Mailbag Wednesday!

Wednesday, 23 September 2020
Melbourne, Australia
By James Woodburn

OK, while Greg’s away it gives me the perfect opportunity to dip into the Insider’s virtual mailbag.

On Monday I said I’d publish some of the replies I had to last Friday’s edition where I answered some of our worst criticisms head on.

We had plenty of replies. Some great. Others scathing. Well, maybe not that bad. Not that bad at all, really.

The first is from Roelant, who counteracted me pointing out that Trump signed four peace deals, yet you wouldn’t know it… 

A deal he got but Peace in the Middle East? No way! Leaving the Palestinians out of the negotiations – the reason the King sat on the table – is no solution. Additionally, he is loading them with stockpiles of weaponry. All good for Trumps’ election chances.’

Fair enough. May be true. May not be. I certainly have no way of telling if it’s all for the election. But I wasn’t actually saying Trump had secured peace in the Middle East (that’s a whole other issue).

My point was that what you hear in most mainstream media outlets and news channels is so outwardly anti-Trump it’s not even funny. Even when he does something good, it gets twisted into something bad. And I’m leaving out clearly biased programs like CNN and FOX.

This issue is kind of related to what we discussed in Monday’s editorial meeting, by the way. People’s perceptions of news. How most people only tend to read that which confirms their already ingrained biases. And how this makes it very hard to distinguish what is true and what isn’t.

Vern Gowdie pointed out a documentary currently trending on Netflix about this very issue. Not in relation to news channels, but to social media.

The doc features a number of the early pioneers of the tech behind the Silicon Valley giants…Google, Facebook, Twitter and the like.

I watched it last night while sipping a glass of Chivas Regal. And I’ll admit, it’s alluring. It shows how computer algos guide content to users of social media to reinforce political bias…slowly but surely exposing them to more radical memes and articles.

It’s compelling and makes total sense.


It suggests this ‘radicalisation’ only takes place on the right side of politics, which is clearly BS. As one review I read states:

It [The Social Dilemma] cites the anti-vaccine movement, flat-earthers, and the bizarre 2016 Comet Ping Pong incident in which internet rumors prompted a man to stage an assault on a pizza parlor said to be a front for child trafficking. From deep within the funhouse mirror walls of the leftist social media bubble, conservative politics appear as an illegitimate collage of cartoonish kooks. They are, of course, blind to their own radicalization.’

And then I remembered this is a Netflix documentary. Last time I checked, Netflix was right at the top of the table with the other global tech monopolies.

Why would they sanction a show challenging the very power they wield? One that concludes with a call for governments to step in and intervene…and heavily regulate the entire industry?

Hmmm. Could it possibly be to cement their market share? I’ll leave you to come to your own conclusion on that one.

But this is why I love working with guys like Jim, Greg, Vern, Shae, Ryan and the others. They make you think. And detect BS when you smell it.

It’s what reader Rob says of Jim Rickards’ analysis…

I enjoy Jim’s writings. He is the best individual in the business.’

Cheers Rob, I’ll let him know you think so.

It also comes back to why we talk about the policies of government in relation to the markets when it’s warranted.

Reader Kevin clearly appreciates this. He writes…

Don’t change anything! Politics effect the world and global finance, and if lefties can’t see that, let them go to CNN or the ABC. Remember, common sense, middle of the road logic is only Far Right politics if you’re a Commie or a Green so take that criticism with a pinch of salt. I didn’t much like Trump in the beginning – actually still don’t much like him – but, thanks to you guys, I now understand him and can see he’s the best damn POTUS [President of the United States] they’ve had since Reagan. Last but not least – DON’T change anything!!!

Steve agrees, at least with Kevin’s point that politics affects global finance…

Good response…history is replete with stories of wealth of individuals plundered or created by political machinations, hence the need for political savvy in investing. It’s never been more relevant.’

And then Don writes, addressing Jim…

Jim, if governments did not step in when their economies go real bad and help people out with money handouts would this be the end of capitalism?

