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Where are we?

The ‘bombing’ has passed, but the occasional sounds of machineguns and explosions tend to be continuing.

Today’s stock market is a warzone. Investors are shell-shocked and afraid.

Stuck in the trench we’ve dug for ourselves, we’ve no choice but to carry onto dear life as the bullets fly over us. No one dares to stick their head up right now.

Markets are down as well as news is grim. A boost in interest rate from the Federal Reserve is extremely likely. Will it be the start of an even more severe crisis?

It seems, the actual worst of our nightmares is yet to come.

And we are trapped here, in no man’s land.

We are bound through our instincts

Falling Chinese industrial profits, and a beaten-up Glencore.

Some years ago, I was having dinner with Glencore traders within Beijing. Things were bad back then, and now they’re branded the ‘Lehman’ of the mining industry.

It’s funny how the world can turn on you so quickly. However is everything the media says true?

The market is driven by economic indicators for example industrial profits and Purchasing Managers Index (PMI).

Despite the obvious trouble with data accuracy, markets usually take these numbers too much. They overreact to them as if these were prophecies from the Bible.

What’s unfamiliar person is the market reacts in order to past information as if it was new. The collective storage is exceptionally poor.

But because fear takes a firm hold of people’s sanity, the market can create a story of its own, like a madman.

The market believes it, and thus makes it a self-fulfilling prophesy.

And here we are, in the trenches of a headache that we’ve created for ourselves.

In many ways, stock investing is extremely simple. After all, you only have three dimensions to think about – up, lower and time. Is that so difficult? You buy low, hold onto this, and you sell high. Issue solved.

But it is not that simple, could it be? If it was, everybody would be a genius investor. The problem is determining if something is low in the present relative to its future price.

For example, if I said China is very cheap right now, would you believe me? I wager your innate fear would keep you away from what seems to be a trouble spot around the globe.

That’s the problem. We can never be sure of the future. Our primal instinct performs tricks on us and retains us away from reason.

This is the basic dilemma between feeling and reason. It is not financial theories and mathematical models that drive decisions, it’s emotion.

How long will we end up being stuck here?

For those who incorrectly believe a falling emerging market is somehow good for developed markets, here is a reminder.

Markets fall together, especially during a turmoil. So this is not a zero-sum game between world markets.

But how long will we be stuck here in no man’s land before markets bottom and rebound?

I have done some calculations on the timing of a bottom. But as with anything to do with the future, there is no definitive answer. Rather, a range of possibilities.

I have compared the Hang Seng’s current downturn to past crises.

In recent years, the two worst downturns were the 1997 Asian Financial Crisis and the 2008 Global financial trouble. The two were similar in destructive power. In fact, the actual Asian Financial Crisis saw a more severe downturn on the Suspend Seng than the GFC.

We have also seen numerous less severe downturns through the years. The downturns associated with 1989 and 2012 were similar in scope as to the has happened now. The 1994-1995 crash and 2001 crash were more severe.

Source: Port Philip Posting Research

So what we have to decide now is the scope for the current downturn.

In recent weeks, we’ve gone through what seems to be a bottom in the Chinese as well as Asian markets. But is this the bottom? If it truly is, then we’ll see a come back as early as two months from right now.

However, if we’re in the early phases of a mid-level crisis, then we are headed for another six months associated with weakness.

And a full-blown crisis on the magnitude of the Asian Financial Crisis or the GFC will see us go through a year of weakness.

So which will it be?

My bet is that the marketplace will bottom now, however it will flirt with the bottom for a few months. Then we will have a rebound.

Why am I so optimistic? Because I don’t see an excessive amount of systemic risk right now. The actual falls have mostly already been based on past information; The far east, commodities, currencies and so on.

How certain am I? Well, the fact that I can not see systemic risks now doesn’t mean there are absolutely not one. They can develop in time. And when they do, they’ll be revealed over time.

For you, the question is whether to buy now, or a little bit later on.

If you still doubt that rising markets and commodities are cheap, then you are really lacking the point. There’s no doubt that these markets are cheap. The question is when to buy.

My advice is to get ready to get out of the trench. The time is coming soon!

Regards,

Ken Wangdong,

Emerging Markets Analyst, New Frontier Investor

From the Port Phillip Publishing Library

Special Report: The End of Australia Vern Gowdie’s new guide is called The End of Australia: The Real Story Behind Australia’s Financial Collapse and What You Can do to outlive It. We are mailing free copies of this book to anyone who requests one online. It does not alllow for cheerful reading. But the concept is that you’ll be safer (and much wealthier) in 10 years’ time from receiving a more alcohol free and realistic analysis of what’s going on…what happens next…and just what you should be doing about it right now… (more)

Stock markets sent mixed signals yesterday…

The Shanghai Composite closed up 0.86%.

Yet, the Japanese Nikkei closed lower 2.25%.

