Your editor’s head is full this morning. We arrived at our Fitzroy Street office at 8.30am. But we didn’t type our first words until around 11am.
The thoughts in the Sayce brain are all trying to come out at the same time. And none of it is making any sense [Reader's voice: No change there then!] So you’ll have to excuse today’s effort as it’s likely to be all over the place…
Wall Street crashes by 350 points. The Australian market is down over 10% in less than a month. And Australia’s single most important industry – resources – is being held hostage by the government.
Meanwhile, we read on from News Ltd that:
“Another $2bn for health in federal budget”
Oh the fools.
It’s all the deadbeat politicians know how to do – “The economy is booming, it’s time to spend…” “The economy is collapsing, it’s time to spend…”
But what do they care? While the ex-Fairy Ruddfather cheerily set off a resources market crash, and increased the flight from the Aussie dollar, he’s happily aware that whatever happens to the stock market he’ll still get his lovely taxpayer funded pension.
Ah, the life of a parasite. The life of a bloodsucker. The life of a stinking coercive servant.
Taking away by force money from the private sector and individuals in order to fund the playthings of politicians.
Let me make this clear, the mistakes of the Great Depression that the bureaucrats claim they have avoided, are in fact being repeated.
Only on a much bigger scale.
One day the penny might drop for these chumps. It might suddenly occur to them that you can’t consistently take money away from that which is productive and pour it endlessly into that which isn’t productive.
To take money away from the productive resources sector and hand it over to the unproductive and corrupt health sector is nothing more than an expensive guilt trip.
We can hear the spin already, “It’s only right that these super profitable mining companies should pay for hospitals. Which would you prefer, shareholders making money or lives being saved?”
Ah, a political stroke of genius.
That reader, will be the argument. And it’s a disgraceful and false argument. Spineless bureaucrats playing with the emotions of the population. Blackmailing them into handing over 20%, 30% or even 50% of their money in exchange for services they may never use.
Taking your hard-earned money when you need it the most.
But it’s not just the government, it’s the special interest groups as well. The doctors and nurses organisations that blackmail you and politicians into securing ever greater amounts of taxpayer money.
The trade unions cheering the government on to take more and more dollars from those that have earned it.
All of it under the lie that it’s being done to boost the economy and support a recovery.
As I’ve mentioned many times before, there is no economic recovery. All there is is spending of borrowed and newly printed money.
Spending which is only pushing the taxpayer further into debt.
We read yesterday that Dun & Bradstreet was forecasting thousands of people would default on utilities bills.
“Bill debt set to soar: report” says the Sydney Morning Herald.
D&B chief executive Christine Christian told the paper:
“Not paying a small bill or a non-bank related credit obligation can negatively impact a consumer’s ability to access credit for up to five years so it’s absolutely critical that every credit commitment is taken seriously.”
Alternatively the best course of action is to default on your bills. For five years you’ll find it almost impossible to go deeper into debt. Surely that’s a good thing.
We’ve encouraged the Greek government to do the honourable thing and default on its debts, rather than putting its citizens and the citizens of other nations on the hook for $150 billion.
So why shouldn’t individuals do the same thing? Default and get a bad credit rating. Imagine having to save up for something rather than applying for a loan.
Imagine having to stay in your current home rather than “upgrading” to something more expensive. In our mind that should be seen as a liberating event. Default and be free of the temptations of going further into debt.
Of course the banks won’t like that. They need more debt. The more debt the better. The bigger your debt, the bigger the bank’s assets. Bizarre isn’t it?
What’s bad for your balance sheet is good for the bank’s balance sheet. No wonder they’re so eager for you to hock yourself up to the eyeballs.
But whether – as reported – the overnight crash on Wall Street was the result of a trader error or not is irrelevant. The fact is, the market has been living on borrowed time for at least the last six months.
Stock markets and economies have been propped up by exactly the same kind of wasteful spending as the $2 billion that the government will waste on the health system.
Billions of dollars wasted on school buildings, housing insulation and home buyer bribes. Billions of dollars more to be wasted on a broadband network. Although the spin on that is that it will be a saving because it will only cost $38 billion not $43 billion!
It’s why, when the mainstream has been cheerleading for the market to go higher, we’ve been more cautious. We’ve advised Australian Small-Cap Investigator and Australian Wealth Gameplan members to make sure they’ve got a ‘Plan B’.
For Australian Wealth Gameplan members that’s involved picking a small selection of dividend paying stocks. It’s also involved using trailing stop orders. Plus we’ve recommended using covered call options as an income booster.
And finally we recommended members implement our “Exit the Dragon” strategy. You may have seen the email from Dan Denning last week.
We formed that strategy earlier this year. And while it wasn’t specifically tailored for this week’s events, it’s already paying off.
