Low key… Mixed bag… That’s about as polite as we can be in describing the week that was.
Both the ASX and Dow Jones traded sideways, ending the week slightly down. Gold met much the same fate. Notwithstanding a surge into Tuesday, gold priced in Aussie dollars is down $10 an ounce from Monday.
Meanwhile, on Monday, the Aussie economy received some promising long term news, with export earnings set to rise this year (more on this later). For the immediate future, though, the outlook is less than stellar.
Petrol prices rose 20 cents a litre around the country, with $1.40 setting the new benchmark for January.
Retail sales were up 0.2% in November. That’s well short on expectations of 0.4%, and a significant drop on the 0.5% growth rate in October.
Elsewhere, seasonally-adjusted building approvals were up 7% in November. Yet in more stable trend data, approvals actually fell 2.9%, representing the sixth consecutive month of falls. So, as usual, the Australian Bureau of Statistics (ABS) has something for everyone, whether you’re of the ‘glass half empty’ or ‘glass half full’ persuasion.
Job advertisements were down, too, in December. A new ANZ report revealed that advertisements fell 1.9% last month. Typically, December isn’t a strong hiring period. But perception breeds reality.
If job ads stutter for a few months running, it could add to any gloom descending over the economy. In the short term, the key month to look out for is February. That’s when we’ll get a better idea of where the jobs market is really at.
The worst bit of news this week was reserved for homeowners. Well, homeowners and anyone else that lives on credit, that is.
RateCity, a financial comparison website, anticipates home loan and credit card interest rates will rise this year. And that’s without any official rise in the cash rate.
Repayment rates had already risen in the fourth quarter of 2016, despite no movements from the RBA. On top of this, deposit account rates fell, with the majority of cuts applied to one-year term deposits. These moves indicate that banks are protecting profit margins…and bolstering shareholders’ returns.
How the banks fare this year will have a big bearing on the broader ASX. As Jason highlighted on Tuesday, banks — alongside mining stocks — drive the market. When banking stocks do well, the market follows suit.
But the Aussie market also tracks US indices.
With US markets looking exceptionally bullish, Jason says the current bull market in stocks could easily surge into 2018. With news around US tax cuts, regulations and healthcare still to come, and with money still flowing into financials, consumer discretionary and industrials stocks, the signs look bullish, according to Jason.
He believes there are two indices you should be looking to buy during the next pullback. One of them is the small-cap Russell 2000 index. The other? Click here to find out.
Speaking of small-caps, analysts at BlackRock have predicted the best returns will be found among smaller companies in 2017. They believe the recent run-up in blue-chip stocks is coming to an end, with small-caps set to take up the slack.
The bigwigs at BHP Billiton [ASX:BHP] needn’t worry too much, though. The Aussie mining giant got its very own ‘Trump Bump’ this week, following a private meeting with the President-elect.
According to reports, the meeting went smoothly. And it shows. BHP’s stock is up 95 cents since the start of the week.
Mind you, don’t tell global strategist Jim Rickards that stock markets could be in for a strong year. He offers a decidedly different outlook, which he shared with Markets and Money this week.
Certainly, Federal Reserve policymaking will have a key part to play in determining the strength of US markets this year.
On Thursday, Jim outlined the four hurdles that stand in the way of the Fed raising rates: deflation, job losses, a technical recession, and tighter financial conditions. The last hurdle includes global contagion events and stock market corrections.
Without these hurdles, the Fed is likely to raise rates in March, June, September and December, according to Jim.
Knowing this gives you an advantage, as you can predict the Fed’s moves well in advance. With no hurdles currently present, the Fed’s job now is to prepare the markets for a rate rise in March. For investors it serves as an excellent entry point for one particular investment. To find out what that is, click here.
Yet, despite the likelihood of rate hikes in the future, the longer term monetary policy trend remains unclear. At the very least, you shouldn’t rule out the prospect of rate cuts in the US this year.
As Jim discussed on Wednesday, investors should be preparing themselves for the ‘unencumbered’ interest rate policy. Simply, this refers to negative interest rates, or NIRP. The only thing standing in the way of unencumbered NIRP, as you may already know by now, is cash itself. If people can go to cash, it makes it hard to impose negative rates on digital bank accounts.
But the war on cash has well and truly begun. The elites are hell-bent on destroying physical notes. The EU and India may be the first movers in eventually eliminating cash, but they won’t be the only ones.
What happens once cash is eliminated (aside from rampant negative interest rates)? A new war will begin. On what? Click here to find out.
Yet the war on cash is just one part of the elites’ long term plans for you.
As Jim outlined on Friday, there’s a deeper, more sinister endgame behind all this. It involves an all-out attack on the status of the US dollar as the global reserve currency. Such a major geopolitical shift would upend the global order that’s been in place since the end of the Second World War.
And we know it’s coming. How?
Investors are dumping US Treasuries. Gold is being acquired by the largest investors in the world, including China and Russia. The stage is set for a global confrontation between East and West. The future of the US dollar is at stake — as is the control of global governance that goes with it.
The East/West paradigm is entering a new, more dangerous, phase.
What happens next? Click here to find out.
Work ‘til you drop
But hang on. We did promise some good news for the Aussie economy at the outset, didn’t we? Don’t worry, we didn’t forget. Here you go…
The Department of Industry, Innovation and Science expects Australia’s resource and energy export earnings to rise by 30% in 2016–17. The increase would see earnings rise to a record $204 billion.
Great news all around!
The government will be heaving a sigh of relief. Tax receipts should help buffer coffers this year. And they need every cent they can get to help the burdensome age pension limp along a bit longer. Or at least until the current leaders have hung up their hats.
But, being the pyramid scheme that it is, the age pension is doomed to collapse under the weight of payments not being matched by tax receipts.
This was the gist of Vern’s argument on Monday, in which he wrote about the unsustainability of the age pension in its current form. While it’s unlikely any government would cease handing out the age pension altogether, measures will be implemented to restrict costs from consuming the budget, Vern argues.
To find out why you might be working well into your 70s, click here.
And the latest Financial Anarchists podcast is up. Kris Sayce and James ‘Woody’ Woodburn talk about how Donald Trump wrought havoc on big pharma stocks this week. They were joined by Vern Gowdie, to ask about his upcoming meeting with former US Federal Reserve Chair, Dr Alan Greenspan. Vern doesn’t plan to throw him any ‘soft’ questions! Great listening for the weekend. You can download that for free here.
Until next week,
For Markets and Money