Who Really Controls Your Investment Returns?
Bernd Struben

  • ‘Wonderfully low inflation’
  • Closer to home
  • ‘Shorten’s Embarrassing Backflip on Electric Cars’

There are a lot of ways to make money in this world.

And a lot of ways to lose it.

One of the most reliable money makers is hard work. Ideally doing something you enjoy.

But whether you like your job or not, I’m sure you like regular paycheques fattening your bank account. Those are the savings most investors then tap into hoping to watch them grow in the stock market or real estate. (And, yes, in cryptocurrencies, Sam.)

Now nobody’s job security is 100% ironclad. But in general the difference between success and failure in the workplace is largely within your control.

The same can’t be said when you invest in stocks or property.

Granted, there is a lot you can do to tip the scales in your favour. Which is likely why you decided to subscribe to one or more of our paid investment services.

But stock markets have become so manipulated by world leaders and their central banks that you can’t always take the credit when your portfolio gains 20% in just a few months. Nor can you always be blamed when that same portfolio loses all those gains and more over the next months.

The stocks you invested in may be high quality — low debts, good management, growing earnings. But that won’t spare the majority of them if interest rates go up.

Just think back to the final months of 2018.

After a long march higher for most the year, stocks hit a wall in October. The US Federal Reserve was on tightening path — raising interest rates and halting their bond purchases. And the Fed had signalled two more likely rate rises for 2019.

In a system that’s become utterly reliant on cheap debt, the selling began in October.

As a result the Dow Jones lost 18.77% from 3 October to 24 December.

This drew the ire of Donald Trump, manipulator in chief. He saw his own job security at risk. And it didn’t take long for Fed Chairman Jerome Powell to bow to Trump’s tweeted demands.

The world’s most watched central bank put further rate rises on hold. And global stock markets boomed.

The Dow has gained 20.03% since its 24 December trough. Here in Australia, the ASX 200 is up 16.59% since then. And it’s no coincidence the ASX hit its low on 24 December…the same day as the US markets.

The big picture question now is what will the rest of 2019 look like? And how will this impact real estate and share prices in 2020?

That’s a question that forecasting gurus Harry Dent and Phil Anderson will be hotly debating later this month.

Both men’s forecasts are based on centuries’ of data and repeating cycles. Yet they foresee starkly different outcomes for Australia’s economy and markets unfolding over the coming year.

Port Phillip Publishing will be airing their live debate on 14 May at 4:00pm AEST. You can tune in at no cost so long as you reserve your place first.

You can do so — and read the full details — here.

We’ll get back to the world’s addiction to cheap money after a look at the markets…

Markets

Overnight, the Dow Jones Industrial Average closed up 38.52 points, or 0.15%.

The S&P 500 closed up 2.80 points, or 0.10%.

In Europe the Euro Stoxx 50 index finished up 12.68 points, or 0.36%. Meanwhile, the FTSE 100 lost 0.30%, and Germany’s DAX closed up 16.06 points, or 0.13%.

In Asian markets Japan’s Nikkei 225 is closed for the Accession to the Throne of New Emperor. China’s CSI 300 is closed for Labour Day.

In Australia, the S&P/ASX 200 is up 48.93 points, or 0.77%.

On the commodities markets, West Texas Intermediate crude oil is US$63.50 per barrel. Brent crude is US$72.80 per barrel.

That’s largely unchanged since this time yesterday. Prices haven’t gone higher despite a brewing civil war in oil rich Venezuela and a US imposed total ban on Iranian oil exports coming into effect tomorrow.

Oil traders may finally be cottoning on to the fact that Saudi Arabia is highly likely to compensate for the lost supply from Iran. The Saudis have made no commitments to do so yet. But there’s no love lost between the Saudi and Iranian regimes…to say the least. And the Saudis will almost certainly want to appease their good buddy Donald Trump, who’s been ratcheting up his rhetoric about cheap energy.

And — at the risk of sounding like a broken record — don’t forget about the ever expanding flood of oil coming out of the US.

