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  • Don’t Let Optimism Suck You In: The Stimulus Package Will Not Save Us

    Has Australia’s day of reckoning come?

    We’ve dodged a recession for the past 29 years.

    It’s been something politicians have loved to brag about.

    A reason foreign investors have thrown cash our way.

    Our recession-free run has meant we’ve continued to pay stupid amounts for houses, gym memberships, and buy coffees with absurd orders like strong, decaf cappuccino with no foam, no chocolate, half almond milk, half full cream, with a shot of caramel with two equals warm, but not cold (true order by the way).

    We might not feel rich, but this economic good fortune has created our lavish lifestyle today.

    All because we have no idea what hard times look like.

    Well guess what?

    We’re all about to find out…

    Market expert Shae Russell predicts five knock-on effects of the recent market crash that could be even bigger threats to the average investor’s wealth than the crash itself.

    Trump tweets and markets rally

    The markets are rallying again today.

    Why? Trump tweeted something about Saudi Arabia and Russia agreeing to cut oil production.

    That’s it, bad news over! Markets boom.

    After such life-altering events, it’s understandable that people are looking for hope that things will return to normal soon. Of course, we have no idea what soon is. Australian federal and state governments have been pretty light on giving people a time frame of when these closures end.

    And after a 30%-plus decline in a major index, people are chomping at the bit to get their hands on stocks before others work out there’s bargains to be had. Although it could be a case of revenge trading too. Folks are so desperate to recoup their losses they’ll trade into anything that looks like a rally.

    Helping this buy the dip train of thought is the Coalition throwing money at the problem.

    A little bit of unemployed benefit here. A let’s prop up struggling businesses there.

    The Reserve Bank of Australia is buying bonds as other countries dump them.

    The powers that be are stepping in! Surely this will sooth investors’ nerves…

    It’s about now, we need to remember the Aussie economy is no simple thing.

    Although the complexity of it is what has helped us avoid recessions for almost three decades.

    A relaxation of banking laws in the mid-1990s let us take advantage of negative gearing in the last few years of the Hawke government.

    The Aussie construction boom that kicked in 2001, coincided with China’s rise as an economic powerhouse…at least that’s what we called it then.

    By 2008 our good fortunes once again rested on China’s willingness to buy our minerals and stick them into their cities, with little regard to their future use.

    These developments enabled our service sector to bloom and personal debt to balloon. And damn didn’t we enjoy the good times.

    Surely if markets are rebounding, normal isn’t too far away, right?

    Buying the dip won’t work this time

    Buying the dip?

    You’re not alone.

    You may be bored stuck inside. Working part-time from home because your hours were cut. Just watched your super balance take a big hit over March.

    After you’ve taken your dog/cat/lizard/bird (I’ve seen some weird things lately) out for a walk, and bought groceries for the week, what else are you meant to do?

    It makes sense that many people are turning to the stock market looking for a bargain. Surely if the government is pumping money into the economy, that will have an inflationary effect? Stocks will go up, so you may as well jump on the train and buy anything that shows promise.

    The thing is, those with the buy the dip mentality clearly don’t understand the systemic issues being masked by tweets and headlines.

    Sure, some stocks are doing very well right now. Select Aussie gold producers are seeing their stock prices rise because of the difference between the Aussie dollar gold price and the US dollar gold price.

    A handful of biotech and medical supply stocks are zooming up too.

    But these are individual plays.

    Aussie banks are mulling over what to do about a dividend. Harvey Norman has said they won’t pay one at all. So has Flight Centre.

    Before you rush in, let’s get some perspective on what’s still to come.

    The onslaught of headlines did make it hard to pause and try to put the pieces together while markets tanked day after day.

    Along with counting bodies and the billions the government is throwing at us, there are some big picture things to take note of in the economy.

    The question for investors is, which domino will fall next?

    Which industry goes next?

    Stocks bouncing on news ignores that some sectors of the Aussie economy have been spared from shutdown measures.

    Plenty of noise has been made about the one million or so Aussies that work in retail. And the other million or so that work in the services sector of the economy. Think your personal trainers, baristas, life coaches, interior stylists, chefs, music therapists, psychologists…you get the drift.

    However, there are two pockets we need to watch.

    The first is construction.

    To date — the commercial construction sector I should add — has largely avoided any forced closures. And from what I hear, it’s pretty lax about enforcing the ‘social distancing’ rules as well.

    Now construction is critical to the Aussie economy. It accounts for about 10% of gross domestic product. To boot, it’s being considered an essential service. Hence why it’s avoided any closure. But the sceptic in me believes that has more to do with the overbearing unions and vested financial interests.

    Another one investors need to watch for is what’s happening in mining.

    To date miners and unions are working together (a rarity no doubt) to keep this sector open. Fly in fly out (FIFO) workers have been banned in Queensland and Western Australia. That is, you can only work on these mining sites out here if you are based in the state.

    The Queensland government could possibly take it one step further, and ban FIFO workers based in Brisbane to fly up north to remote Queensland mine projects.

    So why do these two sectors matter?

    The construction sector is simply a numbers game. There’s over a million people directly or indirectly employed here. Shut down this highly-paid sector, and watch the economy sink faster than someone who pissed off a mob boss.

    Mining on the other hand, is about perception.

    Rocks and ore contribute roughly the same to Aussie GDP as construction.

    Unlike construction, mining only employs about a quarter of a million people around the country. So it’s not as big a deal as either retail or construction…

    …yet the health of the mining sector in Australia is critical to how international investors see us.

    Whether we like it or not, the rest of the world views us as a commodity-based economy. Shut down mines across the board, the you wipe out the Aussie dollar. Stocks tank as well.

