asx

One day on and still nothing from the property spruikers on the claimed relationship between population growth and house prices.

Not a sausage.

We expected to receive at least one piece of evidence to support their case. Instead we’ve received more information from Money Morning readers that supports the argument that population increases and house prices are not necessarily correlated.

As always, we’re happy to be proved wrong.

But onto something different for today. And it’s just a brief Money Morning as we’re on a tight schedule to complete a couple of reports for our paid subscribers.

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“Legacy stocks” are ones you believe in – income generators and slow-growers you’d like to think you’ll pass on to your kids one day. There’s no harm in owning a collection of legacy stocks on the ASX. But there’s no harm in maximising the returns they give you, either.

Take the BHP Billiton example I showed you earlier in the week. Remember I gave you the example of two types of traders: one who will steadfastly remain “long” on BHP. He loves the stock and will never let go. The other also likes BHP long-term, but is keen on limiting losses on corrections and profiting from rallies.

Fundamental analysis may help the first investor in picking BHP outright. But it will be much less useful to the second investor – the one who wants to track and profit from movements in the underlying price.

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If you missed yesterday’s Money Morning on ‘Born Again Keynesians’ (BAKs) love-affair with the Output Gap, then take a quick read now. You can click here for it.

You’ll need to read it as a primer for the following item. And don’t forget, you can now leave comments on the Money Morning website, as ‘Nick99′ already has for yesterday’s story.

Now you’ve read the primer I won’t need to give any further background.

But I will mention this, yesterday was a torrid day for your editor. We just couldn’t get our pea-sized brain around the idea of Actual GDP and Potential GDP. We’re still none the wiser. Sure, we understand that ‘potentially’ an economy can produce more if it’s at full capacity, but the problem is where do you draw the line?

Is the ultimate potential GDP where you have 100% employment and every business and consumer is using every form of new technology to improve their productivity?

If not, then the concept of Potential GDP must be a subjective number. It is therefore subject to manipulation and inaccuracies as various BAKs feed in their own economic modeling to extract the result they’re after.

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They are:

1. Inflation
2. Government Intervention, and
3. Protectionism

I’ll get onto that shortly, but first…

It’s probably a few days too early to get stuck into the federal budget. But come Wednesday or Thursday we’ll start to take a look at what it could mean for taxpayers, businesses and the markets.

But we’ll also look at some of the expenditures in there as well. Just one word of warning. If you didn’t like what we wrote about the minimum wage you may not like what we’ll have to say about the massive spending on health, education and welfare.

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