The ASX 200 climbed 1.5% higher. That was good to observe. Even better was seeing the most recent Resource Speculator stock recommendation jumping 40%. If you wish to know more, click here.

In other marketplaces, Europe had another violent session. And the Dow Jones recovered somewhat from sharp early losses, closing 0.48% lower.

Stock markets are living up to their commitment of volatility.

As investors, this action doesn’t make our job easy. And unfortunately, the tough times have only just started.

Greece’s nightmare just started

As you’re likely aware, Syriza received the Greek election final Sunday. It was by no means an excellent win for the political party.

45% of the country didn’t bother turning up to the polling booths. A signal which hope is gone. And further evidence that politicians act in their own individual interests — not their country’s.

Looking forward, after signing a good euro 85 billion bailout bundle in July, the first Greek ‘bail-out review’ is set for mid-October. According to the Guardian:

‘”The new government has no time to squander on trials and tests. The third memorandum [bailout accord] leaves no space,” warned the actual leftwing daily Efimerida Twn Syntaktwn.

‘”Within three months, 56.4% of the measures, or 127 actions, have to be taken, of which Fifteen have to be enforced in October.”

‘In the coming weeks the hugely sensitive issues of pensions cuts, tax increases on farmers, recapitalisation associated with banks, privatisation of state property and liberalisation of closed markets must all be tackled.

‘The steps, expected to spell further difficulty for the long-suffering middle class, have to be enacted before international inspectors conduct a review of the economy – key not only to unlocking dinar 3bn in badly needed help, but also to addressing the crucial issue of debt relief.‘?

Greek Prime Minister Alexis Tsipras has a tough road ahead.

The other major question dangling over the country is the banking system.?The European Central Bank (ECB) calculates that euro 25 billion will be needed to recapitalise the banks.

This isn’t going to be easy… Athens banks are suffering from a significant lack of deposits. Also they are riddled with bad loans on their own balance sheets.

The clock is ticking.?As it stands, this is likely to turn out an absolute disaster…

Ashoka Mody, the IMF’s former bail-out chief, stated?‘achieving the programme objectives will require a miracle’.

No doubt, Tsipras’ team will need a herculean effort to pass the ambitious reforms the following month. Already, Europe?has cautioned that there’s no second opportunity for Athens — a Grexit will ensue if commitments aren’t achieved.

Nevertheless, Syriza had been employed to do a job — a job that means more austerity. Although, ironically, Syriza came to power in the first place using the anti-austerity policy. And many of its party members remain opposed to strict austerity. Meaning that there’s risk that Syriza won’t get the job done in time. And that the world may be looking at the Grexit in October.

Although I’ve long argued that a Grexit is inevitable, I expect these reforms should pass.

Of course, only time will tell…

Now, with market volatility as well as uncertainty assured on the Ancient greek front, let’s turn to issues arising in the US.

The US government going to shut down…again

Do you remember the US debt ceiling crisis in 2013?

Looking back, the US government endured a 16-day long shutdown which year. It ended having a bill that extended your debt limit until February 2014. Our elected representatives then approved the most recent expansion, which expired this past 03.

Unsurprisingly the can was kicked down the road. That is, until now.

Officially, the federal government will run out of money in mid-November in order to early December.

There are now developing concerns that Capitol Hill will shut down on 1 Oct — the same date it closed down in 2013.

Again, US government must raise the debt limit that currently stands at around US$18.One trillion. A figure which should blow out to US$21.7 trillion by the end of this year.

This is just another financial debt problem that many US politicians don’t take seriously enough — they seem to believe that money grows upon trees.

It doesn’t.

And no doubt, while arguing whether money will grow on trees, an american government shutdown seems likely. This is, of course, extremely bad management.

With the shutdown looming, many ‘leaders’ worry that buyer sentiment could change rapidly. Epically if such episodes turn out to be routine.

But perhaps, they’ve currently become routine…

Governments will never change

Every federal government is dead broke.

At the moment, they’ll do whatever it takes to keep the lights on as well as party running. This includes visiting you asking for help (we.e. more taxes) and borrowing more money (i.e. issuing bonds). And it will continue until the public says sufficient is enough.

Indeed, eventually these lighting will turn off…

And the world will see a sovereign financial debt crisis like never before. Governments may outright default or delay capital payments on their relationship commitments. Meaning you’ll possibly lose everything or — within the best case scenario — you will be unable to access your funds for years to come and end up taking major capital losses on your bond portfolio.

Fortunately we have a year or two to organize before this happens.

That said, with the combination of Greece’s nightmare and a Government shut down next month, the smart punters will start to wake up for this financial crisis.

This minority will start considering: ‘why am I investing in debt? It can make absolutely no sense’.

But because no one wants a crash in the bond marketplace, the majority will panic and sell stocks.

