Stock markets continue upwards. The economic news continues to get worse. Money printing makes up the difference. But in the end, reality always catches up.
Rick Santelli of CNBC pointed out that the American stock market is pricing in (expecting) 14% earnings growth for its companies (on average). It’s also expecting economic growth to be around 3-4%. The problem is, the two don’t match up, historically speaking.
Rick looked at past data and found some interesting figures. To get 14% earnings growth, you need GDP to grow around 7.6%. That’s double the expected growth.
So there’s going to be a surprise at some point. Either earnings will disappoint and stocks fall, or the economy will suddenly boom and stocks will go up. Aussie stocks will follow the American lead either way.
You can probably guess our expected outcome. We’d be surprised to see the American economy grow at 3%, never mind 7.6%. By the way, if the American economy does actually pull off an impressive 3-4% growth in GDP, that usually translates to declining earnings, let alone a rise of 14%.
In fact, according to Rick’s research, economic growth of 3-4% is usually accompanied by earnings falling 7-13%. So if Wall Street gets its expected GDP growth, earnings could underperform by almost 30%!
That’s the kind of surprise Murray Dawes is preparing his subscribers for at Slipstream Trader. And right now could be the perfect time to make the move, says Murray:
‘We have just seen a very rare event with the Dow Jones having 10 up days in a row. That hasn’t occurred since late 1996. The markets rubber band is now fully stretched and it won’t take very much to see a sharp correction from here.’
You can find out how Murray’s subscribers will be making a profit if market drops here.
But does all this really matter? Are earnings and chart patterns driving the markets these days?
Dan Denning is fond of saying that stocks in general have become an inflation indicator, not an investment into a company’s prospects. That’s why stocks have been going up. We’re in a world where stock prices are a political target, not a reflection of reality.
Speaking of politics, it’s been a busy week. Eurosceptic Member of the European Parliament Nigel Farage tore up the European Parliament and tore into his Bulgarian colleague in style. Angela Merkel’s trip to Greece was cut short after she didn’t make it past Greece’s customs because of this exchange:
‘Angela Dorothea Merkel’
‘No, not yet.’
Ok, so that part was fictional. Back to reality. What else has been going on this week?
Argentina has a Pope. It also has the world’s greatest soccer player, who took his teammates to the next round of the Champions League with two goals. Maybe the Argentines should swap the two for the Falkland Islands. The English would love to run the Catholic Church and win the World Cup.
It’s fun thinking like a politician isn’t it? You can make stock markets go up and down, you can fight over isolated islands in the middle of nowhere and you can tell people to wear red underpants on their head, like Minister for Communication Stephen Conroy can.
No wonder people get sucked in when they get elected. Changing the rules is something we all enjoyed doing…as a four year old. Since then we’ve been bound by other people’s rules at school, on the street, and even in our own homes.
Usually, the rules suck. They prevent you from doing things you want to. And because they keep changing, you never know what’s what. You keep missing out on tax refunds, get caught out by changing speed limits, and can’t offend people like you used to. Life was much better when you could make the rules.
But, as all elder siblings will tell you, playing the rule game can actually be fun for grownups too, even when you’re not a politician.
For those of you who don’t have younger siblings, try playing a board game with a younger member of your extended family. Preferably between the ages of 2 and 6.
Don’t try and win. Instead, the aim of the game, whether its Monopoly or Snakes and Ladders, is to let your younger opponent be creative with the rules. Let them be Julia Gillard or Tony Abbott for half an hour. You’ll discover several things:
- This is a lot more fun than playing by the rules. Children, given power, are as creative as their intellectual cousins, politicians. They’ll propose bizarre rules, like ‘you can’t drink soft drinks from certain containers’ (a law recently made and then struck down in New York), or ‘if you run out of monopoly money, just make more’ (an actual Monopoly rule, and how most governments fund themselves these days).
- The rules are selectively enforced depending on who’s losing out. If you land on the wrong Monopoly field, you have to go to gaol. But, as you’ll discover, your younger opponent will likely claim juvenile status and therefore be allowed to move into the visitors section of the gaol for free. A more creative opponent will have claimed the banking role at the start of the game and bring up the ‘too big to gaol’ argument America’s Attorney General, Eric Holder, invented to explain why bankers haven’t been prosecuted.
- The rules change to favour the person making them. The problem is, during the course of a game, the situation changes. So rules have to be changed back and forth almost every turn. One moment your younger opponent will be climbing a ladder, the next you will be falling down it. A snake might eat you one minute and then let your cheeky opponent climb up its back the next.
It’s a wonderful sight to see a young brain at work trying to create a world of advantageous rules. Especially at the moment when an arbitrary rule backfires and has to be repealed in haste to prevent losing the game. That moment might remind you of the Carbon Tax. It had to be ruled out to get elected, and brought in to keep the comrades happy.
