Before we get to dwarf bowling, what’s going on in the stock market? A round of central bank intervention in Japan, Europe and the US hasn’t sent the market soaring. In fact, it’s fallen. Why?
Denis Ouellet from News-to-use.com reckons QE may not affect the stock market after all. At least, that it might not be the primary driver. Conventional wisdom reckons money printing is causing share prices to go up. And the charts back up that story. Each time money is printed, shares rise.
But there’s another chart with the same relationship. Corporate profits, or earnings per share, are rising with equity prices too. It might seem blatantly obvious that earnings drive share prices. A business is worth what it makes in profits. But what happens if profits fall while the money printing continues? We may be about to find out.
Ouellet’s third chart shows that sales haven’t risen with the stock market in the same way profits have. By the way, this means you can’t say that inflation is increasing dollar profits at the same time as share prices.
No, the earnings must be coming from somewhere else if sales haven’t risen as fast as profits. Oullet knows where: ‘Cost cutting (mostly labor) and increasing productivity.’
So if you fire your least productive worker you get both.
But that only works for a while. Eventually, sales will limit profits. Suddenly the earnings growth analysts expected based on the past will fail to materialise. And then stocks could fall, money printing or no.
Greg Canavan was onto the story of suspiciously high corporate profits in his August issue of Sound Money. Sound Investments. Of course, not all stocks experience this problem at the same time. Some are even set to benefit as things begin correcting. The secret to how this will happen is in currencies.
And Australian investors are in the perfect position to profit. We’ll reveal how once we’ve whittled down our list of Aussie companies set to increase profits while others fall.
Better than AFL
When you get bored of the grand final, somewhere in the second quarter, why not try the other sport Australia invented – dwarf bowling. In case you haven’t tried it before, you’ll need the following: Baby oil, bowling pins, a rubber sheet and at least one dwarf. But here’s the crucial bit.
The dwarf has to agree to be thrown at the bowling pins. So you’ll probably also need quite a bit of cash, a helmet, and extra baby oil.
In all seriousness, dwarf bowling isn’t a ‘sport’ that appeals to us. But does that mean we have the right to prevent a dwarf from doing it? Can we take away his or her right to agree to such activities? Should the government ban dwarf bowling?
Sure, politicians can make whatever rules they like. So what else can we ban?
What about that movie trailer which sparked riots across the world? The one depicting the Prophet Muhammad doing all sorts of odd things, like talking to a donkey about its love life. We can’t have that; the donkey may have felt embarrassed.
We must ban things that are offensive enough to cause riots and murders. After all, what’s more precious than the human life lost during the riots in Libya? The loss of a dozen CIA operatives and contractors during the riots dealt a massive blow to the region’s peace and stability. Peace and stability, that’s why the CIA was there after all, isn’t it?
On another subject, we’re half way through the popular book 50 Shades of Grey. And, to our relief, it’s is all about why masochistic sex and prostitution should be banned by the government. A rich guy pays the protagonist for her submission.
But prostitution is only ok if you’ve registered with the Australian Office of Regulatory Services (ORS). And pay income tax. Otherwise, it’s so immoral it must be stopped by the police…who aren’t immoral, and who of course don’t accept bribes or favours.
But there is one ban we can all agree on. ‘Child-labour balls’ shouldn’t be given to guests at North Melbourne’s grand final breakfast. Even if they are just AFL balls stitched by child labour. We can’t have children earning money to support their families. Especially in poor countries where they have no other source of income.
So what’s the point of our distasteful rant? It’s all about discovering a world of ideas. It’s designed to make you think…to discard your prejudice about a subject and look at it from the ‘other side’.
The ideas aren’t actually dwarf bowling, masochistic sex or offensive videos. They’re about rights, freedom of speech and the role of government.
Finance and economics is just one part of how we see the world differently to the mainstream. Being different gives us our edge over the mainstream media and finance industry. If you’d like to find out more about contrarian worldviews, then I suggest you attend this special event…
The Mises Seminar is Back!
Defending the Undefendable is a book by Walter Block. It inspired the topics of our controversial discussion above. The title of the book gives away the nature of the content. Walter tests his beliefs about freedom by applying them to the least favourable real world examples.
Do his beliefs hold up? And do your beliefs hold up to his arguments? You can find out in person because Walter is coming to Sydney.
Our friend Benjamin Marks is assembling a collection of speakers who couldn’t get an invite to the politically correct Press Club. The impressive line up will speak on the 1st and 2nd of December at the Establishment Ballroom in Sydney.
Topics up for discussion include: West Australian secession; who would build roads if the government didn’t; and Walter Block will defend the legality of blackmail, ticket scalping and the ‘male chauvinist pig’.
There’s also a particularly subversive and radical speech titled ‘Welcoming Remarks’. We can only guess what it will be about.
If you’re interested, you can find out more here. Speaking of ticket scalping, we’ll sell our ticket for $200.
Editor, Money Morning
From the Archives…
In Defence and Praise of ‘Cranks and Crazies’
21-09-2012 – Kris Sayce
We Buy Gold Because We Don’t Trust Them Not to Meddle
20-09-2012 – Kris Sayce
Why Share Trading is ‘Mental’
19-09-2012 – Murray Dawes
A Bear Market Where You Least Expect
18-09-2012 – Greg Canavan
Questionable Easing 3
17-09-2012 – Dr. Alex Cowie
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Written by Nick Hubble
Nick Hubble is feature Editor of The Daily Reckoning Australia – weekend edition. Nick has spent the last three years discovering lots of new, exciting and surprisingly simple ways to generate money for retirement. He’s put all these ideas into his investment publication The Money for Life Letter.
If you’re already a subscriber to these publications, or want to follow Nick’s financial world view more closely, then we recommend you join him on Google+. It’s where he shares investment research, commentary and ideas that he can’t always fit into his regular Daily Reckoning emails.