Ainslie Bullion - Daily news, Weekly Radio and Discussions

Spoiler alert:
Markets have always moved on greed and fear (or hope and emotion).
This has been discussed numerous times here, so should not be tried as a credible "out" for poor calls.
Anyone still scratching their head about this needs to extract it from the sand.

 

Thanks for your great and free financial insight supporting the pro's I am sure that they feel vindicated

 

Pro's?
:lol: :lol: :lol:

 

Being such a "smart arse" you should be richer than the new Pres of the United States giving financial advice to well everyone :lol:

 

My ass would be smarting if I listened to the pumpers.
However, what commonly "smarts" is the realisation that you've been had.

Me give financial advice?
ROLF! :lol:
Though I'm quite flattered at the suggestion, I am merely pointing out "market dynamics 101"... such simple concepts that my 12yr old knows them.

 

I honestly don't you how you suffer this forum with so many dumber than you people allowing themselves to be "pumped" (ripped off)

Please continue to post here in the unlikely event you might save some :lol:

God bless you :/

 

It's a challenge..... but someone's gotta do it.

 

People will believe what they want to. If they want to listen to Ainslie, this is the forum to do it and they aren't likely to listen to anyone telling them not to, or mocking Ainsley. But that doesn't mean they believe everything they read here will make them be pumped. Ainslie is one view among many to be considered. Dismissing any statement without first looking for merit is just as flawed as believing any statement without first looking for merit. Even a broken watch is the most exact timepiece on the planet twice a day.

If someone reads Ainslie messages and is "pumped" to buy, what's it to anyone but the person who might have got ripped off on bad advice? If someone takes their advice, bets big and it pays off for them, what's it to anyone but the person who got the pay off? The entire discussion seems non sequitur and moot.

 

and after saying that - Ainslie Bullion - is fine by me

 

Why This is Not a 1980's Bull Market

Some readers may have seen articles comparing now to 1980 as Reagan (another 'right wing' wild card) began his administration on a similar platform of fiscal stimulus to Trump. The ensuing years saw shares soar and a protracted bear market for gold.

If you are heavy shares it's a wonderful story that you would quickly adopt as fact as it suits your narrative or bias. It's also a nice story as it is one of hope when hope seemed to disappear for a few hours as Trump looked to become the next President. But short of a new right wing president who wants to unleash fiscal stimulus to make America great again, the story falls flat on facts. Real Investment Advice just penned this great article that we summarise below if you are short on time.

For a start we are starting at near record high share valuations not lows:



Secondly, in terms of normal secular bull and bear markets we are clearly due one last big fall before the next secular bull could be called in:



Thirdly we have a completely different macro economic and demographic environment set up. As they say:

"the ability to have a "1982-2000 affair" is highly improbable. The 1982-2000 secular bull market cycle was driven primarily by a multiple expansion process with a beginning valuation level of 5-7x earnings and a dividend yield of 6%. Interest rates and inflation were at extremely high levels and were at the beginning of a 30-year decline which would increase profitability as production and interest rate costs fell. Lastly, the consumer was at the beginning of a period of a leverage ramp up which spurred consumption levels to almost 70% of GDP. With inflation and interest rates currently at low levels, and consumers already heavily levered relative to historical norms, the drivers that led to the secular bull market in of the 80-90's simply do not exist today." Or in pictures



They conclude beautifully and devoid of the emotion, bias and (ironic) 'hope' underpinning much of what you will read lately:

"While being a "stark raving bull" going into 2017 is certainly fashionable currently; as investors, we should place our faith, and hard earned savings, into the reality of the underlying fundamentals. It is entirely conceivable the current momentum driven markets, fueled by ongoing Central Bank interventions combined with optimism over the potential for economic reforms under the new administration, could certainly drift higher in the months to come. However, the reality is that the current underlying demographic trends, economic realities, and market fundamentals do not provide the base to support current price levels much less the entrance into a secular bull market akin to that of the 80's and 90's.

Of course, with virtual entirety of Wall Street being extremely bullish on the markets and economy going into 2017, along with bullish sentiment at extremely high levels, it certainly brings to mind Bob Farrell's Rule #9 which states:

"When all experts agree something else is bound to happen."

There are simply too many things we "don't know that we don't know." For that reason alone, 2017 could well turn out to be an interesting year for all the wrong reasons."

 

The S&P 500 made a all time top in 2007 and we are 28% up on that previous all time top
Gold in 2007 was about $600 we are up 100% on that figure.
It is amazing how stepping back gives you 20/20 vision.

