Why You Shouldn’t Buy Gold Stocks Yet

Today, I’m going to kick this off with something different. Alliance Platinum Member, Keith, wrote to us with the following message yesterday:

I have considerable respect for you as a stock analyst but rather less for the logic you displayed as a political analyst in this morning’s Money Morning Premium.

Behind your (possibly reckless) attribution of Marxist tendencies in both major party leaders seems to be a concern that both seek to raise taxes on business, particularly small business, to the detriment of those businesses and the economy overall. However, whatever may be their secret desires is there any evidence for this assertion in their policies?

Turnbull contemplated raising the GST by 50% in his tax reform phase but has since resiled from that position and, in the last Budget, undertaken to lower business income tax rated over an extended period of time.

Shorten, on the other hand, appears to have made no commitments to raise or lower business taxes.

While it could be argued that his policies, if implemented, involve increases in government spending, there is no correlative necessity for tax increases because, as one of your fellow editors wrote today, governments can arrange for central banks to finance their expenditures without need for extra taxation. (I expect that implementation of such processes would have an adverse effect on exchange rates over time.)

If neither party is seeking to increase business taxation, why do you have such a dismal view of the economy following the election of one of them?

Alliance Platinum Member, Keith

In case you missed it, the article Keith was writing about is here. Keith, thanks for your email. I’ll respond to it today.

The economy will get worse…not better

Back to the question…

My issue with ‘career’ politicians is simple: they don’t represent us anymore. Instead, they represent themselves, and do so at the expense of the electorate.

You see, there actually isn’t a democracy in Australia. Of course, many may laugh at this statement. But, really think about it…

A democracy is where people who want to have a say, can have a say. I don’t just mean protesting on the streets either. I mean really being able to have a say. In our country, or any country for that matter, it’s clear that the average Joe is ignored.

Regardless of government statistics, people are generally frustrated with the economy. It’s why third political parties are rising world-wide, and Trump is leading in the polls.

Unfortunately, the world economy is on a collision course to self-destruction. Yet, there’s no one in parliament who recognises this fact. We need someone who can cater to our needs. Someone who, when the going gets tough, won’t just sign any bill in government.

Most politicians are out of touch with reality — their only concern is getting re-elected. For this reason, they’ll listen to you and agree with what you’re saying. But, at the end of the day, unless they’ll get votes from it, your effort really means nothing.

To explain why, let’s wind back the clock…

Political ignorance

John Howard, Australia’s Former Prime Minister, promised he would never implement the GST. According to the Sydney Morning Herald, Howard issued a four-sentence statement in 1996 (my emphasis added):

Suggestions I have left open the possibility of a GST are completely wrong. A GST or anything resembling it is no longer Coalition policy. Nor will it be policy at any time in the future. It is completely off the political agenda in Australia.’ Later that day, confronted by a clamouring press pack, he compounded the lie. Asked if he’d “left the door open for a GST”, Howard said: “No. There’s no way a GST will ever be part of our policy.’

Of course, the people loved it, and Howard won a 40 seat majority at the election. Remember, supporting the GST, the Liberals lost the election in 1993.

In August 1997, less than 18 months after becoming Prime Minister, Howard floated the GST idea…yet again. According to the Sydney Morning Herald, Howard told Parliament in April 1998:

I went to the 1996 election saying there would not be a GST in our first term. I go to the coming election saying we are going to reform the tax system … The Australian public are entitled to be told before an election what a government will do after the election. They do not deserve to be misled. They do not deserve to be deceived.

Of course, this went down like a lead balloon. Port Phillip Publishing’s Publisher, Kris Sayce, says taxes are theft, and he’s right. For this reason, Howard lost the popular vote during the 1998 election. You can see the statistics below:

Source: Wikipedia
Click to enlarge

The liberals were annihilated in the election, losing the one and two party preferred vote. In fact, 60.50% of the population voted AGAINST Howard’s policies. Regardless of how the ‘representative democracy’ works, Howard didn’t win a mandate by any means. Yet he negotiated his way into government. The GST was introduced on July 1, 2000.

Unfortunately, in my view, this marked the start date of the end of Australia. Politicians don’t get it because they represent us anymore.

Gold is the hedge against government

With this in mind, let’s come back to Keith’s question:

If neither party is seeking to increase business taxation, why do you have such a dismal view of the economy following the election of one of them?

Keith, as I wrote above, politicians are out of touch with reality. They don’t represent us anymore. For this reason, it’s not what they are doing, it’s what they aren’t doing!

The Australian economy has been declining for years. Yet, neither party wants to solve this mess.

When the going gets tough, politicians will put their jobs ahead of yours. If needed, they will rapidly hike taxes to keep government afloat. In other words, don’t write off a 50% GST hike yet! It’s coming…

Remember, rising taxes slow economic growth. So the government is signing its own death warrant. The slower the growth, the less money spent, the more people unemployed, and the less tax collected. This spells a disaster, with the budget blowing out and debt rising.

Clearly, the end of government is near. When the Australian government defaults on their bonds, if history is a good roadmap, politicians will march us off to war. They will try and hang onto power for as long as possible.

Government needs to wake up and do their job. And that means start working for us — not against us. Yes, the coalition stated policy is to cut taxes by a small amount. But this won’t change a thing. At the end of the day, it still has a spending problem. If I went out and wasted all your money, would you keep giving me more each year?

There’s a solution…

Government should significantly slash taxes across the board. This would put more money in our pockets, and revitalise the economy. The more money we have to spend, the more confidence we have in our future.

Moreover, you are correct, ‘there is no correlative necessity for tax increases because, as one of your fellow editors wrote today, governments can arrange for central banks to finance their expenditures without need for extra taxation.’ Of course, this spending must have a cap (i.e. a percentage of GDP, adjusted for inflation). Or, we’ll end up in a state of hyperinflation.

In summary, don’t get your hopes up about the future. Whether Labor or Liberal is elected, it probably won’t change a thing. So, look after yourself — no one else will. When the time comes, owning gold shares will become the hedge against government. That time isn’t yet. When the financial system starts crashing, gold won’t survive.

If you want to know when to buy and what stocks to buy, check out Resource Speculator here.


Jason Stevenson,
Resources Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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