For Australian Small-Cap Investigator subscribers, the strategy was different. Last October we strongly encouraged subscribers to start using a trailing stop strategy.
The thinking was simple. Stocks had risen 50% in a very short period. That kind of price move wasn’t sustainable.
Yet, we didn’t want to completely exit the market. When you’re betting on small-cap stocks you know there’s a risk. That’s why we took some profits but then entered trailing stop orders on the remaining positions.
The result has been that over the last six months the number of stocks in the Australian Small-Cap Investigator portfolio has shrunk from twenty-nine to just three!
It means that we’ve instructed investors to get out of nearly 90% of their stock positions prior to the market collapse.
The point I’m trying to make here is that it’s pretty darn hard to pick the top and bottom of the market. Therefore your best strategy is to prepare for the worst should it happen. And that’s exactly what we’ve told readers to do since October last year.
Look, I’m not saying we’ve gotten everything right because we haven’t. And I’m not trying to claim ‘I told you so.’ But what I am saying is that the time to prepare for this week’s market crash wasn’t Monday, yesterday or today. The time to prepare for it was six months ago.
So right now, while the mainstream finance pros are falling over themselves to get out of the market, we’re looking for opportunities to get back in. But we won’t be rushed.
Again, we may not pick it completely right. Because if we get back in too early there’s a chance we’ll be forced out of a position if the stock moves lower.
But, that’s just part of the risk of punting on small caps. We’re looking to lock in big figure percentage gains. The only way you can do that is to take big risks.
However, there are some making big money on this market. Such as short sellers.
Our Slipstream Trader Murray Dawes has been short a number of stocks over the last few weeks. And this week it has paid off in a big, big way.
I can’t give you the details of what they are because he’s still got some of the trades open.
But for our part, we hope you took the opportunity to short sell Commonwealth Bank as a punt when we suggested it in early April. From memory the stock price was about $58. Today it’s trading just above $53.
It would have been a nice little punt if you got on board. An even better one would have been ANZ Bank which is down about 20% in the same period. Quite frankly we can’t believe the banks are still this expensive.
There are afterall, insolvent Ponzi schemes.
I’ll tell you what though, if you’re relying on signals from your broker or the mainstream press, then forget it.
Today’s The Age offers:
“Cash best bet as markets shudder: traders”
Maybe these traders have been saying that. But we don’t remember the mainstream press reporting it.
All we remember is the hype about the market hitting 5,000 points and how analysts had upgraded their forecasts for the economy.
And how rising interest rates was a good sign because it means strong economic growth.
No you Muppets, it means that the stimulus and government spending and buying on credit has given a false impression of a positive economy.
It’s exactly as we’ve said all along. If the government spends and if the public spends on borrowed money, eventually it all has to be paid back.
It’s just not possible to borrow and spend your way out of recession without creating bigger problems.
But where are the Keynesians now? Supposedly their spending plan was working. This is the way out of recession they said. Stoke the demand side and everything will be fine.
Gee whizz, the Greeks tried that, ask them how it’s working for them.
The UK tried it, ask them. The US tried it too. And, Australia tried it as well.
Oh, and don’t forget the biggest spending bubble of all, China.
The outcome will be exactly the same. Australia isn’t any different to anyone else. This week has proven that beyond doubt.
And regardless of the number of levers the bureaucrats think they have to manipulate the economy, one unarguable fact remains…
You can’t buck the market. Keynesians and bureaucrats would do well to remember that.
Cheers,
Kris.
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Telling points by Ellen Brown:
“Stock Market Collapse: More Goldman Market Rigging?
The Nuclear Option
It is still possible, however, for the European Central Bank to snatch Greece from the fire and rout the shorts. It can do this with what has been called the nuclear option — “monetizing” the debt of Greece and other debt-laden EU countries by effectively “printing money” (quantitative easing) and buying the debt itself at very low interest rates. This is called the “nuclear option” because it would blow up the hedge funds and electronically-driven sharks prowling in Greek waters, which specialize in bringing down corporations and countries for strategic and exploitative ends. ”
http://www.huffingtonpost.com/ellen-brown/stock-market-collapse-mor_b_568164.html
Incidentally, Ellen Brown has been interviewed only just recently on Max Keiser’s On The Edge.
http://maxkeiser.com/
Some very good interviews on KWN.
http://www.kingworldnews.com/kingworldnews/Broadcast_Gold+/Broadcast_Gold+.html
Keiser discusses last week’s massive drop on the markets, gold, and more:
http://www.archive.org/details/MaxKeiserRadio-TheTruthAboutMarkets-08May2010
CB
With regard to Alan Kohler, I classify most celebrity economists as ‘fence sitters.’ They hunt with the hounds and hide with the hairs.
