Bulls, Bears, Beers…and Various Ways to Eat a Pig

Dear Reader,

It’s Christmas Eve. So I’ll keep this edition of Rum Rebellion mercifully brief.

Santa Claus is almost here. Perhaps that means the Santa Claus rally, which kicked in right on time at the start of December, is about to fade?

The benchmark Aussie index, the ASX 200 (see chart below), still hasn’t managed to break through to the all-time high reached back in late July.

There are two ways to look at this…

The first interpretation is bullish. You could say that the five-month consolidation period is a pause of the upward trend while it gathers energy for another move higher.

The global economy is improving after slowing for the best part of two years. If activity picks up and central banks keep monetary policy loose, then it wouldn’t surprise me to see share prices kick higher again.

This makes sense from a contrarian perspective too. My feeling is that most investors aren’t anticipating a sustainable rise from here. That’s because it doesn’t really make sense from a ‘fundamental’ perspective.

I mean, there is so much debt in the world. Corporate earnings aren’t growing. How can stock prices continue to rise?

Money Morning

Source: BigCharts.com

[Click to open in a new window]

Stock market moves rarely make sense at the time they happen. Its job is to confound the majority. Just like it did this year. Who would’ve thought that it would’ve had such a good year after finishing 2018 the way it did?

Surely 2020 will be a year it gives some back?

Which brings me to the bearish view.

That is, the Aussie market has underperformed for the past five months. While US stocks make consistent new highs, the benchmark Aussie index hasn’t been able to do the same. The bearish conclusion is that it’s topping out.

Who knows who’s right? The safest way to play it is to remain bullish until the market tells you to change your mind. For me, that would be a decline below the early December low around 6,600 points on the ASX 200.

Until then, I’ll remain ignorantly bullish.

I mean ignorant because I don’t really know why. I just know that is what the market is saying. And the market is much smarter than me. It’s therefore better to defer to its wisdom than to impose my insignificant opinions on it.

And anyway, it’s Christmas. It’s time to switch off.

I flew to Sydney with my wife and two girls last week. We’re spending a few weeks with the family in Wollongong.

We landed in 35 degree heat. A smoke haze blanketed the city. We headed south. As we drove down the mountain that takes you into Wollongong city, the beautiful view of the coastline wasn’t there. It was shrouded by smoke.

My brother works in a coal mine near Bargo, one of the small towns that lost dozens of homes in the fires. One of his mates lost everything. Some Christmas present…

Still, no one I know here blames Scott Morrison for the fires…or global warming. They know these things go in cycles. That dry conditions and a heavy fuel load, combined with the odd firebug, create bushfire havoc.

I’ve got to say, I don’t think I’ve ever seen it drier here. My dad’s lawn, which he takes great pride in…is yellow. The creek down the road, which flows from the nearby mountain, doesn’t…well…flow. It’s dried up completely.

Some see this as definitive proof of climate change. I see it as an unfortunate Aussie summer. Could we have avoided these fires? Quite possibly.

The essay below has some solutions.

On that note, I’ll sign off for the year. I wish you and your family a very Merry Christmas and Happy New Year. From all The Rum Rebellion team, thanks for reading and being involved throughout the year. We look forward to writing to you again next year…

As for me, I’m off for some down time. It’ll involve eating many variations of pig, some beers, Campari, pavlova, Christmas trifle, pistachios, mince pies, chocolate coated nuts, a few runs to burn it all off, a few games of tennis with my daughter, beach time, reading a non-financial book (A Strangeness in my Mind, by Orhan Pamuk) taking the kids to see some Christmas lights around the neighbourhood, and sleeping in beyond 5:30am.

Merry Christmas!

Greg Canavan,
Editor, The Rum Rebellion

Greg Canavan approaches the investment world with an ‘ignorance is bliss’ philosophy. In a world where all the information is just a click away at all times, Greg believes we ingest too much of it. As a result, we forget how to think for ourselves, and let other people’s thoughts cloud our own.

Or worse, we only seek out the voices who are confirming our biases and narrowminded views of the truth. Either situation is not ideal. With regards to investing, this makes us follow the masses rather than our own gut instincts.

At The Rum Rebellion, fake news and unethical political persuasion are not in the least bit tolerated. It denounces the heavy amount of government influence which the public accommodates.

Greg will help The Rum Rebellion readers block out all the nonsense and encourage personal responsibility…both in the financial and political world.

Learn more about Greg Canavan's Investment Advisory Service.

The Rum Rebellion