Australia Deserves This Political Debacle

In yesterday’s Rum Rebellion, I discussed why the gold price might be bottoming out here. To be sure, a rally above US$1,240 an ounce would help cement that view. But as I said, with the market giving high-fives all-round over the Fed’s latest comments, such a move seems likely in the days or weeks ahead.

Still, gold has some challenges to overcome, and today I want to show you a few other charts that indicate this.

Before I get to those though, I want to address another issue that could have a major impact on the Aussie economy for years to come.

I’m talking about our dire political scene.

The Liberal Party is in disarray. Julia Banks, the Minister for Chisholm, just bailed on the party. What the hell is going on? This follows on from Labor’s dominant win in the Victorian state election on the weekend.

Banks, in my view, realised she has a better chance of political survival as an independent than a Lib in the upcoming election. So she walked. Clearly, a team player…

The common (and bitter) refrain from the Liberal Party is that this is all Malcolm Turnbull’s fault. I disagree. This is on those who backed Turnbull when he challenged Tony Abbott in 2015.

The difference between Abbott and Turnbull is marked. The Libs have obviously been split for years between the conservative faction and the more moderate Liberals. The moderates won in rolling Abbott in favour of Turnbull. That’s why Cory Bernardi left and set up the Conservative Party in 2017.

The problem is that the ‘moderate conservatives’ are Labor lite. Their former leader, Turnbull, would’ve made for a great Labor PM. Labor know this too, but they simply could not have taken on a former banker. What would the unions have said!

So, put simply, it was a huge strategic error to back Turnbull in for a second go at the leadership. The Libs then compounded this error by changing their mind and booting him in the lead up to an election.

I say that because it has taken them from a position of power, to what looks like will be a comprehensive defeat come the election next year. They have misread the mood of the Australian people, a fatal error in politics.

This begs the question, should a political party sell-out of its core beliefs to stay in power, or is it best to sacrifice itself and stand on principle? The Libs appear to be doing the latter.

The fact is that Australia has moved to the left in recent years. The housing boom has created a social divide, giving Labor the moral high ground. And the climate change debate is another gift to Labor. The Libs have simply been unable to articulate a view on climate change that cuts through the hysteria and nonsense coming from the left.

You get what you deserve

As a result of failing to do this, Australia will now get what it wants, and in all honesty, what it deserves. That is, a semi-socialist leader who will increase taxes and government spending, subsidise renewable energy to a point where it highly destabilises the energy grid and forces prices even higher, and continue to sell us out to global unelected interests.

Is this what happens to a society that has been anaesthetised by good times and a 20 year property boom? Does it get seduced by climate change warriors and social do-gooders, and lose all common sense about what policies ensure economic growth and national prosperity?

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Don’t get me wrong. I’m not saying we should sit back and do nothing, even if the climate change risks are overblown. That would be political suicide. But we shouldn’t lose our heads about it either. The welfare of our country comes first.

Continuing to raise the cost of doing business in Australia via increased energy prices is madness. Whatever efforts Australia makes on carbon emissions, it will have NO effect on the global climate. None.

If the UN is so concerned about climate change, tell them to go and talk to China, the world’s largest emitter. Under the current Paris Agreement, China only has to get emissions under control by 2030!

What’s the real agenda? As Jim Rickards (contributor to the Daily Reckoning) tweeted earlier this week:

“Climate denier” is typical of the name-calling reaction function of those who do not have real science to rely on. Your conclusions are model-based and the models are badly flawed. Just admit “climate” is a front for world government and world taxation then we can talk.’

The UN is far more interested in power than in saving the planet. And Australia has fallen for it hook, line and sinker. 

I blame our education system. It’s a joke. Kids come out of uni these days with no idea about how the world really works. They’re indoctrinated, if unwittingly. All the journo’s writing for Fairfax, the Guardian, ABC, SBS etc, are all under the influence, and so the views spread out into mainstream society.

Which is, partly at least, why we are in our current political state.

So, let’s see how Labor goes in office. Keep in mind this is a party that wants to take franking credit refunds from retirees. It’s not a new tax. It’s just outright theft, obscured by planned legislation to make it ‘lawful’.

But this is what we’ll get. With house prices past their peak and commodity prices turning down, Australia has enough economic challenges on its plate. This is just the icing on the cake. All for kicking a bloke out, who should have been on the other side of politics in the first place!

Fine. Go for it. I’ll just be over here in my corner talking about gold…

“Game on” for gold?

As I said, gold still has its challenges. One of those is the fact that gold stocks simply don’t look good here. Have a look at the following chart of the HUI Index, also known as the gold bugs index. It’s an index of the world’s major gold mining stocks.

AMEX Gold Bugs Index 30-11-18

Source: Optuma

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As you can see, gold stocks broke down from a very large consolidation pattern in August. This coincided with gold’s low. Since then, gold stocks have attempted to put in a bottom. But they are still clearly in a downtrend. You need to see gold stocks rally up above resistance (former support) which sits at around 160 points on the index.

Junior gold stocks look similar, as you can see in the chart below. It shows the VanEck Vectors Junior Gold Miners ETF.

VanEck Vectors Junior Gold Miners ETF Index 30-11-18

Source: Optuma

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It too broke down below support in August. And it too needs to rally back above the green line to indicate that the worst is behind it.

So the performance of the gold stocks is the missing ingredient in the ‘gold is bottoming’ here. It’s a crucial ingredient, too. Gold stocks usually lead the gold price higher in bull markets. That’s not happening this time around.

So before getting too excited on the gold price here, keep any eye on the gold stocks and wait and see whether they can rally back above resistance.

If they do that in the weeks ahead, it’s game on for gold!

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Greg Canavan,
Editor, The Rum Rebellion

Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:


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