As Bloomberg notes:

‘[T]he American Petroleum Institute was said to report a 6.81 million barrel increase in stockpiles last week, well above estimates in a Bloomberg survey…

If the stockpile increase is confirmed by government data on Wednesday, “that’s certainly going to be a negative for the market,” said Andrew Lebow, senior partner at New York consultant Commodity Research Group. “Expectations are nowhere near that type of build.”

Turning to gold, the yellow metal is trading for US$1,282.70 (AU$1,818.92) per troy ounce. Silver is US$14.95 (AU$21.20) per troy ounce.

One bitcoin is worth US$5,281.56.

The Aussie dollar is worth 70.52 US cents.

‘Wonderfully low inflation’

The stock market’s meteoric rise — and the accompanying bump in his own approval ratings — wasn’t lost on Trump.

And if the Dow could gain 20% on the Fed merely keeping rates on hold, how high might it not go if the Fed dropped rates again. Say by a whole percentage point?

You can see the two tweets Trump sent out overnight Aussie time below. Along with the conversation I imagine he may have had after exceeding his character limit in the first tweet:

Tweet from Donald Trump
Source: Twitter

Darn-it! Melania, remind me to get with Jack Dorsey about upping the word count some more. This is ridiculous.

Now. Where was I? Oh, right…

Tweet from Donald Trump
Source: Twitter

It’s not often you hear Trump praising the Chinese government’s economic meddling. But then this meddling has juiced Chinese equities, which is exactly what Trump wants to see more of in the US.

There’s only one problem. China is also demonstrating how once you turn on the easy money taps it’s really hard to turn them off.

This headline comes from Bloomberg, ‘China’s Stock Investors Are Still Hooked on Economic Stimulus’. The article continues:

China’s equity investors aren’t quite ready to see Beijing scale back its efforts to support the economy…

Despite some early signs of success from the government’s tax-cut program, China’s economic stabilization has so far underwhelmed equity investors, who remain hooked on the prospect of further supportive measures.’

With major central banks across the world putting rates on hold or even looking at further cuts, Chinese equity investors will likely get their wish.

And if the Fed again heeds Trump’s siren call and slashes the US cash rate from today’s 2.5% to 1.5%, the Dow could tack on another easy 20% this year. And the ASX would likely follow it to new highs.

Closer to home

Any rate cuts by the Fed would also embolden further cuts from the Reserve Bank of Australia.

Economists are already making noises about two rate cuts from the RBA this year. Not only would this spur investor interest in stocks, it could put the embattled housing sector on the fast road to recovery.

From The Australian Financial Review:

The east coast housing market could hit an early trough if the Reserve Bank cuts interest rates in May, AMP Capital chief economist Shane Oliver said…

‘[A]n early rate cut – regarded as much more likely after publication of unexpectedly weak first-quarter inflation last week – could bring forward the bottom of the cyclical dip in prices, said Dr Oliver, who expects two rate cuts this year…

With prices in some Sydney and Melbourne neighbourhoods already down some 20% since their 2017 peak, bring forward ‘the bottom of the cyclical dip’ would come as welcome news.

But you see the problem here.

Just like the stock markets, Australia’s property markets have become wholly reliant on debt. And not the kind of debt you pay a fair interest on. Or the kind of debt you ever really expect to pay off.

This is a lifetime addiction. And one we probably won’t see the end of until inflation rears its ugly, unexpected head. That will force central banks into action. And it could see rates rise far faster than people’s abilities to meet their monthly mortgage payments.

When that happens, hold on tight.

As for the best clue of when that might happen, don’t forget to register for Phil Anderson’s and Harry Dent’s great debate on 14 May. I all but guarantee you’ll walk away from that debate a better, wiser investor.

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

‘Shorten’s Embarrassing Backflip on Electric Cars’

Well that didn’t take long.

Just weeks after announcing Labor would see 50% of all new cars sold in Australia be electric by 2030, Bill Shorten admitted his overly ambitious target might never be achieved.

The rapid, politically embarrassing retreat highlights the difficulties Labor faces in…

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