How about some reader mail?
“I am an avid reader of your report (it appeals to my dislike for herd mentalities) but I still have a reservation about the doom and gloom feel of the reckoning on a day-in-day-out basis. Yes I know things must correct, just as Carl Jung had the premise that the psyche must maintain an equilibrium, and so to must the financial system, after all it is a manifestation of an element of the human psyche … is it not? But tout doom and gloom for too long and don’t you start running the risk of missing an opportunity to capitalise on the herd mentality …. is this not also true?”
What is truth?
Just kidding. Good question. We don’t like to think we “tout doom and gloom”. It’s just that you happen to be investing during the biggest credit boom in the history of financial markets. Our position—derived from the Austrian school of economics and its analysis of the credit cycle–is that the bust is in proportion to the preceding boom. That means there’s far more risk ahead than stock market investors or the mainstream financial media seem to think.
You can’t take advantage of a fire-sale if you and your capital are burned down in the warehouse. We do think there are opportunities (in our day job we provide share tips in two newsletters, Outstanding Investments and Australian Small Cap Investigator). But right now, apart from the resources boom, there’s not much in the stock market that looks appealing, given the high level of systemic risk.
Here’s another question.
“Thank you for your updates on the US economy and I have a question in regards to Australia. There is much talk in the press about a tightening of credit in Australia, and again we see talk of a recession or possibly a depression in the US economy. We also know that the US economy consumes approximately 25-30% of the worlds output for oil and consumer goods, and a significant slowdown in the US economy will have an impact on that demand. Without demand for finished products we could see a lessening of demand for resources.
“Therefore with lessening demand for resources, and a tightening of credit causing internal demand to slow, the Australian economy will suffer. But we also hear that demand from consumers in China is on the increase…
“Obviously a credit crunch will still affect us, but will demand from Chinese consumers or other emerging market consumers supplant the US demand in the short/medium term leaving the Australian commodities economy still healthy which will help us ride out the US recession? I am no economics expert so I apologise if I am not seeing it clearly.
You’re seeing it pretty clearly John. You’ve asked the question everyone wants to know the answer to. How independent is the global economy from US demand? Is the growth of a consumer class in China enough to replace the American consumer? How will Australia fare in all this?
Our expectation is that Chinese demand for base metals and steel making materials is fairly independent of American shopping patterns. China’s in the midst of the third great industrial revolution of the last 200 years. It’s a commodity intensive transformation for nearly one billion people. It will have its ups and downs. But we’re still in the upward phase of the bullish cycle and the decline in the US dollar is exaggerating the bullish fundamentals for commodities.
“Dear Mr. Denning,
“Is it just me or is there something vaguely unsettling that in a defence of free-market capitalism on an avowedly libertarian, business-commerce website, two of the three posts on your piece are what can only be described as extremist anti-business, anti-capitalist, to the point of utopian irrationality. Am I missing something about your target audience or does the extreme left seem to spend a lot of time watching their ideological opponents??”
Our target audience is the man or woman who is not afraid of an honest discussion of any idea—the wacky ones and the ones that are considered gospel truths. But you’re right, there are an awful lot of anti-everything types on the Internet. There are also, apparently, a lot of unemployed socialists with a broadband connection and too much free time. The new leisure class sees no irony in opposing the system that’s created its leisure. That’s because they take themselves too seriously, which you are inclined to do when you think you’re saving the world from itself.
Markets and Money