A QUICK NOTE FROM GREG CANAVAN:
Last year, I published a Rum Rebellion edition called ‘The Big Lie’.
We got many responses from you on it. Five-to-one in favour of the premise that there are some serious questions to be asked about the climate change hysteria that has gripped the world.
As one reader responded:
‘The veracity and speed at which the global Groupthink of Climate Change fundamentalism has taken hold is frightening, and is very quickly emerging as possibly the largest and most pervasive Cult the world has ever seen.’
Whether you’re passionate about saving the planet…or, like the above reader, think it’s a ‘pervasive cult’…you should STILL read the following new research on which clean energy stocks are looking like shrewd buys for the year ahead.
It asks some intriguing questions…
And offers up six very compelling investment recommendations.
Sometimes, when the investment case is this sound, you simply have to hold your nose and buy.
Click here to read ‘Australia’s Clean Energy Second Order’.
Editor, The Rum Rebellion
Aussie economy roaring back to life
US markets didn’t do anything worth talking about overnight. Stocks were flat.
The only move of note was in gold, which continues to bounce back after its recent sell-off. It rallied 0.75% to around US$1,830 an ounce.
Is this meaningful?
Is the bottom in?
It could be. But I’d be surprised if it is. As you can see in the chart below, gold broke down out of its consolidation range recently. After the initial selling, you often see a rally back toward the breakdown point (I’ve added the overnight move in green). This is usually just a bounce from oversold conditions though.
So I’m not expecting gold to keep rallying. If it does though, that tells you the ‘recovery’ from the government-imposed shutdowns earlier in the year are running out of puff already. That would be very concerning for the global economy if that were the case.
Speaking of recovery, it was all sunshine and lollipops yesterday as data showed the Aussie economy roaring back to life. From The Australian:
‘Australia has bounced out of its first recession in three decades to record its strongest quarter of economic growth in 45 years, as easing COVID-19 restrictions and massive government stimulus sparked a surge in consumer spending.
‘The economy jumped 3.3 per cent over the three months to September supported by a record lift in household consumption, powering a larger than expected rebound from the 7 per cent collapse in GDP growth in the June quarter.
‘NSW and Queensland led the national comeback from the deepest downturn in 100 years, while Victoria’s economy contracted 1 per cent as it battled to contain a second wave of COVID-19.’
But let’s put this into perspective. Growth was strong because the prior periods were so weak. Year-on-year the economy contracted a whopping 3.8%. In per capital terms it was even worse: a 4.7% contraction.
A broader measure of growth includes the impact of the prices we receive and pay for our exports and imports. On this measure, ‘real net national disposable income’ (I’ll just call it national income) jumped 4.8% in the September quarter, but was still down 3.5% year-on-year. On a per capita basis it was down 4.5% year-on-year.
To get back to where we were at the end of September 2019 (in terms of national living standards), Australia’s national income per person needs to increase another 4.67%.
How long will it take to get there?
It’s a good question…and one that no one really knows. I mean, the strength of the September quarter was a combination of massive monetary and fiscal stimulus and economic reopening. It resulted in the biggest rise in household consumption in 60 years, with a 7.9% increase. But year-on-year, it’s still down 6.5%. So still in quite a deep hole.
And we know the fiscal pump is slowing. Using monthly government spending data up to the end of October (the latest figures) shows an underlying fiscal deficit of $137.5 billion. That’s made up of the following:
July: -$33 billion
August: -$55.1 billion
September: -$25.7 billion
October: -$23.7 billion
We know the projected deficit for the financial year is $213.7 billion. So that leaves $76.2 billion for the rest of the year, at an average monthly deficit of $9.5 billion.
In other words, government support measures will drop off sharply throughout the financial year (assuming no changes) meaning the economy will increasingly have to generate its own recovery.
I think the next few months look OK. But as the end of the JobKeeper payments comes into view (the program finishes at the end of March), there could be some issues.
Not because there won’t be jobs available. Rather, it’s because the income from the jobs available won’t be as generous as the JobKeeper payment.
So perversely, as the job market recovers, household incomes will reduce!
What does the market think of all this?
Well, it priced in the economic recovery some time back. It yawned at yesterday’s announcement. After all, we’re dealing with data that is two months old.
There are now new issues to deal with. Like China acting like a bitter drunk at the bar, having a go at everyone, but especially the little bloke in the corner just trying to enjoy a quiet beer.
So far it’s not too much of an issue. Even Treasury Wine Estates Ltd [ASX:TWE], the company that just had half its business threated by Chinese tariffs, is handling it well. It sold off initially on the news but has rallied the past few days.
This reflects a buoyant investment market. The glass is half-full. The bulls are in charge. And why wouldn’t they be? With interest rates at zero and Australia heading down the path of quantitative easing (QE), where else is there to be?
There really is no alternative. Until, of course, the next panic hits. At which time cash will look pretty good, despite its infinite abundance. The herd will dump stocks, hold zero-yielding cash and wait for the inevitable government response.
The government will obviously oblige and use any minor slowdown as an excuse to meddle even further in the economy and our lives. At which point, the herd will feel safe and secure and rush out of cash and back into stocks.
It’s just that they won’t realise it’s not the stocks that are going up, it’s the value of their money that is going down.
Editor, The Rum Rebellion