Forget the Commission of Audit report, Australian stocks hit a six year high this week. But what is that telling us? As always, it depends on who you ask. Market veteran Phil Anderson gives you his take below. But to begin today’s Daily Reckoning,we start with a small homage to the power of the stock chart in the first place.
If you a happened to catch the March 22nd edition of the DR, you’ll know our colleague Phil brought an experienced and sceptical eye to the look of Malaysian Airline System before Flight 370 went missing. The stock broke lower before the plane disappeared. Phil’s reasoning: the market knew something was going to happen.
Phil had seen that before: airline stocks that started going lower for no reason before the 9/11 terror attacks. Phil came to the same conclusion in 2001 as he did in 2014 based on the charts alone. Maybe this explains one of his trading rules: don’t buy anything that has to defy gravity.
We bring it up because we now have confirmation that Phil was right in 2001, at least. Jim Rickards new book, The Death of Money, doesn’t leave any doubt about that. Rickards suggests Osama bin Laden knew by September 5, 2001 that the attacks on the US would occur six days later. That left four trading days. Here’s Rickards:
‘At least one channel was blinking red before 9/11, telling the world that disastrous events involving airlines were imminent. That channel was the pinnacle of the U.S. financial establishment – the New York Stock Exchange. As the terror clock ticked away, market signals rolled in like a tsunami. A normal ratio of bets that a stock will fall to bets it will rise is 1 to 1. On September 6 and 7, options bets that United Airlines stocks would fall outnumbered bets it would rise by 12 to 1.’
Based on public knowledge at the time, such a ratio was inexplicable. Makes you want to check the stock price of your airline before you fly, right? After 9/11 Rickards became involved in a project to detect insider trading related to possible terror attacks. Here’s one small conclusion we took from that: there seems to be plenty of bog standard insider trading going on all the time. That brings to mind Bill Bonner’s memorable line: be as suspicious of public markets as you are of public toilets.
Jim Rickards is suspicious, of course, on the entire monetary system, which is what The Death of Money is about. Jim sat down for an interview with your regular editor Greg Canavan after the World War D investing conference. They covered the outlook for gold, China and the wider financial system. It’s an excellent half hour that any subscriber to a Port Phillip Publishing service can see. But what they didn’t get to is the IMF.
Rickards devotes an entire chapter to the IMF in The Death of Money. It’s creeping mission is to be the central bank of the world. Of late, Rickards argues the chief aim of the IMF has been to prop up the euro. Implied here: the IMF is protecting banks who made loans in euros from being paid back in devalued drachmas and the like. As of May 2013, 45% of loans were to Greece, Ireland, Portugal and Ireland.
Rickards goes on:
‘Another 46% of loans and commitments were extended to just two countries: Mexico, whose stability is essential to the United States, and Poland, whose stability is essential to both NATO and the EU. Less than 10% of all IMF lending was to the neediest economies in Asia, Africa, or South America. Casual visitors to the IMF’s website should not be deceived by images of smiling dark skinned women wearing native dress. The IMF functions as a rich nation’s club, lending support to those nations economics interests.’
That of course brings us to the US$17 billion IMF bailout of Ukraine announced this week. Rickards suggests this wasn’t a traditional swing loan for a country in need of short term financing. Ukraine has no hope of repaying its external debt. This was an economic warfare tactic against Russia. And as Phil Anderson never tires of pointing out, there’s nothing like a savage downturn to allow the World Bank and IMF to move in and start dictating terms.
for The Daily Reckoning Australia