The Economic Recovery Sham is Over

What a time to be trying to pick a stock or two for this month’s Australian Small-Cap Investigator.

The way I look at it, backing small-cap stocks can be like punting.  It’s one of the riskiest share investments you can make.  And that’s even when the market is going in your favour.

But when the market has tumbled by 16% in just a few weeks then you can ratchet up the risk five-fold.

However, considering we’re looking to make big returns from small-cap punts it would be odd if we just turned on our heels and ran away.  Instead, for high-risk punters we’ve been running over the numbers of a small handful of stocks for possible inclusion in the May issue of Australian Small-Cap Investigator when it’s released next Monday or Tuesday.

If you haven’t subscribed yet, you can do so by clicking here…

Anyway, let’s have another look at the Australian economy shall we?

As we’ve warned for many, many months, the so-called economic recovery was a sham.  An illusion.  A mirage.  A charade.  Use any other word you like, the economic recovery wasn’t real and as we told you it would, it’s being revealed for all to see.

Last week we wrote how quiet the property spruikers had been recently.  To be fair, we shouldn’t have singled them out.  After all, the stock market cheerleaders have gone pretty quiet too.

As have the “Australia-avoided-the-global-meltdown-aren’t-we-great” crowd.

But first, many times over the last couple of years we’ve received several emails suggesting our call on the popping of the housing bubble is akin to a broken clock being right twice a day.

In other words, if we keep saying something, we’re bound to be right eventually.

It’s a clever little analogy.  And maybe it’s right.  But without being a joke killer, we’ll make the point that we’re not saying the housing market will pop because we’ve some kind of hatred of housing – such a stance would be weird if nothing else.

And we don’t say it because we’re playing the odds, hoping we get it right at some point.

And we don’t say that it’ll pop just so people will sell their house or investment property and buy shares instead.

No, the simple reason we say that the housing market will pop is that it’s illogical to claim otherwise.

That may sound very simplistic and uncomplicated, but here’s a newsflash for the dudes that like to make things complicated… it is simple and uncomplicated.

We could use as many charts and graphs and numbers as we like, and from time to time we do.  But the easiest way to counter a ridiculous argument is to simply point out how ridiculous the argument is, rather than trying to prove they’re wrong.

The simple and undeniable fact – yes F-A-C-T, fact – is that prices of anything cannot possibly continue to rise forever.

The government and central bankers like to make you think it’s complicated so you lose interest and place your trust in them.  The mainstream press like to make it sound complicated so they can show-off how smart they are.

Only the past few weeks have shown just how dumb they are.

As I say, it’s not complicated.  The mainstream commentators will try and fool you by writing about the velocity of money, or the paradox of this, or the paradigm of that.  It’s all rubbish.

What they really need to explain – and can’t – is how it’s possible to improve an economy by printing money?  Or how it’s possible to solve a debt problem by borrowing more?

It’s not hard.  You can’t spend what you don’t earn.  Unless you’re spending on credit.  Even so, you still have to pay it back, and that involves earning money.  I can’t say this enough times, it’s not a difficult concept to understand.

Yet the mainstream and Keynesian commentators are full to the eyeballs of crummy theories such as the Output Gap.  Theories that are worth less than the paper they’re written on.

Quite frankly they should hang their heads in shame for feeding lies to the public about the benefits of stimulus spending, inflation and government intervention.

But they won’t.  They’ll fall back on the old chestnut that the stimulus wasn’t big enough, inflation wasn’t high enough, and the government should have done more.

They’re schmucks, the lot of ‘em.

You see, the housing crash will come.  There’s no question of it not happening.  Is this the moment when it starts?  Look, I’ve no idea.  Predicting precise time frames is pretty hard.

But the fact is, we don’t need to predict the timeframe, all we need is to know it’s going to happen and therefore prepare for it when it does.

The property spruikers are yet to provide any evidence for the continual never-ending increase in property prices.  They’ve tried of course: population growth, housing shortage, Australians love their homes, banks are strong, blah, blah, blah…

Even if just one of those were true it still doesn’t explain how anything can continue upwards forever.

But what about the stock market?  Don’t forget, it was only just over three months ago that Investor Daily told readers:

“Financial services firm UBS has boosted its year-end target for the S&P/ASX 200 index from 5300 to 5450 points as Australia’s economic and profit recovery continues to unfold.”

The article headlined with: “UBS has said… it was overweight banks and miners.”

Oops!

Today the S&P/ASX 200 is 4,183.20.  In order for the index to get to 5,450 it would need to rise by 30%.  Is that possible?  Anything’s possible in the short term, but we doubt it.  Not unless the government and central banks unveil another smoke-and-mirrors scam.

