An old adage says to ignore what people say and watch what they do. That’s a good approach to the market. If you’re a fan of Warren Buffett, you might be interested to hear the great man has been buying stocks. His elephant gun is firing in a big way. Berkshire Hathaway, the multinational conglomerate holding company Buffett controls, has put US$12 billion into stocks since Trump was elected.
Buffett’s not saying for now which stocks they were. One wonders if they’re in the financial sector. That’s looking a lot more compelling with President Trump telling the world he’s going to dismantle the Dodd-Frank Act.
Dodd-Frank is the regulation Obama put in place after 2008 to contain Wall Street. The Republicans have been trying to chip away at it ever since.
Same old story from the banks
You only have to take a look at Deutsche Bank to see that appropriate behaviour still doesn’t appear to be a strong suit for the banking industry.
Deutsche’s just paid a US$425 million penalty in the US to help resolve allegations that it helped Russians launder billions of dollars between 2011 and 2014. One can only wonder how much of that ended up in London real estate.
The banks now have their man in office. And around in circles we go. Regulations are always put in place after a crisis, only to be dismantled or made redundant in the following years as Wall Street goes after big profits again. It’s all part of the set-up for another major boom…and consequent bust. You can see why in detail here.
All this is part of what drives the business cycle onwards and upwards. We’ve been telling subscribers over at Cycles, Trends and Forecasts for some time now to expect an expansion in the banking sector.
Australian Property Prices
You can see it happening in Australia, too. A couple of weeks ago, The Australian flagged the negative-gearing debate to flare up again after credit figures showed that investor property loans are surging. Owner-occupier statistics are flat.
This is of course a rational response to the incentives the tax system creates. What’s rational for you and me, however, eventually leads to a destabilising level of debt and rocketing property values.
That’s the system we have and, apparently, none of Australia’s politicians have the guts to do anything about it. Some of them are so far in on the game that they probably don’t want to take any action. Oh well, there’s nothing we can do about it except try and make money from it.
There’s plenty of upside to go in my view. For all the talk about an Australian property bubble, it’s interesting to note that the board of global bank HSBC has approved a growth plan for Australia.
HSBC is going to open some branches and go after a share of the mortgage market. HSBC would get a lot of intel from its worldwide operations. It describes Australia as ‘very healthy’.
It’s no wonder, either, especially when you consider that Europe still has €1 trillion of bad (‘toxic’) loans festering. This is exactly the same problem that plagued Japan when its massive property bubble burst after 1989.
These loans simply must be dealt with. The UK and US did this much better after the global financial crisis. A top regulator over in Europe is calling for the creation of a ‘bad bank’ that can buy up these troubled loans. That would give EU banks a healthy balance sheet so they can start lending again.
This is a very important situation to watch. What happens with these loans determines how quickly Europe grows from here. All we can do is watch this space.
Donald Trump Twitter Bot
You might want to keep watch on something else too: Donald Trump’s Twitter account. There’s now a bot that analyses his Tweets and places short trades based off his feed, according to Bloomberg. The bot analyses the sentiment of the post, and can put the trade on within seconds.
You could say it was only a matter of time. News is, and always has been, discounted exceedingly fast by insiders. This is not new. For example, during the US civil war, Wall Street had spies in the Confederate and Yankee armies to see who was winning the battles — an important factor as battle outcomes affected the gold price.
It’s why you want to trade with the trend, unless you have a very good reason not to do so. The trends driving the asset markets and economy are very clear once you know what to look for. You can find those here now.
Associate Editor, Cycles, Trends & Forecasts
From the Port Phillip Publishing Library