    I’d wager the federal government chose to sacrifice the services sector of the economy, rather than let these two dominoes fall…

    Don’t let that optimism suck you in

    If you see either mining or construction close up, then hang on to your hats while the Aussie market dives.

    Then again, remember that these are the local problems.

    International markets are seeing liquidity seize up. There’s about US$32 trillion in corporate bonds in Asia looking pretty shaky. And China’s manufacturing data says it’s roaring back to life, but they have no customers to sell it to.

    The markets may be rallying on the back of a tweet. But don’t let that optimism suck you in. All is not right with the local and global economy.

    We are six weeks into the most destructive sell-off of our time. The market will still be there tomorrow. Your capital may not be if you move too soon.

    I’ll dive into the international problems next week. For now, it’s over to Vern Gowdie from one of our sister publications. He’s the only person I know that called the market crash back in January. And he lays out a compelling case below on how the government stimulus isn’t going to make everything better…

    Read on for more.

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    Practicing What’s Preached

    Vern Gowdie, Editor, The Gowdie Letter

    Not bearish? Yeah Vern and I’m Santa Claus.’

    The doubters are still doubting. That big end of the telescope remains firmly pressed against their eye.

    In case you missed the relevance of these opening remarks, please read yesterday’s article titled ‘How Do You See Me?’

    My investment philosophy — gleaned from more than 30 years in the rough and tumble of this business — is very simple ‘winning by not losing’.

    This table — from the soon to be available ‘How to arrange your wealth now for a Post-COVID 19 World’ — spells out the mathematics on ‘gains required’ to cover ‘losses incurred’.


    Source: Port Phillip Publishing

    The greater the loss, the steeper the road is to recovery.

    The Aussie market — at present — is down around 30%.  Making up that lost ground requires a gain of…42.9%.

    Here’s a quick back of the envelope exercise. Long-term growth rate from the market is around 6% per annum. Breakeven time frame…seven years. Not good, but not devastating either, assuming that’s the extent of the market loses.

    But, what if — ultimately — the market loses 65% or 80%? How many years/decades will it take to rack up gains of 186% to 400%? Do the maths…it’s a devastating prospect.

    And then you ask, will investors live long enough to see recovery?

    Winning by not losing is about avoiding (the majority of) the downside and participating in (the majority of) the upside.

    Who doesn’t want that? Traders try to practice that every day. But I’m not a trader, never have been. Never will be. My approach is about long-term wealth creation.

    That’s what most people want. However, their actions of ‘buying high and selling low’ run counter to that aim.

    While the ‘winning by not losing’ theory is simple, the practice does require a level of research, mathematics, gut feeling, and a truckload of patience.

    When evaluating the risk versus reward of an investment, the benchmark is the risk-free return (the interest rate paid on a government-guaranteed deposit).

    Here’s an example of how this works when markets are in bullish (overvalued) mode:


    In this instance, you ask yourself is it worth risking half my money for a 5% return?

    The answer? Hell no.

    Therefore, the money stays in the bank, waiting for an equation that offers a more favourable outcome, far more upside and much less downside.

    Individual shares are not my thing. Too much work for me. My investing world is focused on major asset classes, indices (ASX 200 and S&P 500); REIT ETFs; bond ETFs; currencies; gold; term deposits.

    A lot of water can pass under the bridge before these markets present a favourable risk versus reward outcome.

    So you wait (and you wait some more), which is where the patience comes in. That’s the theory.

    Now, here’s how this model has been put into practice. In recent months, The Gowdie Letter has attracted a number of new readers.

    The 2 March 2020 issue addressed the ‘permabear’ myth and provided insight into the rationale behind some of my recent (well, recent in my context of investing time frames) recommendations/investments.

    Here’s an edited extract from the issue…

    AUD versus US

    Remember the good old days of the mining boom when one Aussie dollar bought US$1.10?

    On trips to the US, you didn’t mind paying the ‘tip and tax’ back then.

    In the midst of our strengthening currency, economists were tipping US$1.20.

    People tend to extrapolate the trend.

    In November 2012 (prior to me joining Port Phillip Publishing), we transferred a sizeable sum of Aussie dollars into USD…our average buy-in was around US$1.05.

    My reasoning for buying USD was again based on, risk versus reward.

    For us to lose 50% in value, the Aussie dollar would have to go to USD$2.10.

    The RBA would never let that happen.

    The more probable scenario was for the Aussie dollar to fall back towards the median range of US75 cents orin the event of another global economic crisis, possibly into the sub-US50 cent range.

    Downside was minimal…maybe 5% to 10% if we went to US$1.10 to $1.20.

    But, my guess was this would only be temporary.

    Whereas, the upside was at least 30%-plus and possibly, over 100%.

    It was the very, very low risk versus much higher return equation, that convinced me to put a considerable amount of money into this investment.

    Our investment in US cash — with interest payments — has returned around 70% (now it’s more than 80%) over the past seven (and a bit) years.

    Was this a bullish or bearish investment selection? Neither. It just fitted our low risk versus high reward criteria.


    From 2010 to its peak in September 2011, gold (in US dollars) was unstoppable.

    The arc-like price movement was a result of the hysteria over the prospect of hyperinflation.

    Central banks were going to create another Weimar Republic or turn us into Zimbabwe.

    Buy Gold. And people did.


    Source: Trading View

    [Click to open in a new window]

    I questioned the hyperinflation hyperbole.

    Why? This is not what happened in Japan…after almost two decades of stimulus.

    My publicly stated view was (and still is) we were more likely to see deflation.

