OPEC can’t derail this massive opport unity

Monday, 3 April 2023 — Albert Park

[7 min read]

Dear Reader,

In the end, the ASX 200 went up 2% for the March quarter just gone.

The gain came in the last seven days.
Can things keep running in April?

History would suggest so. April and December are the two best months on the ASX.

But, as Warren Buffett says, if history had all the answers, then the richest people would be librarians.

For example, now we have OPEC+ sticking their oar in the water.

The oil group just announced a surprise one-million-barrel per day cut to ‘stabilise the oil market’.

Personally, were I the president of the US, I would implement a perpetual ‘F U’ policy toward OPEC and release double the amount of oil from the US Strategic Reserve for every cut they make.

Could these OPEC guys be any stupider?

They shift a product that the Western world now despises and is actively trying to make redundant.

I would have thought their best policy would be to keep their head down and grab what they can from whatever time they have left before renewables and electric cars send them into irrelevance.

And they’re trying to stick the world for more cash when it has an inflation problem?

Oil will get a boost in the short term. Long term, this decision does nothing but incentivise the West to flick these losers off as quickly as possible.

Does OPEC’s move change any thinking for the RBA regarding the next monetary policy decision?

I doubt it, but it probably doesn’t help.

The market thinks that the RBA will go on hold.

Stocks could be vulnerable to a fall, in the short term, if the RBA do put in one more rise.

However, none of this changes my game plan. I think now is a superb opportunity to be buying depressed shares all over the place.

I saw an excellent presentation on this recently.

Small caps, for example, are now in the second worst period since 2001. For 16 months they have underperformed against Aussie large-cap stocks.

I don’t doubt it for a second, either. I’ve watched it all play out in real time.

But here’s why I get excited too.

Look at how small caps can surge when the market wind gets back behind them:

It’s not as if there’s no opportunity out there anyway.

For my last issue of my small-cap advisory, Australian Small-Cap Investigator, I recommended a small telecommunications company Tuas [ASX:TUA]. It’s up a tidy 19% in less than a month.

Here’s how my monthly recommendations are tracking since last September:

September: +40%

October: +12%

November: +39%

December: +13%

January: -13%

February: +0.3%, -13%

March: +19%

I’m happy with this. As above, the general tailwind in the sector hasn’t been there.

However, individually, companies are still doing exciting things. This is where you need to knuckle down and work out who has something going for them.

If you want some more ideas on how to get started in the small-cap sector, go here now for my Top Five Bargains report.

One of the stocks in that report is related to the property market.

It was quite contrarian for me to put that down as an idea last year.

Now, it’s beginning to look a whole lot more reasonable.

See the latest on the housing market here:

‘Sydney’s house prices are poised for a sharp recovery, which is not far off, as the market continues to rise faster than expected, CoreLogic says.

‘Values jumped by 1.4 per cent in March, more than four times faster than the previous month and the sharpest increase since October 2021, data from CoreLogic shows…

‘Tim Lawless, CoreLogic’s research director, said a combination of low stock, an extremely tight rental market and additional demand from overseas migration fuelled the earlier-than-expected turnaround in prices in those capital cities.’

This is perfectly in accord with what we should expect relative to the factors that impact property.

I got that part right.

What is taking a bit longer to happen is for this apparent strength in the housing market to translate into stronger share prices in property-related stocks. Some of my personal positions here have been singed a little, when I thought the bad news of last year was well and truly battered into them.

The market is always ready to take your ego and shove it where the Sun don’t shine.

However, none of these were short-term ideas, and I’m sure in a year or two they will go green.

Another thing that Warren Buffett says is:

‘Be greedy when others are fearful, and fearful when others are greedy.’

If you want to follow the lead of the great man, don’t delay! Go here to get started.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia

Dear Reader,

You’ve probably seen a lot about James Cooper and his new service, Mining: Phase One recently.

A lot of our editors here at The Daily Reckoning Australia have been writing about the potential of Phase One miners to be a solid avenue of speculative investing.

But you may be asking yourself...why Phase Oners right now? How on Earth are market conditions ripe for these tiny mining stocks?

Well, in this brief chat between James Cooper and Greg Canavan, you’ll find out.

Tune into the video below to hear:

Click below to find out all this and more:

If you want a little more specifics on Phase One investing, we held a presentation late last week that outlined all the details of James’s trading rationale, and what makes Mining: Phase One unlike any other mining trading service we know of.

James also named some key Phase One stocks on his watchlist IN FULL…ticker symbol and all.

You have until midnight tomorrow to view it. So if you haven’t already, I urge you to do so.

Check it out here.

Cheers,

James Woodburn,
Publisher, The Daily Reckoning Australia

Dear Reader,

When we left you on Friday, we were describing how the theories of Richard Lachmann suggested that there may be a way to avoid the coming catastrophe.

Backtracking…

The US has US$50 trillion in ‘excess’ debt. It is a huge burden…making it almost impossible to return to a ‘normal’, healthy economy. The Fed must increase rates to fight inflation. And higher rates threaten to bring the debt pile crashing down, like an avalanche after a heavy snowfall.

The Fed is trapped. It has to fight inflation (or appear to fight it). But it also has to save the banks. And it will soon have to save the biggest, most woebegone bank of all — itself. From Bloomberg: ‘For the First Time, the Fed Is Losing Money’:

‘Thanks to interest-rate risk exposure, the central bank will soon have negative equity capital.