Get ready for another stock exchange correction

Studying the charts, the actual Dow Jones fell about 750 points during the October The year 2013 US government shutdown. However, factoring in Greece’s issues, the modification could well exceed this number next month.

Especially considering the uncertainty surrounding the All of us Fed interest rate decision. I’ve long said that the US Fed would look to raise rates for the first time this or next month. Having a second raise in Dec. In this case, you have another month to prepare for the first All of us Fed rate hike.

And what this means is one thing: expect another roller coaster ride in the stock market next month. It’s more likely that we’re going to see a deeper correction in the stock market before the crash in the relationship market.

Over at Resource Speculator, I’ve been guiding readers through these turbulent times. They now understand that this stock exchange correction isn’t the real turmoil ahead — it’s the sovereign debt crisis. If you want survive and prosper during these times, click here.

Regards,

Jason Stevenson

Resources Expert, Resource Speculator

From the Port Phillip Publishing Library

Special Statement: The End of Australia Vern Gowdie’s new book is called The End of Australia: The Real Story Behind Australia’s Economic Collapse and What You Can do to Survive It. We’re mailing free copies of this guide to anyone who requests 1 online. It does not make for pleasant reading. But the idea is that you’ll be safer (and much wealthier) in 10 years’ time through receiving a more sober as well as realistic analysis of what’s going on…what happens next…and what you ought to be doing about it now… (more)

It won’t be news to you that Australia is in a spot of trouble.

You can clearly see things are tough. The economy is struggling. The markets are in a mess. And the government…well best leave that one on your own.

But the simple fact is we’re no longer aggressive on a global scale. We forgot to play the long game. We got stuck celebrating an easy goal, and forgot about scoring more.

Our simple goal was the goods boom. But the long game is making Australia competitive again. It’s just that’s a hard game to play because we’ve got to work for it.

It depends on whether we can shift our thinking from a commodity economy to some tech economy.

A slippery slip down the table

Each year the World Economic Forum (WEF) puts out The Global Competition Report. It’s the most comprehensive competitors study of how 144 countries position against each other.

The ranking is dependant on 12 pillars. And each anchor has sub categories. All of these add up to provide overall competitiveness.

In 2005 Australia ranked quantity 18 overall in the world. Within 2006 it was number Nineteen. In 2008-09 it was number Eighteen. And by 2009-10 Australia had managed to sit up at a lofty number 15.

The spider chart beneath shows the pillars associated with competition. This chart is the current ranking for Australia.

Source: WEF

We’re not as competitive as we had been a few years ago. We’re now 22 on the list. New Zealand is now above us. So are Malaysia, Qatar and Belgium.

The trend here is down. Australia is becoming less competitive. The large question is where will it quit? How far down the list can we fall?

When you dig much deeper into the figures it’s easy to observe what’s causing the fall. The country has become inefficient.

There are a few groups (and sub-categories) Australia ranks amongst the best in the world.

We rank;

• 3rd: Soundness associated with banks (financial market improvement)
• 9th: Quality of scientific research institutions (innovation)
• 4th: Active special broadband subscriptions (technological readiness)
• 7th: Available airlines seat kilometres (infrastructure).

The categories where we’re near the bottom of the list are really telling.

We rank;

• 124th: burden of presidency regulation (institutions)
• 114th: labour marketplace flexibility (labour market efficiency)
• 125th: pay and productivity (work market efficiency)
• 136th: hiring and firing practices (labour marketplace efficiency).

There is a clear trend. Overall Australia ranks 56th in the world when it comes to Labour Market Efficiency.

It’s easy to see the problem in Australia.

Red tape and government intervention are dragging the country down. They generate an inefficient labour marketplace and a less competitive economic climate.

And when you don’t have an efficient labour market, the whole country begins to fall behind. Those that are experienced look elsewhere for better conditions.

There really is only one way forward. It’s to shift to some high knowledge, high ability workforce. I spoke relating to this briefly in Saturday’s Money Morning, talking about the automated future of work. We have to help reskill the workforce to adjust to a high tech future.

But right now that is just not happening.

The brain deplete is on

Atlassian is an Aussie achievement story. Mike Cannon-Brookes and Scott Farquhar started the company in 2002. Past due last year they completed another round of funding. It gave Atlassian a valuation close to $3.3 billion.

They’re an Foreign company through and through. However their patriotism comes with its problems.

Speaking on ABC’s Lateline, Farquhar said:

‘We do a lot for the local industry here. We have about 75 graduates coming in next year to Atlassian. But we just can’t find the older talent that we need in Australia. And so we recruit all of them from all around the world to come and work in Sydney…. Developers, item managers, designers, people in we’ve got the technology industry with five and 10 years’ experience — we don’t have them in Sydney in the figures that we need. Mostly we obtain people from Silicon Area, from Europe, and bring these to Sydney.‘

Founder/CEO of Freelancer Ltd [ASX:FLN], Matt Barrie also brought this point upward. Speaking to Business Insider, Barrie said,

‘At the government level not only is nothing being done to boost the technology industry — because [Atlassian co-founder] Mike Cannon Brookes said: “They seem to be actively avoiding it”.’

