Why markets won’t crash…yet

Thursday, 7 March 2019
Adelaide, Australia
By Bernd Struben

  • Monopoly busters
  • ‘Turnbull Reveals Huawei Ban Details’

The whiff of recession is in the air.

The global growth engine is sputtering.

And the ASX 200 is sitting at six month highs?

So, should you fear a stock market rout?

Maybe. But I wouldn’t head for the hills yet.

First, let’s take a quick look at some of the latest warning signs.

The Australian Bureau of Statistics (ABS) released its economic growth figures yesterday. And they made the Reserve Bank of Australia’s (RBA) growth forecast look rosy by comparison.

The RBA had been holding out for 3.0% real (inflation adjusted) GDP growth. But the ABS reported annual growth of only 2.3%.

That’s not great. But it gets worse.

The biggest hit to growth came in the last quarter of 2018. From October to December, the Aussie economy only grew by 0.2%. If that were to continue, the annual growth rate would drop to just 0.8%.

On a per capita basis, growth in the last quarter was actually negative, coming in at -0.2%. Australia’s high immigration levels — touted by the mainstream as essential to our prosperity — are masking the fact that the nation’s output per person went backwards in the last months of 2018.

All fingers point to the usual culprits. Flat wages growth on the back of stagnant productivity improvements. Limited new business investment. The impact of the drought. And, of course, falling house prices.

If you had any doubts about just how crucial we’ve let the housing market become Down Under, just look at the budget woes facing Victoria’s state government.

From The Age:

The property market slowdown could punch a $1 billion hole in the Victorian state budget this year, with a leading housing economist revealing a slump in property sales of up to 20 per cent across the state.

The collapse in sales volumes, with tens of thousands fewer properties changing hands this year, could cost the state’s Treasury up to a $1 billion in stamp duty payments it had been expecting to collect, potentially a bigger hit than that caused by the Global Financial Crisis a decade ago.’

This also gives you a good idea of how eager the government is to fleece people of their hard earned, after tax income. Whether that’s GST, sin taxes or stamp duty…the government just keeps on taking.

No worries, though. They’re turning right around and spending your money again.

The latest figures reveal that, while household spending grew by 2.0% on an annual basis, the Aussie government managed to boost spending by 5.6%. Though even that spending boost hasn’t been enough to spur higher growth.

But it’s not just Australia facing an economic slowdown.

Forecast growth rates in the US, Canada, EU and China — to name a few — are also being revised downwards.

That paints a bleak picture on the surface. But dig a little deeper and you’ll see why a market crash is unlikely. Not to say a crash isn’t coming. It is. But it still looks to be well over the horizon.

The reason is our beloved politicians. Specifically, the men and women at the top of the lumbering bureaucracies attempting to govern our lives and manage our markets.

These apex pollies know which side their bread is buttered on. And they know their grip on power is only good until the next election. Elections they’ll lose if their economies aren’t humming along.

That means they’ll do whatever they can to stave off recessions, depressions, and stock market crashes until after they retire. Then they can safely blame the problems on their successors.

And politicians, as you know, are getting ever bolder when it comes to interfering with their market economies.

Indeed, across the world, we’re seeing just that.

China has reopened the debt taps in earnest, with more than a trillion dollars in new government stimulus pumping into the economy.

In the US, the Trump administration is running a trillion dollar annual deficit, with no signs of reining in spending. And the Federal Reserve has fallen nicely into line. The Fed’s intentions to raise rates several times in 2019 have been placed firmly on the back burner.

The Bank of Canada is now leaning more towards rate cuts than any increases. Meanwhile, the European Central Bank looks ready to offer EU banks a fresh round of low interest loans.

And the RBA will almost certainly not raise rates from the record low 1.5%. Indeed, we could well see the cash rate fall to 1.0% by year’s end. As you can see in the chart below, the ever lower interest rate trend is going on 30 years old.



chart image

Source: RBA
Click to enlarge

At some point the politicians and their central bank mates will be out of fire power.