They all ridicule the Steve Keens of the world as doomsdayers and chicken littles, but, when the tide turns, praise them when their predictions prove correct.
MF….I well said. The brave have foresight, the cowards have hindsight.
Bob Chapman’s take on last week’s plunge on Alex Jones:
http://www.youtube.com/watch?v=821d2lOm92c
For those interested in watching the rest of the interview, this page might be more useful:
http://www.google.com.au/#q=Bob+Chapman+on+Alex+Jones+interviewed+on+market+plunge&hl=en&prmd=v&source=univ&tbs=vid:1&tbo=u&ei=74rnS4DpAo7c7AOBnv3sBA&sa=X&oi=video_result_group&ct=title&resnum=4&ved=0CCwQqwQwAw&fp=9ee691e0f5edea9b
“The founder of Earth Day, Senator Gaylord Nelson, famously proclaimed that, “Dr. S. Dillon Ripley, secretary of the Smithsonian Institute, believes that in 25 years [1995], somewhere between 75 and 80 percent of all the species of living animals will be extinct.”
One of the more interesting statements made by Dr. Paul Ehrlich, author of the largely discredited book The Population Bomb, was that “at least 100-200 million people per year will be starving to death during the next ten years.” The esteemed Dr. Ehrlich also warned that air pollution would “take hundreds of thousands of lives in the next few years alone.”
North Texas State University professor Peter Gunter echoed Ehrlich’s predictions of death. He said, “Demographers agree almost unanimously on the following grim timetable: by 1975 widespread famines will begin in India; these will spread by 1990 to include all of India, Pakistan, China and the Near East, Africa. By the year 2000, thirty years from now, the entire world with the exception of Western Europe, North America, and Australia, will be in famine.”
In one of its 1970 issues, Life Magazine wrote that “Scientists have solid experimental and theoretical evidence to support… the following predictions: In a decade, urban dwellers will have to wear gas masks to survive air pollution… by 1985 air pollution will have reduced the amount of sunlight reaching earth by one half…”
Manmade climate change was around back then, but it wasn’t global warming that they were worried about, it was global cooling. Kenneth Watt, professor emeritus at the University of California at Davis, warned, “The world has been chilling sharply for about twenty years. If present trends continue, the world will be about four degrees colder for the global mean temperature in 1990, but eleven degrees colder in the year 2000. This is about twice what it would take to put us into an ice age.”
So, when you hear the great Al Gore spout dire predictions about the days ahead and why such future events are “certain,” it might behoove you to recall the dire predictions made by other “experts” over the years and to ponder whether the seers of today are likely to be any more accurate. I would bet not.”
http://www.caseyresearch.com/displayCdd.php?id=424
The (Almost) Crash of Wall Street
Courtesy of Robert Reich
Wall Street Begins Recovery After Dow Takes Wild Plunge
Ninety minutes before the end of the trading day today, the U.S. stock market almost melted down The Dow Jones Industrial Average dropped nearly 1,000 points. The market regained ground before the end, like a giant 747 narrowly averting a crash landing, but the questions of the day are: What happened? And What does it mean?
At this point no one knows why. Some say it was sudden burst of worries about Greece’s debt and the increasing possibility of a default that might cause a run by global investors. Others point to a “trading error.” Giant high-speed computers generate millions of trade based on instructions embedded in computer programs designed to move fast enough to beat everyone else. So when there’s a glitch in one of them it can immediately spread to all the other programs designed to move just as fast. Some say it was an erroneous trade entered by someone at a big Wall Street bank who mistyped an order to sell a large block of stock, and that the big drop in that stock’s price (Procter & Gamble?) triggered “sell” orders across the market.
Regardless of why it happened, it’s further evidence that the nation’s and the world’s capital markets have become a vast out-of-control casino in which fortunes can be made or lost in an instant — which would be fine except for the fact that most of us have put our life savings there. Pension funds, mutual funds, school endowments — the value of all of this depends on a mechanism that can lose a trillion dollars in minutes without anyone having a clear idea why. So much of the market now depends on computer programs and mathematical models that no one fully understands, so much trading is in the hands of a few people whose fat thumbs or momentary carelessness might sink the economy, so much of global wealth now depends on who can move their money quickest at the slightest provocation — that we are toying with financial disaster every day. The luck or foolishness of a few traders, and inside knowledge and information that some possess and others don’t, combined with ultra high-speed computers, put us all at the whim of a system whose risk is way out of proportion to any public benefits.
The financial reforms being considered on Capitol Hill are steps in the right direction. But the “systemic risk” now embedded in our capital markets is higher than ever, and will require far greater understanding and vigilance than now being considered.
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