Of course, four year olds don’t make the laws we deal with in real life. So for an adult version of the same experience, try playing Chairman Mao, probably the best card game in the world. The rules are:
- Only the Chairman (preferably you) knows the rules
The way the game works is that everyone tries to work out the rules as they go based on how the Chairman reacts to correct and incorrect moves.
So, if the Chairman decides one of the rules is that, if you play a number 7 of any suit, the next player misses a turn, the Chairman will make the player who plays out of turn pick up a card.
But, because the Chairman doesn’t reveal exactly why the player had to pick up a card, people aren’t sure what mistake the person made. Over time, people figure out the rules based on how the Chairman plays and punishes them for incorrect moves.
Again, it’s surprisingly fun to play rule games like this. But nothing is better than beating someone at their own game, even though they got to make up the rules as they go. Imagine being the person who bills Julia Gillard for her power usage now that the Carbon Tax is in.
Or imagine being the person who incorrectly installs insulation in Peter Garrett’s home under the government’s scheme, collects the grant money and then watches the house go up in flames (without him in it, of course). It’s almost as good as beating your little sister at Monopoly despite suspicious cash transactions taking place at the bank.
Play the Rules Game to Cancel Your Mortgage
All that’s pocket change compared to the opportunity an Assyrian couple investing in a shopping trolley collection business unwittingly exposed for you. The bankers of the real world have been changing the rules and acting like 4 year olds to win the game of selling mortgages for a commission.
But, just like a 4 year old who gets caught out by their own rules halfway through a board game, the banks made a big mistake. The surreal result is that vast amounts of Australians could be able to cancel their mortgage. The debt is simply wiped clean or reduced significantly.
In the next few days, you’ll find out the details, and whether the opportunity is open to you. Yes, there really is a chance you could cancel your mortgage.
But it’s the why that’s so delightful. Just like a cheating 4 year old might in a Monopoly game, the banks just bull****ed. They changed people’s signed loan documentation, inflating their financial status to ensure they passed lending standards and got their loans.
The lenders literally wrote numbers onto signed paperwork to manipulate the game of selling mortgages in their favour. And the lenders got their commission while borrowers struggle with too much debt.
Now if your grandchild tries something like this on you in a monopoly game, you might let it slide and bring it up on their 21st birthday. Or you might want to be a bit of a disciplinarian. But what if your banker did it to you? What would you do then?
The answer is in our video. You’ll enforce the banks own rules against them. But here’s the thing. Just like a child who’s realised their own arbitrary rule is about to turn into a problem, the banks and politicians are going to have to deal with this. They’re going to change the rules again at some point.
In America, the banks made the same dodgy decisions and experienced a similar backlash. In the end, the problem was so big the government created a ‘get out of gaol’ card. Some banks had to compensate everyone they foreclosed on, creating the biggest payout ever of its kind. But what about the borrowers who were wronged, but didn’t get foreclosed on?
Anyway, if you want to find out if you could cancel your mortgage here in Australia, and how to go about doing it, keep an eye out for our video presentation in coming days.
Markets and Money Weekend Edition
ALSO THIS WEEK in Markets and Money…
China’s Inflation: On High Alert
By Greg Canavan
Everyone is ‘getting rich’ (everyone who matters, anyway) and when that happens, it’s very difficult to take away the punchbowl. 2013 is looking increasingly like the year that China will make the tough transition to a lower, more sustainable growth rate. This is a good thing from a longer term perspective. But it will be VERY destabilising in the short term.
Hugo Chavez, RIP
By Bill Bonner
Another major world leader has bit the dust. Venezuela’s big man died. Some bleak corner of Hell took him in last Wednesday, if not before. Hugo Chavez was such a great entertainer, he was bigger than life; real life was too small for him. He had to stretch the truth out…to bend the real world into a larger, more fantastic shape…to puff it up with hot air, until it could hold him.
‘I fought the banks and got 75% of my mortgage cancelled’
By Nick Hubble
If your mortgage documentation was manipulated, your loan could be reduced or extinguished altogether. You would own your home with far less debt owing, or no debt at all. That probably still sounds surreal. Well, it took months of research to confirm this opportunity is very real for vast amounts of Australian borrowers who know nothing about it.
A Crazy Warning Sign for BHP and CBA Shareholders
By Greg Canavan
Both companies benefitted from China’s growth, although BHP received the benefit first and CBA later as the proceeds from Australia’s raw materials sales flowed through into higher national incomes and a continuing demand for debt…While BHP trades around $36, well below its high of $50 reached in 2008 and 2011, CBA is at record highs around $70. Is it justified? Let’s do some comparing…