2023: Shares to recover to new highs

Monday, 13 February 2023 — Albert Park

[5 min read]

Dear Reader,

I’m pumped!

In December, I recommended my subscribers buy Maas Group Holdings [ASX:MGH].

Here’s a snippet of what I said at the time:

‘Now’s your chance to back a gun entrepreneur at a great price.

‘Don’t forget, Maas is still cashed up from that capital raising. More exciting deals could be coming.

‘I know, I know…the current bear market is boring, dispiriting, and off-putting.

‘But you must see the opportunity for what it is…a bargain-hunting one!’

Here we are in February.

We can see now that comment was bang on!

How?

Last week, Maas Group confirmed it was back on track after a tough year in 2022. It’s all set to cash in on Australia’s booming infrastructure spending.

Any subscriber that acted on this is now up nearly 25% in less than three months.

Maas even snuck into the top five winners on the share market for the week.

Check it out:

I have good news.

There are still loads of cheap stocks on the ASX with great potential to spring back in the same way.

Here are another five bargain ideas I strongly suggest you consider right now.

You’ll also need to do something else…

Put Wednesday down in your calendar as important.

That’s when Commonwealth Bank [ASX:CBA] tells us how many billions it’s raked in and how the average Aussie borrower is coping with life.

It’s going to be a ‘bumper’ profit, say analysts cited in the Australian Financial Review. Dividends could be 17% higher over the full financial year too.

The market knew this was coming a while back. That’s why the share price pushed up to new highs.

What investors can’t anticipate exactly is the current outlook.

The market will be keen for guidance on any rise in bad debts as higher interest rates really kick in.

I wonder if CBA will surprise everyone with how low loans in distress remain. Aussies are apparently doing everything except worrying about spending money.

We’ve seen ripping results from the retail sector. And check out this recent graph of car sales:

Such a chart is just not consistent with an impending recession…and neither is CBA trading around a record high.

That’s why I still advise the same game plan as I’ve been saying since late last year: grabbing cheap shares with gusto!

We can see it working right in front of us too. See my introductory point about Maas Group.

I know. I know. All the mainstream press does is hammer us with how rising rates will wreck the economy and the housing market.

Beware: The market has now largely ‘discounted’ the rise in interest rates. It’s built into prices. That’s why 2022 was such a rough ride for a bit!

It’s where we go from here that matters.

What we want to see is inflationary pressure cooling off.

We’re getting that, in part, from coal all of a sudden.

See this report from Friday:

‘Newcastle coal futures tumbled 6 per cent overnight to US$225.50 per tonne amid reports that embattled coal developer Adani is offering discounted volumes.

‘Prices have halved from a record high around $US450 in September as Russia’s war in Ukraine fuelled a comeback for coal.’

That burnt Aussie coal producers on the ASX last week. Pun intended!

But it can’t be anything but good news for China and India, who still rely so much on coal power. What’s good for them is good for global growth.

That, in turn, may help discretionary spending feedback to Australia in other ways and industries, such as wine.

We’re not quite there yet, but there are reports that Chinese authorities are considering removing the punitive tariffs on Australian wine.

Point being: there’s good news out there if you look for it.

Another case in point: It’s also possible the housing market is beginning to stabilise. Mirvac [ASX:MGR] and REA Group [ASX:REA] came out with their results last week.

Both see lots of buyer demand temporarily sidelined from the uncertainty around interest rates, not the actual level.

In general, I think it’s fair to say that the share market goes along with the vibe both REA Group and Mirvac have put out.

Why?

Their share prices held roughly steady.

If the market were stunned or scared, their prices would’ve tanked. They didn’t.

The housing market also has roaring rental growth currently, and tiny vacancies. This sets the stage for investors to load up in a big way.

Now…what will confidence be like if house prices stop falling? Pretty good, I reckon.

Shares look primed to continue to rebound in 2023 to me.

Regards,

Callum Newman,
Editor, The Daily Reckoning Australia

PS: My colleague Jim Rickards is a cracking macro analyst of the global forces that drive the world economy up and down. I’m excited to see his latest book is now finished. Stay tuned to see how to grab your copy this week!

Dear Reader,

‘The process which started in 2022 cannot — and should not — be reversed.’