    And the CPI numbers show us we’ve been far closer to deflation than hyperinflation.

    I wasn’t anti-gold, just anti the rationale that was pushing the price higher.

    So I didn’t buy during a manic run.

    The crosshairs on the above chart have been deliberately aligned with the US gold price in early August 2015.

    At that stage, gold was down over 40% from its September 2011 peak.

    That looked reasonable to me.

    After four years, the heat was out of the market.

    The risk versus reward equation — while not as good as the US versus AUD — warranted a ‘dip the toe in the water’ exposure to gold.

    In the August 2015 edition of Gowdie Family Wealth (a previous newsletter), I recommended a 5% exposure to the GOLD Exchange Traded Fund…a fund that reflects one tenth of an ounce in Aussie dollars.


    Source: Market Index

    [Click to open in a new window]

    The buy-in price was around $141.

    The current price is $236 (now $245), a gain of 67% [now 74%] over a 4.5-year period.

    The combination of a rising USD gold price and a falling Aussie dollar has turbocharged the GOLD return over the past 12 months.

    All the talk at present is about buying gold as a hedge against COVID-09. The contrarian in me, is looking to do the opposite. I get nervous when the crowd starts prefacing recommendations with ‘you can’t go wrong buying’. Yes, you can.

    AUD versus GBP

    Markets don’t like surprises and the Brexit vote to ‘leave’ in June 2016, was definitely a surprise.

    Talk of economic Armageddon saw the Great Britain Pound (GBP) get hammered.

    That’s the kind of market that gets my attention. One that’s been moved away from historical levels by emotional reactions.

    The 14 October 2016 edition of The Gowdie Letter recommended an exposure to GBP.

    Here’s an edited snippet…

    There are a couple of ways to gain exposure to the GBP.

    Firstly, buy the physical currency.

    Secondly, invest in the BetaShares British Pound ETF [ASX:POU].

    Here’s a link to the BetaShares site.

    Check out the top of the performance table:


    Source: BetaShares

    [Click to open in a new window]

    In the last 12 months, the fund has lost 21.4%.

    Over a five-year period, it’s struggled to make 1% per annum.

    These are great numbers.

    One of the criteria for value investing — low risk/high reward — is to buy quality assets that are unloved.

    At present, the British pound is not all that popular.

    While the GBP has had a tough time of late, it could get worse…especially if a forecast recession does materialise.

    Due to the potential for the pound to lose even more ground against the Australian dollar, the recommendation is to dollar-cost average our way to the 10% exposure.

    Our strategy — starting this week — is to move 2% per month for the next five months.

    If you do not have a British bank account, you can dollar-cost average your investment via the BetaShares British Pound ETF [ASX:POU].

    Please note, this investment could take two or more years to realise a decent return.

    Our initial buy-in was around $16.

    Which, as it turned out, was pretty much the lowest point on the chart. That was ‘more a*se than class’. You can never, ever pick the bottom or top.


    Source: Market Index

    [Click to open in a new window]

    The current POU price is around $19.27 [now $19.96]…a gain of 20% [now 25%] over the past 3.5 years.

    Not brilliant, but better than the cash rate.

    Back again.

    Hopefully that extract has given you a better understanding of how the winning by not losing approach works.

    You have to question popular thinking. You make an educated guess on the upside versus downside. You make proportionate allocations depending on the risk versus reward equation…in the case of the USD investment, the equation was so compelling our allocation was almost 20%. Then…you wait for the trend to play out.

    While share markets, of late, have been falling like a stone, these currency investments (and gold in AUD terms is partly a currency play) have been RISING in value.

    In due course, if share markets go where I think they’re going, we’ll be doing the same risk versus reward calculations for the major indices.

    However, markets are not even close to warranting the numbers being done…yet.

    Why do I say that?

    Here’s just one of the many valuation metrics that form part of my research.

    The Total Market Capitalisation (TMC)/GDP or sometimes referred to as the Buffett Indicator.

    In 2001, Warren Buffett said in a Fortune magazine interview, ‘it [TMC/GDP] is probably the best single measure of where valuations stand at any given moment.’

    The latest reading is 113.70.


    Source: Guru Focus

    [Click to open in a new window]

    According to the valuation table, this reading is at the high end of the MODESTLY OVERVALUED range.


    Source: Guru Focus

    [Click to open in a new window]

    That is NOT what I’d term as a ‘low-risk’ proposition.

    Look at where the TMC/GDP ratio fell to in 2001/02 and 2009, under 75% and touching on 50%, the MODESTLY UNDERVALUED range.

    And, if you go back to the early 1980s, the ratio was well into the SIGNIFICANTLY UNDERVALUED range. When that ratio starts to head much further south, then we get interested.

    In the interim, I’m going to practice what I preach, and…wait.



    Vern Gowdie,
    Editor, The Gowdie Letter

    The post Don’t Let Optimism Suck You In: The Stimulus Package Will Not Save Us appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Gold Price Stalls on Stimulus: Saracen Share Price Waits for Next Plunge 

    Another week has drawn to a close, so I thought it would be a great time to revisit some recent moves in the gold price. 

    Everything seems to be turning on its head currently. 

    Unprecedented government stimulus has toyed with the markets. 

    As joblessness begins to mount around the globe, commodities, foreign exchange, and risky assets are behaving in some unusual ways. 

    Gold has struggled to gain the haven status it usually does in times of volatility and market depression. 

    Discover why the market crash is far from over and the steps you can take now to protect yourself. Claim your free copy of ‘The 2020 Pandemic Market Crash Roadmap’ now. 

