investment

“Gold still has a strong financial nature and remains an indispensable investment tool…”
– Dr. Zhou Xiaochuan, governor of the People’s Bank of China, writing in the LBMA’s Alchemist magazine, Nov. 2004

CHINA IS A FARAWAY COUNTRY of which we know little. The Isle of Wight, on the other hand, is a small island two miles off England’s south coast where my mother-in-law lives.

And there…between the crumbling fiber-glass dinosaurs of Black Gang Chine and the rain-soaked falconry shows at Robin Hill…chit-chat says England’s baby boomers gave up saving long ago.

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Before I get onto today’s subject, the property debate is still raging on the Money Morning website. There are plenty of comments from those that agree with your editor and those that don’t.

Just so you’re sure, we don’t edit any of the comments providing they are fit for publication. One comment which questioned the legitimacy of your editor’s birth for instance, didn’t make it through!

But other than that, you can write what you like about property or any other subject. Even if it’s to disagree with us.

But one thing is obvious from some of the posts, and indeed the emails we’ve received arguing with our position, is the inability of the property bulls to grasp the concept of an analogy.

Just to set the record straight, we’re perfectly aware that you can eat an apple yet you can’t eat a house – unless it’s a gingerbread house. And we’re also aware few people buy bananas for investment, and that bananas don’t give you a rental yield.

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“They rush about in disorder, anxious slaves of the three M’s – the moment, the mode, and the mob. They see too well their want of dignity and fitness, and need a false elegance to hide their galloping consumption…”
– Friedrich Nietzsche, Thoughts Out of Season II: The Use & Abuse of History (1874)

NOW THE banking crisis is over – “Bernanke stays put, home prices up,” as Fox News reports – the career academics who failed to spot and prevent it can get back to fretting about the most macro of tasks:

How to rebalance the global economy?

The rich West spends, emerging Asia saves. For global trade, this means the West (or rather the US, UK and most of Western Europe) goes shopping for what Asia (and Germany) makes. Which in turn means poor Asia in fact funds this consumption, hoarding Treasury bonds as I.O.U’s, representing the ultimate in vendor finance.

Like the subprime and mortgage-bond bubbles, this situation will run for as long as it runs. Then one day, quite suddenly, it won’t, thanks either to Western consumers refusing to wear further debt, or Asian savers refusing to hoard any more paper. Classical economics says Mr.Market could also call time, driving a sharp decline in the Dollar and Sterling and making Asian imports too expensive for West consumers to buy. (The Euro’s more sticky; the single currency covers both export-rich Germany and chronic trade-debtor Spain. But that’s another crisis-in-waiting altogether…)

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Today your editor is wrapping up the August issue of Australian Wealth Gameplan. With the market up 40% from the low you might think it’s not the best time to be tipping stocks.

That may – or may not – be true for blue chip growth stocks, but blue chip income stocks are a different story.

Anyway, I won’t give away the details here, but if you’ve already secured your subscription to Australian Wealth Gameplan just keep an eye on your inbox over the next couple of days.

Speaking of stocks, so far earnings season seems to be going tickety-boo. According to the analysts, half of the major companies to have reported earnings so far have exceeded analysts’ expectations.

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