Monday, 9 January 2023 — Albert Park

By Callum Newman Editor, The Daily Reckoning Australia

[6 min read]

Dear Reader,

‘Oh, what a feeling!’

This ring a bell?

It’s Toyota’s tag line, and has been for, I don’t know, as long as I can remember.

You’d be jumping up and shouting it out, just like the ad, if you hitched your portfolio to the gold sector since last November.

This is where the action is!

Check out this update on the top stocks last week from broker Selfwealth:

These are the highest stock movers over the week to Friday, 6 January, and the top three are gold stocks. Two of them also happen to be on the buy list of my service Australian Small-Cap Investigator.

What’s going on?

Gold is rumbling in the US and pushing hard toward US$1,900 an ounce.

Sentiment has roared back into the sector after a torrid two years.

Can it keep going?

My colleagues over in the US crunched a whole lot of data to answer this question.  

This is what they found…

The US dollar matters most for gold, not inflation as commonly presupposed.

Since 1973, there have been 20 years where the US dollar was down. Gold rose in 17 of those years. That’s an 85% win rate.

Over the same time frame, there were 21 years when inflation was rising. But gold only went higher in 13 of those. That’s a 60% strike rate.

The price action in gold would also suggest the market is not expecting ongoing aggressive hikes from the Fed.

This could help share markets recover in 2023.

The early action this year supports this case. We’re seeing some consistent green, finally!

And don’t forget iron ore. It’s rallied back up to US$117 a tonne. It could possibly break US$120 this week.

This is extraordinarily supportive of the ASX 200 because so much of the weighting is from BHP, RIO, and FMG.

Anything more than US$100 is a ripping price for those firms and set up more juicy dividends in February.

I certainly don’t see any reason to avoid the market. Most of the issues that plagued the market in 2022 should be priced in by now.

Then it’s a case of deciding which sectors and stocks to back.

The small-cap sector deserves a look. It has not yet recovered in the same way as the top 50.

And yet, inevitably, fund managers will hunt down this end because it’s where you can find growth in a slowing economy.

Case in point: demographics.

I have a friend that works for the Department of Health. Every time I see him, he tells me costs are skyrocketing all over Australia and the West.

Any firms that can tap into this river of money are almost recession-proof. You don’t delay heart surgery because of the Fed’s monetary policy.

Australia’s baby boomers are advancing into their 70s, and time stops for no one.

Governments will keep issuing a gargantuan level of bonds to fund these expenses. Private firms can get on the end of it.

Certainly, most of these costs can’t be met with tax revenue alone.

This is why gold seems like such a slam dunk in the next five years.

Western governments haven’t got a hope of paying for all their promises, not to mention a proxy war on Russia on the side as well.

It can only be financed with deficit spending, which, in turn, will be financed with money created from nothing via the central banks.

Economist Michael Hudson has a line:

‘Debts that can’t be paid, won’t be paid.’

Clearly, the US doesn’t have a hope of paying back US$30 trillion in federal debt. And that’s just the ones they carry on the books.

The current dynamic is just a bridge to the next phase of the financial system anyway: central bank digital currencies (CBDCs).

Therefore, a new CBDC will be a chance to either inflate or restructure these debts. It can also be guaranteed that the average saver is the one likely to be stiffed.

Why stuff around with fixed income when companies can at least own hard assets or pass on rising costs via higher prices?

I’m not selling my shares and will keep looking to acquire more.

If you’re interested in my top five ideas to buy right now, go here to get started for 2023!

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

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By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘Had we but world enough and time,
‘This coyness, lady, were no crime.’

Andrew Marvell

An epiphany!

We are in a farmhouse…looking out at the ‘cour’, which is an area in grass and apple trees, boxed in by barns and other farm buildings. The buildings are not in bad shape. None are falling down. But all need work. Physical work. Work done by people in work clothes.

One has a roof in need of repair. Another needs a new roof altogether. New doors for one of the storage sheds are in order. And there is a little abandoned cottage, which has been recycled from a bakery…with its classic dome-shaped oven…into a pigsty…and then into living quarters. Today, it is a wreck…in need of total renovation:

All of these things require materials…skills…and time — the kind of things you find in the ‘old economy’. They are things that produce more GDP…and make us wealthier. When the work is done, we will have better facilities…a better view from the farmhouse…and maybe even get more production (GDP) from a more efficient farm.

