Just a quick note on our publishing schedule before we launch in today's notes. The Daily Reckoning Australia 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 Daily Reckoning 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.
Dan Denning
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Curt on 24 December 2009:
Excellent response. One thing is for sure, investing is very risky business these days as the world's financial system is very unstable.
Comment by dan on 24 December 2009:
US GDP revised down to 2.2% from my readings
http://www.marketwatch.com/story/us-gdp-revised-down-to-22-annual-rate-2009-12-22?reflink=MW_news_stmp
Comment by Gullu on 24 December 2009:
Hi Dan,
I think Mr.Matheson missed DR's advice on Gold (for the last couple of years atleast since I have been reading DR) and the markets in general (after 2007).
Actually I live in Mumbai and am a trader/investor on the Indian stock market for the last 15 years. I make my living trading and investing. I have recently (starting about four years back) diversified into real estate (on my own analysis) and Gold (mainly on the advice of DR and the logic behind your arguments). When Gold was about Rs.11000 for ten grams (here we call it a TOLA) I hardly had any exposure in this asset. But after reading DR daily I started buliding my position and now Gold comprises about 4% of my assets. In fact I think I should take it up to about 8/10% of my assets. The correction under way is giving me an excellent channce to do just that.
Given the dynamics that are underway in the world I think Gold will top out around the 0.5 Dow/Gold ratio. One of the reasons that sitting here in India I feel might impact is that our strong economy will continue to make Indian net buyers for a number of years. In fact our central bank has also turned buyer after having bought 200 tonnes from the IMF. With China yet to make a big move in the Gold market the downside seems very limited.
Continue the excellet work. All the best for the new year to you , Bill and everyone at DR - oh which by the way is my HOMEPAGE!
Gullu.
Comment by Ross on 24 December 2009:
Dan, take out the direct measures against 3 govt stimulus programmes and it is -0.2%. They can at least blame the snow for lower Xmas sales.
To Dan D. and everyone else here, Merry Xmas to you and your families!
Comment by Sambo on 24 December 2009:
The more John Matheson's the better. Being contrarian to contrarians is essentially just mainstream again. The less real contrarians there are, the more upside there is to being a contrarian. Thanks for being you John, see you on the other side.
Comment by Esteban on 24 December 2009:
that's right, I've already invested all cash in solid Gold, when reaching the right moment... will enter the market, housing, etc.
Comment by Esteban on 24 December 2009:
One Question... anyone knows when will be the AUDIT to the FED?
I reed it weeks ago... but, no dates found. Thanks.
Comment by Alan on 24 December 2009:
Just finished "Mobs,Messiahs and Markets" 2007.You are pretty well spot on so far.Now for the medium term......
Comment by Neal Vanderstelt on 25 December 2009:
It's no doubt an awful mess here in the US. The remedy has been to bail-out and inject cash but that's what got us into this mess in the first place. It seems our leaders never learn. I have studied the depression extensively and have even been told stories from my grandfather about standing in soup lines and how hard it was to get a job. Even if you had a job in the depression there was no guarantee you would get paid. The depression was caused by over-leveraged investments and here we are again making the same basic mistakes. Now generations to come will have to pay these debt burdens they didn't create.
Comment by nigel isherwood on 25 December 2009:
Dear Dan. Regarding John Mathesons scathing critasism on your service, I regard it as unfair and unsporting. You are hardly in a position to critasise him for his predictions, which we are assured have been very successful. Congratulations John on your wisdom and insight; could you share your good fortune with the rest of us? Or maybe you could write your own email commentary service (freely available of course). I assume John has got completely the wrong idea about investing, which as far as I am concerned is: you listen, and you watch, and you try to interpret. Everyone is both wrong and right at different times. As an investor, it is your responsibility to make your own judgements and your own decisions. When you are right, you desrve a pat on the back. When you are wrong, you should evaluate why. Never critasise and never complain, because you only have yourself to blame in the end. Every day I make mistakes, sometimes pretty big ones, but over the years I have managed 50% compounded returns. Making mistakes is not a sin; it is all part of the process of learning. Have you learnt anything John?
Comment by John on 25 December 2009:
Thank you Nigel. I have learnt how to spell critasism and critasise. And pessamistic. And deppressoin. And recomendations. I am, at the end of the day, a creature of imagination... a parable. I'm flawed because that is exactly how my Creator intended me to be... a misguided property bull... .
Comment by Lachlan Scanlan on 26 December 2009:
Its true John that God forgives even the property bulls...."it is easier for a camel to go through the eye of a needle than for a property bull to enter the kingdom of God"..."With man this is impossible but with God all things are possible".
I figure maybe the ol property bulls have to pay their dues in heaven by renting a little while.
Comment by John on 26 December 2009:
Ah, but God _loves_ bullionaires, Lachlan!
Comment by Jehovah on 26 December 2009:
I resemble that remark, John! Did I not say: "Let your ingots so shine that all men can see your good works..."?
I was highly impressed with Aaron's Golden Calf, you'll recall. But I see St Lachie's point here. Those who provide shelter shall be damned... . Those who collect shiny bling in my name shall be exalted!
Comment by John on 26 December 2009:
" I am, at the end of the day, a creature of imagination... a parable. I'm flawed because that is exactly how my Creator intended me to be... a misguided property bull... ."
Would it help if I explained that the end of the day I was created was 23rd December 2009, Lachlan? Perhaps the capital C misled you?!~
Comment by Lachlan Scanlan on 26 December 2009:
OK ya got me
Comment by Richard on 30 December 2009:
I think I know what you are John!!
and Nigel...No, I don't think he's learnt anything.