What’s a few trillion dollars between friends?

Wednesday, 27 February 2019
Adelaide, Australia
By Bernd Struben

  • The growth illusion
  • Putting the Energizer Bunny to shame…

I’d gladly pay you Tuesday for a hamburger today.

Wimpy, from Popeye

Have you ever imagined a world without debt?

A world where you actually pay for all of your purchases with the cash in your wallet or savings from your bank account?

Not just your hamburgers, which would have come as an unpleasant shock for the gluttonous character Wimpy from the cartoon show Popeye.

But the new Cartier watch for your partner’s birthday too. As well as your car and even your house.

You may find you’re starting to sweat a bit at this point.

After all, living within our means would throw our debt addicted economy into a tailspin.

While consumer staples (food, medicine, basic clothing…) would power through, discretionary items would get the stuffing knocked out of them.

No sector would suffer more than the housing market. Without 30-year mortgages — and initial interest only repayments — how many people could possibly afford $1.2 million for a cramped duplex on a newly subdivided block in Sydney’s leafy suburbs?

Not many. So few, in fact, that the same boxy — or modern if you prefer — duplex would sell for a small fraction of the cost if buyers were forced to save the full amount.

But if doing away with debt would be tough for the masses, it’s downright unthinkable for governments.

More, after a look at the debt addicted markets.

Markets

Overnight, the Dow Jones Industrial Average closed down 33.97 points, or 0.13%.

The S&P 500 lost 2.21 points, or 0.08%

In Europe the Euro Stoxx 50 index finished up 9.31 points, or 0.28%. Meanwhile, the FTSE 100 dropped 0.45%, and Germany’s DAX closed up 35.40 points, or 0.31%.

In Asian markets, Japan’s Nikkei 225 is up 103.83 points, or 0.48%. China’s CSI 300 is up 0.39%.

In Australia, the S&P/ASX 200 is up 15.51 points, or 0.25%.

On the commodities markets, West Texas Intermediate crude oil is US$55.99 per barrel. Brent crude is US$65.21 per barrel.

That’s a rise of 1.0% for WTI and 0.6% for Brent since this time yesterday. Which was enough to prompt this overly bullish headline in Bloomberg, ‘Oil Pops as Industry Report Shows Surprise U.S. Stockpile Draw’.

I’m not sure about you. But a 1.0% price increase hardly counts as ‘popping’ in my book. Especially in light of US crude stockpiles coming in 7.2 million barrels below analyst expectations.

As the articles notes:

 ‘[The] American Petroleum Institute was said to report U.S. crude stockpiles decreased 4.2 million barrels last week. A draw would be the first since early January if Energy Information Administration data confirms it on Wednesday. Analysts surveyed by Bloomberg were expecting a 3 million barrel increase.’

Why the muted price rise?

I imagine the market knows that any drawdowns in stockpiles won’t last. US oil production remains at record levels, with forecasts pointing to output only increasing through 2019.

And at some point I expect the Russians will begin to cheat on their promised production cuts in earnest. With the nation hungry for cash, the temptation to open the taps is going to grow.

Then there’s Donald Trump.

As you likely know, Trump is no fan of high energy costs. And the Saudi royal family remains reliant on Trump’s goodwill for their own peace of mind. Not to mention the personal debt they owe him for helping paper over the murder of journalist Jamal Khashoggi inside Saudi Arabia’s embassy in Turkey.

So tweets like these, sent on Monday, won’t go unnoticed by OPEC’s biggest producer:



chart image

Source: Twitter
Click to enlarge

If oil does manage to ‘pop’ over the next few months, that could be an excellent time to consider a short position in crude.

Turning to gold, the yellow metal is trading for US$1,329.21 (AU$1,847.67) per troy ounce. Silver is US$15.93 (AU$22.14) per troy ounce.

One bitcoin is worth US$3,797.92.

The Aussie dollar is worth 71.94 US cents.

The growth illusion

Getting back to the lost art of saving…an ever growing debt pile is the only thing keeping the global growth illusion going.

China, for example, has been struggling to meet its reduced growth targets. So you might think this headline from Bloomberg offers some reason for optimism, ‘Earliest Gauges Show China’s Economy Seeing First Signs of Pickup’.