 

Trump Honeymoon May Soon Be Over

A second day of falls on the ASX and the front page of the Australian Financial Review today remind us that the flawed exuberance following Trump's win may be short lived.

Yesterday two heavyweight fund managers publicly warned of a tough year ahead for the Aussie sharemarket in the face of the effects of the tanking bond market and accompanying spiking yields. One said:

"The rally in shares will probably last through Christmas, with the typical Christmas rally, but we think it will prove to be a sucker's rally..The backdrop for sustainable growth weakens while uncertainty is clearly on the rise. This is a less than favourable development in the risk/return trade-off for shares. Given elevated valuations, risks are accumulating in shares."

The other predicted the ASX will lose 5% in 2017.

This comes at the same time that the IMF and then our RBA warn of the risks of Australia's excessive debt. From the AFR:

"Heavily indebted Australian households and governments are being urged to build greater financial resilience against a global economy facing fresh uncertainties following the rise of Donald Trump, the Reserve Bank of Australia and International Monetary Fund have suggested."

To date the RBA have played down the effects of our record low interest rates in causing a property bubble. However that changed yesterday in a clear acknowledgement that another rate cut could cause even more reckless debt uptake. From new RBA chief Dr Lowe:

"It is unlikely to be in the public interest, given current projections for the economy, to encourage a noticeable rise in household indebtedness, even if doing so might encourage slightly faster consumption growth in the short term,"

Aussie markets have rallied alongside the US, in part because that's what they do, but more independently because of the surge in commodities such as iron ore in the hope that Trump gets his massive infrastructure spending plans through congress. The reality however remains that we are the most personally indebted nation in the world (read here for more) and rising bond yields could be extremely dangerous for us.

The other issue the IMF is deeply concerned about is the impacts of Trump's self protectionist agenda and indeed the worldwide social move against globalisation, meaning "a return to populism or protectionism among big economies would reverse globalisation and weight on trade. Nations will turn inward and there will be less global trade". This they see would hurt Australia more than most.

"Puncturing any sense of self-congratulation for having survived the end of the resources boom, the IMF warns that Australia hasn't escaped worldwide "symptoms of the 'new mediocre'."

 

Banning 'Big Note' Cash

It was only a matter of time. In the wake of last week's announcement by the Indian government to ban larger denomination bank notes the good folks at UBS think Australia should do the same.

Earlier this year the European Central Bank (ECB) floated the idea of withdrawing the Eur500 note on the basis only criminals and the corrupt use them. So rather than the fact, in a region where negative interest rates exist, that you can't apply negative rates to currency not in a bank account, they dress it up as stamping down on corruption.oh please! You may recall too we reported not long ago the surge in safe sales as Japanese stored their cash outside the banks given negative rates.

The backlash saw the ECB put that on the back burner but India last week went ahead with it, withdrawing the 500 and 1000 rupee notes (worth just $9.80 and $19.65 respectively). What ensued was incredible. There was a bank run of epic proportions where people were simply swapping them for smaller notes rather than trusting the banks with their deposits. Nearly half the country's 202,000 ATMs were shut down as they ran out of cash. Not too surprisingly this saw gold demand skyrocket and premiums with it. Gold premiums rose between 15-20% over night as long lines formed to those selling it.

As a side note, we often speak of gold being real money, it ticks all 7 pillars of what constitutes money. Currency is a little shaky on one pillar, and that is Intrinsic Value as clearly a piece of paper has none. The basis of 'intrinsic value' for currency is the trust and confidence of the government promise backing it's 'value' and use. Indians and Chinese probably get this more than most, it's almost cultural. In the wake of the announcement and the ensuing chaos an Indian reporter said it perfectly as follows:

"Our entire monetary system depends on trust. A banknote is a piece of paper that says the RBI [Reserve Bank of India] will give the bearer another similar piece of paper, or make an entry in an electronic ledger for that amount. The system works because everybody believes that those pieces of paper will be accepted by everybody else and therefore, money serves as a useful medium of exchange. This move has shaken that trust."

