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  • ‘Trump doesn’t back down; he doubles down’

    The Agora Financial Cup is still in safekeeping in my house. It’s up for grabs again when I visit!

    That was Jim Rickards’ sneaky little ‘PS’ note in one of our personal emails on Tuesday.

    Jim and I had just wrapped up an hour-long Skype interview. The interview was all business, of course…

    …but then Jim had to remind me that he outplayed me at pool, two to one.

    This ‘Agora Financial Cup’ all started over margaritas and local Nicaraguan beers a few years ago.

    We were at a conference in Rancho Santana, Nicaragua. The business part of the day was done. The 20 or so of us who work with Jim were keen to wind down. The pool table was free.

    I relayed a story to Jim about how my old man used to hustle at pool while at art school. I think Jim mistakenly took me to be a pool shark. The balls were set up…and somehow I won with a lucky side pocket eight-ball shot.

    At the end of that match, and gracious in defeat, Jim created the ‘Agora Financial Cup’ challenge.

    So far, we’ve played pool on three different continents.

    And every single time we have been in the same city, we make sure we have a rematch.

    People often ask me what sort of guy Jim is. My answer is always the same.

    When you’re hanging out with Jim over the clacking of balls and a whiskey of your choice, it’s easy to forget he is one of the most eminent contrarian economists of our time…

    Forcing China to talk

    As I said, the day Jim sent that email through — secretly taunting me about losing the pool game! — we’d just finished an hour-long Skype interview.

    On Tuesday this week, Jim and I arranged an exclusive interview for subscribers of Strategic Intelligence Australia.

    And in this interview, we left no stone unturned. We talked trade wars, currency wars, financial warfare, secret happenings in the gold market…and how ‘the Reserve Bank of Australia is the most confused central bank in the world’.

    One of the key topics we focused on was the Chinese trade war. As Jim pointed out, while it will have some effect on the US, any fallout will have a much bigger impact on Australia.

    And the trade war isn’t about tariffs. Rather, the tariffs were a way of forcing China to the table.

    US$50 billion in the hole…

    You see, China has prospered on the back of intellectual property theft for decades.

    China hasn’t ‘stolen’ intellectual property so to speak, although there are some links to cyber theft.

    Instead, China has a complex legal web that coerces companies to provide full technology patent details when manufacturing products in China.

    Plus, it forces businesses to switch to state-owned technology and supported Chinese products.

    This has given China a technological edge, even though the Chinese aren’t innovation leaders themselves.

    This process allows Chinese firms to piggyback off others’ creativity and innovations, and create cheaper products for consumers.

    Meaning, China has been able to flood the market with cheap knockoffs because of its disregard for intellectual property rights.

    US Trade Representative Robert Lighthizer estimates this has cost US companies US$50 billion.

    That’s what kicked off the ‘official’ tariff war at the start of 2018.

    At the beginning of February, a Chinese team of delegates arrived in Washington. The Chinese needed to reassure Lighthizer that recently passed legislation would end forced technology transfers.

    ‘It’s going to get worse’

    So, what was the outcome of that meeting?

    Not much.

    In fact, so little progress was made that, as Jim told me during our interview, a team of US delegates is heading to China this week to discuss the trade war.

    What does Jim predict from this follow-up meeting?

    His exact words were:

    Very unlikely they’ll get this resolved. I would say that the most likely scenario is that they’ll extend the deadline. So we’ll come up to March 1st, they’ll agree, give it another 30 days, not necessarily 90 days. Beginning at that point, only 30 days.

    He added: ‘There’s a tentative summit meeting between President Xi and President Trump at the end of March.

    The thing to remember here is that President Trump isn’t backing down.

    This tough China stance isn’t Trump posturing.

    As Jim told me, ‘Trump doesn’t back down; he doubles down.

    This is serious. This is an opening shot, but it will escalate. It will get a lot worse. Eventually the intellectual property theft issue is going to come to the fore.

    That’s turning out to be a lot more important than import subsidies and the trade deficit.

    And this war’s going to go on for a very long time. It’s going to get worse.

    This is only a snippet of my hour-long call with Jim.

    However, the point for Aussie investors is that the trade war is far from over.

    Trump has made it clear he won’t budge on intellectual property theft.

    This means that not only will the trade war last for much longer than we think, a reduction in trade will drastically reduce China’s growth.

    And that could blindside the Aussie economy.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post ‘Trump doesn’t back down; he doubles down’ appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • *Government snaps fingers* Your money is gone…

    No, we aren’t coming back.

    That was the answer I got from my mum.

    My folks are currently in the process of planning their twilight years together.

    Granted, retirement is still a couple more years off for them both.

    That hasn’t stopped the planning though.

    The plan? Pack up, head off.

    Live the nomadic life they’ve wanted to for the past 40 years…

    Ditch all their possessions. Hand down the nice stuff to my sister and I. Sell the rest of the junk at a garage sale…and have no home base. Come and go as they please.

    All the things they couldn’t do before because they were anchored to one spot with kids, grandkids and jobs.

    It sounds incredibly freeing.

    Running off into the sunset…

    …knowing full well your retirement years and money are all yours.

    AMP sinks as gravy train ends

    The royal banking commission is now a distant memory.

    The outcome?

    Some mortgage brokers were bad, but most bankers were badder.

    The final Hayne report saw the value of mortgage broking stock drop 20-30% the day after it was released.

    In contrast, bank stocks rallied 5% on the news.

    That’s right.

    The badly behaved banks were rewarded with skyrocketing share prices.

    And while bank shares rallied on the back of the report…AMP soared almost 10% on the news.

    Yet as of this morning, the rally over.

    Why?

    Well, it turns out AMP is about to take a $30 million hit to its bottom line…

    Sneaking into your retirement

    Have you heard of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018?

    The bill is currently in front of the Senate and I suspect it could be ‘wealth altering’ for Aussies. It’s tipped to get the stamp of approval this week.

    This news alone is hammering the AMP share price.

    You see, the super reform is about giving the Australian government the power to ‘claw back’ inactive super accounts worth less than $6,000.

    In addition, the bill plans to give low account balance holders the ability to opt of life insurance if they’re under the age of 25.

    This means some $6 billion in inactive retirement savings will fall under the power of the Australian Taxation Office.

    Sorry, not power. I mean under the ‘watchful guidance’ of the ATO.

    Although The Australian didn’t use soft language to describe the powers the ATO would have, writing it would ‘seize’ low retirement balances:

    Under the plan, inactive ­accounts with balances below $6000 will be held in the ATO until combined balances between the seized account and the member’s active account reach $6000.

    The problem is that the superannuation system has been money for jam when it comes to inactive accounts.

    Life insurance and other random fees have made the wealth management sector, well, wealthy.

    AMP is now bearing the brunt of this forced wealth transfer. One report showed that it has the largest amount of inactive accounts within its two retirement trusts, at 57% and 43% respectively.

    This year alone, AMP estimates the loss of these inactive accounts will reduce earnings by $10 million…and as much as three times that amount for the 2020 financial year.

    Of course, these changes won’t only affect AMP.

    All superannuation branches of the industry are likely to be affected.

    The fact that so many will lose money from this forced shift goes some way to showing us just how much money could be made off our collective $2.8 trillion superannuation industry.

    However, it’s not the damage of AMP’s share price I want you to think about.

    The passing of the government bill, to transfer power of small account balances to the ATO, should indicate what’s about to come next.

    The writing on the wall

    The real problem today isn’t that AMP is losing several hundred thousand inactive accounts, which it could charge fees on while doing absolutely nothing for people.

    On the surface, it looks like the government is doing the right thing. That is, protecting the little people.

    But the reality is that with a couple of taps on a keyboard, the government changed who could hold that money — with little opposition.

    Today, it’s just the inactive accounts being handed over to the ATO.

    What comes tomorrow?

    Five prime ministers ago, Julia Gillard told Australians they didn’t need a sovereign wealth fund because of the superannuation industry.

    Back in 2011, the Australian superannuation industry was worth $1.4 trillion.

    Today, it’s double that.

    In less than a year, $3 trillion will be kicking around the financial system looking for a home.

    That’s a frightening amount of money.

    Money that has, until recently, been predominantly left to private businesses to oversee.

    But now our super industry is worth more than Australia’s gross domestic income (tipped to be $1.9 trillion for 2019).

    The private sector oversaw the government-forced savings scheme as it grew into the fourth largest pension fund in the world.

    Don’t be shocked if our retirement pot ends up entirely in government hands.

    They dropped the hint years ago.

    Kind regards,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post *Government snaps fingers* Your money is gone… appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Australia's biggest companies ignore climate change risk: report

    Australia’s biggest companies are ignoring calls from regulators and investors to do more to mitigate the risks of climate change, with a new study finding that many of the nation’s top 100 companies still do not identify climate change as a material business risk.

    Posted: by ABC.net.au

  • C’mon Shae, what about silver?

    Alright, I’ll admit it. I’m guilty.

    I rarely talk about silver.

    And I should.

    Silver — more so than gold — is a crucial metal for modern society.

    It’s everywhere.

    In your phone, laptop…in fact, pretty much in any electronic device you own.

    Scratch that.

    Anything with a circuit board will have a small component of silver.

    Your microwave, washing machine and oven.

    Camera equipment.

    All those new, shiny trucks driving past you on the freeway? Yep, their circuit boards contain silver too.

    And while silver oxidised batteries have been around for some time, the electrical car revolution could see them become more popular in passenger vehicles.

