Just a quick note on our publishing schedule before we launch in today’s notes. Markets and Money will not publish on Christmas Eve, Christmas Day, New Year’s Eve, or New Year’s Day. Our fearless leader Bill Bonner will probably still be writing, though. You’ll be able to find his musings over at www.dailyreckoning.com (the US site).
Not that we’re easing into the holiday break. Here in the U.S., bond yields are rallying. That means bonds prices are falling. Stocks, the dollar, and commodities are up. Existing home sales were up here in America, but prices continued to fall. There was also a downward revision to third quarter American GDP (originally it was 3.5%, then 2.8% and now 2.5%).
We’ll see if that bothers Aussie shares. The miners and the banks drove the ASX/200 up 1.5%. But the U.S. lead today is mixed. Investors are selling bonds. But are they going to turn right around and buy stocks? You gotta do something with all that cash.
Here in the States, we can say that the U.S. dollar is cheap. Everything in America seems cheap compared to Australia. Food, beer, movie tickets, petrol, and of course, houses. The cost of living is definitely lower here, at least in this part of the country. But even though it’s had its first monthly rally since June, don’t go pinning your hopes on the U.S. dollar.
The major trends defining the world – the migration of wealth from West to East – are still in motion. But right now it looks like plate tectonics, powerful, but underneath the surface. It can lead you into a sense of complacency that nothing is moving at all. Or, it can lead you to send it a note like the one below (reproduced with its original inaccuracy in spelling).
–Dear Dan & Colleagues
If we all wait long enough for you to finally get it right on your pessamistic views on housing and the share market we should all roll over and die I would like to thankyou personally because mostly everything you say i have done the opposite and made substsantial profits but I do feel sorry for those people who follow your recomendations and do nothing as they are waiting for the huge deppressoin which if they wait long enough we could all predit.I dont know how you could look youself in the mirror after being so badly wrong.
Regards John Matheson
Merry Christmas to you too, John. The test of our big ideas here isn’t a few months. It’s a few years. And what exactly were we wrong about this year? That the Aussie market hasn’t collapsed? That shares haven’t retested the 2003 lows? Give it time mate.
But it’s a fair cop. Will we be right (again) eventually, simply because of the passage of time? That isn’t our investment objective. Our objective is to pick the one or two major trends and figure out how to profit from them. Unfortunately, the major trends in today’s global economy (deleveraging, contraction) are threats to your wealth, not opportunities.
That’s why the main mission in markets like this is to preserve your capital, not take risks with it by listening to the conventional wisdom. But if we were looking for places to dip our toe in the share markets it would be two broad categories: unconventional energy projects and oversold, world-dominating blue-chip value (as our friend Dan Ferris calls global franchises).
In other words, we’d be bottom feeders looking for a chance to build a small core portfolio of blue chip shares for the next 15 years. But our main preference is stay liquid and tangible, which means more cash than shares and more bullion than bonds.
If inflation picks up in 2010 (because of lending growth by banks) then we might even look to trade depreciating cash for real estate…but land…and not existing housing stock. Houses are cheap in America again – but getting cheaper. Now may not be the best entry price.
Of course nobody knows what will happen. We just know what has happened in the past when credit bubbles have collapsed. Some evaporate quickly and the economy returns to a normal growth path. When the needed correction is drawn out, as this one is, the distortions persist and investors do it even tougher.
So stay tuned in 2010 John. At the very least, reading the Markets and Money will give you the enjoyable sensation of being superior. And more positively, maybe you’ll even learn something about preparing for the unexpected. But we’re not betting any money on it.
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