    The yellow metal managed to rebound 1.4% to US$1,614 an ounce yesterday despite a rising US dollar, which so far has acted as the safety vehicle for many investors. 

    So, I thought a bit of technical analysis might help us understand what is going on.

    Gold price holds off as governments mash stimulus button

    The past few weeks has depressed the gold price as federal stimulus has flooded the market with liquidity. 

    gold price aud

    Source: TradingView 

    But things look like they are about to change, and the price of gold is poised to rise. 

    Short-term momentum is looking good. 

    The 10-day moving average (blue line) has now just past the 50-day moving average (yellow line), indicating the trend is shifting upwards. 

    The moving average convergence divergence (MACD) in the second graph helps us to decipher the changes in the strength, direction, momentum, and duration of the trend. 

    The MACD indicates that medium-term momentum has turned positive (blue line has passed the yellow signal line), however this trend is beginning to flatten already. 

    What do we make of this? 

    Well, I believe there is an opportunity for gold to breakout here. 

    The US jobless claims came out to be twice as bad as anticipated causing the USD to lose ground against the (perceived safer) Japanese yen. 

    This could bode well for the price of gold. 

    Ultimately, the longer the coronavirus pandemic, the more economic conditions will deteriorate, the more likely gold will continue to benefit. 

    Which gold stocks will benefit?

    Saracen Mineral Holdings Ltd [ASX:SARis looking well positioned to benefit if we continue to see an uplift in gold. 

    The $4.15 billion dollar company has seen a 42% rising in its share price of the past year despite the current market collapse. 

    SAR is one of the few companies to now withdraw current FY2020 guidance.  

    The company announced last month it had been mostly spared from the operational impacts of the coronavirus in the March quarter. 

    Saracen also said it has large ore stockpiles available for milling, which will help insulate the business should mining be further restricted. 

    Previously, I alluded to how gold stocks (particularly Aussie gold stocks) could be better shielded this time around due to currency fluctuations. 

    If you want to know more about wealth preservation tactics, then download our free report to discover how some investors are preserving their wealth and even making a profit. 

    Download your free report by clicking here. 


    Lachlann Tierney, 

    For The Daily Reckoning Australia 

    The post Gold Price Stalls on Stimulus: Saracen Share Price Waits for Next Plunge  appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • Special Interview: Hear What Jim Rickards Has to Say Right Now

    I have a unique weekend edition for you today.

    Earlier in the week, there was a multi-country Skype call.

    Myself here in London. My publisher James Woodburn in Melbourne. And Jim Rickards from his self-sufficient farm in New England.

    This is possibly the most important interview you will watch all week.

    The crisis we’re seeing is something Jim has not only called years in advance…but it’s something he and I have been preparing and positioning for, for quite some time now.

    While we are under both physical and economic lockdown, as of today the stock markets remain open, but how long will that last?

    It’s one of the many questions for Jim.

    The whole point of what Jim and I do over at Strategic Intelligence Australia, is try to keep you two steps ahead.

    That’s really what Jim has been doing for the last decade in his books.

    So, in the spirit of trying to stay two steps ahead, listen now as Jim and I discuss if we are on track for the great money reset he sees coming…and what the world may look like afterwards…

    Click on the picture below to watch now.


    [Click to open video a new window]

    Until next time,

    Nick Hubble Signature

    Nick Hubble,
    For The Daily Reckoning Australia

    The post Special Interview: Hear What Jim Rickards Has to Say Right Now appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • This Has Topped Any Other April Fool’s Day…

    Happy April Fool’s Day everyone!

    If I had told you a year ago that a new killer virus would sweep the world…

    That it would change life as we know it…

    Kill several thousand and infect hundreds of thousands (so far)…

    That it would pretty much shut down air travel, keep kids out of school, and parents would be working from home…

    Would you have believed me? Or thought it was all a joke?

    To be honest, I wouldn’t have believed it myself.

    Maybe, just maybe this is all a really well orchestrated April Fool’s Day joke, and quarantine ends at midnight…

    Wishful thinking…

    How Exposed Are You to an Aussie Recession?…and three steps to ‘recession-proofing’ your wealth. Download your free report now.

    Bringing my experience to you every Wednesday

    Anyway, hi, I’m Selva Freigedo.

    I joined Port Phillip Publishing’s team as a research analyst in 2016, a rare opportunity that combines my two passions: economics and writing.

    Some of you may already know me from Markets & Money, The Rum Rebellion…or from conversations with Shae on Twitter (@shaearussell).

    I grew up in Argentina, a country with an unusual economic history to say the least. It gave me firsthand experience on different economic phenomena such as hyperinflation, devaluation, and debt default.

    But I have also lived in a few other places throughout my life: Brazil, the US, and Spain.

    Back in 2000 I was living in the US as the dotcom bubble popped…

    And in 2008 I was in Spain as the property market exploded and then collapsed…

    I’ve seen firsthand what happens when bubbles burst.

    If my experience has taught me anything, it’s not to hope for the best, but plan for the worst…and to question everything.

    For the last five years I have lived in Australia. And let me tell you, Australia is a great place to be. As I see it, it’s one of the few places left in the world that you can still call a ‘land of opportunity’.

    And while I love living here, there are a few issues that cause me concern.

    Things like the property market, or high household debt.

    Today, we are living through a global pandemic that is shutting down the global economy…one that could have repercussions for years to come.

    But even before COVID-19, things weren’t hunky-dory.

    There was the trade war and tensions between the US and China; Brexit; zombie banks and high debt…among other concerns. We had loss of trust in institutions, misinformation, and unconventional central bank policies.