    Silver is an industrial metal.

    Our tech revolution wouldn’t work without it.

    Yet no one covers it…

    Or, as one reader put it to me the other day, ‘C’mon Shae, what about silver?

    Well, I’m glad you asked…

    Gold goes up — silver goes nowhere

    Silver is easily forgotten about.

    At roughly AU$22 per ounce, you can buy two ounces of the stuff and get change from a 50 buck note.

    And let’s be honest, the moves in gold are MUCH more exciting than moves in the silver price. Gold can jump US$20-30 per ounce in a day.

    Heck, there’s been times when it moves US$100 in an hour.

    But silver would be lucky to move a buck or two in response.

    The lack of volatility — or excitement — is one of the reasons why many people never cover it.

    Yet silver is a critical factor for our tech-driven lifestyle.

    Without it, we wouldn’t have all our fancy tech gadgets.

    Not only that, but throughout history, silver has co-existed with gold as a store of wealth.

    The use of an official silver standard — that is, a widely accepted, government-backed form of money — goes back to the Athenian empire.

    Bolivia, India, Spain, China and Germany have a history of silver standards.

    At the start of the 18th century, Isaac Newton introduced a mashup of the gold and silver ratio.

    Newton popularised the concept for England to accumulate gold to protect wealth, while allowing silver coins to circulate as the money supply.

    Hence the name ‘pound sterling’.

    Just like with gold, silver is money too.

    But here’s the thing.

    While the value of gold is up 6.5% in the past six months, silver has gone nowhere.

    In fact, in the same timeframe, the price of silver per ounce in US dollar terms has dropped 6 cents…

    And that is why silver could be presenting you with a buying opportunity today…

    Ready for the silver rally?

    Right now, silver is at a multidecade low compared to the price of gold.

    And if history is anything to go by, we could be on the precipice of a new silver rally.

    By that, I mean the gains in silver could be bigger than the gains in gold.

    Let me show you what I mean.

    The gold to silver ratio is the highest it has been in almost 20 years…

    The gold to silver ratio is simply how many ounce of silver you can buy with one ounce of gold.

    In other words, it’s a useful tool to look at how cheap or expensive silver may be in relation to gold.

    As we speak, the gold to silver ratio is the highest it has been since 1993.

    Source: Stansberry Research

    Now, the last time the gold to silver ratio was above 80…the silver price made extreme gains in a short period of time.

    Have a look at this…

    Three times silver has outperformed gold

    Source: Stansberry Research

    Over the course of 1993, 2003 and 2008, the physical price of silver busted out considerable increases for investors.

    In all three cases where the gold to silver ratio was near or above 80, silver trumped any gains made by gold.  

    In 2003, when the price of silver jumped 26%…the price of gold only moved up by 14%.

    Then in 2008, when silver moved an incredible 81% higher…gold gained only 44%.

    And history may be about to repeat itself.

    Given that the gold to silver ratio is above 80 for the first time in almost 20 years, this leads me to believe that silver is going to surprise investors with a rally.

    Silver is looking cheap.

    Get ready for the surprise move.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post C’mon Shae, what about silver? appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Coles supermarket sales growth slows as Little Shop boost tails off

    The popular collectables campaign boosted sales over the half but the effect seemed to wane in the second quarter as Coles delivers its first result since spinning off from Wesfarmers, while wealth management firm IOOF shrugs off a humiliating royal commission run to deliver a surge in profit.

    Posted: by ABC.net.au

  • Free money to all!

    One of the oldest sayings in economics is, ‘There’s no such thing as a free lunch.’

    The point is that even if a lunch appears to be free, you’re paying for it in some hidden way, such as reciprocal obligations, higher contract prices or some moral obligation to do business.

    Of course, the principle is even broader than that and applies not just to lunches but to any transaction where the price is too good to be true.

    Despite that well-considered wisdom, economists and politicians are promising something today that’s even better than a free lunch.

    It’s free money!

    Getting rich by blowing dollars

    Free money is the promise of a new school of economics called Modern Monetary Theory, or MMT.

    If you haven’t heard of it yet, you will be hearing about it a lot as the 2020 presidential race kicks into high gear.

    Bernie Sanders is a believer in MMT and the vocal Congresswoman Alexandria Ocasio-Cortez claims that it should be part of the ‘conversation’ among Democrats.

    The idea is that the US Treasury and Fed are a merged entity.

    The US Treasury creates wealth by spending money.

    The notes issued by the US Treasury can simply be bought by the Fed and stashed away on the Fed’s balance sheet until maturity.

    There is no limit on the amount of debt the US Treasury can create or the amount of money the Fed can print to buy the US Treasury debt.

    The money created by the Fed is spent by the Treasury, which increases GDP and enriches the recipients of Treasury spending.

    This money can be used for infrastructure, healthcare, free tuition, guaranteed jobs and income, or anything else.

    What’s not to like?

    The MMT plan will lead to national insolvency and the repudiation of the US dollar, but very few will see that coming until it’s too late.

    This will be destructive for the US dollar.

    Keynes and the liquidity trap

    John Maynard Keynes was famous for the idea that in a liquidity trap where individuals and companies refused to spend or invest and hoarded cash, it was the responsibility of government to stimulate the economy by deficit spending.

    Keynes’ ideas have some merit in a situation where the government is not heavily indebted to begin with and where the economy is in a severe recession or the early stages of a recovery.

    Keynes died in 1946, but his ideas lived on.

    The problem was that ‘deficit spending’ became an all-purpose excuse for more government entitlements rather than the limited recession remedy Keynes envisioned.

    The US has only had three modest surplus years in the past 50 years; the other 47 years were all deficits.

    The US national debt now stands at US$21 trillion (not including guarantees and entitlement liabilities) and the debt-to-GDP ratio now stands at 106% (the highest since 1945).

    Worse yet, the US is past the point where debt creates any growth at all.

    The US is in a zone where more debt actually hurts growth and slows the economy, while the debt remains.

    Welcome to the return of US$1 trillion worth of annual deficits under Donald Trump for the first time since the early years of the Obama administration.

    Both Republicans and Democrats embrace crude versions of Keynes’ original ideas without regard to the fact that there is no stimulus in current conditions, and additional debt risks a complete loss of confidence in the US government’s finances and the role of the US dollar.

    If Keynes were alive today, he’d be the first one to object to such out-of-control spending and profligate debt levels.

    The Fed is stuck in a burning building

    An 11-year monetary experiment is coming to an end in failure.

    No one knows what happens next, but the need to position portfolios to preserve wealth has never been greater.

    The experiment began in the midst of the financial panic of 2008 when the Fed began printing money under a program called ‘quantitative easing’, or QE.

    This first program lasted until June 2010.

    After a pause, the Fed began a new program of money printing called QE2 in November 2010, which lasted until July 2011.

    The Fed then took another pause, but the economy weakened so a new program called QE3 started in September 2012, which lasted until October 2014.

    All told, the QE programs expanded the Fed’s balance sheet from US$800 billion to US$4.5 trillion.

    At the same time, the Fed held interest rates at zero from December 2008 to December 2015.

    It has raised rates to 2.5% since.

    The benefits of money printing and zero rates are still under debate.

    But beginning in December 2015, with the first rate hike in nine years, and in October 2017, with the first balance sheet reductions since the crisis, the Fed began to ‘normalise’ interest rates and its balance sheet to prepare for the next recession.

    The goal was to get rates up to 4% and get the balance sheet down to US$2.5 billion in time to fight a recession.

    Could the Fed normalise without causing the recession it was preparing to fight?

    Based off recent remarks by Fed Chair Jay Powell, it appears the answer is no.

    The Fed will pause in its interest rate hikes in March and may also slow the rate of balance sheet reductions in the near future.

    This is in response to a slowing US economy and slowing global growth.

    The Fed cannot normalise without causing a recession, which means it cannot prepare for the next recession.

    The Fed is stymied and cannot escape the room.

    All the best,

    Jim Rickards Signature

    Jim Rickards,
    Strategist, The Daily Reckoning Australia

    The post Free money to all! appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Gold to hit US$15,000. Wait, what?

    It’s clear that merger mania has broken out in the gold mining industry.

    In recent months, we’ve seen the merger of Barrick Gold (the world’s second-largest gold producer by market capitalisation) with Randgold Resources (the world’s ninth-largest gold producer).

    The Barrick-Randgold deal was announced on 27 September 2018 and completed on 31 December 2018 at a valuation of approximately US$6.5 billion.

    The next blockbuster deal was the acquisition of Goldcorp (the world’s eighth-largest producer) by Newmont Mining (the world’s largest producer), announced on 14 January 2019 with a valuation of about US$10 billion.

    With four of the world’s 10 largest gold producers engaged in multibillion-dollar mergers, the floodgates are now open for scores of mergers and acquisitions in the ranks of mid-sized and junior companies in gold mining and gold royalties.

    High gold prices = more mergers

    Your strategist in a core shed in the Val-d’Or gold mining region of Quebec, Canada. The cores (displayed as horizontal slabs) are obtained from drilling operations on promising sites for gold mines. They are analysed for gold content, and the data are used in feasibility studies for new mines.

    Recent higher gold prices are an obvious catalyst for mergers and acquisitions of companies with significant proven reserves and operating mines.

    This is especially true in an environment where discoveries of new reserves are scarce and the concentrations of gold in existing reserves are low.

