In today’s Money Morning…why disaster could be approaching the Aussie market…is it the wrong time for the Fed to raise rates?…lies, exaggerations and convenient omissions from the investment industry…and more…
‘Picking up pennies in front of a steamroller.’
It’s a delightfully visceral phrase, isn’t it? It doesn’t really work in Australia, with our lack of pennies in circulation. But I like it anyway. Maybe it’s the Canadian in me.
The reason for bringing up such strong imagery involving money, heavy machinery and impending doom, is the theme running through Money Morning this week. Plenty of people are making money in stocks, but disaster could be bearing down on them.
The rally in commodities has begun to falter. Is this the end of the resurgent resources boom, so soon after it began? And while interest rates remain on hold here, the RBA’s big brother the Fed has lifted rates for the second time in three months. As you’ll see below, Greg Canavan argues this decision has come too late, and will see rates lifted into approaching weakness that the Fed is blind to.
Meanwhile Vern Gowdie, regular editor at our sister publication The Daily Reckoning, joined the team this week with a dire warning for Australian investors. He argues that Australian and global markets are positioned for a massive fall. The cracks are already beginning to appear in our housing market, and that could lead to the banks next.
That’s why Vern’s written a new book, The End of Australia It shows you how to make the right decisions with your money now, before it’s too late to do anything. To learn more about his new book, and how to reserve your hardcopy (which we’ll mail to you), click here.
Now read on for your Money Morning editors’ warnings this week.
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Oil prices fell heavily toward the end of last week. On Monday Greg investigated whether this was a correction, or the beginning of the end of the commodities bull market. He argued that the selling isn’t enough to declare the bull market dead yet — adding that you should always be ready to ditch your opinion if the charts prove you wrong. Investors in the market today should have one eye on the exits. To read why, you can find Monday’s Money Morning here.
Greg returned to Australia’s east coast natural gas crisis on Tuesday, and how ridiculously late the government’s response to the problem has come. Greg argues that the market will inevitably find and implement a solution long before anyone in government has even come to fully understand the crisis. That creates opportunities for investors in the short term. The current growth may not last, but you should enjoy it while you can. Read the details here.
On Wednesday, Greg explained why he expected the US Fed to increase interest rates this week (he was right). But Greg argues that the Fed has misjudged its timing. And that could mean very bad things in the years to come. You can read why here.
Greg also covered the correction in commodity prices. After such a long bullish run, a correction is only natural. Greg argues that this isn’t the end of the rises for commodities. For details on all of that, go here.
Greg was spot on about interest rates in the US. As soon as the news came in, there was plenty of focus in the media on the Fed’s reassuring words about the strength of the US and global economies. On Thursday, Vern Gowdie took over the pages of Money Morning. He took take a sceptical look at that glowing sentiment. And at central banks’ attempts to get a new result by doing the same old thing that hasn’t worked in the past.
Vern argues that the reason central banks aren’t getting the results they expect is that their models are flawed and outdated. But rather than change their modelling to reflect reality, they simply ignore or dismiss what’s going on in the real world. And their political counterparts are no better. Vern took aim squarely at a recent statement from Treasurer Scott Morrison, where he denied that Australian housing could possibly be in a bubble.
Which is worse? Political and financial leaders so out of touch with reality that they can’t understand what’s happening? Or leaders who do, but aren’t willing to admit the truth or accept any blame? Read Vern’s warning here.
But if you listen to the mainstream media and the investment industry, there’s no danger. Markets may see a minor pullback or correction, but nothing could possibly threaten overall growth. So get your money into the market, and stop worrying, we’re told. But is that advice responsible, or even honest? Vern argues that the investment industry, obviously, has a vested interest in your buying their products. And there are some sticky details they aren’t mentioning in their glowing forecasts. You can read the details here.
And in this week’s Financial Anarchists podcast, Kris and Woody ask if Australia can take out the world record for terms without a recession, discuss why investors were so worried about the Dutch elections, and the impact of the Fed’s interest rate rise. You can listen in here.
Editor, Money Weekend
Numbers of Interest, as of Friday
Aussie Dollar to US Dollar: 76.85
Gold: US$1,225.85 (AU$1,597.73) per troy ounce
Silver: US$17.28 (AU$22.52) per troy ounce
Bitcoin: US$1,131.12 (AU$1,471.85)
West Texas Intermediate Crude Oil: US$48.85 per barrel
ASX 200: 5,799.60