    How do you navigate a scenario where the economic signals and information are reaching us increasingly distorted? How do you grow or — even more importantly — protect your wealth?

    This is one of my main interests and something I will follow in my writings at The Daily Reckoning Australia.

    In all the grief that the pandemic is causing, there is a silver lining.

    You rarely get chances in life like this.

    To pause, take a moment and look around. To think and take time to realise priorities. On your future direction and what type of life you want to achieve.

    But to also be thankful for the people around us and what we have. To enjoy more time with them.

    This is a time when we are realising we can live with less. A chance to think about what’s important in life and what you would like to change.

    This is a rare breather. One we are usually too busy to take.

    But, on the other hand, this pandemic is giving us a rare taste at the speed things can change and shut down. There is a complete overhaul of the system with government taking on more areas of our lives.

    The global economy is contracting

    As the outbreak keeps spreading, the global economy is contracting. This time, both supply and demand are taking a hit.

    There is unprecedented government and central bank stimulus.

    Governments are looking at putting more money into citizens’ pockets to keep liquidity in the system…but also to keep confidence up. If you know anything about our economic system is that it’s all about keeping confidence.

    So far though, in Australia, confidence is plummeting.

    In the most recent Roy Morgan’s consumer confidence survey, ANZ Head of Australian Economics, David Plank commented (emphasis added):

    Sentiment took a further hit over the past week, falling to the lowest ever level in the almost 50-year history of the survey. There were some glimmers of hope. “Future finances” were up marginally and inflation expectations rose. In fact, there was a sharp uptick in the weekly reading of inflation expectations, which rose to 4.3%. But we aren’t getting carried away. “Current economic conditions” fell more than 9% and are down close to 50% over two weeks, to the lowest ever level. And most other aspects of the survey are exceptionally weak. The announcement of the largest fiscal package yet may stabilise confidence, but much will depend on the how the pandemic evolves.

    It’s concerning. The economy is at a standstill and this shock has caught Australians quite leveraged.

    The main question in my mind is, how will we pay for all of this stimulus once we get to the other side? It may be breathing life into the system, but let me assure you, there will be a bill at the end of this.

    It may come in the form of higher taxes, or even high inflation.

    Our economic model is broken. Its growth is based on debt, but this debt is eroding our choices and becoming a burden.

    It’s decreasing our future purchasing power. It’s unsustainable.

    And the pandemic could very well be the trigger for a shift in paradigm.

    Before I go, we have something extra for you from Port Phillip Publishing. Following there is an article from The Rum Rebellion’s editor Vern Gowdie.

    I’ve had the pleasure of working with Vern many times, not only in The Rum Rebellion, but also collaborating with him in The Gowdie Letter.

    Vern has a unique view on how all this could play out, with his main objective being wealth preservation.

    It’s why we think that at a crucial time like this, it’s important to give you some insights.

    Over to Vern.


    Harry Dent Signature
    Selva Freigedo,
    For The Daily Reckoning Australia

    TINA — You’re Simply the WORST

    Jim Rickards

    In 2009, Tina Turner announced her retirement from live performances. This was the year when Wall Street would begin the performance of its life. Back then, Tina Turner was the most famous Tina in the world.

    What a difference a decade makes.

    In November 2019, Tina Turner celebrated her 80th birthday. That same month, Wall Street was playing to packed crowds. Another TINA had moved into the spotlight.

    As reported in Fortune magazine on 29 November 2019 (emphasis added):

    Quite simply:  TINA, or “There Is No Alternative”— to equities,

    • On Nov. 29, 2019, the S&P 500 closed at 3,140.98.

    • As of Nov. 29, the consensus 12-month forward earnings estimate for the S&P 500 is about $177.

    • Based on this estimate, the forward 12-month P/E ratio for the S&P 500 is 17.7 times, and the corresponding earnings yield (the inverse of the forward P/E) is 5.6%.

    TINA’s followers were in full voice, singing the praises of the performing share market.

    You’re simply the best, better than all the rest

    They sang it so often and loud enough, it drowned out any competing voices.

    The TINA tune stuck in people’s heads…

    You’re simply the best, better than all the rest

    Over and over and over again it was being played. The lower interest rates went, the higher the volume was turned up. There is no alternative. Simply the best. There is no alternative. Better than all the rest.

    On and on it went. It must be true. TINA was the only option.

    Which of course was and is utter nonsense. Life is all about choices, some less good than others, but there are always alternatives.

    On the surface of it, the Fortune magazine article looks like an ‘open and shut’ case for TINA.

    Based on ‘the consensus 12-month forward earnings estimate, the US share market looked fairly valued.

    But let’s just scratch that surface using the faint application of a little homespun wisdom. How many times have you heard or been told, don’t count your chickens before they hatch? We’ve all it heard it during our lives. Good old-fashioned common sense.

    Yet, based on unhatched earnings, the chorus rang out…quite simplyThere is no alternative.

    Hindsight now shows just how flawed the ‘rationale’ for TINA really was. Those consensus 12-month earnings estimates are not worth a cracker.

    Consensus is a fancy word for Wall Street groupthink. They all crowd round the same numbers. No one dares buck the system.

    In November 2019, when TINA was in full voice, I received this email from a reader:

    If you [Vern] are going to claim that “It’s official…the US market is over-valued” it would be good if you could substantiate it as opposed to making broad sweeping statements or paraphrasing from someone like the IMF. The 1 year forward P/E on the S&P 500 is 16X, it doesn’t look ridiculous by itself and when valued against bonds it looks screamingly good value.

    My response was published in the 18 November 2019 issue of The Gowdie Letter. This is the shortened version:

    There are a number of methods used to determine the value of shares.