So back to UBS's idea that Australia should follow suit They cite that 92% of all currency value in Australia is locked up in $50 and $100 notes and that the latter is "rarely seen". They list the benefits as reduced crime and welfare fraud, increased tax revenue and a "spike" in bank deposits. The latter would see an average 4% rise in household deposits on $100 notes alone. So of course the good folk at UBS are just thinking in our interests nothing to do with shoring up an over leveraged banking system and ultimate government control of our 'money'. We are reminded of some famous quotes:

"All previous attempts to base money solely on government edict or fiat have ended in inflationary panic and disaster" Winston Churchill

"Betting against gold is the same as betting on government He who bets on governments and government money bets against 6000 years of recorded history" Charles De Gaulle

You have to choose between trusting the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold. George Bernard Shaw

 

#

I totally agree with this post but the fact is that - ONLY 3% - of Indians pay any income tax which in my ignorant opinion will seal India's future with most living in abject poverty.

But saying that the war on you and me ($$$$$$$) under the guise of anything will continue to a predictable end.

Just saying

 

Japanese don't have negative bank accounts, they have very low interest on their money. The reserve bank has negative interest rates which stops banks parking money there, and instead forces them to "use the market".

The only negative Japanese bank accounts are the ones that we have - transaction accounts with 0 interest but with fees.

The Japanese are wary of their banks because all their banks own each other's stocks and sit on each other's boards which means nobody trusts them. This is what lead, in large part, to the very long period of "stagflation" in Japan in the first place. The safes are for the same reasons as Argentina and India - Japanese are afraid the bank will stop cash withdrawals to ensure continuity of operations.

But I agree with the rest. An Indian stock broker told me that there are two types of investments through the Indian stock exchange: insider knowledge trades and trades that lose money. I'm not surprised that only 3% pay tax, but I bet that's higher tax rate than our top 100 international companies!!!!

 

Quotes Of The Week Trump On The Markets

What a week! There was a lot going on in the world this week as markets continued to react to the Trump election. Our Weekly Wrap gives you a worldwide wrap up of the ramifications this week. It's definitely worth a listen today.

Rather than us rabbiting on today let's see what the 'experts' had to say.

Here's our quotes of the week:

Firstly, Ray Dalio is the head of the world's biggest hedge fund and twice voted Forbes' Top 100 most influential people. Here's what he had to say:

"As for the effects of this particular ideological/environmental shift, we think that there's a significant likelihood that we have made the 30-year top in bond prices. We probably have made both the secular low in inflation and the secular low in bond yields relative to inflation. When reversals of major moves (like a 30-year bull market) happen, there are many market participants who have skewed their positions (often not knowingly) to be stung and shaken out of them by the move, making the move self-reinforcing until they are shaken out.

The question will be when will this move short-circuit itselfi.e., when will the rise in nominal (and, more importantly, real) bond yields and risk premiums start hurting other asset prices. That will depend on a number of things, most importantly how the rise in inflation and growth will be accommodated".

Jeffrey Gundlach is head of the $100 billion DoubleLine fund and who Barron's famously called the "King of Bonds". He also publicly predicted the Trump victory back in January. Via Reuters/Fortune:

"Trump "does not have a magic wand" to rapidly improve the economy. He [Gundlach] said federal programs take time to implement, rising mortgage rates and monthly payments are not positive for the "psyche of the middle class and broadly", and supporters of defeated Hillary Clinton are not in a mood to spend money.

"Maybe liquor sales will go up," Gundlach said on the regular investor webcast. "The Trump win is not positive for consumer spending." Gundlach also said that in the short-term, "It's way late to be selling bonds and buying stocks. Probably should be doing the opposite."

"But even though Gundlach was right about Trump, he still thinks the President-elect spells doom for the market. "The Trump win is economically negative in the near term," Gundlach said, noting that investors are underestimating how much the "despair of Clinton supporters" will be a drag on consumer spending..After economists falsely warned that Trump's victory would cause a stock market crash, investors have now gotten too caught up "in this very bizarre 180 that Trump is the best thing ever for the stock market," Gundlach said, predicting that "we're going to see some backlash of negativity.""

For those still trying to figure out this whole fiscal stimulus / bond market thing, legendary analyst/commentator Bill Bonner puts in his usual straightforward manner:

"In the long run, an easier fiscal policy will be catastrophic. The world economy now depends on ultra-low bond yields. And that depends on ultra-low inflation rates. You can get ultra-low inflation with easy monetary policies but not with easy fiscal policies.

The Treasury market is already anticipating rising inflation. Bond prices are falling; yields are risingexactly what you'd expect if investors were no longer worried about deflation.

When consumer price inflation starts to spike in earnestbonds will fall hardand all Hell will break loose.

What will the feds do?

