— Reading through the newspaper headlines this morning made us think about, well, newspapers. We’ve always been fans of the broadsheet. As a young kid coming home from a night on the turps, we’d stumble into the local newsagent as he was loading his truck and pick up a copy of the SMH (oh how that paper has changed…or is it us?).
— When we lived in London in the mid-1990s, the range of papers on offer was immense. The broadsheets put out editions on Saturday and Sunday. We read The Independent at the time, the broadsheet with probably the lowest circulation in the country.
— Our English mates laughed at the choice. They thought it was a rubbish paper. In England, the class divide meant you either read The Times or The Guardian. It reinforced in-built prejudices.
— Why are we bringing this up? Well, every publication contains a combination of fact and opinion. Facts are facts (usually) but a paper’s political persuasion will twist and shape these facts via its opinion writers.
— If you’re someone who reads the papers for facts or general information – carry on. But if you’re an investor who thinks you’re going to get some sort of advantage from reading the business news, you’re kidding yourself.
— Both the Sydney Morning Herald and the Australian lead today with the news that retail shopping conditions are the worst in 50 years. The Financial Review chimes in with:
‘Domestic retail sales fell 0.1 per cent in June – a long way off expectations that tipped a 0.4 per cent gain. Embattled retail stocks were sent into a spin, with the consumer discretionary the worst performing sector.’
— That last sentence from the Fin is just plain wrong. Consumer discretionary was not the worst performing sector yesterday. And prices were not sent into a spin. Myer finished flat on the day – it outperformed. David Jones was down only 1 cent, or 0.3 per cent. JB Hi Fi was off 0.6 per cent. Meanwhile the market (ASX200) slumped 2.27 per cent. (That’s courtesy of the AFR, so you may want to double-check the numbers.)
— When newspaper reporting reaches a crescendo of negativity and stocks react positively (in a relative sense), you can be sure we’re close to a bottom. Any amateur investor reading today’s headlines would be too scared to put their money into retailers. But much of the sector is in deep value. It won’t be long before private equity (the smart ones – there are a couple) move in.
— We’ve got a few retailers in our Sound Money. Sound Investments portfolio and yesterday recommended investors add to their positions. At these prices, we’ll be looking to add one or two more.
— And if you’re a gold investor, you should be happy the papers still don’t understand what is going on. Stephen Wyatt, who writes the ‘Commodities observed’column in the AFR has been getting gold wrong for as long as we can remember.
— Not to be deterred though, his article today is titled ‘Bubbles can form even in gold’. He then goes on to recount the tired old argument that gold’s supply is plentiful and consumption is low. All the gold sitting in the world’s central banks (assuming its really there) is apparently available supply for use.
— What he fails to understand is gold is not consumed because its use as an international store of value and medium of exchange is too important. Wyatt says ‘gold is being buoyed by speculative demand’ and ‘is essentially being driven higher by speculation’.
— Is it? Maybe in the futures market, where leverage plays a big part. But people buying physical bullion are conservative investors who do so to protect their wealth. The only speculation involved is that governments and central banks will continue to stuff things up. That’s a reasonable bet as far as we’re concerned.
— Speaking of central bankers, have you ever wondered what Ben Bernanke might really think when he’s got a few into him? This hilarious article, ‘Drunken Ben Bernanke tells everyone at neighborhood bar how screwed U.S. economy really is’ does a pretty good job. If you’re offended by swear words though, tread carefully – Ben’s pretty loose-tongued.
— And our own central banker, Glenn Stevens, kept rates on hold this week, defying the predictions of some economists who evidently live only with statistics and give the real world a miss.
— But as we pointed out last week, Stevens and his predecessors only have themselves to blame for the predicament they are in – presiding over a recessionary economy with high inflation. It’s the good old stagflation nightmare.
— What we need, and what we’ll likely get after the next crisis, is a system where the market sets rates and the central bankers revert to their role as lenders of last resort in the way Walter Bagehot described them in Lombard Street. That is, lend against good collateral at penalty rates. This ensures only the strong and smart survive. It’s the way nature works.
— We outlined a modest five-step plan towards sound money in our latest report. We’ll give you an overview next week.
— See you tomorrow.
Markets and Money Australia