    The single most important factor in the forecast is not the higher price of gold but the economies of scale and efficiencies that arise from combining successful gold producers.

    When two major gold producers merge, the economies of scale are obvious.

    While hands-on mining expertise may be required at each mine, it is straightforward to eliminate duplication in head office and regional office staff in terms of executives, lawyers, HR personnel, finance professionals and other staff functions.

    Discounts from outside vendors can also be arranged when the volume of business goes up.

    This applies to everything from feasibility studies to travel and entertainment.

    The result is an immediate increase in earnings per share, which attracts new investors, including those who have not traditionally invested in the mining sector.

    Current reserves more valuable than before

    Another driver is the difficulty in finding new high-quality reserves.

    Gold output has been flat for the past several years.

    Part of this is due to the shut-in of mines after the 2011-13 gold price collapse and resulting bankruptcies of marginal or overleveraged producers.

    Much of that capacity has since been absorbed by new mining companies seeking a lower cost structure and purchasing distressed assets for cents on the dollar.

    That game of musical chairs is now over.

    It has resulted in some of the shut-in capacity coming back online, but it has not resulted in large-scale new capacity.

    Gold has always been scarce and difficult to mine (that’s the attraction).

    But in recent years, it’s almost impossible to find new reserves.

    This makes existing reserves more valuable and drives companies to increase their share price through financial engineering rather than new output.

    Complementing the decreased or flat supply is steady and increasing demand. Russia and China have officially added 3,000 metric tonnes of gold to their reserve positions in the past 10 years.

    The actual figure is likely higher because China is non-transparent about its official holdings.

    Other nations are also adding to their gold reserves, including Turkey, Iran, Mexico and Vietnam.

    Official sales of gold by developed economies, central banks and the IMF stopped cold in 2010 (with the exception of trivial sales by Canada, which now has no official gold at all).

    The bull market continues

    This imbalance of supply (flat) and demand (growing) has put a floor under gold prices independent of other price factors, including real interest rates and investor sentiment.

    The asymmetry of price volatility in favour of rising prices puts proposed merger deals on strong ground.

    Another factor is the increase in the number of gold mining companies whose stock prices are trading at premiums to book value.

    These companies can use their stock as currency to buy competitors. The result is accretive to earnings per share and adds another vector in favour of doing such deals.

    Another driver of merger and acquisition activity in the gold mining industry is geographic diversification.

    Many attractive sites for gold mining suffer from geopolitical uncertainty or risk of social unrest.
    These locations include Russia, Venezuela, South Africa and the Congo.

    Gold (US dollars) – six months

    Source: Kitco.com

    Finally, the most powerful driver of gold mining merger and acquisition activity is simply the fact that gold has entered a new bull market phase, which may boost the price of gold to US$5,000 per ounce or higher, if the last two gold bull markets are any indication.

    It’s important to understand that you cannot make money in gold when the world is on a gold standard.

    A gold standard means a fixed relationship between gold and the leading trading currencies.
    Gold was pegged to the dollar at US$35 per ounce in 1933 and remained there until 1971.

    The price did not fluctuate and there was no dollar profit to be made in gold (something to keep in mind the next time some gold bug pounds the table and demands a gold standard).

    The way to make (or lose) money in gold is when there is no gold standard and the US dollar price of gold fluctuates.

    The first bull market after 1933 ran from 1971-1980. Gold rose 2,200%, from US$35 per ounce to US$800 per ounce.

    This was followed by a prolonged bear market from 1980-1999 when gold fell from US$800 per ounce to about US$225 per ounce — a 72% decline over 20 years.

    The next bull market ran from 1999-2011, during which time gold rose from US$225 per ounce to US$1,900 per ounce — an 845% rally.

    This was followed by a second bear market from 2011-2015 when gold fell 55%, from US$1,900 per ounce to US$1,050 per ounce in December 2015.

    The new bull market, the third in the past 50 years, began on 15 December 2015 and continues today. So far, gold has rallied 25% off that December 2015 low.

    The first bull market (1971-1980) ran for nine years.

    The second bull market (1999-2011) ran for 12 years.

    Averaging those two rallies suggests the new rally could run for about 10 years, which would last until December 2025.

    A 1,500% gain (about the average gain of the two prior bull markets) would put gold at US$15,000 per ounce by 2026.

    It’s not necessary to reach that conclusion to see the huge upside potential for gold prices in this new bull market.

    That’s why major gold miners are eager to acquire their competitors at current attractive valuations.

    All the best,

    Jim Rickards Signature

    Jim Rickards,
    Strategist, The Daily Reckoning Australia

    The post Gold to hit US$15,000. Wait, what? appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Hayne review slaps banks on the wrist

    • Saying something and doing nothing
    • The recommendations are…
    • Look out for the sacrificial lamb

    Good news, bankers!

    You may carry on with your evil banking ways.

    And you, regulators?

    It’s also business as usual.

    But this time it’s even better.

    Not only were you able to ignore the despicable banking actions of raping and pillaging Aussie customers…

    …now you have been charged with ‘following up’ the criminal actions from the Royal Banking Commission.

    You know all the powers you had before but didn’t use?

    Well, you get to chase them up again.

    Oh and Australians, what about you?

    Well, I have disappointing news for you.

    Nothing is going to change.

    Saying something and doing nothing

    Well, wasn’t that a dog and pony show?

    The Royal Banking Commission took months, included 100 witnesses and some 10,323 submissions.

    The banking spectacle dominated the 2018 news cycle.

    Banks shares were hammered down from their April 2017 highs.

    It cost taxpayers an estimated $75 million to discover our dirty banking deeds.

    Yesterday, when the markets closed, the findings from Commissioner Ken Hayne were made public.

    The outcome? 76 recommendations that were meant to rattle the banking sector to its core.

    Except that won’t happen.

    Banks essentially have been given a slap on the wrist. That’s it.

    The recommendations are…

    Hayne’s findings suggest ending trailing commissions for mortgage brokers on all new loans. And over the next two to three years, Hayne recommends the end of the banks paying brokers. Instead, customers should pay upfront in a ‘fee for service model’.

    In the report, Hayne points to 24 cases of criminal misconduct, some of which may be aimed at the banks or individuals. National Australia Bank has copped the brunt of Hayne’s wrath.

    However, in a plot twist, Hayne has recommend that all 24 cases of criminal misconduct be followed up by APRA or ASIC for ‘further investigation’.

    This in itself is hilarious.

    You see, as I explained yesterday, APRA and ASIC are our financial services regulators.

    Yet they did absolutely nothing to punish the banks when they behaved badly.

    In his interim report, Hayne said that adequate legalisation was already in place for the regulators — just that inadequate inaction was taken or ‘did not meet the seriousness of what had been done’.

    Except in this final report, Hayne believes that both APRA and ASIC are up to the task of following up the misconduct this time around.

    In spite of their gross negligence holding the big four banks to account, Hayne suggests that both regulators now are responsible for investigating the 24 criminal cases against the $3.6 trillion banking oligarchs of Australia.

    Worse still is that Hayne suggests that the overseers get their own overseer.

    Nope. I’m not joking.

    One of Hayne’s recommendations — to ensure the regulators punish big businesses the way they target smaller ones — is that another regulatory body be established to ensure that APRA and ASIC do their jobs.

    This is another layer of bureaucratic mumbo jumbo. Something that, in the long run, will do very little — aside from see more taxpayer dollars spent…

    Look out for the sacrificial lamb

    The whole report from Hayne appears to be based on recommendations and follow-ups.

    Given the regulators have shown a tendency to ignore banking misdeeds, I suspect there will be at least one official sacrifice to satisfy the theatrical government rage.

    With the election only a few months away, there will be a sense of urgency from both sides of government to look like they are ‘doing something’.

    The biggest issue with the anticlimactic findings in the report is that it isn’t the banking overhaul many expected.

    There appears to be an avenue open for people who were sold mortgages they couldn’t afford.

    In fact, one article even suggested that banks may be forced to check if borrowers can repay their mortgage debts.

    However, that’s really it.

    If the lobbyist don’t get their way, and mortgage brokers become a ‘fee for service’ model rather than be paid by banks, it will only lead to greater mortgage debt concentration in the banks. That could lead to about 20,000 mortgage brokers out of work.

     Aside from that, the rest of Australia has very little to take away from the report.

    The banking sector doesn’t want reform — and I’ll bet my pay cheque that the government doesn’t want to disrupt the credit machines that prop up Australia’s economic prosperity.

    We’ve seen this sort of posturing and pandering before.

    The end result of the Haynes report is that banking reform will be reduced to political slogan over the next few months.

    The final outcome of the Royal Banking Commission is that it was a $75 million enquiry into the banks’ secrets and toothless regulators.

    It has done little to restore people’s faith in the banking sector.

    So buckle up, folks. Last year’s royal commission was nothing but entertaining viewing.

    But nothing will change.

    Give it a year, and it will be like the royal commission never happened.

    Banking in Australia is too big to stop.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Hayne review slaps banks on the wrist appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • High gold prices = more mergers

    • High gold prices = more mergers
    • Current reserves more valuable than before
    • The bull market continues

    Well, that didn’t take long.

    Two weeks ago, gold dipped below US$1,300.

    To some, it looked like the gold bull market may stall once again.

    It didn’t to me.

    After a decade of watching the gold market, I know a small dip when I see it.

    Within two days of falling back to US$1,280, the yellow metal dusted itself off and rallied once more.

    Then it moved US$40 per ounce higher to US$1,320.

