The Current State of the Economy

Whatever your views on the government, carbon emissions or climate change, the reality is that the issue over Australia’s energy sources is not going away. As The Australian reports:

Australia’s largest power generator, AGL Energy, has warned Victoria faces gas shortages in the early 2020s as supplies from Queensland dry up, with the problem to be made worse should Labor introduce a price trigger to limit export volumes and free up domestic supplies.

AGL, which is pushing ahead with plans to start importing liquefied natural gas to Victoria’s Crib Point by 2020-21, acknowledged the price of gas for Australian manufacturers had risen sharply but said imposing new restrictions on the export or import of gas may drive away investment in the sector.

Large gas reserves are on the decline

The large gas reserves in the Bass Strait, which have fed Victoria for years, are on the decline. Now an increasing amount flows down the pipeline network from Queensland.

But only for a few more years. The supply situation is so bad that AGL is considering importing gas from overseas! Talk about a debacle. Did Australia’s long housing boom make us think we really didn’t need to do anything else, except sit around drinking coffee and celebrate clearance rates?

While house prices have come off the boil this year, record low interest rates continue to do a job on the economy. In the three months to 30 June, the Aussie economy increased a healthy 0.9% to be up 3.4% over the year.

On a nominal basis (including inflation) the economy expanded at a robust 5.1%. Yet the RBA keeps interest rates at a record low of 1.5%? No wonder the economy is so strong.

Perhaps all that good news is priced in though? The Aussie market fell 1% yesterday, with more falls expected today. But it’s not just in Australia where nervousness is creeping in…

There is a fair amount of action going on beneath the surface all around the world right now. Up on top, things appear to be reasonably calm. The Dow finished the overnight session flat, while the S&P 500 fell 0.3%.

But over in Europe, stocks fell sharply. Germany’s DAX index was down 1.4% while London’s FTSE 100 declined 1%. European markets now badly lag US stocks.

Emerging markets are beginning to spill

Are the issues in emerging markets beginning to spill over into developed markets? I think maybe they are. The European banking system is heavily exposed to emerging markets. Could we be in for a rough ride in the traditionally volatile months of September and October?

The leader of this bull market, the NASDAQ, also faltered overnight. It fell 1.2% on fears that regulation is coming to the big tech stocks. I mentioned this possibility last week. The Financial Times has the story:

The US justice department signalled that it intends to pursue technology companies over competition and free speech issues, after President Donald Trump warned last week that Google, Facebook and Twitter should be careful where they tread.

Just as Sheryl Sandberg, chief operating officer of Facebook, and Jack Dorsey, chief executive of Twitter, appeared to pass unscathed through a Senate Intelligence committee hearing about Russian interference on US elections, Jeff Sessions, the attorney-general, announced a new line of attack.

He said he would hold a meeting with state attorneys-general to discuss what he called the “growing concern” about whether social media platforms “may be hurting competition and intentionally stifling the free exchange of ideas”.

This is a story that bears watching. It could just be the start. If regulations do hit the sector, the leaders of this bull market (Google, Twitter, Facebook etc) could experience sharp drops. It could be the catalyst for a general market downturn.

Of course, that will be all President Trump’s fault. As far as the mainstream media goes, nearly everything that goes wrong comes down to Trump’s ‘chaotic presidency’.

But funnily enough, with the US economy booming, I don’t see too many pieces lauding Trump for that. Not that any politician is entirely responsible for an economy’s performance. But more than anything, Trump is just getting out of the way and making sure that more of the money that people earn stays in their pocket.

While I’ve touched on this before, I’ll say it again. The establishment media hate Trump because he is an existential threat to the establishment. That’s why the media castigates him on a daily basis.

And the attacks are only increasing. I wonder why?

I’ll explain it all tomorrow.

Stay tuned…


Greg Canavan,
Editor, Crisis & Opportunity

Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Money Morning here.

And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here.

Official websites and financial e-letters Greg writes for:

Money Morning Australia