Buy bitcoin…sell oil

Monday, 13 May 2019
Adelaide, Australia
By Bernd Struben

  • Did you connect these dots?
  • Five billion barrels of crude on the wall, five billion barrels of crude…
  • ‘Trump’s Tariffs to Feed Starving People Around the World’

I was looking at new cars this morning. Specifically at the Ford Mustang.

Not to buy. My Commodore is still ticking over nicely. But I was curious how much you’d have to put down on a new Mustang if you only needed a 5% deposit.

According to Cars Guide, if you went with minimal frills, you’d be able to drive away with a new model for $60,000. That’s for the V8, mind you. You could score the four cylinder turbo model for around $50,000. But why bother?

So, let’s say you really want the new V8 Mustang. But you’re a bit short on cash. More than a bit, really.

Time to be budget-wise and turn to the used car market?

Not at all. This is an election year.

Watching the evening news you discover that as first time new car buyer the government will back your new car loan. Meaning, you now only need to put 5% down.

Happy days.

You head down to the dealer, plunk down $3,000 in cash and drive away in your flash new pony car feeling on top of the world.

Sure, you’ll have to repay that $57,000 taxpayer guaranteed loan you took out for it…plus interest. And sure by the time you drive home your no longer quite new Mustang will have depreciated in value to say…$55,000. Meaning, you already owe more than your car is worth.

But in today’s buy now pay later society, even taking out a loan on a depreciating asset is something to worry about, well, later.

Now, if you’ve been following along with the news you’ll know our government hasn’t promised to act as a guarantor on your car loans. At least not yet.

But in a bid to scoop up some younger voters in next Saturday’s election, they have promised to do so on your first home purchase. And the opposition was quick to make the same offer.

As it stands, most new home buyers today need to come up with a 20% deposit before the bank will lend them the rest. But that looks set to change, regardless of who wins the election.

In a nutshell, the offer is this. If you’re single and make less than $125,000 per year or partnered and make less than $200,000 per year together, the government will guarantee the difference between 5% of your purchase price and the 20% deposit.

That leaves your friends and neighbours on the hook for the other 15% if you default on the loan. Yet it means you can buy a $600,000 home with only $30,000 down.

Happy days.

Presuming, that is, you can service the costs of the mortgage. And that your new house goes up in value.

Even another 10% fall in dwelling values — as we’ve already seen in Sydney and Melbourne — would see a $600,000 home fall to $540,000. That would leave you owing $30,000 more than your new home is worth.

A price fall of 20% or more — highly likely, according to economics forecaster Harry S Dent — would see you underwater by at least $90,000.

Of course, the great Aussie house price slide may be nearing its end…for now. That’s what centuries of market data tell cycles guru Phil Anderson. Phil’s predicting another big run higher for Aussie real estate through 2025. (Find out why here.)

Indeed, supporting the ailing housing market appears to be high on the government’s agenda. As the AFR notes, ‘Prime Minister Scott Morrison said it was “difficult to say” whether it would drive prices up but that it would certainly not drive prices down...’

But Morrison also pointed to a similar scheme New Zealand has had underway for a number of years already. And as you likely know, New Zealand’s house prices have been rocketing to bubble levels. Average dwelling prices across the nation are at or near record levels.

From Newshub:

RealEstate.co.nz spokesperson Vanessa Taylor said 12 years ago, the average asking price in New Zealand was around $410,000.

It has now risen to a staggering $695,116.

Government meddling market distortions aside, would you be happy to buy your first home with only 5% down?

Drop us a line and tell us why…or why not at letters@portphillipinsider.com.au. I’ll publish some of the replies, plus a few we received last week on the housing market, later this week.

Did you connect these dots?

Now let’s have a look at the markets, where Aussie and Asian stocks are again in the red on trade war jitters.

If you read last Wednesday’s Port Phillip Insider, that shouldn’t come as a surprise to you. Here’s an excerpt:

I expect the US to implement Trump’s tariff threat this Friday as promised. This will see duties on some US$200 billion (AU$285 billion) of Chinese imports ramp up from 10% to 25%.

That would likely see markets sell off again into early next week as investors who remained optimistic about a last moment change of mind from Trump adjust their positions.

As you’ll see below, that’s just what’s playing out today.

This is why it’s important to take a step back and try to connect the big picture dots. You won’t always get it right. But when you do, you can position yourself for the next market moves while the rest of the herd is still happily grazing away.

Markets

Over the weekend, the Dow Jones Industrial Average closed up 114.01 points, or 0.44%.