What could they do? The responsible thing would be to raise interest rates to head off the inflation. But that would bring on the correction that they've worked so hard to avoid. Instead, they will do what all irresponsible governments do.

More spendingmore stimulusmore inflation.

Buenos Aires, here we come!""

Finally, the man himself, President Elect Donald J Trump, from his first debate with Clinton:

"Believe me, we are in a bubble right now, and the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that's going to come crashing down. We are in a big, fat, ugly bubble."

 

Italy's Double Edged Sword

We are now just 2 weeks out from the Italian referendum. As we reported in the Weekly Wrap on Friday the No vote is now firmly in the lead with 32 polls by 11 different pollsters since 21 October. We are now in the pre referendum poll ban so there won't be any others. That said, after Trump people probably take them with a grain of salt anyway. The bookies however have the No at 75%... that seems pretty clear.

Prime Minister Renzi reaffirmed over the weekend that he will definitely resign should the vote on constitutional reform not get up. The reform sees more power shift to the lower Parliament, weakening the 'checks' of the Senate. Only a third of Italians supposedly understand what the referendum is even about. It is that fundamental shift in power that raises the double edged sword that voters, and indeed the Euro, should understand.

Should the No win and Renzi resigns that opens the door for the Anti EU and Anti Euro party, Beppe Grillo's Five Star Movement (M5S), to take control, but would do so under the old system. Some believe the bigger risk is that Yes wins and M5S, who are ahead in the polls, would take government later and without the checks of the Senate, even if the Italian version is highly flawed. It's a little 'damned if you do', 'more damned if you don't'. The graph below from Wikipedia collates a number of polls to show the average. Critically though it is from August and evidence shows that the Trump victory has legitimatised and emboldened the disenfranchised, anti EU and anti establishment crowd and M5S is now in front.



As we reported in the Weekly Wrap podcast the Italian bond market is reacting badly. Whilst it is caught up in the global post Trump bond rout, it has taken that to a worse level on growing fears of the referendum outcome. Their once heralded 50 year bond has lost 14% since October adding pressure to the already fragile Italian economy.

Political upheaval is not new to Italy, after all they have seen 64 governments since the last World War. But this presents a very significant and different case. They are now part of a combined quasi government and financial system far far bigger than themselves, the EU. Should M5S come to power, and particularly if this is later with a Yes vote handing absolute power to the government, the exit of the 3rd biggest economy in the EU would see the whole house of cards come down.

Oh, and did we mention Marine Le Pen is now ahead in the French polls and Merkel confirmed over the weekend she will run again in September.?

 

Irrational Exuberance

Last night the S&P500, Dow Jones and NASDAQ hit simultaneous all-time highs for the first time since 1999. Here's a graph of what happened soon after last time:



There are a couple of takeaways from this graph. Firstly when you start to hear continued calls of new highs you can feel like you are missing out, especially as it coincides with falling precious metals prices. The temptation is to jump in to get that extra growth you are clearly missing out on. But it's the second glaring takeaway from this graph that is too often missed. In chasing that extra few percent in a rallying market you risk losing 50% or more (the NASDAQ plummeted nearly 80%) of your wealth. In the 'down the escalator, up the stairs' playbook, you then need to make 100% on what's left to get back to where you started and that can take many years.

Since the GFC the US sharemarket has pretty much mirrored the profile of monetary stimulus injections. US Fed prints money (QE), market goes up; US Fed stops, market goes down or sideways. Here's a graph from tonight's presentation showing exactly that.



So what is fuelling this current sharemarket rally? The PROMISE of more stimulus. This time however it is not the apolitical choice of the US Fed to print money and keep interest rates near zero (monetary stimulus), it's the political promise of Mr Trump to unleash fiscal stimulus in the form of infrastructure spending and lower taxes. The key distinction here is the word political. The US Fed acts independent of political influence (in theory at least) whereas Trump has yet to get the very thing driving this market through Congress. As Reagan found out, that is not very easy. The thing is, Reagan didn't have any of the massive fiscal roadblocks that Trump has to overcome. We will discuss that in more detail tomorrow.

The 2 charts above tell a tail of a market rally based on hope of stimulus and irrational exuberance ignoring valuation fundamentals and history. As Goldman Sachs pointed out yesterday:

"Donald Trump will take office next January in what will be the 91st month of the current expansionthe fourth longest in US history"

But it's probably different this time yeah?

 

Counting The Trump Chickens

Yesterday we spoke to the surging sharemarkets in the wake of the Trump victory.