Interest rates can only go so low. (It’s unlikely the RBA can pull off negative rates in Australia.) And debts can only go so high. Once those lines are crossed, you’ll want to have your financial bomb shelter well ordered.

But I don’t believe we’re at that point yet.

In the meantime, remember this…

There’s nothing stock markets like better than cheap money. And there’s nothing politicians like more than booming stock markets.

Now a look at those markets.

Markets

Overnight, the Dow Jones Industrial Average closed down 133.17 points, or 0.52%.

The S&P 500 lost 18.20 points, or 0.65%.

In Europe, the Euro Stoxx 50 index finished down 2.52 points, or 0.08%. Meanwhile, the FTSE 100 climbed 0.17%, and Germany’s DAX closed down 33.11 points, or 0.28%.

In Asian markets, Japan’s Nikkei 225 is down 156.31 points, or 0.72%. China’s CSI 300 is down 0.90%.

In Australia, the S&P/ASX 200 is up 23.49 points, or 0.38%.

On the commodities markets, West Texas Intermediate crude oil is US$56.13 per barrel. Brent crude is US$65.99 per barrel.

Turning to gold, the yellow metal is trading for US$1,287.30 (AU$1,830.63) per troy ounce. Silver is US$15.09 (AU$21.46) per troy ounce.

One bitcoin is worth US$3,846.71.

The Aussie dollar is worth 70.32 US cents.

Monopoly busters

Yesterday we looked at how iconic Swedish carmaker Volvo (owned by decidedly less iconic Chinese conglomerate Zhejiang Geely Holding Group) is planning to have 50% of its sales come in from electric vehicles (EVs) by 2025.

We also looked at the company’s nanny-state-oriented mindset, including limiting future cars’ top speeds and installing cameras to read drivers’ faces for signs of fatigue or other impairment.

We’ll leave off on their big brother mentality today and focus on the booming EV market.

Already valued at $278 billion, the global EV market could double that…or more…within the next five years. Just how big it gets and how fast it gets there depends on whose forecasts you choose to believe.

But EVs still have a few hurdles to clear.

Aside from overcoming ‘range anxiety’, EVs are often viewed as underpowered compared to their petrol cousins. A lot of people still tend to think of electric vehicles as glorified golf carts.

But that’s all changing. And Porsche — which does not limit its cars to 180 kph — is leading the way.

Porsche is set to sell its first all-electric model by the end of this year, the Taycan. And last month the company announced that its popular SUV, the Macan, is also going with battery power.

The AFR quotes Porsche chairman Oliver Blume as saying:

Electromobility and Porsche go together perfectly; not just because they share a high-efficiency approach, but especially because of their sporty character.

And if their electric-powered street cars don’t offer enough ‘sporty character’ for you, Porsche has committed to entering the full-electric Formula E for the 2019–20 season.

The fifth season just kicked off in December. And the cars keep getting faster and going further.

From the AFR:

Their latest generation electric racing cars will accelerate to 100km/h in 2.8 seconds and to a top speed of 280km/h. Most importantly, the drivers no longer need to swap cars mid-race as a result of their batteries not having sufficient capacity. It’s now one car per driver.

Longer range. More power. There’s still a lot of development to go. But all this spells further rapid growth for the booming EV market.

That in turn spells good news for the companies involved in providing the crucial elements needed to make the batteries that power them.

In Sam Volkering’s new report, ‘Atomic X-66’, he highlights how China controls 90% of one such key element.

But one small Aussie company could be about to change all that. And if they succeed, as Sam expects, it could see shareholders pocketing not just 10, but potentially 20 times their investment. Or more.

Sound too good to be true?

You can get the full story here.

Now before logging off, here’s the latest in politics from The Australian Tribune:

‘Turnbull Reveals Huawei Ban Details’

When the US government says “jump”, the Australian government’s response is often, “How high?”

But in a speech to the Henry Jackson Society in London, former prime minister Malcolm Turnbull says that was not the case with Australia’s decision to ban Chinese companies Huawei and ZTE from developing the 5G network.

Instead, Australia relied…’

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