‘Like all central banks, the Federal Reserve was designed to make money for the government from its monopoly on issuing currency. The Fed did generate profits, which it sent to the Treasury, every year from 1916 on—until last fall. In a development previously unheard of, the Federal Reserve has suffered operating losses of about $42 billion since September 2022.’

‘Good luck’, says colleague Dan Denning. Trying to save the banks while also fighting inflation ‘is like spinning plates on sticks…while jumping up and down on a trampoline…that’s bolted to a roller coaster’.

Restricting the future

On the flip side of the excess debt is US$50 trillion in excess, paper ‘wealth’ — stocks, bonds, real estate — that was inflated by Fed’s ultra-low lending rates. If the debt went away — by default — so would the asset values it supports.

The elites have power, status, and wealth — including almost all the aforementioned US$50 trillion; that’s what makes them the elite. And they’re not dumb. They know that tomorrow has a way of writing down today’s assets and scrambling today’s hierarchies (the last shall be first!). Their number one priority is always to prevent tomorrow from happening.

Is China gaining on us? Gotta stop it!

Are banks going bust? Gotta bail them out!

US GDP growth falling? Gotta stimulate it!

Are the natives getting restless? Pass a law to keep them from getting any ideas!

Yes, the newly proposed RESTRICT ACT will allow the ruling class to decide what you can access on the internet. Have your doubts about the COVID vaccine? Sceptical about the ‘threat to democracy’ posed by the 6 Jan demonstrators…or the need to continue the war in Ukraine?

Well…you can just keep it to yourself!

Single mind diversity

Every new technology (except for those that can be used to kill our enemies or control the masses) is a threat to the Establishment. Untamed politicians (Donald Trump!) are a danger to our democracy. Foreign nations that are not loyal allies (Russia! China! Iran!) are rogue countries that must be brought to heel. Everything is a threat. And every threat is an opportunity to spend the public’s money.

But the deciders are not all of one mind. There are, after all, Republicans as well as Democrats…White Supremacists as well as Woke Ideologues…and those who insist on saving the planet as well as those who would let Earth take care of herself.

Richard Lachmann argues that a fractured elite is less able to prevent change than a unified elite. Spain, for example, was once the richest country in Europe. But after its empire collapsed, the elite closed ranks so tightly that it was able to suppress any and all innovation. Then it became the most backward nation in the Old World.

In England, by contrast, the elite was divided. The King competed with the local aristocracy…and with the clergy…and with the landowners…as well as the upstart capitalists. Unable to lock arms to prevent it, the Industrial Revolution took hold and upended the old order.

At least, that is Lachmann’s telling of the story. We pass it along, not as Truth, but simply as another way of understanding a vastly more complex history.

But what can we learn from this? Anything?

One way or another, the future is gonna happen. And Lachmann is probably right; if the political fractures are wide enough, they may let in enough air to allow a new status quo to develop. Today’s elites desperately want to prevent deflation, which would mark down their asset values quickly. They also aim to keep the empire going — with its billion-dollar payoffs to the ‘defence’ — related industries…and the politicians who support them. Inflation is the answer to both of these priorities — the new money would pump up asset prices…and allow the boondoggles to continue.

‘Chainsaw plan’

But what if left and right cannot agree? What if the next debt ceiling debate, for example, ends in a stalemate? What if there were a large enough alternative faction…of marginal ‘influencers’ and ‘conservatives’…to gum up the works? What if Jerome Powell really serious about taming inflation…or DeSantis really would stop the forever wars?

Here in Argentina, would you believe it, an unconventional politician and former rock ‘n’ roll singer Javier Milei is proposing to dismantle the entire predatory Establishment. In almost any other country…at almost any other time…he would be regarded as a quirky footnote in the political process. But here, after 70 years of heavy government fumbling in the economy…where there is widespread poverty, and where people have more trust in aluminium siding salesmen than in government…Milei has come into presidential contest like an avenging angel. He’s already third in the presidential polls…and rising.

His ‘Chainsaw Plan’ would eliminate the departments of Health, Education, Public Works, and Social Development. His budgets would be balanced. His currency would be as solid as the US dollar (he proposes to use the dollar as Argentina’s currency…perhaps unaware that the greenback is probably going the way of the peso!).

We doubt the US is ready for this kind of future. In politics, scoundrels always resort to war and inflation to keep themselves on top…and they get away with it for a long time. The Democrats are fully behind the whole ‘war and inflation’ program. And the Trumpified Republicans too. They gave up the Old-Time religion — balanced budgets at home, non-intervention abroad — long ago. And then, in 2020, led by Mr Trump, they went along with the biggest breach of fiscal discipline in the history of the US, with US$6 trillion of stimmies, PPP loans, unemployment boosters, and other giveaways.

Republicans may disagree with Democrats on many issues…but not on the important ones. They, too, want to protect the status quo.

Like an alcoholic, the US has to ‘hit bottom’ before she can bounce back. She has a long way to go. And for now, the deciders will stick with war and inflation. They’ll benefit…

…the rest of the country can go to Hell.

Regards,

Bill Bonner,
For The Daily Reckoning Australia