So why did we call it irrational exuberance? Well it looks like the market is counting its chickens before they hatch.

For a start the market is pricing in fiscal stimulus that hasn't even been approved yet. It also appears to be comparing this to 'Reaganomics' without comparing the two eras. When Reagan came into power US government debt was just 25% of GDP, interest rates were sky high, the 10 year Treasury bond yielded 12.7%, inflation was 13.6%, and they were enjoying a bull market. Trump inherits government debt over 76% of GDP and an eye watering $19.6 trillion, interest rates are at record lows near zero, 10 year US Treasuries were just 1.7% (and now already 2.3%), inflation struggling to make the Fed's target of 2%, and the market showing signs of wobbles (though now surging). Just months after Reagan took office the US entered a recession and shares fell 22% after a Trump like 7% surge on his election to the end of November. The talking heads discount that happening next year but many more objectively think it's a real possibility, especially if the Fed hike in December.

People forget that some of what Reagan wanted to do was blocked by Congress and seem to forget the GOP are hardly in love with Trump. Beliefs that somehow a Republican Congress (in both houses) will rubber stamp a Trump fiscal package that proposes adding $5 trillion to a $20 trillion debt pile they have already pushed Obama back on, seems a little presumptuous at best.

This week US Fed vice chair Fischer issued a clear warning to the new administration that there is "not a lot of room to increase the US deficit without adverse consequences down the road". i.e. at a time when the US Fed actually really probably might raise rates in December, that 0.25% will cost the government an extra $50 billion in annual interest and add to debt stress already evident throughout the market. This aint 1980

A lot of this markets action is on the belief these policies will bring inflation (you will read about 'Trumpflation' more and more), something that until only recently monetary stimulus has been unable to achieve. Inflation is the only tool left to try and whittle away that debt pile. However, high inflation without strong growth leads to that bogey man, stagflation (if you think gold likes inflation, it simply LOVES stagflation). Whilst the fiscal stimulus proposed will bolster segments of the US economy, the accompanying higher USD together with immigration controls could see significant adverse pressures in many others. This at a time when the growth starting position is just 1.7% GDP.

In short there is much water to flow under the yet to be constructed Trump bridge and this market reaction has all the hallmarks of a 'buy the rumour, sell the fact' set up. Stay tuned, don't count your chickens, and stay balanced.

Speaking of balance, last night we had 'The Future Proof Portfolio' seminar at the State Library Queensland. The feedback from attendees was fantastic thanks. Simon Gabbie gave us great insight into how to more effectively invest in shares, Matthew Gross provided an unbiased and insightful lesson in property investment and yours truly presented on gold and silver bullion. If you couldn't make it and want to learn more please don't hesitate to contact us.

 

Gold History Repeating

Last night gold broke down through the support line of USD1200, currently sitting at USD1188/oz after hitting USD1181 at the low. This can be a little unsettling for some so it is worth taking a deep breath and looking objectively at the bigger picture.

For a start the price action last night was largely off a combination of US Fed minutes from the November meeting leading the market to 100% expectations of a rate rise on the 13th December. This was bolstered by a better than expected Durable Goods Orders print (though we will discuss that is flawed in tomorrow's Weekly Wrap). What does this mean? Well it reinforces the 'everything is awesome' narrative and saw shares continue to rally and gold and bonds sold off. The chart below shows what has happened since that November Fed meeting:



Does this story seem familiar though? That's right, it's a repeat of this time last year. On the expectation and then reality of the US Fed raising rates for the first time in 9 years gold hit a low of just USD1,054 and the S&P500 at 2,100 after 1,884 just a couple of months before. But it's what happened afterwards that may be relevant. Shares crashed back to 1859 in January and gold jumped over USD1200, and kept going up to $1357/oz along with US shares in a rare positive correlation. The more normal negative correlation between gold and shares is back in and that is potentially good news. We showed the following graph at our seminar on Tuesday night. Note the spike in negative correlation during crashes:



As we wrote the other day an increase of just 0.25% in December adds $50b to the US government's interest bill but that of course is minor compared to the broader market. Reality may hit home.

Keep in mind too that nearly every crash in history followed an interest rate hike (that came too late).

Finally, remember that even after last night gold is up 11% for the year and silver up 17%. The S&P500 is up 7.9% and the All Ords is up just 3.8%... As we wrote yesterday, much of the hype in the sharemarket is hope, not reality, based.

Now is not the time to panic. Contrarians take note