    In my opinion, Forward P/E is the least reliable measure.


    Because it’s an estimate on next year’s earnings.

    And, a lot can happen in markets and the broader economy from one year to the next.

    Well, a lot has happened in markets and the broader economy since November 2019. And none of it’s been all that good for those forward earnings estimates. In booms and busts, nonsense replaces common sense. It happens all the time.

    This is the fourth market crash I’ve gone through…1987, 2000/01, 2008/09, and now. The pattern of mass delusion always repeats itself.

    In the midst of booming markets, the irrational somehow passes for the rational. For me, the almost deafening chorus of TINA was actually music to my ears.

    The lower interest rates went, the louder the (self-interested and blatantly idiotic) TINA calls became.

    ‘There is no alternative’.

    ‘Money in the bank is worthless’.

    Investors need to move from cash into higher yielding alternatives. Which ones are they?

    Preferably the ones being recommended/sold/managed by those singing the loudest in the TINA choir…stockbrokers/financial planners/institutional economists/fund managers.

    Everyone was singing from the same hymn sheet.

    You’re simply the best, better than all the rest

    The more TINA gained traction, the more obvious it became that people were losing their grip…on reality and their capital. All logic was being abandoned. People forgot they had a choice.

    The January 2020 issue of The Gowdie Letter warned readers about the TINA myth:

    People continue to drive markets higher on little more than the premise of TINA — there is no alternative.

    What they fail to see is there is an alternative…it’s cash.

    Investors are focussed on return ON capital, when they should be looking for return OF capital.

    It’s only when markets crash that there’ll be a change in mindset…investors clamouring to get what’s left OF their capital.

    And as reported by CNBC, on 19 March 2020, there has been an abrupt change of mindset…

    In the age of coronavirus, cash is indeed king.

    That’s the view, at least, of many major investors, who are selling everything from stocks to bonds to gold in order to raise cash.

    Where are they clamouring to?

    The safety of the warm embrace of US three-month treasury bills…a short-term bond guaranteed by the US Government.

    The yield has gone over the cliff…three-month treasury bills are returning next to nothing.


    Source: CNBC

    [Click to open in a new window]

    Marvellous how a collapsing market can make you re-evaluate your priorities. Now it’s all about return OF capital (safety) and not return ON capital (interest rate).

    Anyone who, in recent times, was taken in by the TINA nonsense has taken a bath.

    They must surely be harbouring regrets about the day they chose the alternative.

    At what point do you yield?

    But what about those who looked for better yielding alternatives several years ago? How are they going?

    Firstly, let’s look at how the alternative has performed. Cash and term deposits: in 2015, the cash rate was around 2.5%. Term Deposits (TD) were paying around 4% for 12–18 months. Since then, 12-month TD rates have fallen to around 2%.

    Let’s assume, money in the bank — on average — has returned around 3% per annum over the past five years.


    Source: RBA

    [Click to open in a new window]

    The alternative, the most popular dividend stocks on the Aussie market — the Big Four banks and Telstra — have paid dividends around 8% per annum.

    On a yield basis, shareholders have been rewarded with an additional 5% per annum over the past five years…around 25% better than what term deposits have paid over the same period.

    However, contrary to what some investors seemed to believe, the market does not give you that extra return for free. There’s always a catch. Now, I know, mentioning that fact may seem rather silly.

    However, I can assure you, the TINA mentality did make the irrational seem rational. Anyway, here in graphic detail is the catch.

    The following chart illustrates the nonsense in the investment industry’s ‘chasing yield’ fable. Those various coloured lines represent the share price performances of the Big Four and Telstra since 2015.

    Here’s a tip for the TINA groupies…performance charts falling from left to right are not good.


    Source: Yahoo Finance

    [Click to open in a new window]

    CBA — the blue line — is the best of a bad bunch, with MINUS 20%. The other four (ANZ, NAB, Westpac, and Telstra) are all grouped around the MINUS mid-40% range.

    On average — over the past five years — these five dividend paying stocks are down 40% in value. Ouch.

    Let’s do the maths. Add back the superior INCOME return of 25% and the yield-chasers are 15% worse off than those who left their money in term deposits.

    But, but I know, you were told money in the bank was worthless…there was no alternative.

    You know what was worthless…the advice that demonised cash. And for shareholders, you can be assured there’s more bad news to come.

    Markets have only just began taking back those ‘free’ lunches. My guess is markets are going (a lot lower) compounding those losses. And, with bad debts bubbling to the surface in the coming weeks, months and years ahead, bank dividends are going to be cut…and cut hard.

    Double, triple ouch. TINA. Cash is trash.

    These were songs being sung by the investment industry’s Pied Pipers. TINA has taken investors over a cliff…and they are yet to hit the rocks below.

    TINA was simply the worst advice people could have listened to. Those with cash in the bank are now quietly humming…

    You’re simply the best, better than all the rest.


    Vern Gowdie,
    Editor, The Gowdie Letter
    PS: Exclusive interview from The Daily Reckoning Australia: ‘The New Case for Gold: An interview with bestselling author and Wall Street insider, Jim Rickards’. Click here to learn more.

    The post This Has Topped Any Other April Fool’s Day… appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

  • This Is Nowhere in the News Today — The US Dollar Shortage

    Markets have tanked again this morning.

    This is our new normal when it comes to watching the markets. Stock goes up for a bit, then down, down, down…

    Today’s Aussie market falls come from the US market falls overnight.

    It appears reality is sinking in that the coronavirus is going to hit the nation much harder than they anticipate.