Had we enough time, we could spend all day on the internet…and squander as much wealth as we want — in ‘wars of choice’, in bailouts of bankers, investors, or students…invested in companies that can never earn enough to justify the capital…or given away, either to the rich (contracts, jobs, grants, boosting stock prices, low interest rates) or to the poor (food stamps, unemployment comp, ‘disability’, rent support).

But in the world we live in, time and stuff are limited. And when they are wasted…they’re gone forever.

Choke chains

By contrast, we open up our laptop. We are immediately in a different world, without apparent limits. We can go as deep as we want. We can find out about the entertainer ‘Boo’ and how she died last week. Or we can learn how to decline a Latin noun. Or we can dig into the debate over selling scrap iron to Japan before the Second World War (it was used to make ships, planes, and bullets).

And yet…even on the internet, the dogs race out with loud barks and growls. But they eventually reach the end of the chain. Last week, Dan told his readers about five companies that got choked:

‘…eight stocks that lost a combined $5 trillion in market value — Tesla (down 65%), Meta (down 64%), Netflix (down 51%), Nvidia (down 50%), Amazon (down 49%), Google (down 38%), Microsoft (down 28.9%), and Apple (down 27%).’

And let’s not forget Salesforce. The stock was at US$300 in November 2021. Now, it’s US$130. Salesforce is in a sleek San Francisco business tower. It provides software to other tech companies to help them handle customers.

But when the customers went away, so did Salesforce’s sales…net income fell from more than US$4 billion in 2021 to less than US$1.5 billion in the most recent 12 months.

Salesforce is a special case — combining the illusions of the dotcom era with the conceits of Jack Welch-style roll-up madness. CEO and founder Marc Benioff followed much the same playbook as Welch at GE…buying companies left and right in order to increase his own sales.

Fantasy worlds

It’s hard enough to figure out one business. Trying to understand and digest dozens of other businesses is hopeless. And last year, all of these ‘tech’ companies ran into the brick wall that separates the real world of time and stuff…from the fantasy world of Zuckerberg, crypto, and federal finances.

Meta and Google, for example, are advertising-driven media. Their revenues grew as they took ad spending away from traditional media. But ad budgets are always limited by sales…and sales are always limited by incomes…and incomes are always limited by time. Shoppers earn their money by selling their time by the hour. They can’t get more hours. So their incomes are limited by the amount of stuff they produce/hour. And that, too — productivity — is going down at the fastest rate in 40 years. From CNBC:

‘Salesforce CEO Marc Benioff recently made waves when he told employees in a Slack message that the company’s newest hires aren’t being productive enough, and he wanted help figuring out why. The tech giant’s employee productivity issue is not an isolated one.’

The most powerful organisation on the planet, the US Government, ‘prints’ our money. But even it is on a chain. It can print all it wants, but ultimately, all wealth comes from taxpayers…and taxpayers live in the real world of time and stuff. The feds can try to by-pass the taxpayers; they can just ‘print’ money to pay their bills. But then, people just get less stuff for their money.

Coy mistresses

We were suspicious of the ‘information revolution’ right from the beginning. It was said, in the 1990s, that ‘information will replace capital’. Investors thought they had discovered a new source of wealth. They could buy a dogecoin…an NFT…or something ‘on the blockchain’. And somehow this new, unchained economy would make them rich. That is, people thought time and stuff no longer mattered; our mistress could be coy as long as she wanted. The infiniteness of the electronic media would make it vastly easier and faster for us to get what we wanted.

Theoretically, the peasant in Borneo, labouring with a steel-tipped hoe, was more or less confined to his lot. But now, with the worldwide web at his fingertips, he would see that he could till the land better with a four-wheel-drive John Deere tractor. He would then greatly improve his productivity…food prices would fall…and we’d all be better off.

But wait. Where was the tractor? Didn’t it still have to be made — with capital, steel, skill, and time? And didn’t the manufacturers still have to wonder how much purchasing power the Borneo peasant actually had? And wasn’t it just as likely that the Borneo peasant — knowing he couldn’t afford a John Deere tractor — spent his time on the internet gambling on meme stocks, reading dumb opinions, or looking at dirty pictures of white women in Dusseldorf?

On the evidence, the US’s new technology — led by Amazon, Facebook, Google, and countless others — has actually slowed the output of stuff. GDP growth rates were in the 3% range in the 1990s. Now, they’re close to zero, after falling gradually and suddenly for the whole 21^st century.

What to make of this? We don’t know yet. Stay tuned…

Regards,

Bill Bonner,
For The Daily Reckoning Australia