Anyway, I’m not only giving UBS a tickle, because they’re not the only ones to say it.  Every mainstream Muppet in the Australian financial services industry has been banging on about the miracle Australian economy, and that the “economic and profit recovery continues to unfold.”

Really?  What recovery is that then?  Is it the same economic recovery where Clive Peeters has just gone bust owing $160 million?

Is it the same recovery where David Jones reported a, erm, third quarter increase in sales of… wait for it… 1.4%!

Which, adjusted for real inflation, not the rubbishy stats the Australian Bureau of Statistics (ABS) come up with, David Jones’ sales would have actually declined during the third quarter, thanks to the continued increase in the money supply.

For instance, M3 has increased by 5.74% over the same period.

In other words, the $417.4 million of sales recorded by David Jones in the last quarter was actually worth less to the company than the $411.6 million of sales made in the same quarter last year.

That, my friend, is not an economic recovery by any stretch of the imagination.

It’s an economic bloomin’ disaster, that’s what it is.

Then you’ve got this dumb news: “Average earnings on the rise”.

Yippee!  The article in The Age lets you in on what great news this is for workers:

“Average weekly ordinary time earnings for adult full-time employees rose 1.1 per cent in the three months to February, taking the annual rate of growth to 5.8 per cent, the Australian Bureau of Statistics said. A separate report showed people are trimming their view of future price rises.”

The economic recovery lives on.  [Cough], we haven’t finished yet.  Get this:

“Private sector AWOTE [average weekly ordinary time earnings] was up 0.9 per cent in the quarter at $1217.80, seasonally adjusted, for an annual rise of 5.6 per cent.  Public sector AWOTE rose 1.9 per cent to $1,327.40, seasonally adjusted, in the same period for an annual rise of 6.3 per cent.”

How about that?  Of course, what The Age should have explained is that the AWOTE has increased by just 0.9%.  The pay of public servants is irrelevant.  The pay of public servants is a cost to the economy.  It’s a negative for the economy.

An increase in public servant pay is just a reflection of the extra burden put on the private sector.

So while you could say that nominally private sector wages have risen by 0.9%, you have to subtract inflation, and subtract the increase in public sector wages.  Then you figure out you’ve most likely got a fall in private sector incomes.  Not the 5.8% annualised increase The Age claims.

All the info from the ABS proves is how much taxpayer money has been wasted through the stimulus programmes.  The greatest beneficiary has been the coercive sector, probably more so than the housing and building sector.

The public sector – a cost to the economy – grows, while the private sector shrinks.

The easiest way to look at the private sector versus the public sector is to imagine a profit and loss statement.  The private sector is the revenue, it’s creating new products, it’s innovating, it’s trying to drive down prices through competition.

The private sector is doing all that’s good for you – or trying to anyway.

On the other hand the public sector is the expenses.  It’s a drain on your profits and your income.  Every extra dollar earned by the parasitic public sector is a dollar taken from you and others in the private sector.

As we pointed out in our presentation to the Adam Smith Club on Monday, back in 2008 the free market appeared for a fleeting moment, through the stink and stench of a government and central bank manipulated economy.

The free market looked at the excessive debt levels and the crappy derivatives and it announced proudly that those debts were dangerous and the assets were, well, not assets at all, they were worthless.

That’s why the market didn’t want to buy them.

The politicians and central bankers thought they knew better.  They blamed it all on the free market.  They thought those assets were worth something, and decided to buy them.

But not with their own money of course.  Instead they used taxpayer money to pay 100 cents on the dollar for assets that were worthless.  What geniuses these chumps are.

They thought they knew better and decided to go into more debt in order to pay off the old debt.

The cover-up couldn’t last.  And now the free market is trying to burst through and punish the corrupt and immoral politicians and central bankers.  But again they’re trying to fight against the free market.

Whether they’ll succeed in postponing the economic endgame again is unknown.  But what should be obvious is that a small group of men and women are no match for the power, wonder and beauty of the free market.

The free market will prevail, I guarantee it.  The only problem is that the meddling by governments and central bankers will ensure that you have to suffer for longer rather than allowing the market to cure the problem with a short and sharp shock.

But before I go, back to the clock analogy.  If your editor is like a broken clock where we’re right at least twice a day, we must say that the mainstream Muppets are also like a broken clock.

However, in their case, rather than the hands being fixed at a set time, their clock has no hands.  In other words, they aren’t even capable of getting the time right at least twice each day.

Time and again, the mainstream has gotten it wrong, and time and again the mainstream press goes back to them for advice on the solution.  We’re seeing that happen again even now.  It would be funny if it wasn’t for the fact they’ve helped so many people lose so much money.

Cheers.
Kris.

Tagged as: economic recovery