    Of course, using headlines as an investment tool is a pretty quick way to go broke.

    Rather, I urge you to look at what’s happening beyond the headlines.

    Part of that, is the shifting power with the US dollar.

    You see, the US dollar is the linchpin of this fiat money system we operate in.

    All commodities express their value in US dollars. Most major currencies have their ‘strength’ compared to the US dollar.

    However, when you start to pull US dollars out of the financial system, the value of the US dollar goes up.

    Yet the greenback going up or down in value isn’t a real problem anymore. Instead, it’s how many US dollars are available for use.

    The flow of greenbacks around the world supports the financial system.

    Because US dollars are in demand around the world, the American government can run up enormous US$22 trillion debts.

    Central banks and governments around the world buy US Treasury bonds as part of their foreign reserves to protect themselves in a crisis.

    And the more US bonds they buy, the more ‘money’ the Federal Reserve can print.

    Essentially supporting the value of the US dollar.

    In turn, the US government can keep running up their trillions of dollars in government debt, believing that everyone will always want US dollars.

    It’s been this way for almost 40 years.

    But, there is a very real chance that this cycle is about to come to an abrupt halt.

    That there will be less demand for US dollars.

    If that happens, the supply of greenbacks will shrink. Or as Jim calls it below, there’ll be a ‘shortage’ of US dollars.

    Given that there is no other dominant currency to replace the US dollar, a drop in greenbacks is an enormous problem.

    And this is nowhere in the news today. No one is talking about what happens if the rug is whipped out from under the financial system.

    Don’t get caught off guard. As Jim explains, there are enormous implications if the supply of greenbacks starts shrinking…

    Until next time,

    Shae Russell Signature

    Shae Russell,
    Editor, The Daily Reckoning Australia

    The Great US Dollar Shortage

    Jim Rickards

    The coronavirus pandemic is a human tragedy. It’s also an economic tragedy, as the global economy is collapsing around us.

    Second-quarter US GDP may drop as much as 30%, which is a staggering figure.

    Many economists predict a third-quarter recovery, but there are still so many unknowns that it’s impossible to say.

    It’s still too soon to say when the US will reopen for business. And you can’t just flip a switch and return things to normal. That’s not how economies function…

    Centre of the financial system

    Many industries may never recover and millions may be out of work for extended periods.

    At the very least, we’re heading into a severe recession. And we could well be heading for a full-scale depression.

    That’s not being alarmist.

    The crisis will also accelerate the collapse of the US dollar as the world’s leading reserve currency. So you need to prepare now. What do I mean?

    The US dollar is at the centre of global trade.

    The US dollar represents about 60% of global reserve assets, 80% of global payments, and almost 100% of global oil sales. About 40% of the world’s debt is issued in US dollars.

    The Bank for International Settlements (BIS) estimates that foreign banks hold over US$13 trillion in dollar-denominated assets.

    All this, despite the fact that the US economy only accounts for about 15% of global GDP.

    The reason the US dollar is the world’s leading reserve currency is because there’s a very large, liquid, dollar-denominated bond market.

    Investors can go buy 30-day, 10-year, 30-year US Treasury notes, etc. The point is there’s a deep, liquid, dollar-denominated bond market.

    But the coronavirus crisis is creating a massive problem for foreign nations dependent on the US dollar.

    That’s because the world is facing a critical dollar shortage.

    Many observers are surprised to hear about a US dollar shortage.

    After all, didn’t the Fed print almost US$4 trillion to bail out the system after 2008?

    Yes, but while the Fed was printing US$4 trillion, the world was creating US$100 trillion in new debt.

    This huge debt pyramid was fine as long as global growth was solid and dollars were flowing out of the US and into emerging markets.

    But that’s no longer the case, and that’s an understatement.

    Global growth was anaemic before the crisis hit. Now it’s contracting rapidly…

    Without the US dollar, China can’t control their currency

    If dollars are in short supply, China can’t control its currency and emerging markets can’t roll over their debts.

    But again, you might say, isn’t the Fed engaged in its most massive liquidity injections ever and extending swap lines to foreign central banks to ensure they can access US dollars?

    Yes, but it’s not nearly enough to meet global funding needs.

    Foreign nations are scrambling to acquire dollars right now. And that surging demand for dollars only drives up the value of the dollar, which puts additional strain on their ability to service debt.

    When those debt holders want their money back, US$4 trillion is not enough to finance US$100 trillion, unless new debt replaces the old. That’s what causes a global liquidity crisis.

    We’re facing a global liquidity crisis far worse than the one that occurred in 2008.

    In fact, the world is heading for a debt crisis not seen since the 1930s.

    The trend away from the US dollar was already underway before the latest crisis, led by China and Russia.

    Now that trend will greatly accelerate as the world seeks to eliminate, or greatly reduce, its dependence on the US dollar.

    That’s not just my opinion, by the way.

    Here’s what Eswar Prasad, former head of the IMF’s China team, says:

    The [US] dollar’s surge will renew calls for a shift from a dollar-centric global financial system.

    It can happen much faster than you think. And the US dollar’s days are more numbered now than ever.

    All the best,

    Jim Rickards Signature

    Jim Rickards,
    Strategist, The Daily Reckoning Australia


    How Do You See Me?

    Vern Gowdie, Editor, The Gowdie Letter

    What do you see?



    The vase? The two faces?

    Life is rarely one-dimensional. There are always different aspects to consider.

    For example, popular thinking has it that ALL this stimulus will be inflationary. Trillions here.

    16% of GDP there. But what’s been lost in the argument/discussion is this detail.

