The Man Who Called Today’s Property Market Boom — Gold Price Outlook
And away we go for another week here at The Daily Reckoning Australia.
What was hot two weeks ago has suddenly come off the boil. I’m thinking of iron ore and crypto here.
However, US stocks held up on Friday, so we’ll see if Aussie ones can catch a bid today.
Here’s on with today’s topics…
1. I can’t help but look at the gold price and gold sector currently. The yellow metal is nearly AU$2,400 an ounce right now.
That’s great margins for the existing producers. The market knows this.
That’s why the share prices of stocks like Ramelius Resources, Northern Star, Evolution Mining and Silver Lake have bounced off their lows in February/March.
However, I still see so many smaller gold stocks way down off their highs from last year.
The improved sentiment around gold has not led to the equivalent rerate for these stocks.
One of the great things about the share market is this type of dynamic.
Last year there was a point where you could barely get a bid on a gold stock before it was racing off in price.
Now many are meandering about.
The underlying assets haven’t changed. It’s just investor sentiment isn’t as bullish as it was.
That gives us a chance to accumulate for the next gold wave as it pushes higher, as I think it will.
Did it cross your mind to invest in gold ahead of further interest rate cuts? Download your free report now.
I’m not alone. My colleague Greg Canavan has covered the gold industry for over a decade. His nose is in the air, smelling another gold run brewing.
He said last week:
‘Gold stocks are about to outperform again,
after a long period of underperformance.
‘The gold price in US dollars is also looking strong for the first time in a long time…the price bottomed in March (twice) at an important support level. Since that low, gold has seen strong buying support.
‘All you need to know is that capital is moving back into the gold sector. It’s time to take advantage of it.’
Greg just tipped his favourite gold stock for this next run. If you’d like to see the research on that, go here for the latest.
2. If you think the Aussie housing market can’t heat up anymore, think again.
Here’s why. The ‘non-bank’ sector is issuing debt like the glory days before 2007.
If you don’t know much about this, you need to get up to speed.
‘Non-banks’ are not like CBA, ANZ and Westpac, because they can’t fund their loans with deposits. That means they raise money using debt.
You know these as ‘securitisations’. They bundle up their mortgages and sell them to investors, who buy them for the income stream.
The more of these bonds they can sell, the more money they can keep recycling back into the property market.
Now see this from The Australian last week…
‘The nation’s non-bank lenders are preparing for a new round of monster funding deals, even after the sector has raised billions of dollars just in the past week.
‘Amid the heady combination of a booming housing market and an insatiable appetite from large investors, non-bank lenders have raised more than $5bn through residential mortgage-backed securities (RMBS) in just over a week, including a record-breaking $2bn bond from Firstmac.
‘While most of these lenders typically do a couple of issuances a year, all signs are pointing to a bumper 2021, with even bigger deals likely before the year is out.’
Economist Michael Hudson has a pithy phrase to sum up the basic dynamic here: ‘A house is worth whatever a bank will lend against it.’
These non-banks are raising cash so cheaply they’re currently able to be reasonably competitive with the big banks that are sucking on the RBA’s cheap funding funnel called the Term Lending Facility.
But don’t worry about an asset bubble. The Reserve Bank says inflating house prices are a secondary consideration compared to generating wage growth and employment.
The sheer idiocy of this approach is apparent to anyone with a knowledge of financial history.
One of those people happens to be a UK economist called Fred Harrison.
He predicted the 2008 collapse and the previous Australian recession ‘we had to have’ in 1991.
My colleague Catherine Cashmore interviewed Fred for her service Cycles, Trends & Forecasts.
If you want to know where the economy is headed, thanks to Fred, go here to sign up.
Let me tell you one other thing. Last year all the big bank economists were projecting 10–20% falls in the housing market. Not Fred.
He went on the record for us last year and said housing would boom once the panic over the virus had passed.
Take a look at the property market today. Now can you see why no one here at The Daily Reckoning gives a damn what the mainstream press says?
Editor, The Daily Reckoning Australia
PS: Australian real estate expert, Catherine Cashmore, reveals why she thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.