    What comes next?

    Well, as I wrote to Hard Money Trader subscribers last week, a fall back down into the US$1,300-1,310 range should be expected. That’s beginning to happen now, with the metal bumping along at US$1,314 right now.

    When gold rallies this quickly, it’s often followed by an equally quick fall…but generally not in the same magnitude as the rise.

    However, the physical gold price won’t trudge along this level for long. By the end of February, we could be looking at gold sitting between US$1,340-1,360.

    That doesn’t seem like much. But smaller price moves in gold today are part of a much bigger story unfolding around the world.

    Today, Jim explains why there’s so many mergers happening in the gold market.

    And more importantly, he unveils a potential new high for the precious metal…in less than seven years.

    Read on for his analysis.

    Best Wishes,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post High gold prices = more mergers appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Investing like it’s 1999

    There’s a lot going on…

    Before we look at what’s going on today, let’s go one step back.

    To February 1999, to be exact.

    A time when Alan Greenspan was in charge of the Fed.

    The euro was a month old, but the currency was yet to circulate the eurozone.

    The market crash of the 80s was a distant memory for most.

    Except the Japanese, whose economy collapsed in 1991 and began what we now call the ‘lost decade’.

    To revive the country’s flagging economy, the Bank of Japan (BoJ) did the unthinkable.

    It lowered interest rates to 0%. And they stayed that way for almost a decade…

    Uncharted territory

    Japan’s move to zero was the first time in global central bank history that a zero interest-rate policy was used.

    Compare that to the rest of the world at the time.

    Both the US Federal Reserve Bank and the Reserve Bank of Australia had a cash rate of 5%. The Bank of England set its benchmark to 5.5%. The Deutsche Bundesbank (central bank of Germany) set rates at 2.5%.

    Former Fed chairman Ben Bernanke was incredibly critical of the decision, as he wrote in a report titled ‘A Case of Self-Induced Paralysis’.

    Bernanke suggested that zero interest rates were not necessary and that ‘to the contrary, there is much that the Bank of Japan, in cooperation with other government agencies, could do to help promote economic recovery in Japan’.

    Less than a decade later, when the financial panic unravelled in the US, Bernanke changed his tune and followed BoJ’s lead.

    The Fed dropped rates to near zero and flooded the US with cheap money.

    Bernanke did this despite knowing that the BoJ’s decisions crippled a nation of savers. The zero interest-rate policy didn’t boost spending. Instead, people hoarded money…

    Japan led the world into a new monetary experiment.

    In spite of the disappointing economic outcome for Japan, Bernanke followed suit nine years later.

    And now, today, Jim says the Fed finds itself in a precarious position.

    He says the Fed kept rates too low for too long.

    Plus, it was coupled with trillions of dollars in government spending.

    These debt-fuelled emergency monetary policy measures have taken the US into the ‘red zone’, says Jim. Read on for his full analysis.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Investing like it’s 1999 appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Never invest in any idea you can’t draw with a crayon

    • Information overload
    • Let’s get complicated
    • The Aussie investor’s crystal ball

    Confession time.

    I completely borrowed that headline from the internet.

    No idea who said it. Don’t care, really.

    But I will tell you this. It’s brilliant advice.

    Because today I am on a mission.

    To show you how simply things work when it comes to analysing the health of the Aussie economy.

    What if I told you there was a way to predict our fortunes, without reading a single statistical report?

    That you could shelve all the official Australian Bureau of statistics reports, and ignore central bank statements?

    Sure, they have their place.

    But finding the time to scour through them, and then come up with your own interpretation of what’s going on in the Aussie economy, is time-consuming.

    What if I could hand you a little-known market crystal ball?

    One so few investors use…

    …one that could even put you ahead of the investing curve?

    Information overload

    Before I show you this simple trick to market analysis, let’s go through some hard data.

    We’ve had a week of economic ‘news’.

    First there was the final report from the Royal Banking Commission on Monday. I’ve already covered my thoughts on it here and here.

    Then, the Reserve Bank of Australia held its first meeting for the year on Tuesday. Rates are on hold. The following day, RBA Governor Philip Lowe hinted there would be a rate cut.

    Speaking at the National Press Club, he said, ‘Looking forward, there are scenarios where the next move in the cash rate is up and other scenarios where it is down.’

    He then added that the rate decision hinges on the unemployment rate. That’s baloney. There’s no way the basis for interest rate changes rests on one single bit of data. I’ll cover this in more detail next week.

    However, in between the cash rate not changing and Lowe hinting that it will, there was more news.

    December retail sales were woeful. Retail trade was negative, down 0.4% for the month.

    December is meant to be the busiest time of year for retailers. Yet it turns out we did most of our shopping in November (when retail trade rose by 0.5%). 

    Not only that, CommBank saw retail-related credit card spending fall sharply over the November to January period.

    But who cares about retail data, right? That stuff is just for people who like shopping too much…

    Before I answer that question, let’s look at the ‘important’ economic data.

    Let’s get complicated

    Before the RBA told us on Tuesday what we already knew, there was a trade balance data dump.

    That is, Australia’s trade balance was released.

    And it wasn’t good news.

    Trade surplus — where the value of our exports is higher than the cost of imports — grew to $3.68 billion in December, up from a $2.25 billion trade surplus in November.

    It might not sound like much, but it’s a 65% increase in 30 days.

    On the surface, a surplus sounds good, doesn’t it?

    After all, we have been to conditioned to think that a ‘surplus’ means we have spent less then we earnt. It’s a favourite trick of the pollies each election year…reminding us they’ll bring Australia back into a ‘surplus’.

    In spite of the positive-sounding headline, a trade surplus isn’t always positive. 

    More so when you’re not a country that manufactures things for export.

    Exporting more than we import tells us that domestic demand is weak.

    Let me put that another way.

    People and businesses aren’t buying as much. That means there’s less demand for things we normally would bring into the country.

    Retail goods like apparel, electronics, coffee and furniture imports would all be lower.

    And it isn’t confined to households, either.

    Because a higher trade surplus also reflects the lack of business demand for goods used in construction and engineering.

    Trade surplus data paints a big picture of the economy.

    In addition, the November to December jump isn’t a one-off.

    We have been growing a trade surplus since January 2018.

    The monthly net gain steadily increased from $1 billion at the start of last year to $3.68 billion at the end of the year…leaving Australia an annual increase of $22.2 billion.

    Which, by the way, is more than double the $9.5 billion trade surplus for all of 2017.

    This is a telling sign for the overall health of the economy.

    Local demand for stuff — whether it be for business, to fill our homes, or to spend at cafés and restaurants — is dropping.

    We are bringing less and less into the country.

    Our consumption-driven society is spending less money.

    Whew. Thank goodness we have that complicated data set to tell us that.

    The Aussie investor’s crystal ball

    Now, allow me to let you in on a secret.

    As an investor, you don’t need to go through complex trade surplus reports…or even wait for the retail trade data to tell you retail sales dropped.

    Australia is a consumerist society. Our gross domestic product (GDP) growth depends on people spending money within the economy. Not iron ore. Not gold. Not natural gas.

    The junk you buy at the shops and the services you pay for — so you don’t have to do the job yourself — are the lifeblood of Australia’s growth.

    You can actually analyse the health of the Aussie economy yourself, with ease.

    The idea is simple.

    Track the performance of retail companies.

    For example, financial data for retailers like Kmart, Target and Bunnings — which all belong to the Wesfarmers [ASX:WES] family — as well as Myer [ASX:MYR], JB Hi-Fi [ASX:JBH] and Harvey Norman [ASX:HVN] are all excellent indicators of how Aussies are spending their money. 

    Watching simple profit increases or decreases indicates which way Aussies are leaning — before months-old GDP, trade surplus, construction or production data comes out.

    The most basic information of all can give you, as an investor, an edge as to how the overall country is going.

    Just because something is easy to understand doesn’t mean it should be dismissed.

    That’s why I believe all Aussie investors should have a good understanding of Australia’s retail environment. 

    In fact, a little over two weeks ago, I showed you my market crystal ball to gauge where the Aussie economy is at.

    In other words, using the retail market to understand consumer behaviour. As I said, knowing this is crucial to give investors an edge in today’s market.

    And you know what I got after I produced that article?

    A sit-down with my publisher.

    He explained to me that no one cares about retail. I should stick to topics like gold, central banks and broader macro analysis. Big-picture ideas.

    My counter argument was that I’m here to demystify the markets.

    To show you that a deep knowledge of the markets doesn’t require complicated analysis.

    That sometimes, the simple things provide the most accurate answers.

    To teach you, as an investor, how to navigate all volumes of information and show you how to take away bite-sized chunks.

    To point out where to look first before ‘official’ data leads other investors that way.

    To give you an edge in a market crowded out by puffed-up, mainstream analysts and robo trading.

    Let’s get down to the nitty-gritty here.

    They were his thoughts.

    But what about yours?

    What can I fill your inbox with each day?

    Write to me at letters@dailyreckoning.com.au, with ‘I WANT TO KNOW’ in the subject line, and tell me what you want to read about each morning.

    I look forward to hearing from you.

    Best Wishes,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Never invest in any idea you can’t draw with a crayon appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Royal commission or banker slapstick show?

    You’ll have to give me a moment. I still haven’t recovered.

    After a year of reporting on Europe’s unfolding financial crisis, I’ve seen some funny stories reported in the press.