    The ‘newly minted’ dollars will not be enough to replace the lost earnings AND borrowing power of all those previously employed.

    And (this is another big AND), if people — in sufficient numbers — somewhat rebuff the whole ‘debt-financed live beyond my means’ economic model, then global GDP numbers will shrink.

    Yes, there’s more money being created than ever before. However, there’s a whole lot more being destroyed.

    Central banks are always going to be behind the curve. They won’t know the extent of the damage until AFTER the (lagging) data is released. Then they’ll go (even more) ballistic. But will it be enough?

    After a sustained period of deflation, will they try to get in front of this and do way too much? Do we then get inflation?

    Questions to which, as yet, we have no definitive answers. However, anyone who thinks things are going back to normal when self-isolation ends, may want to think again.

    This is whole new world stuff. The damage to (government, corporate and personal) earnings, resulting from this new normal, is what markets are currently grappling with.

    How much? How long? How deep? How painful?

    In due course, the altered economic model will be fully priced into asset markets. That won’t happen overnight.

    Which is why investors should brace for further heart-in-mouth plunges.

    If you have skin in this game — be it in superannuation, shares, property, money in the bank — you need to be conscious of the various aspects at play.

    The good times are over, we have now moved into the make or break phase…and it requires you to see things differently.

    And now to the topic of today…how do you see me?

    The popular view — from the reams of feedback I’ve received over the years — is bearish, permabear, or chicken little…and they’re the polite ones.

    Life is simpler if we label someone and place them in a pigeon hole.

    However, that labelling came from a one-dimensional view, my investment approach during the ‘up phase’ of the cycle.

    My investment philosophy is winning by not losing.

    And by losing, I mean those capital-destroying losses that can take years or decades to recover from or worse, you never recover.

    I am neither bullish nor bearish…just cautious.

    Right about now I can hear the protests going up…

    ‘Surely, advocating putting all your money in cash is bearish?’

    Those holding that view are looking through the wrong end of the telescope. In bullish (and getting more bullish) markets, your level of ‘bearish’ should rise. Sell into a rising market.

    And conversely, in bearish (and getting more bearish) markets, your level of ‘bullish’ should rise. Buy into a falling market.

    I struggle with why that’s so difficult for people to comprehend? It’s the time-honoured way to create lasting wealth.

    Unfortunately, most people get it the wrong way round. The reason for my cash position was pretty straightforward…markets were feverishly bullish. That whole TINA narrative was reflective of that.

    The ‘everything bubble’ — the biggest asset bubble in history — was ALWAYS destined to meet a pin.

    And when it did, the sheer size of the bubble, meant it had/has the potential to be Great Depression-like ugly.

    Why on Earth would you want your capital exposed to that? Makes no sense to me.

    Timing the arrival of ‘the pin’ is a mug’s game. So you wait, safe in the knowledge your capital is intact and government guaranteed.

    Those who looked through the big end of the telescope now have absolutely no idea just how much capital they have at risk.

    Will it be 30% or 50%, or 65%, or nearly 90% like the Great Depression? The more this market falls, the more bearish those once bullish investors will get. The only guarantee you get with that approach, is the guaranteeing of losses.

    By comparison, that government guarantee looks pretty good. So far, the All Ordinaries is down about 30%. Is that the end of it or is it just the first round? What do you think?

    This initial blow the froth off the top correction has taken the All Ords back to a level first breached in 2006, 14 years ago.

    ‘Shares for the long term’?

    Port Phillip Publishing

    Source: Commsec

    [Click to open in a new window]

    But let’s bring the focus in a little tighter.

    The All Ords most recent move above the 5,000-point level was in 2014. It took less than six weeks to wipe out six years of gains. That’s how quickly paper profits can be shredded and what if this market hasn’t finished yet?

    How far back might the Aussie market go?

    4,000 points…a level first breached in 2005?

    3,000 points…a level first breached in 2000?

    2,000 points…a level first breached in 1994?

    These unknowns are why I opted for the known…100% of my capital not being exposed to capital-destroying losses that could take decades to recover from.

    Is this a bearish stance or at 60 years of age, was this just me being prudent?

    When markets are in the bearish zone — where I consider they offer far more reward than risk, then it’ll be time to turn bullish.

    But not yet. We’re a long way from the bearish zone. Why?

    Various valuation metrics I follow have us nowhere near the bottom.

    And, social mood is still too high. There are far too many people who remain bullish. Reports of people rushing to establish online trading accounts is, to me, an indication of where the mob’s thinking is at present.

    When it comes to markets, you really do need to practice self-isolation. Stay as far away from the mob as possible.

    The mob — those looking at a one-dimensional world — invariably gets it wrong.

    The time to buy will be when no one wants to buy. When online brokers are reporting a high level of inactive or closed accounts. The sound of market silence is what you want to hear.

    Until then, I’ll wait and, as a bonus, banks have increased the term deposit rates. For now, 100% of my money is earning almost 2%.

    That ‘known’ is far more appealing than the unknown level of capital loss AND dividend cuts that awaits share investors.

    When looking at the various dimensions of investing, the one thing that’s most overlooked and the most difficult to value is peace of mind.

    Unfortunately, it’s not until you lose it that you discover its real worth.

    Winning by not losing is much more than a one-dimensional view of the world.

    How do you see your situation now?



    Vern Gowdie,
    Editor, The Gowdie Letter

    PS: Learn why a recession in Australia is coming and three steps to ‘recession-proof’ your wealth. Click here to download your free report

    The post This Is Nowhere in the News Today — The US Dollar Shortage appeared first on Daily Reckoning Australia.

    Posted: by Daily Reckoning Australia

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