Why You Should Lock in Gains While You Can

Your editor reports in from rainy Frankston this week. While the missus is off supervising a school trip to Canberra we’re stuck at home on school pick-up and drop-off duty.

We’re not sure that being down here in Frankston will add any different perspective to when we normally write from St Kilda, but you never know.

Anyway, we were gobsmacked by this quote we read yesterday afternoon…

“Prices would only suffer a small fall, they wouldn’t crash.”

That’s if mortgage interest rates hit 10% apparently – according to Martin North, director of Fujitsu Australia.

We’ll be honest, we don’t get what Fujitsu Australia is supposed to be about.

On the one hand their Mortgage Stress-ometer – or whatever it’s called – gains national headlines each time it’s updated. “Squillions in mortgage stress” is the typical headline.

But when push comes to shove, Fujitsu tells everyone not to worry because, “Prices would only suffer a small fall, they wouldn’t crash.” Well that’s alright then.

Which is a bit bizarre in our opinion. Thousands of first home buyers suckered into the idea that property prices always rise, and that now is the best time they’ll ever have to buy.

And that interest rates aren’t going above “normal” anytime soon. Then suddenly, the same economists tell us that the booming resources industry could see mortgage increase by 50% in the next two years.

Which is startling considering in February Fujitsu had a target of 4.5% for the Reserve Bank of Australia (RBA) cash rate by December 2010.

The last we looked it was already at 4.25% and there are still eight meetings of the RBA board to be held before the end of the year.

And even if the RBA does only give the cash rate a minor touch-up by the end of the year, our wonderful friends in the mainstream economist community have the RBA hitting the interest rate bottle hard leading into 2012.

“Interest rates heading for 10 per cent, experts warn,” says The Sunday Telegraph.

Ah, of course. If you think back over the last year or so, almost every mainstream economist told you that rates had to be low now, and that we can all worry about the negative impact of low interest rates some other time.

The important thing they argued, was to save the economy by spending as much borrowed money as possible.

Well, it seems they’ve now decided it’s time to break the bad news on what the future response will have to be.

As we’ve warned over the last two years – while mainstream economists were telling you to get drunk on debt and spending – payback day will come, and it’ll come sooner than you think.

Granted, some in the mainstream have warned about piling up debts for our children to pay off, but they’ve rather missed the point. That implies the payback won’t be for another 10, 20 or 30 years.

The bad news is, the payback has already started. Remember that $900 the Fairy Ruddfather handed out? Well, thanks to the interest rate rises – after many had been sucked in by mainstream propaganda – your $900 boost will have been wiped out by about now if you have an average mortgage of $300,000.

So, don’t worry about the kiddies being lumped with the debt. If they’re lucky everything will have gone bust long before they’re given the responsibility of paying bills.

See, thanks to the mainstream economic chumps, the boom and bust cycle continues. Not content with having built up the last boom, and then causing the last bust, interventionists are determined to lead you into another boom, predictably followed by another bust.

So, far their ingenious plan is “working.” Only a Grinch would claim the last twelve months hasn’t been a boom for both the stockmarket and the property market.

But don’t you dare pause for breath. Because James Kirby at The Age says, “Bullish brokers getting ready for a stampede.”

Kirby says that big name broker UBS has “lifted its ASX200 target for the end of the year from 5450 to 5550.”

Granted, it’s not much of a lift, but it means the broker reckons the Aussie market has another 10% up its sleeve before the year ends.

Is that reasonable? Who knows, but our advice is to make the most of any sharemarket gains while you can. And incidentally, to also lock in some of your gains from the last twelve months if you can.

That’s the advice I’m giving to Australian Small-Cap Investigator and Australian Wealth Gameplan members.

Let me make one thing clear. These mainstream economists who are spinning the party line about the Australian economy being robust and insulated from the rest of the world are just talking through their hat.

Remember, these are the same guys who not only utterly failed to see the global economic meltdown coming, but when it did they managed to convince most of the country that they had a solution to get out of it – borrow and spend.

And now these “geniuses” figure their wonderful plan has worked. It must have because the stock market is up and the property market is up, ergo, success! Trouble is, that little problem of inflation, higher interest rates and killer debt levels is less than two years from hitting the fan big time.

Right now it’s just simmering away, gnawing away at your wealth without you really noticing. And you wouldn’t notice because based on the stock market and property market your wealth is increasing – don’t believe a word of it.

But here’s their chance to show you how the next phase of the plan works. Surely it must be time to start fixing things after the so-called “emergency” measures.

Here’s the thing though. Isn’t it funny how there isn’t a single mainstream economist who is capable of outlining how everything will pan out. You’d think that with the amount of certainty they’ve had about the borrow and spend plan that it would be simple to give a logical breakdown of two things.

First, how this current period of depression will end.

And secondly, how their ingenious plan will ensure boom and bust economic meltdowns never happen again.

The only reason we bring it up is that on our side of the fence – the side that’s opposed the bailouts, the borrowing, the spending and the devaluation of money – there are plenty of economists who have not only explained how this depression will evolve, but also how it could be ended and prevented from happening again.

We had a discussion about this very thing in Editorial office last week. And tomorrow, in case you’ve missed us outline it before, I’ll go through again just how simple it is.

The problem of course, is that the only real solution involves the out-of-their-depth politicians and central bankers getting out of the way and not spending your taxpayer dollars.

For them, that’s not an option. Because if the general public find out that it’s the pollies and the bureaucrats that have caused the mess then suddenly the pollies and the bureaucrats will find themselves being kicked into touch.

That’s why they’ve had to blame the entire episode on capitalism and free markets.

And even as we write this morning, we see news that the Greeks are taking the cowardly route of accepting bailout money. It’s cowardly because it keeps the Greek taxpayer on the hook for billions.

When the much better and heroic course of action would be to default and start with a clean sheet.

Not only that, but the rest of the European Union is also being told to stump up the cash for someone else’s debt. And as far as we can tell, no one has thought to ask the German, French or Dutch taxpayers if it’s OK with them.

We wrote this analogy some time ago… It’s like finding out that your next door neighbour has got himself into a hole for $1 million, and then finding out that all the other neighbours in the street have arranged for you to pay out his debt.

What would your response be to that? Thought so.

Then why is it any different if the decision is made by a government rather than your neighbours. In both cases it’s expropriation of your property to pay off someone else’s debts.

Yet governments can get away with it.

Make no mistake, Greece is likely to be the beginning of the next debt meltdown rather than the end of the last one.

Cheers,
Kris.

Tagged as: australian small cap investigator, Fujitsu Australia, global economic meltdown, Greeks, interest rates, mainstream economist, mortgage, property market, rba, reserve bank of australia, stock market, taxpayer