    I laughed out loud when Italian Deputy Prime Minister Matteo Salvini was called a ‘Horrorclown’ by the German media.

    And had a good chuckle when one Italian Member of the European Parliament took off his (Italian made) shoe to stomp over the EU document that announced the rejection of his country’s budget.

    But when it comes to comedy, Australia’s coverage of the royal commission just takes the cake. You’ll have to excuse my outbursts of laughter as I take you through an article from The Australian about the latest developments. Because they’re just hilarious.

    Here’s the first paragraph that put me in stiches. It’s about Ken Henry, former Treasury Secretary, ASX Chairman and outgoing NAB Chair (emphasis is mine):

    He also clearly thinks that while NAB has a long way to travel to meet community expectations it is heading down the path, telling The Deal: “I will prove him [Ken Hayne] wrong.” That was on the Tuesday last week, before stepping down two days later.’

    Bahaha!

    ‘I’ll show you!’ he says, two days before quitting…

    I’m not sure how Henry plans to reform NAB from the outside…

    But get this. According to The Australian, Henry’s downfall has nothing to do with his disastrous performance at the royal commission. The real reason is even funnier than his post-threat resignation:

    As Treasury secretary Henry was regarded as one of [the] great public policy minds in the country but even friends say he was a polarising character because he knew he was the smartest person in the room.

    This perceived attitude may have played a part in the fateful royal commission testimony late last year.

    Bahaha!

    Henry was too clever to be a banker!? What a hoot!

    But at least NAB has plans to reform in clever Henry’s absence. It wants to ‘establish a special board committee focusing on the customer’. This sounds like a good idea. Suncorp already has one.

    But the way Suncorp set up its committee only sent me back into a fit of laughter again: ‘The entire Suncorp board, under chair Christine McLoughlin, is on the customer committee.

    Bahaha!

    What a bunch of clowns. Having failed miserably to serve their customer, the board sets up a committee to focus on the customer, and then made the entire board members of the committee!

    Next thing, members of the Suncorp Customer Committee will be recommending board members investigate themselves over their failures…

    Now, I think all of this is hilarious. But The Australian claims: ‘The circumstances of Henry’s resignation are on any reading a sad end to a brilliant career.

    I couldn’t disagree more. By my reading, the whole thing is clearly meant as a comedy. I mean, surely this sort of thing is supposed to make you laugh:

    The irony being he [Henry], more than anyone in the industry, had pushed for the commission to be established and more than any had contributed to the public debate on a range of issues.

    Yep, the guy in charge of the bank that acted unethically should be forgiven because he warned everyone about the problems at his bank…

    Heck, he even told us the bank he runs is misbehaving so badly it must be investigated by a royal commission…

    Bahaha!

    Clever Henry was even aware of the specific failures of the bank he was overseeing: ‘He admits asking himself why the board didn’t jump in earlier on issues like fees for no service.

    A good question, isn’t it? Just odd that the person who is supposed to answer the question is the one asking it.

    Perhaps Henry was too busy agitating for ‘public debate’ about the problems he was supposed to be fixing…

    For some strange reason, Henry’s shareholders at NAB didn’t appreciate his incredible efforts to expose his own failings in the public arena. When it came time for them to pay him for his attempt to raise public awareness of his own incompetence, they said no: ‘He [Henry] also inexplicably presented to last year’s annual meeting a remuneration report that received the biggest “no” vote on record.

    To summarise, Ken Henry knew all along something was wrong. But did he do anything about it?

    Erm, nope.

    Instead, he busily pondered questions. Questions like why his bank was charging dead people for doing nothing. And publicly debated the need for investigations of his own bank’s misbehaviour.

    The irony is, as chairman of NAB, it was his job to answer those questions and deal with those problems, not ponder and publicise them!

    Well, Henry sort of did do something about the problem, I suppose. He called for a royal commission to expose the practices. Of course, it was his bank that was doing the outrageous things exposed by the commission!

    Henry also went on to point out that he had been asking the right questions all along:

    ‘Yet he and [commissioner] Ken Hayne agree on the central issue, with Henry telling The Deal: “Everyone in business acknowledged the need to keep customers happy but how much time do they spend actually doing so?”

    Again, a valid question. The sort of question Australia’s bank chairmen and directors should’ve been busy answering, not asking!

    Why does the guy who is supposed to answer these questions keep asking them instead?!

    Because the answers are too bad.

    If anyone realised what the answers are, there’d be hell to pay. Which is where the funny part of today’s Daily Reckoning ends.

    I just received confirmation. My university in Australia has thrown me out at last.

    I haven’t looked at my PhD thesis or university email account for two years. My fifth PhD supervisor left a year and a half ago, I think. I wasn’t notified at the time.

    He’d gone on sabbatical for six months twice inside a year, so I never noticed he’d disappeared altogether. Nor was I reassigned to a new supervisor, which would have been for the sixth time.

    Back in June of 2016, I decided to stage the same disappearing act my supervisor had on me. The fact that it took the university two years to realise I was long gone completes the circle of negligence.

    I’m not sure how to return the fictional laptop or non-existent building access keys they never gave me. But I’m certainly not travelling to Australia to hand them over as demanded.

    Why did I abandon my project after four years of work? I’ve effectively lost four years of my mid 20s as a result…

    Because everything I wrote about in my PhD became national news. It’s all confirmed now. Everyone knows about it. Even Ken Henry can’t feign ignorance anymore. Not now that he’s resigned over the scandal I studied for four years.

    Back in 2012, when I first claimed most Australian mortgages were based on lies, I was ridiculed. When I claimed that thousands of Australians could cancel their mortgage and keep their home, people laughed me off.

    Except the few who followed my advice. And the Australian authorities, who shut me up quick smart. That’s why I turned to academia. To avoid the government’s censorship of my claims.

    But now my accusations and claims are confirmed. The royal commission put the Australian banking industry’s dirty laundry out to dry and found piles of skeletons in the closets, too.

    Now that disbelief is suspended, the consequences are playing out.

    House prices are falling at their fastest pace ever. ‘Bricks and slaughter’ is one TV investigation’s headline. 60 Minutes has this headline: ‘Expert warns Australia could turn into slums in 20 years’. It’s going to take 10 years to process all the criminal cases uncovered by the commission, by one estimate.

    Australia’s housing bust has barely begun though. The royal commission exposed plenty of examples of what was going on. Such as bribes in brown paper envelopes to get loans approved. At Ken Henry’s NAB, no less. I wonder if he pondered why this was happening…

    But the commission carefully avoided asking just how common the dodgy practices were.

    Can you believe that? Having uncovered evidence of widespread horrific practices, nobody went on to find out how common the problem is…the one thing that really matters.

    I know exactly why nobody asked. It’s what my PhD uncovered. I know of far bigger problems looming inside the Australian mortgage industry than anything you’ll see in the media or royal commission reports.

    Here’s what I concluded.

    The results of a proper investigation would devastate Australia’s banks and the economy. Because mortgage fraud is so widespread, and carries such devastating consequences for banks, it would implode the entire Australian economy.

    With three months to go before my approved completion date back in February 2017, my PhD supervisors realised what I’d uncovered too. Proof the Australian banking system would be insolvent under law if a proper investigation was launched.

    So the supervisors told me I couldn’t complete the PhD. Because it ‘isn’t theoretical enough’. They advised me to choose a different topic and start again. After four years and approvals at every step of the way.

    What changed? My theoretical PhD had suddenly become a little too real for anyone’s liking. My obscure academic scribblings from 2012 had become front-page news.

    Well, most of them. The worst is yet to come. The housing crash is about to turn into a banking crash.

    Until next time,

    Nick Hubble Signature

    Nick Hubble,
    For The Daily Reckoning Australia

    The post Royal commission or banker slapstick show? appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • The Zeitgeist of the 21st Century

    I am currently writing to you from my Microsoft Surface Pro 4 while sitting comfortably in my hair salon chair.

    Surprisingly, this super comfy chair was made here.

    My German shoes are resting on a steel pole from a local metal worker. My overpriced designer t-shirt was made by a Bangladeshi worker. And my faded jeans came straight out of Vietnam.

    The dye being applied to my head was produced in Italy. The scissors my hairdresser will use shortly were made in Japan.

    I can explain all this to you, on a laptop that was designed in the US. And powered by a processor created in Israel.

    This electronic marvel that allows me to work anywhere, anytime, uses rare earths from China.

    This and the other parts are then shipped over to Taiwan, where a company called Pegatron will assemble the electronic components into their final form…

    Globalisation is the zeitgeist of the 21st century.

    Zeitgeist or devil?

    Depending on which circle you run in, globalisation is either the eighth wonder of the modern world…or the destruction of wealth.

    The past 50 years have seen an unprecedented level of economic expansion and wealth creation.

    Lifting restrictions on international trade has allowed money to flow to other countries, where even more money can be made.

    This ‘free movement of capital’ means money follows the path of least resistance. In other words, it moves from place to place, with the aim of making the most amount of profit for the least amount of risk.

    This process has meant governments can separate consumption and production. They can grow the consumption side of the economy (people buying things) without investing in the production business (people making things).

    Furthermore, as the prosperity grows on the consumption side of the economy, people are less likely to want to manufacture things.

    Businesses capitalise on cheaper labour by moving manufacturing to the country with the lowest cost labour force.

    In theory, this benefits both parties.

    Jobs are created in one economy. Consumers win with cheaper stuff and the business still makes a buck.

    Then this is repeated millions of times, in every pocket in the world.

