Timing Your Trade on Christmas Shopping

First up, a public service announcement. You might remember scares about Australia’s eastern seaboard running out of gas in coming years. Well it’s just happened…in Canberra.

Apparently a bunch of transport trucks are out for repairs and so about 10 petrol stations in the Canberra area are out of LPG. So if you’re running low, don’t find out the hard way.

Fair enough, we don’t have many readers in Canberra. But it’s interesting to note how flimsy energy infrastructure actually is. Our best performing pick in The Money for Life Letter is on top of this with a virtual monopoly on one part of the distribution process.

But we don’t like how easy this disruption came about at all. The impact of a day’s worth of missing energy resources can be very dangerous for an economy. And if all it takes to knock out gas supplies is a few poorly maintained trucks, how fragile are oil and our other resources? And if someone would want to meddle with them, how easy would it be? No doubt someone will cover that in detail in March.

Back to the usual reckoning. Or not. Today, we say ‘stuff the stock market’. There’s only so much you can write about an index that’s crossed the same level more than a dozen times in seven years. Let’s talk about Christmas shopping instead.

This year, the important thing isn’t going to be what you buy for Christmas, but when you buy it. And our advice is to get out there as soon as possible. That’s because two Grinches are out and about trying to ruin your Christmas.

Grinch Stevens

On the one hand, we have Grinch Stevens of the Reserve Bank of Australia. He’s determined to sink the Australian dollar. That increases the price you pay for your overseas pressies, or presos as Queenslanders call them. If we hit Stevens’ desired 85 cent mark, you’ll be paying an extra four cents per dollar of American goodies. And that’s after a tumble from $1.10.

That strategy is so evil, so conniving and so cunning even Jim Carrey’s character in the Grinch movie couldn’t have thought of it. But Tony Abbott did in The Australian: ‘Mr Abbott argued that the government’s $8.8 billion investment in the central bank’s capital reserves would make it easier for it to intervene “prudently and appropriately” in the currency market.‘And we copped criticism for calling the $8.8 billion a bribe! It turns out it was a payment to finance ruining Christmas.

Grinch Bernanke

Grinch Bernanke at the Federal Reserve has a different strategy for meddling with exchange rates. If you thought you’d be safe buying your presents locally in Aussie dollars, he’s got you all figured out. Grinch Bernanke’s plan is to sabotage Christmas by sabotaging global stock markets with operation Dectaper. By implying the definite possibility of a firm maybe that Quantitative Easing could be reduced in coming weeks, Bernanke is pulling the rug out from under the Christmas tree.

You see the wealth effect works both ways, even at Christmas. Stocks go up, credit card balances go up. Stocks go down, like they have been, credit cards stay snug as a bug in an empty wallet.

So kids, if you’ve been good so far this year, it could all be for naught. And that means it’s time to get naughty!

One investor has taken that advice to heart. He’s bet on Christmas being utterly ruined and hopes to make a Scrooge-like amount of money. Bloomberg reports that someone made a $5 million bet on the VIX jumping 50% in the next four months. The VIX measures volatility, and it usually rises that much during a market crash. So if the investor is right and we do see the VIX surge, we’ll also see Donner and Blitzen in the stock market. (The Reindeer names mean thunder and lightning in German.)

Even Christmas decorations will be a downer this year. The good old christmas colour gold is only going to bring misery to investors hearts. After the surprise pop we wrote about earlier this week, it’s back to the usual plop in the gold market. In fact, we saw the bottom drop out of the gold price twice overnight:

Source: Kitco

If you’re planning on helping out those less fortunate this Christmas, you’ve also been dealt a blow. Countries sanctioned by global bully America are now even more difficult to reach with a helping hand. American regulators caught one of the few banks willing to ignore the law on sanctions, the Royal Bank of Scotland (RBS)

Now we’re all in favour of transferring money to sanctioned countries. Who is Mr Obama to say you can’t do with your property as you like? But it’s how RBS got caught that’s priceless. (It’s actually going to cost them US$100 million in fines, so not entirely priceless.)

Regulators discovered the written instructions provided ‘a step by step guide on how to create and route U.S. dollar payment messages involving sanctioned entities through the United States to avoid detection,‘ explains Bloomberg.

That’s like Bernie Madoff leaving a book about Charles Ponzi lying on the table after a client meeting. Speaking of which, US bank JP Morgan just paid the US government $2 billion for failing to inform US authorities of Madoff’s suspicious activity.

Apparently you should be in the bank fining business these days. Imagine what’s going to be under the tree at the US bank prosecutor’s office after this year!

It’s not just the stock market and currency market weighing on holiday happiness. Instead of Christmas cheer, the American blogosphere is alight with debates about inequality at the moment. It’s an issue that could spark proper social upheaval. Especially during Christmas, when the differences in consumption patterns between the rich and the poor are at their most emotional.

The debate about the inequality is a complete mess to begin with. Only the rich benefit from QE and the rising stock market. But a lot of ‘the rich’ aren’t really rich once you take a look at their household budget. If you take net wealth instead of income data, or track the people who have high income one year, but don’t the next, a lot of the inequality arguments fall apart.

We’re more worried about something else. CNBC reports on some figures hidden in a traditionally boring Congressional Budget Office report: ‘…when it comes to individual income taxes, the top 40 percent of wage earners in America pay 106 percent of the taxes. The bottom 40 percent…pay negative 9 percent.‘In other words, one half of the country is subsidising the other half’s government with cash handouts on top.

So who do you think will spit the dummy first? The people paying for the presents or the people not receiving enough goodies? Stay tuned.


Nick Hubble+
for The Markets and Money Australia

Join Markets and Money on Google+

Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like.

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