|
A fundamental question we
get asked a lot is whether forecasting is of any use whatsoever? We think it
is, and offer up an intriguing comparison between Australia’s
current economic situation and the road the US is going down -- to its
detriment.
Is forecasting any use whatsoever?
Let’s face it,
it’s hard enough knowing what mood your kids will wake up in in the morning, let alone the machinations of a wild
beast called the market.
Be that as it may, the fact that the future
is unknowable has not deterred us (or millions like us) from trying to
forecast it. The reason, it’s so damn interesting and if you get it
right, rewarding.
Take the markets for example; nobody gets it
right all the time – its just impossible. But
for those who get it right just 51% of the time, employ sound discipline and
money management techniques, fabulous wealth awaits!
In fact, 51% is generally the house odds at
most large Casinos. 51% that’s it! Those kind of odds built gambling Mecca’s in the
desert!
The great thing about the future is that it
is an extension of the present. And it is in the present that we constantly
look for signs and clues to tip us off about the future. Here’s one
we’ve been watching with increased fascination: -
You want to know the future
of America?
Take a look at a mini America. A
smaller more incubated and isolated version. Now I know many a reader will be
hopping mad when we say this, but the comparison and similarities are
fascinating, we see a lot of America’s
future in the current situation in Australia.
Australia like America went
through a tremendous real estate boom. Australia’s
boom was a little earlier than the US and lasted from late 2000 to
about 2004.
To get a sense of the boom, in more expensive
areas such as Sydney’s Eastern Suburbs, a 3 bedroom free standing house
with 1 bathroom in need of some renovation (a ‘reno’)
would start at around $1 million Aussie Dollars today. That’s up around
100 – 150% from the late 90s (200 – 300% in US Dollars).
The point being that in late 2004 when Australia’s
property boom was losing steam, a bottom was placed under property prices
through the great liquidity pump. Low interest rates permeated the planet in
2004 compliments of Alan Greenspan. The Reserve Bank of Australia (RBA)
followed suit thus delaying an inevitable deflation in Aussie real estate.
Around the same time we entered into a
massive commodity boom brought about by Asia’s
insatiable desire for raw materials. Those raw materials were used to
manufacture goods for US consumers on a refi
shopping binge.
Now, regardless of whether such growth was
real or artificial, the effect was to keep the RBA pumping out even more
cheap money to keep its currency low and raw materials competitive.
So once again, easy credit came
calling to every Australian’s door and property prices, instead of
correcting, continued rising into nose bleed territory. The difference, it
should be said, is that there was never an over-supply of properties as in
the US
compliments of Australian Government (mis)planning.
The net result is that life is very expensive
in Australia
today. It is virtually impossible for a family to own a home. Rentals have
gone through the roof due to a lack of supply. After tax incomes are severely
lagging the cost of living. Australia
is one of if not the highest geared nation in the world.
In our own experience from living there,
inflation is running amock. Price levels are
generally higher than most OECD countries due to monopolies, Government taxes
and inflation. We recently came across an article in the Sydney Morning
Herald that explains succinctly the position of hopelessness that millions
find themselves in Skipping meals to pay rent.
But as we were taught in Econo101, gearing /
leverage cuts both ways. And now that credit has suddenly become harder to
come by, the extent of financially engineered profits (as opposed to profits
from making stuff) is becoming very evident Hard landing ahead for financial
engineers”
A further consequence is that Australian
Stocks have become highly leveraged due to margin buying. And since that
excess is under pressure, the ASX has undergone a rough correction and stands
on the precipes of a further 20%+ correction if it
closes under 5600.
Chart 1 - Aussie All Ords precariously close to another 20%+ drop (technical
target on a break below 5600)
This is the effect of de-leveraging and its most acute in that isolated economy.
And as to the future?
The RBA like the Fed will fight any asset deflation
tooth and nail through unlimited money supply expansion.
Will they be successful in overcoming the
current credit crisis?
We think they will, given enough money!
But that’s just the point, more money
will go on to create yet another horrendous bubble (probably in commodities)
and yet another collapse. All the while raising prices through paper currency
erosion and edging us ever closer to what we determine is an inevitable
hyperinflationary collapse!
Zimbabwe’s 100,000
Percent inflation.
Nah, could never
happen here!
Got
Gold?
More commentary and stock picks follow for
subscribers...
Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
I am an investor
and newsletter writer specializing in Junior Mining and Energy Stocks. Please
visit my website for more free articles and analysis
Click here: http://blog.goldandoilstocks.com
This article is
intended solely for information purposes. The opinions are those of the
author only. Please conduct further research and consult your financial
advisor before making any investment/trading decision. No responsibility can
be accepted for losses that may result as a consequence of trading on the
basis of this analysis.
_______________________________________________________________________
This
article is intended solely for information purposes. The opinions are those
of the author only. Please conduct further research and consult your
financial advisor before making any investment/trading decision. No
responsibility can be accepted for losses that may result as a consequence of
trading on the basis of this analysis.
| 