Vincent Deluard

Jerome Powell has what must be the most powerful lower mandible in human history…if it moves up and down and tells the world that the fight against inflation is over…well, in a matter of hours, there will be millions more millionaires.

If, on the other hand, it insists that it will take the Fed’s key rate to 9.5% — 3% higher than consumer price inflation — OMG…you would see billion-dollar businesses collapse in a heap…and billionaires suddenly homeless, penniless, and friendless.

A woman may start up a coffee shop. She borrows money. She does the maths. At 5% interest, the numbers work. The shop prospers. But if the interest rate is forced up…say to 7%...all of a sudden, the expenses are greater than the income. The shop loses money. The poor woman runs through her savings…and then has to close her doors.

The world economy is made up of millions of people like that. In small businesses…and big ones. And Mr Powell, if he chooses…can wipe them all out in a matter of minutes. (We shudder to think that we sat so close to greatness…though we didn’t know it…when we both attended Georgetown Law Center in the late ’70s.)

Extraordinary jawbone

Whence cometh this superpower? A special gift…is he the richest man on Earth…the smartest…was he elected? Was it an accident of birth or a product of his own genius? Apparently…none of the above.

Instead, Powell’s just a salaried employee of a private company, granted extraordinary powers by the federal government.

And here’s the latest from Reuters: ‘Powell: A “couple of years” before Fed nears end of balance sheet decline’:

‘Federal Reserve Chairman Jerome Powell said Tuesday the U.S. central bank has some distance left to run in terms of shrinking its balance sheet.

‘“We haven’t put a specific target on it” when it comes to where the balance sheet run down stops, Powell said at an appearance.

‘”It will be a couple of years” before reaching the right level of banking sector reserves, Powell said…’

A couple more years with a shrinking money supply? What’ll that do to stocks? To shop owners…and business titans?

We don’t know. But investors don’t appear to be too worried about it. Perhaps they should be. And with those shoes, Mr Volcker kicked inflation out of the way.

Fake money shebang

The federal government changed the dollar in 1971. Thereafter, it could be easily manipulated. Politicians overspend. And they typically cover their excess spending by printing extra money. Then, everyone begins to borrow and spend, all trying to stay ahead of the wilting currency. It’s the kind of inflation that is endemic in a fake money system.

Volcker’s solution was simple. He raised the Fed’s key lending rate to the point where no one was lending, and weak credits couldn’t be refinanced. The result was a recession — the worst one since the Great Depression. But it did the trick. With the bad debt and bad investments out of the way, interest rates could decline, lending could pick up, shopkeepers could get back to work, and asset prices could rise.

That is, roughly, the happy situation we had from 1982–22. And now, Mr Jerome Powell aims to step into Volcker’s outsized shoes.

By the way, the money supply grows not only when the Fed ‘prints’ money to lend to the federal government and member banks, but also when it pushes down interest rates. The lower they go the more incentive people have to borrow — especially when you can borrow below the rate of consumer price increases. When they borrow, the banking system ‘creates’ new money to give them.

More surprises

The trouble with this whole fake-money shebang is that it comes with a cyanide capsule already in its mouth. As the money supply grows…so does the amount of debt in the economy. New money is borrowed into life. It dies — lowering the money supply — when the debt is retired, renounced, or inflated away. So, when the Fed lets its balance sheet decline, it means that the biggest lender in the world is reducing its holdings of debt and effectively disappearing money. That’s when the lower mandible closes on the upward one…and the cyanide flows into the system. Money vanishes…and the whole circle of fake prosperity, caused by fake money, lent out at fake rates, reverses.

Many are the subplots and nuances of this drama. But the main story is this:

For the last 40 years, the Fed pumped in cash and credit. Asset prices rose. Debt increased. Now, Paul Volcker, reincarnated as Jerome Powell, is finally taking away the punchbowl. He’s siphoning off the cash and making credit harder to get.

That’s the gist of our analysis here. Of course, there’ll be plenty of surprises…and plenty of twists and turns as the play lurches forward. But as long as it continues, we can expect more surprises on the downside than on the upside.

Regards,

Bill Bonner,
For The Daily Reckoning Australia