:

President Donald Trump hailed progress made in trade talks with China this week, saying he may extend a tariff truce and take steps to sell a potential deal with opposition lawmakers…

“It’s going extremely well,” Trump said…at the White House on Friday.

President Xi Jinping also sounded upbeat, saying the week-long round of meetings “achieved important progress in another step,” according to China’s Xinhua News Agency.’

There are no guarantees here. But I still expect the US and China to make nice on trade sooner than later. So far, at least, the market appears to agree.

But perhaps even more important than a possible end to the trade dispute is a likely dovish turnaround by the world’s biggest central banks.

Over in the US, Fed Chair Jerome Powell did an athletic backflip on the pace of interest rate increases back in January. In fact, it’s looking as if there may be no further rate rises in 2019 at all.

With their economies struggling to produce growth, the European Central Bank and Bank of Japan are also likely to return to quantitative easing rather than quantitative tightening. (Or ‘quantitative frightening’, as a mate of mine put it last week.)

As for the Reserve Bank of Australia (RBA), governor Philip Lowe appears to be leaning more towards cutting rates this year rather than raising them from their historic 1.5% low.

And stock markets, as you know, love cheap money. When investors can’t earn a decent return in cash or bonds, they go hunting for alternatives.

What’s ‘doctor copper’ telling us?

You’ve probably heard the term ‘doctor copper’ before.

It refers to the fact that copper prices can give you some insight into the outlook for the global economy. That’s because copper is used in all sorts of manufacturing, from electronic gadgets to residential and commercial construction projects.

When the copper price is heading higher, it tends to indicate an increase in demand, which usually spells good news for the growth outlook.

And as you can see in the price chart below, the copper price has been trending higher in 2019.



chart image

Source: Bloomberg
Click to enlarge


There are good reasons to be optimistic from this graph.

But if you’ll allow me to step into the role of your financial shark spotter, the following lines from Reuters newswire should sound a warning siren.

Copper prices rose on Friday after better than expected lending data in China, the world’s biggest consumer, bolstered the demand outlook…

Friday’s gains followed news that China’s banks made the most new loans on record in January after government efforts to jump-start investment and prevent a sharp slowdown.’

So doctor copper is flourishing thanks to even more Chinese debt, driven by a record amount of new loans issued by banks last month.

That’s hardly a sustainable growth model.

But it’s no reason to stay out of the markets either.

Some day China’s debt bubble will implode. As will the ever-growing mountainous debts in the EU, US, Japan, Australia…you get the idea.

But that’s unlikely to happen this month…or next.

While you shouldn’t ignore the warning siren, don’t lose sight of the fact that the NASDAQ has gained over 20% in less than two months. And here at home the ASX 200 is trading at four month highs.

These aren’t the sorts of opportunities you want to let fear keep you from exploiting.

And while we’re on the subject of opportunities, you’ll want to check out Greg Canavan’s top recommendations to play the coming energy revolution.

Finally, you can get all the latest political theatrics here, from The Australian Tribune:

‘Trump Uncaps Veto Pen to Defend Border Wall’

US Democrats are fuming over President Donald Trump’s willingness to do whatever it takes to deliver on his election promises.

Chief among those promises was building a wall along the Mexican border. The president and his supporters maintain it is necessary to ensure national security. And Trump has now…’

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