Apparently, President Hoover did not believe in money handouts just soup kitchens, etc. Yet President Roosevelt believed in the exact opposite to President Hoover. It was said at the time that capitalism nearly died and President Roosevelt’s ideas saved capitalism.

All Governments these days stimulate their economies in bad times, then get out of the way when good times return and leave it to the markets. Am I right?

Don, that is a fascinating question and I want to get you a good answer. If Jim is unable to get back to you, someone in our team will. Someone more qualified than me.

But it does make me think…what was that famous quote from Milton Friedman?

There’s nothing more permanent than a temporary government program.

There are problems with capitalism, no doubt. Crony capitalism is one of them, where huge monopolies get into bed with the government.

We saw this with the banks after 2008. These big institutions took huge risks. And when those risks blew up, they essentially got to keep the gains while the losses were socialised in the form of bailouts.

In order to kick-start the economy again, government and central banks stimulated. That stimulus never really stopped. Formal money printing, or quantitative easing, may have. But interest rates carried on being cut.

And then COVID hit.

Now governments all over the world are not just intervening economically…but socially. On the freedoms of people to do business and to trade effectively. That affects the economy and in turn the stock market. No more so than right here in Australia, and especially Victoria.

Take the new laws Dan Andrews is trying to get through parliament as I write. If it gets through, it will give newfound powers to people who aren’t police to arrest people who aren’t actually breaking a law, but who are deemed ‘likely’ to.

Check out this article by Robert Gottliebsen, probably the most well known business writer in Australia. This is why he is writing about politics. Not usually his beat either.

And yes, I realise The Australian has a slight lean to the right, too. But this article makes complete sense notwithstanding.

I recommend you read it. And if you find it’s behind a paywall, here’s a good excerpt:

Most Australians, and certainly all Victorians, are relieved that the severe lockdown has slashed the COVID-19 infection rate in the state. But what few realise is that, despite the lower infection rate, Daniel Andrews and his government late last week put before the Victorian Parliament one of the most horrific attacks on democratic freedoms introduced by a Western government.

Like all government actions that give “authorised” non-police people almost unlimited power, the proposed legislation may be administered well, but the potential dangers to the citizens of Victoria are without precedent.

It should be underlined that whereas the first wave of COVID-19 infections were nationwide and part of a global infection spread, the major Australian second wave was confined to Victoria and was caused by Victorian government ministers and public servants bungling hotel quarantine.

To remedy the situation what was required was a set of actions that clearly set out the responsibilities of the myriad of public servants that became embroiled in the scandal.

Instead what is proposed is a new attack on the victims of that ministerial and public service catastrophe.

But I want to make it clear that in my view, given the past dangerous infection situation, with a daily infection rate above 700, Victoria was in a desperate situation. So the government was right and extreme lockdown measures were required to curtail infection, albeit at a huge cost. And thankfully so far the lockdown appears to have worked.

While there is intense debate, most Victorians accepted that they faced a crisis that required extreme action. The emergency powers were extended for at least six months. Victorians would defer any punishment for those who caused the crisis and deaths.

But the government has different ideas and proposes incredible legislation via a bill called “COVID-19 Omnibus (Emergency Measures) and Other Acts Amendment Bill 2020”.

In most democracies the power to arrest is confined to police and those with specialist police training. The Daniel Andrews government plans to give powers that go beyond the powers of many police to a class of person to be known as “designated authorised officers”. There will no limit to their numbers.

The first power of these “designated authorised officers” is be able to detain (that can mean jail) a “high risk person”. A high-risk person is one that has been notified and diagnosed with COVID-19 and has not been given clearance from self-isolation. A “high risk person” can also be a “close contact” of a person who has been diagnosed with COVID-19.

But then the proposed legislation goes one dramatic step further and gives “designated authorised officers” power to detain a person who is “likely” to refuse or fail to refuse a direction. So, these “designated authorised officers” are to have the power to detain people who have not done anything wrong, but are “likely” to do something wrong. As the bill is written they can arrest anyone on that pretext. We saw these sort powers in pre-war Germany.

