The Aussie market is finally succumbing to a bit of economic reality. Although the pullback so far is nothing more than a minor correction within an ongoing bull market.
That would be the bullish viewpoint. The bearish view is that it could be the start of a much deeper correction.
The bulls have sentiment and central bankers on their side. The bears have economic reality.
Reality tends to win out in these situations. But not before old Wile E Coyote runs in mid air for a while…
But let me give you a warning. If you’re expecting a 2008-style meltdown, you may be disappointed. A credit crunch or a nasty bear market is nearly always brought about by tighter monetary policy and diminishing liquidity.
That was on the cards in late 2018, as the Fed looked to continue its tightening path. But it quickly reversed the mistake and started the process of telling markets it would provide plenty of liquidity if need be.
Our own Reserve Bank did the same thing. It delivered two interest rate cuts this year, following a ‘tightening’ phase…that didn’t involve any tightening.
I’m not saying central banks can stop stock markets from falling. But they can stop a credit crunch by flooding the world with liquidity.
So focus on what is happening, not what you want to happen.
The latest bout of weakness is once again down to President Trump having a go at China and threatening to ratchet up the trade war.
I’ve said it before and I’ll say it again, the US isn’t mucking around in relation to its demands on China.
China’s hoping to drag negotiations out, in the hope that Trump will be gone following the 2020 election. But the longer it goes on, the worse it gets for China.
That could be bad news for Australia too, given our reliance on China for much of our income. For example, iron ore miner Rio Tinto Ltd [ASX:RIO] fell 3% on Friday, its lowest level in two-and-a-half months (see chart below).
Fortescue Minerals Group Ltd [ASX:FMG] tanked 6%, while BHP Group Ltd [ASX:BHP] dropped 3.7%.
The bull run for iron ore miners may be coming to an end…
If Trump’s trade war on China continues, it may prove hard for the broader market to continue its bull run too.
Speaking of Trump, I’m glad to have wound at least one dear reader up with my support for him. Here’s an excerpt of a letter I received recently…
‘You never tire of your apologetics for Trump and Tuesday’s RR, in which you referred to Mueller as “pure swamp”, represents another footstep deeper into your own swamp.
‘You appear to be obsessed with this notion of Donny being pursued by the hateful MSM that “is [sic] not interested in reporting the truth”. What’s the truth here? You appear not to have even got the facts of the “Steele dossier” correct. You wrote that the ‘Steele dossier’…[was] a fake document paid for by Hillary Clinton.”
‘So, in one short sentence, you try to eliminate it as a credible source for information about Trump-Russia links by (1) claiming that it was “fake”; (2) tying it to Clinton (so it could never be trusted anyway, right?).
‘According to the wikipedia article on this, Steele was not told (initally) who he was working for: it was a “law firm” and a “firewall” was placed between it an the DNC to prevent Steele from knowing. (Eventually, of course, he found out). So, you have mis-led your readers there.
‘By linking Steele to the DNC and Clinton, then calling it “fake”, you deliberately avoid the issue of whether the contents of the Steele report are accurate. Given that quite a few commentators (see the wiki article) have declared its contents to be “largely correct”, that’s a pretty disgraceful and shabby way of constructing an argument.
‘What seems to stick in your craw is that Mueller has said that his report did not “exonerate” Trump. Apparently, it does not occur to you that there might have been something a little questionable about the activities in Russia of a presidential candidate. As the Wikipedia article puts it: ‘Why did Mr. Trump repeatedly seek to do deals in a notoriously corrupt police state that most serious investors shun?’
‘Do you start each day by looking in the mirror and chanting “Gotcha! Crooked Hillary! Take that, O’Bummer!”
‘Please don’t misunderstand my politics. As far as I’m concerned, Americans faced a dreadful choice between Clinton (war-monger) and Trump (narcissistic, self-obsessed “deal-maker”). And I don’t have much truck with Obama, either. But don’t assume that because I despiseTrump, I’m at a love-in for the Dems either.
‘I don’t expect any kind of reply to this missive, Greg, but please at least have the decency to admit that you are not writing OBJECTIVE columns!’
Just in case there is any confusion, your daily Rum Rebellion essay is an editorial piece. It is therefore subjective. It is my opinion and makes no claim to objectivity.
In fact, I often proclaim allegiance to a libertarian philosophy. A few weeks ago, I explained clearly how this allegiance led me to supporting Donald Trump in his efforts to ‘drain the swamp’.
Which led to the above response.
One thing I try to do above all else is give you alternative information that encourages you to think for yourself. I present a different view that you don’t get from the mainstream media.
I unapologetically tell you that the media is not about telling the truth. It’s there to protect the status quo. The status quo remains when the masses blindly consume without question.
Sure, that’s my opinion. I’m not asking anyone to believe it. But the fact that you’re reading this newsletter tells me you’re at least interested in different viewpoints. Perhaps you suspect that something isn’t quite right with the world?
I do too. Which is why I ask questions.
For one thing, I strongly question whether you should use Wikipedia as a source for anything. Wikipedia is just another arm of the establishment’s control over information. Of course it’s going to support the claims made in the Steele dossier.
Think I’m over reacting?
Check this out…
Recently, a sharp-eyed Twitter user spotted that Wikipedia had altered paedophile Jeffrey Epstein’s profile soon after his arrest, in order to protect some establishment names.
You can check the story out here. This isn’t my opinion. It’s a fact.
Also keep in mind that Wiki founder Jimmy Wales has a raging case of Trump derangement syndrome. On Trump’s recent visit to Britain, Wales tweeted that he was leaving, and would only ‘be back when he leaves’. My six-year-old daughter has more maturity than that…
And as for the Steele dossier, no serious analyst of the saga believes a word of it. It has been discredited and even the FBI said they couldn’t verify its claims. Yet it was presented to the FISA courts as fact to take out spying warrants on team Trump.
The fact is that the Democrats (led at the time by Hillary Clinton) paid Fusion GPS for opposition research via law firm Perkins Coie.
This opposition research — unverified — was then used to open up an investigation into an elected US president, which included illegal spying on his campaign.
This is a bigger story than Watergate. Yet there are crickets from the establishment media.
If you want to follow an investigative journalist who writes extensively on the topic, using source documents to support his work, go here.
This is something I will continue to write about. As a libertarian who views knowledge as power, I think it is very important to look into a narrative that the mainstream media doesn’t want you to follow.
Editor, The Rum Rebellion
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