    The goal of open borders is to create wealth by either outsourcing the labour or providing it.   

    Everyone is meant to benefit from continuous economic expansion.

    Developed economies score cheaper goods. Emerging markets see their people lifted out of poverty.

    As long as trade borders remain open, trade flows and prosperity follows…

    Globalisation hurts the individual in the long term

    For this to work, everyone must continue to profit from globalisation.

    And up until the financial crisis, free international trade seemed like the ticket to prosperity for everyone.

    It was only when the financial markets seized in 2008 that the cycle of globalisation raised questions.

    The aftermath of the financial crisis was an entire working class in the US left jobless.

    In order for free trade to continue, individuals end up missing out.

    And this is the point in the globalisation cycle that we find ourselves now.

    In the wake of the financial crisis, governments forced themselves to step in to ‘restore’ the balance.

    In other words, they had a vested interest in keeping the global trade going.

    This only resulted in individuals being financially repressed.

    Inefficient businesses were propped up with government support.

    Regulations were introduced under the pretence of strengthening the financial system.

    Central banks and governments took steps to weaken their currency against another country’s currency.

    They sought to reduce the value of their currency in an attempt to make what few goods that country produced more attractive to foreign buyers.

    Interest rates dropped to zero in some parts of the world.

    Yet the weaker currency hurt people on an individual level.

    A currency losing its value against another currency means that you, as an individual, lose your purchasing power.

    Weakening local currencies mean you need more of them to buy the things you bought yesterday. Not only that, but a currency that’s falling in value is basically a slow erosion of your wealth.

    Globalisation isn’t about encouraging individual prosperity.

    Rather, it’s about ensuring its success at the expense of the people in the economy.

    Anti trade? Or pro local economy?

    This is the pickle we find ourselves in today.

    We can buy cheap goods because of mass manufacturing by Third-World labour. Fill our homes with stuff that we really don’t need.

    However, in trying to engineer continuous global growth, governments have pissed off the people in the economy.

    What was the greatest factor of economic prosperity at the beginning of this century has seen many people robbed of their own personal wealth gains.

    We can see this in the rise of nationalist policies.

    President Donald Trump is lobbing tariffs on China. Part of the increase in tariffs is an attempt to increase local US manufacturing.

    The US may be the strongest driver of ending free trade.

    But the biggest battle over open trade is happening in Europe.

    The Brexit vote isn’t just an immigration campaign. It’s a battle line drawn up between what is good for the UK economy and what is good for the EU.

    That’s why tomorrow, our international editor Nick Hubble has prepared a detailed rundown of the mess that open trade has created in the EU.

    Freedom of movement for capital has created many distortions in the EU.

    And the UK could benefit if the Brexit deal goes ahead.

    Keep your eyes out for Nick’s special weekend edition tomorrow.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    PS: This week, I recorded a special video discussing the Banking Royal Commission and how the banks will get away with just a slap on the wrist. Watch it here.

    The post The Zeitgeist of the 21st Century appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Tipping your cash into gold mining stocks

    • Gold
      mining giants
    • Sub
      billion-dollar gold miners
    • The
      little guys…

    Nobody grows up wanting to be a gold analyst,’ said a friend to me recently.

    And that’s the truth. I most certainty did not.

    Through my early teenager years, I swung between wanting to be an astronomer, a journalist and a helicopter pilot.

    In spite of good grades in maths, I didn’t quite have the savant gift required for physics. So that ruled out any employment at NASA.

    And at five foot four, my lack of height meant I wouldn’t get a gig as an army helicopter pilot (that, and my insubordination meant I probably wouldn’t have lasted long anyway).

    It wasn’t until I left high school that I discovered gold. My understanding of the gold market grew through morning chats with my old man over badly made Nescafé coffee.

    Less than a decade on from those chats, I was working for a derivatives trading firm, watching the gold price skyrocket as the financial crisis unravelled.

    Funny how the world around you can shape your views.

    Gold mining giants

    Last week, I asked you to share your thoughts on the type of content you’d like to see in The Daily Reckoning Australia. Boy, was I surprised by the amount of feedback.

    Yesterday, I showed you how gold exchange traded funds (ETFs) have performed compared to the Aussie dollar gold price.

    But there was a second part of the question I didn’t get a chance to answer, and that was about individual stocks compared to the gold price.

    Believe it or not, there’s not one right answer. And the gains you make from gold stocks can differ wildly.

    There are over 200 gold companies listed on the Australian Securities Exchange (ASX). Even more if you include the companies with less than 50% of their assets in gold.

    But not all gold miners are created equal.

    Let me show you what I mean.

    This chart shows five of the top 10 gold producers in Australia.

    Aussie dollar gold price versus major Aussie gold miners
    Six-month chart

    Source: Bloomberg

    The black line is the Aussie dollar price of gold. As you can see, both Newcrest Mining (orange line) and Northern Star Resources (red line) have closely tracked the Aussie dollar price of gold.

    Evolution Mining (blue line) and AngloGold Ashanti (green line), on the other hand, have exceeded the performance of gold.

    Why such a difference?

    In the case of both Norther Star and Newcrest Mining, they are already doing what the market expects of them.

    Although it is worth mentioning that Northern Star is expected to announce some exploration results today. 

    My point is that these are both large, established gold miners.

    While Northern Star did provide investors with an update on its exploration at the Pogo Operations site this morning, the ‘big’ expansion for both companies is over.

    Without a takeover bid — or a significant jump in gold deposits — neither company is likely to exceed gains made in the Aussie dollar gold price.

    Evolution Mining and AngloGold Ashanti, on the other hand, are beating the Aussie dollar gold price rise for two different reasons.

    AngloGold is still exploring for gold. Through joint ventures, it is in the process of identifying some new high-grade gold mines.

    Evolution Mining, however, has the reputation of being one of Australia’s lowest-cost gold producers. The company’s all-in sustaining costs (AISC) sit at $838 per ounce (the only Australian gold producer with a lower AISC is Aurelia Metals at $738). Meaning, Evolution is making nearly $1,000 per ounce in profit for every ounce sold.

    That’s why investors are flocking into Anglo and Evolution. One miner is trying to get bigger and the other is highly profitable.

    Sub billion-dollar gold miners

    So, that’s the big boys of the market…what about the little guys?

    That is, the companies with a market cap between $300 million and $1 billion.

    Some do better than others.

    Aussie dollar gold price versus small- to mid-tier Aussie gold miners
    Six-month chart

    Source: Bloomberg

    Take Ramelius Resources (light orange line) and Aurelia Metals (dark orange line). Both are up about 20% on the Aussie dollar gold price.

    Whereas Resolute Mining (blue line) and Westgate Resources (green line) are well under the Aussie dollar gold price.

    Again, what’s the difference between the two? Simply put, in this section of the market, it comes down to cost and exploration.

    Ramelius is exploring and confirming gold deposits. And Aurelia is pouring an ounce of gold for the bargain basement price of $738 per ounce.

    Compare that to Resolute and Westgate, where one ounce of gold costs them $1,378 and $1,534 respectively.

    Are you sensing a pattern here?

    What the big gold miners and the mid-tier ones have in common is that cash costs count.

    The cheaper a company can mine gold for, the more likely its share price will outperform the physical price of Aussie dollar gold.

    The little guys…

    Right at the bottom of the food chain are the explorers.

    The tiny little gold stocks where you might blow your money up.

    Are these the sorts of companies you want to put you money in?

    Well, maybe.

    Some investors have a large appetite for risk. They invest for the thrill of the ride…

    Some investors sink money into tiny gold stocks simply for the ‘I found it first’ bragging rights.

    Although, let me be clear: This pocket of the market isn’t for everyone. When it comes to microcap stocks — companies under $100 million — there’s every chance you could lose whatever money you invest in them.

    Let me show you what I mean…

    Aussie dollar gold price versus microcap gold miners
    Six-month chart

    Source: Bloomberg

    Here, we have two companies that have underperformed when compared with the rising Aussie dollar gold price. And one company (grey line) that has significantly beaten the gold price rise.

    How?

    Well, when it comes to microcap stocks, they simply need to find gold to see their share price rally. They don’t even need to dig it out of the ground to excite investors.

    The promise of a few nuggets is enough to get a rally going.

    The short answer to the reader’s question from yesterday is that it depends on the risk you are willing to take.

    When investing in gold mining stocks, remember two crucial things:

    Firstly, what is their all-in sustaining cost (AISC)? In other words, how cheaply can they get the stuff out of the ground and into a doré bar?

    Secondly, will this company get any bigger through exploration or mergers?

    Because the size, and the ability to pour gold cheap, is what matters when investing in gold companies.

    And while I’m bashing on about gold, join me tomorrow.

    I’ll show you how most gold companies are getting bigger…and why the price of gold today is irrelevant.

    Until then,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Tipping your cash into gold mining stocks appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Today’s gold price is irrelevant

    • The urge to merge
    • Don’t waste time thinking about 1,300
    • The big picture

    I’d been working at a derivatives trading firm for all of about a week when my manager pulled me into his office to see how I was feeling about my new role.

    It was the sort of environment where you had to hit the ground running.

    The pressure was intense.

    Think on your feet. Be adaptable, not rigid. But back your view.

    I welcomed the sit-down in the office. I was a complete newbie. The only female in the office. The only one without a decade of experience behind me.

    My manager was a former FX trader at a major bank.