The S&P 500 closed up 10.68 points, or 0.37%.

In Europe the Euro Stoxx 50 index finished up 10.34 points, or 0.31%. Meanwhile, the FTSE 100 fell 0.06%, and Germany’s DAX closed up 85.91 points, or 0.72%.

In Asian markets Japan’s Nikkei 225 is down 129.87 points, or 0.61%. China’s CSI 300 is down 1.32%.

In Australia, the S&P/ASX 200 is down 26.25 points, or 0.42%.

On the commodities markets, West Texas Intermediate crude oil is US$61.40 per barrel. Brent crude is US$70.48 per barrel. (More on oil below…)

Turning to gold, the yellow metal is trading for US$1,284.42 (AU$1,841.46) per troy ounce. Silver is US$14.72 (AU$21.10) per troy ounce.

One bitcoin is worth US$7,035.90.

Yes, you read that correctly. Have a look at the one week price table for bitcoin (in US dollars) below:



chart image
Source: CoinDesk
Click to enlarge

Bitcoin, the world’s largest crypto by market cap enjoyed a stellar run higher over the past week. It’s retraced a bit since reaching a peak of US$7,542 on Sunday. But even with the pullback it’s still up 18.6% since I wrote to you on Thursday.

And it’s not just bitcoin.

Ether, the second largest crypto, also gained an impressive 18.8% since last Monday.

Meanwhile, XRP — the third largest — is up 8.6% over seven days.

But the biggest gains among the top cryptos were enjoyed by bitcoin cash. That’s up 25.6% over the last week.

Is this the beginning of a new bull run for cryptocurrencies?

Our in-house crypto pros, Sam Volkering and Ryan Dinse certainly believe so. Though they’ll be the first to warn you it won’t be a straight or smooth ride higher.

For all their latest crypto investing advice you can click here.

In the world of fiat currencies, the Aussie dollar is worth 69.75 US cents.

Five billion barrels of crude on the wall, five billion barrels of crude…

Getting back to oil…

Brent crude is up a few cents per barrel while WTI is down a few cents since I last wrote to you on Thursday.

But — as regular readers will surely know — I think crude is in for a much sharper fall as we approach July.

And, as Bloomberg reports, more traders are coming to see it my way:

Pessimism is back in vogue in the oil markets, as investors bet sputtering trade talks and swelling U.S. output can kill crude’s rally.

Hedge funds lifted bearish bets on West Texas Intermediate crude by 39%, the biggest short-selling surge in more than eight months. Meanwhile, bets on a rally retreated for the second straight week.’

The sputtering trade talks are fuelling fear that global trade will take a hit. And that demand for oil will fall accordingly. That could happen. Although I’m still confident that China and the US will make nice and reach some sort of mutually acceptable deal this year.

But the real downward pressure on crude prices comes from the supply side. The Saudis and Russians have plenty of oil to make up for lost supply from Iran or Venezuela. And US drillers are on a tear, breaking new production records almost every month.

It’s the surging US supply that’s got the oil bulls really nervous. Just look at the growing spread in net long positions for WTI (black line) and Brent (red line) below:



chart image
Source: NYMEX, ICE Futures Europe, Bloomberg
Click to enlarge

OPEC+ can’t hold back the global flood of pent up supply forever. Possibly not even beyond their next round of negotiations at the end of June.

But even if they do, the political quagmire in Venezuela could end any week now. Even Iran might blink in their desperate showdown with the US and agree to a stricter new nuclear deal with the Donald.

And don’t forget about Guyana.

Guyana?

That’s right. The tiny South American nation is sitting on an offshore gusher. From the AFR:

Exxon has been investing heavily in its US shale operations and in Guyana, on the northern  coast of South America, which has become the focus of intense interest since the company announced the discovery of over 5 billion barrels of oil and gas off its shores.’

Exxon expects to be able to produce 220,000 barrels of oil per day (bpd) from the site.

Granted, that won’t come online until 2022.

But the point is there’s already so much oil on tap if it were freely released to market the price would likely fall to US$25 per barrel…or below.

And there’s more coming.

Finally, here’s the latest on the US–China trade battle from The Australian Tribune:

‘Trump’s Tariffs to Feed Starving People Around the World’

US President Donald Trump maintains that trade wars are good and easy to win.

On the good side, he intends to use some of the billions of dollars in tariffs the US is collecting on Chinese imports to send US food aid to impoverished nations.

On the easy to win side, Trump says…’

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.

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You can visit our website at https://www.theaustraliantribune.com.au/ to read the complete article above now.

Cheers,
Bernd