Who is eligible to be a “designated authorised officer?” First they must be selected by a public servant who carries the title of secretary of the relevant department. That public servant can choose anyone they consider “appropriate for appointment based on the persons skills, attribute experience or otherwise”.

Now on my rough interpretation that would include all my Victorian readers. All sorts of agendas are possible. For example theoretically union officials could be handed the incredibly powerful industrial relations weapon of being able to detain any employer whom they classed as “likely” to offend.

But seriously the power to detain people should be restricted to police and not available to just about anyone.

And for non-police be able to use their power to detain a person who is “likely” to do something – not actually having done it – is frightening for a democracy. This is what dictators do.

Now many of my readers might argue that in a desperate infection situation all sorts of extreme powers are required. But the proposed bill is going to be in operation for 12 months from the date of passing. Victoria is approaching a very low rate of infection so these powers will exist throughout most of 2021 and are open to serious abuse.

Again, I repeat Friedman’s words…

There’s nothing more permanent than a temporary government program.

Politicians and their laws can destroy wealth in the blink of an eye.

But this new legislation before the parliament is genuinely frightening.

We all agree restrictions were needed back in March, when we didn’t truly know what we were dealing with.

But what’s happening now is stepping into realms that no freedom-loving people — or people that know their history — wants to go. This will have impacts on people’s free will to trade and commerce with each other. If we let it happen.

That’s when it begins affecting the markets. And you can be sure we’ll be all over it.

Now, let’s finish on a positive.

Leanne writes…

Hi Woody and team,

Wanted to encourage and thank you for all your hard work. I am a newbie to investing and over the last few months feel like I have had a crash course in world economics and the investing arena. Editorials are well researched and well presented.

I feel confident with putting together a financial plan moving forward.

I am currently subscribed to Ryan, Shae and Vern’s emails.

I really valued Ryan’s “Private Traders Edge” presentation and your presentation with Shae on her advisory service.

I am waiting for my house sale to settle at the end of October and will then have some capital to both sign up to the upgrade subscriptions and trade.

Currently, I am trading recommendations through my super account…but I have a limit of only stocks listed in the ASX 300.

Looking forward to investing in the small caps.

Please pass on my gratitude and encouragement to Ryan, Vern and Shae, as well as the writers who contribute to The Rum Rebellion and Money Morning.’

Leanne, thanks for your lovely note and I’ll be certain to pass on your message to the team.

Great to hear you’re interested in the opportunities in small-caps, too. You’ll like what we have coming up the week after next.

For example, in stock market trend terms, you could label the 1980s as The Age of the American Consumer. The 1990s was The Age of Tech. The 2000s was The Age of a Rising China.

Well, we believe we have just entered a new age. The Age of Extreme Markets.

While this can be concerning, especially for the reasons we’ve just been discussing, it can also create prime stock-picking conditions.

Just as with the American consumer boom of the 1980s, and the tech boom of the 1990s, we’ve never really had this situation before. We are in uncharted waters.

Wall Street’s Vix Index (a ‘fear gauge’ for the markets) is currently flashing hotter than at any time since the dotcom crash.

In short, volatility is going nuts.

This is a situation none of our editors see subsiding anytime soon. Not next year. Not even the year after.

Stimulus efforts from banks…recovery efforts by governments…new outbreaks of the virus in 2021, new lockdowns…and whatever other Black Swans lay in wait…

You’re going to see the market perpetually lurching from one extreme to the other…and all the while small-caps will lurch even harder.

And then the icing on the cake: you have the media feeding into the whole thing…which loops back to what we discuss above!

I said on Monday that the only thing we can confidently guarantee is more uncertainty and more volatility.  

Well volatility certainly sells. It keeps you clicking back for more. This fear and uncertainty causes your ‘average’ investor to buy and sell stocks for silly reasons.

This is what feeds a stock picker’s market. And this is what we’ll be feeding off in the coming years.

I’ll have more on this idea on Friday…