    He started his career at a time when trading rooms were full of cigarette smoke and the ashtrays would overflow. There’d be a bucket in the corner for…ahem…so people didn’t have to leave their ‘post’.

    Basically, he knew things…things I didn’t.

    Here we were. Sitting down before the market opened, discussing tactics I’d used, and he shared his ideas. He had noticed my daily morning ritual of analysing the gold charts. Then, he told me gold was one of the hardest markets to trade.

    Why?’, I asked him.

    No one really gets it.’

    I left his office wondering. Why was gold so hard to trade?

    Gold went from being an occasional curiosity to a genuine fascination. I wanted to know and understand the gold market in depth. 

    We can pretty much blame that one meeting with my former manager for my current views about gold.

    The urge to merge

    Yesterday, I had an exclusive one-on-one phone chat with Jim Rickards. If you’re a subscriber to Strategic Intelligence Australia, you’ll get access to it next week.

    I can’t share much information with you here about the interview.

    However, one thing Jim and I did talk about in detail was the gold market.

    There are big things happening behind the scenes in the gold market right now.

    Jim noted that perhaps the biggest trend right now is just how many central banks are buying gold. ‘No one is selling’, he said.

    Central banks buying gold isn’t really visible to the average investor. It’s the sort of information that is generally only reported in obscure data. And even then, you need to know where to look to find that information.

    Yet central bank gold buying is part of a much bigger trend in the gold market.

    That is, the rush to secure gold before anyone else can.

    Big gold finds are becoming rarer.

    And this is evident through the surge in gold mining mergers.

    A couple of weeks ago, gold mining giant Newmont Mining Corporation [NYSE:NEM] (worth around US$17 billion) made a US$10 billion offer for Canadian-owned Goldcorp Inc. [NYSE:GG].

    Together, they will become the world’s largest gold miner, pouring six to seven million ounces of gold per year…for the next 10 years.

    The new gold behemoth will pour a minimum of 60 million ounces of gold in a decade. Once combined, these companies will have the largest gold resource in global history.

    This merger comes only a few months after Barrick Gold Corporation [TSX:ABX] made a US$6.5 billion bid for Randgold Resources Limited [NASDAQ:GOLD].

    Furthermore, this is a sign of what’s to come.

    That is, more mergers.

    Some speculate that it’s partly because gold is getting harder to find. Merging gold assets makes more sense than taking on exploration risk.

    However, I suspect it has less to do with how hard gold is to find…and is more likely an unwillingness of top gold mining CEOs to take on exploration risk for shareholders.

    Looking for gold is expensive and risky. You can spend $50 million digging up a promising patch of dirt…only for the drill results to be extremely disappointing.

    Shareholders in big blue-chip miners don’t like that. And when exploration results disappoint the market, they sell their shares.

    Big gold mining CEOs are possibly taking the easy path of protecting the value of their shares by not taking on exploration risk.

    The end result, from a lack of looking for gold, is mine depletion.

    To offset that, big miners are merging with even bigger miners to shore up their gold reserves.

    Don’t waste time thinking about 1,300

    Today’s takeaway isn’t about which gold miners will track the physical price of gold.

    My analysis for you this afternoon is much bigger than that.

    Central banks are buying more gold than at any other point in history.

    Giant gold miners are joining forces to become industry powerhouses.

    Yet, the most insightful information I can share with you here is that today’s price of gold doesn’t matter.

    Or, as Tocqueville Gold Fund head John Hathaway says, ‘Don’t waste time thinking about 1,300.

    In a recent podcast, he told listeners that what gold is going for today is irrelevant. There are much bigger trends happening in the gold market that investors should be paying attention to.

    Mergers and central bank buying is all a precursor for what could be the biggest currency devaluation of the US dollar ever. 

    Hathaway cites a September 2018 interview where billionaire hedge fund manager Ray Dalio says the greenback could fall as much as 25-30%…in a couple of years from now.

    A collapse in the US dollar by that amount is basically the world’s way of saying we have lost faith in the linchpin of the monetary system.

    It would be a catastrophic event for markets…but an enormous boost for gold.

    It would perhaps put the yellow metal on a trajectory not seen since the 1970s gold window.

    The US dollar has an inverse relationship with gold. The stronger the US dollar, the weaker the price of gold. The weaker the greenback…the higher gold soars.

    The big picture

    This journey into understanding the gold market really began on Monday.

    All because one reader wrote in and asked which was better: Gold exchange traded funds (ETFs) or gold miners?

    But as you can see, the gold market is much more complex than deciding on one stock over another.

    Don’t let complexity deter you from buying either a gold ETF or a gold mining stock, either.

    The point is to pay attention to the bigger trends unfolding in the market and apply that information to your investing decisions.

    Global demand for gold is increasing, and the supply of the metal isn’t. Plus, there are the complications of the US dollar and related economic policies.

    These factors are very bullish for the price of gold.

    This means any gold-related investment may rise significantly in the years to come.

    Best Wishes,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post Today’s gold price is irrelevant appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Understand Brexit, before it blows

    • The EU is playing with matches in a drought
    • Why Britons voted for Brexit
    • EU the loser in Brexit
    • Financial crisis in the making?

    Are you mystified by Brexit? Probably less so than the Britons and Europeans stuck in the middle of it.

    Nobody can agree on anything about Brexit here in Europe. Not even the basic facts.

    One thing everyone agrees on, though, is the potential for a crisis.

    To some, a no-deal Brexit would unleash financial and economic chaos. But they argue about whether that chaos would be in Europe or in the UK, or both.

    Others argue that Europe is on the verge of a debt crisis anyway. Brexit is a threat to the European political establishment at a particularly inconvenient time. Britain is being made example of to discourage other nations from leaving the EU in the coming European crash.

    Either way, understanding Brexit may be the key to unlocking the next downturn in financial markets. And based on our 2008 experience, we know how fast those can spread. Not to mention the October 2018 plunge in stocks as Italy faced off with the EU.

    So let’s take a look at Brexit.

    The EU is playing with matches in a drought

    The story begins with what the EU was supposed to be relative to what it is becoming. When nations joined and voted for the EU, it was sold as a trade and cooperation bloc only. But as one German MEP (Member of the European Parliament) is fond of saying, the British showed up at the EU with hockey sticks to play hockey. But the rest of Europe wants to play football.

    The EU today is about Europe becoming a federal state — the United States of Europe. During the Brexit referendum campaign in 2016, those who claimed this were ridiculed. Today, it is a completely mainstream fact.

    Since the Brexit referendum, the façade has been dropped. The EU now openly wants to create a banking union, a military and a transfer union. Something it denied in the past.

    The EU wants to become one country, for all intents and purposes. One French politician even enthusiastically called it an empire, something Brexiteer politicians were lambasted for warning about.

    Here’s why all this is so important. When people argue about Brexit being good or bad, they tend to argue about different time periods.

    British people see the direction the EU is moving in, and has moved in relative to what they were promised in the past, and they don’t like it. Brexit, for Brexiteers, is about what the EU will become, and its direction of change. And that implies a loss of sovereignty and the imposition of foreign rule.

    Remainers want to remain in the EU as it currently stands. And they claim it won’t become what Brexiteers fear.

    Why Britons voted for Brexit

    Because the two groups argue about different time periods, they talk past each other.

    Now, I don’t know if being ruled by UK politicians is better or worse than being ruled by EU politicians. But I do know that every attempt to unite Europe under one government has failed miserably in the past.

    For good reason. The trouble with a United States of Europe is that all the different countries in Europe are deeply different. Especially Britain.

    If you try and make one law apply across Europe, people in each country react differently to it. This leads to divergence in economies over time, instead of the convergence that the EU wants. And that’s exactly what’s happened.

    The euro has split Europe into a prosperous and growing north, and a struggling south. The same exchange rate and monetary policy is pushing the economies apart, not together.

    Applying the same laws to the Italian and German banking systems led to divergent lending practices. Huge debts in Italy and low ones in Germany. That’s why Italian banks keep failing. Because those banking systems are different, the same EU-wide government policy leads to different results.

    The same applies to government debt. Apply a low interest rate to German government debt and the government will use the opportunity to pay down that debt. Apply a low interest rate to Italian government debt and the government will borrow more.

    Apply the same fiscal rules and the Italians will ignore them while the Germans demand they’re enforced.

    The various nations also respond to problems differently. The Germans want austerity to deal with a slowing economy. The Italians want stimulus.

    In the past, the EU accounted for deep differences within the EU by allowing Britain and others to opt out of key parts of the EU project. Some nations avoided the euro. Or the Schengen Area. Or the refugee policy.

    When Eastern European nations were first welcomed into the EU, only three nations accepted their workers as immigrants. The UK, Sweden and Ireland. Germany, France, Italy and others rejected the Eastern Europeans. And yet, it’s the Britons who are painted as anti-immigration today!

    Each of Britain’s opt-outs from EU rules proved highly successful in the past. Always in the face of warnings to the contrary. All the arguments made against Brexit today were made against keeping the pound years ago. And yet, the euro is widely accepted to be a disaster. Even by former chief economists of the ECB and founders of the EU.

    Often, the arguments against keeping the pound featured exactly the same protagonists. The same businesses warned they’d leave for the EU. That’s why nobody believes them today.