The article notes that:

China’s economy is showing the first signs of recovery after months of slowdown, as stock and commodity rallies lift confidence.

That’s the message from a Bloomberg Economics gauge aggregating the earliest available indicators on market sentiment and business conditions. Key stocks and commodities led gains, and smaller firms became more confident.

Stocks and commodities are up. Businesses are more confident.

Are more people working more productively to create more wealth?

Hardly.

Scrolling down the Bloomberg page, this headline reveals the reason for China’s economic uptick: ‘Debt Is Roaring Back in China’.

From bank loans to trust-product issuance to margin-trading accounts at stock brokerages, leverage in China is rising nearly everywhere you look…

The government’s evolving stance was underscored by President Xi Jinping’s call for stable growth late last week…

It’s a stark turnaround after a nearly two-year anti-leverage drive that sank Chinese stocks, restrained economic growth, triggered record bond defaults, and pummeled the nation’s gargantuan shadow-banking industry.’

China’s debt pile, by the way, already amounts to a staggering US$34 trillion (AU$47.3 trillion).

What’s another trillion or two going to hurt?

The US government is hoping not much. As you can see in the chart below, the US national debt has exceeded US$22 trillion. And it’s expected to grow by another US$1 trillion every year.



chart image

Source: US Treasury / Bloomberg
Click to enlarge

That may not keep Donald Trump up at night. Aside from being the ‘master of the deal’ in his past business life, he’s also been the ‘master of bankruptcy’. Six of them, to be precise.

But Fed Chair Jerome Powell sounded a welcome note of caution yesterday:

The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong… US debt is fairly high to the level of GDP and much more importantly it’s growing faster than GDP, really significantly faster. We are going to have to spend less or raise more revenue.’

Spend less or earn more?

Most politicians will surely tune this out. But it’s music to the ears of wealth preservation expert, Vern Gowdie.

Vern has spent a lot of time analysing the next financial implosion. He doesn’t paint a pretty picture. But in his latest book he does offer you a few ways to escape the pain…and potentially even profit…when the global debt bombs begin to go off.

Depending on your personal financial situation, you may not be ready to implement all of Vern’s ‘financial storm shelter’ advice today. But when the next crash comes — and it will — I’m confident you’ll be glad you have that advice in your investor arsenal.

You can find more details, alongside how to get your digital copy of End of Australia, here.

Putting the Energizer Bunny to shame…

In yesterday’s Port Phillip Insider, I wrote to you about colleague Ryan Dinse’s new research report ‘The Forever Battery Breakthrough’.

(You can access that report here.)

Aside from an in-depth analysis of the booming market for electric vehicles (EVs), Ryan’s also unearthed a small (for now) ASX listed company. One that could upend the entire $278 billion global EV market.

How?

By enabling EVs to travel 1000s of kilometres without stopping to recharge.

The limited range of today’s EV fleet, saddled by heavy battery loads, is one of the biggest issues holding electric vehicles back. If not the biggest issue.

One of the problems is a glaring lack of charging stations.

As reported by Bloomberg, the global EV fleet reached five million last year, but there are only roughly 600,000 public charging places on the entire planet. And half of those are in China.

Hoping to address the lack of government initiative, the auto industry is planning to build its own string of charging stations:

“Charging infrastructure is a bottleneck,” says Andreas Tschiesner, head of the European automotive practice at McKinsey & Co. Carmakers are “ready to get the ball rolling because nothing is happening on its own.”

It makes sense that the free market will be able to deliver what governments have failed to.

But these carmakers may just find that their pending investments in charging stations will come to naught.

Why?

In ‘The Forever Battery Breakthrough’, Ryan Dinse explains how one Aussie company could make charging stations as redundant as your landline. And in the process see its share price rocket.

You can find out how here.

Finally, here’s the latest in politics from The Australian Tribune:

‘EU Belatedly Awakens to China Threat’

Australians have been wearily eyeing their big neighbour to the north for more than a decade. Watching as China’s economic and military might have grown to exert the Communist Party’s influence throughout southeast Asia…and beyond.

While Australia has enjoyed huge economic benefits from China’s rise, the risks posed by…’

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