    EU the loser in Brexit

    When you think about Brexit, you should also keep in mind what it really means. Brexit is about deciding who makes law in the UK — the EU or the UK government. But Brexit doesn’t say anything about what that law should be. What immigration policy should be, what trade policy should be…

    Consider trade policy, for example. The UK government recently floated a plan to cut all tariffs to zero to deal with Brexit. This would make Brexit pro-trade, not anti-trade, as is often claimed. It would just end discrimination in favour of the EU and treat all nations equally.

    But what about all the drama playing out in the news? It sounds like Brexit is a complete disaster.

    That’s mostly about the need for the UK and the EU to do some sort of deal before the UK leaves in March.

    Under a no-deal Brexit, the EU would have to treat Britain as a ‘third country’. To EU enthusiasts, a world without the EU is a world where everything stops working. If you don’t have an agreement with the EU, you can’t interact with Europe at all.

    Without new treaties on trade, trade will be thrown into chaos. Without treaties on travel, British tourists will need visas to go on holiday to Spain. Without new treaties on security, there would be no cooperation between policy. Without new treaties on flights, flights between the EU and the UK would be grounded, as well as flights over those airspaces.

    All of this is, of course, nonsense. It is in nobody’s interest to prevent cooperation between the EU and the UK. The EU and the UK have been busy setting up waivers, deals, agreements and unilateral action on all of the issues I mentioned. The only way trade will stop is if the EU or the UK actively stop it, and the UK has ruled this out. The same goes for flights, etc.

    Quite frankly, the EU has too much to lose. Britain has a trade deficit, not to mention a tourism deficit, with Europe.

    The only issue the EU is digging its heels in on is the Irish border with Northern Ireland. Without a deal, the EU says it will close the border. This is especially dramatic because it violates the Good Friday Agreement, which ended sectarian violence in Ireland.

    For some reason, the EU fears a land border with a former-EU country. It is especially afraid of American chicken being smuggled into the EU via Northern Ireland. And it’s willing to risk civil unrest in Ireland to stop it.

    This is no joke. Here’s how the Daily Express summarised the situation:

    But now high-ranking MEPs have hardened their position, insisting the single market must not be compromised even to maintain peace on the island of Ireland.

    Elmar Brok, a German MEP with close ties to Angela Merkel, insisted that if Ireland failed to police its own borders the EU would have to take its own protectionist action.

    “We would have to set up a customs border with Ireland,” the German said.

    He also warned that if Brussels didn’t make the demands then “we will soon have American chlorine chicken in the EU”.

    The premise of the standoff is ridiculous. But it’s still a very real standoff. And it creates an impossible situation.

    Financial crisis in the making?

    If the UK remains in the EU Customs Union but leaves the EU, the border can remain open. But the UK must adopt all EU law on traded goods. And it will no longer get a say on how that law is made, because it left the EU.

    If Britain leaves the Customs Union, there must be a border with Ireland — to collect tariffs and stop American chicken. But this violates the Good Friday Agreement. And the UK government’s Irish coalition partner won’t agree to it anyway, leaving the government without a majority.

    If you ask me, there’s no reason to set up such a border, even if Britain leaves without a deal. And the UK and Irish governments agree. But the EU is threatening to kick Ireland out of the EU if it doesn’t set up the border…

    Here’s what has really changed since the Brexit referendum.

    The EU has revealed itself to be exactly what Brexiteers warned.

    Nobody argues the EU is a good idea anymore. Only that leaving it is worse.

    And most important of all, the UK’s economy is doing well in the face of a looming Brexit, while Europe’s economy is increasingly in trouble.

    This means the EU is throwing stones from a glass house when it plays hardball on Brexit. That’s why one of Europe’s three presidents recently said there’s ‘a special place in hell’ for Brexit’s architects.

    Brexit has exposed the EU’s nature. The question is whether investors are going to hell too.

    If EU politicians really do disrupt trade with Britain, it will plunge Europe further into an economic crisis.

    And at that point, the risk of a financial crisis grows too.

    This is why you need to have one eye on the other side of the planet over the coming weeks.

    Alternatively, if Brexit is thwarted altogether, or works out well, UK markets could perform well.

    Take your pick…

    Until next time,

    Nick Hubble Signature

    Nick Hubble,
    For The Daily Reckoning Australia

    The post Understand Brexit, before it blows appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • What’s better: Paper gold or gold miners?

    • Your paper gold options…
    • Physical gold or gold ETFs?
    • Next up: Which gold miners to buy…

    Wow.

    What a response.

    I’ll be honest: I had hoped to receive a letter or two…

    But what landed in my inbox on Friday afternoon caught me off guard.

    So much so that I had to enlist the help of three other people.

    And that mini team…is still working through all the emails.

    Don’t worry — I am reading every single one.

    I am, of course, talking about what I asked you to do last week.

    That was to write to me, with ‘I WANT TO KNOW’ in the subject line.

    If you haven’t sent through your feedback yet, make sure you do by emailing me at letters@dailyreckoning.com.au.

    Today, let’s get started with the first of many emails…

    Your paper gold options…

    Don’t be surprised, but the first bit of feedback I’ll tackle today is about gold!

    Not buying physical gold. Instead, how gold exchange traded funds (ETFs) measure up against individual gold companies.

    One reader, who I will call ‘Mr T’, wrote in asking:

    Can you please enlighten us all about Gold ETFs. What are they, are they worth investing in on the ASX vs individual Gold Companies? Do they pay good yield? How are they in an environment of price increase of gold as per the last 6 weeks?Thank you.

    Before I get to that, let’s run through the three most common gold ETFs on the Australian Securities Exchange (ASX).

    Please note the three gold ETFs I will run through today don’t use leverage.

    There are two 100% gold bullion-backed ETFs listed on the ASX:

    • BetaShares Gold Bullion ETF [ASX:QAU]
    • ETFS Metal Securities Australia Limited [ASX:GOLD]

    ETFS Metal Securities Australia Limited [ASX:GOLD] has been listed on the ASX since 2003. With this ETF, one unit (share) represents about a tenth of the spot gold price.

    It means that, if you buy one unit of this ETF, it will cost roughly 10% of the Aussie-dollar gold price per ounce.

    For example, the physical gold spot price is trading at $1,740 an ounce. That means one unit of this ETF will be roughly $174 per unit.

    If the Aussie gold spot price moves up by one dollar, the value of the ETF units will increase by 10 cents.

    Then, there is the BetaShares Gold Bullion ETF [ASX:QAU], which does have a currency hedge.

    This means that, while you are still using Aussie dollars to buy QAU units, the ETF tracks the US gold spot price. Basically, this gives you a ‘purer’ exposure to the USD gold spot price.

    One QAU share is a hundredth of the USD gold spot price. Again, a one dollar movement in the USD gold spot price will equate to a one cent movement in QAU.

    If you are looking to increase your exposure to the gold price through an ETF, these Aussie-listed ETFs, which are 100% backed by gold bullion, are a good way to do so.

    The alternative is a gold ETF compiled of gold miners rather than backed by physical gold.

    An alternative to a gold-backed ETF, however, is one that derives its value from gold mining stocks.

    One of the more popular ones at the moment is the VanEck Vectors Gold Miners ETF [ASX:GDX].

    GDX aims to replicate the NYSE Arca Gold Miners Index [GDMNTR], which in turn aims to track the performance of globally listed gold producers.

    The weighting of GDX is biased towards gold mining stocks in Canada (55%), Australia (17.3%) and the US (13.9%).

    The remaining 13.8% is based on gold mining companies located in South Africa, Peru, China, Monaco and the UK.

    Which is better: Physical gold or gold ETFs?

    Now let’s compare these three to the physical price of gold in Aussie dollars:

    Gold ETFs versus Aussie dollar gold spot price

    Source: Bloomberg

    What we can see here is that QAU (orange line) has lagged behind the rising Aussie dollar gold price.

    The reason for that?

    Simple. QAU is based on the US dollar gold spot price. That doesn’t mean that QAU is underperforming or a bad investment. It simply means that QAU will only follow US dollar gold price movements.

    In contrast, there is GOLD (blue line), which has moved in lock step with the Aussie dollar gold price and has increased in value.

    The difference between the two is a great example of how fluctuations in the Aussie dollar — strengthening or weakening against the greenback — can greatly affect investor returns.

    Then, we have GDX (red line), which has slightly outperformed the Aussie dollar gold price in the past year.

    However, you’ll notice GDX is much more volatile than both gold ETFs and the physical Aussie dollar gold price.

    Again, this is where it’s important to remember that GDX is based on gold miners around the world.

    Essentially, GDX is a mashup of international company share prices plus various currency movements.

    Not only that, the underlying basis for GDX is the world’s biggest gold mining companies.

    Here, companies like Barrick Gold Corporation [NYSE:GOLD], Newmont Mining Corporation [NYSE:NEM], Newcrest Mining Limited [ASX:NCM] and Franco-Nevada Corporation [NYSE:FNV] are all major constituents of GDX.

    I believe the recent surge in GDX can be attributed to the Barrick Gold-Randgold and Newmont-Goldcorp decisions to merge.

    Remember, if you choose to invest in GDX, it’s essentially an easier way to gain exposure to individual gold miners.

    As for individual Aussie listed gold miners? Well, that’s my bread and butter.

    And I’ll cover some of those performers tomorrow.

    Stay tuned,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The post What’s better: Paper gold or gold miners? appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Woolworths to stop selling $1 milk

    Woolworths announces it will raise the price of its $1 per litre milk to $1.10, promising the additional cash will go directly to dairy farmers who have long claimed the bargain product is damaging their industry.

    Posted: by ABC.net.au