‘I’ve lost technical engineers to Facebook, I’ve misplaced them to Uber, I’ve misplaced them to Amazon. I’ve lost them to Silicon Valley startups. I’ve lost them to east coast tech companies. Silicon Area is teeming with Australians now, we were a uniqueness back in the late 90s. Now the brain drain is in full force.‘

A ‘brain drain’ is bad news. It’s a problem that has to change. We must maintain skilled workers in Australia. We should have vision to help the likes of Atlassian and Freelancer. Encourage start-ups. Promote innovation. Build a tech-strong Australia for future years.

That starts with a vision to turn Australia into a country for the future. And it continues through the education program and into tertiary education. It’s a long game, but it’s the only real game we’ve got left to play.

Regards,

Sam

As it turns out, the decision by the Federal Reserve in the US not to raise rates last week was a pretty close call. Over the weekend, four of the 10 voting members that make up the Federal Open Market Committee (FOMC) said they still expect the cash rate to rise before the end of the year.

Chair Janet Yellen gave 2 main reasons for the delay within ‘liftoff’, as they’re calling it right now. Firstly, the massive market volatility that hit global markets in August. And next, the potential impact on the US through the slowdown in the Chinese economic climate.

How these two factors flow in to growth in the US economy, and the inflation rate, will determine what the Fed will do from here.

We witnessed much of this market volatility in the huge daily swings within the Chinese stock market over the last month or two. This affected all the major search engine spiders worldwide.

Similar to the role that the RBA plays here in Australia, the Federal Reserve seeks full employment as one of its primary goals. The unemployment rate in america is currently 5.1% — a level that the Fed considers close to complete employment.

This satisfies one of the requirements for lifting rates back to more ‘normalised’ levels.

By the way, if you are wondering what the ‘normalised’ interest rate level is, officials at the Given put it at 3.75%. Even though Yellen is softening the market up by saying that it might take ‘several years’ to reach this goal.

Another primary goal of the Fed is to acquire a desired inflation target around 2% per annum. Again much like the RBA within Australia. Currently this sits at around 0.3% in the US — well below their target degree.

Typically central banks lower the cash rate to spur development in the economy. This can may also increase inflation as extra money bids up the costs of goods as well as services. To curb extreme growth and inflation, main banks do the opposite and increase the cash rate.

Increasing rates right now in the US seems to go against this particular economic theory. It could further dampen inflation just as they need it to get back to their focus on level.

However, the four dissenting members of the FOMC see the labour market because the biggest contributor to fixing the inflation problem.

The cost of labour impacts all goods and services throughout an economy. While joblessness is high there is little in the way of wages growth that will drive up these costs. The employee offers little bargaining power.

With full employment, though, this balance starts to move back into their own favour. With a tight work market, employers need to pay more to stop staff leaving with regard to better paying jobs.

It’s this rationale that those governors in favour of raising rates this year are financial on. That is, an increase in labour costs should help pump the inflation rate back up to the desired 2% level.

Of course, any downturn in the labour marketplace puts a hole in the theory. That’s why, according to Bloomberg, the commodity market only points to the 20% probability that they’ll raise rates in October.

This number increase to just under 50% for the December meeting. Although, this is the exact same number who thought they might raise the cash rate last week.

In the meantime, the US offers plenty of others giving them free advice. Among them, the IMF and the World Bank.

They’re worried that the increase in US rates may drag yield hungry funds out of emerging markets and back into the US. This will further exacerbate the huge sell-offs that have smashed these markets and will pull the world economy down additional.

Regardless, I still think they will raise rates. Maybe not by October. Maybe it will be in December or early the coming year.

Again though, I won’t believe it till I see it.

The problem is this particular. If they didn’t raise the money rate will full work and the markets trading continually highs, how will they raise rates if the markets still tumble or unemployment starts ticking up?

Maybe they’ve missed their chance.

One thing the markets loathe is uncertainty. Jesse Yellen is scheduled to speak within Massachusetts on 24 Sept. Needless to say, the markets all over again will be hanging off the woman’s every word. So we’ve got that to look forward to.

Chinese investors don’t want to play

While Janet Yellen and her posse of Federal Reserve officials try to guess what’s happening in China, it seems even those on the ground there are still trying to work out what’s going on.

The Chinese language government has been very active in trying to stem the rout that hit their markets after they peaked in June. You can see the run up within the following chart:

Shanghai Composite Index

Source: Google finance

The government is desperately attempting to avoid the huge swings and volatility from the stock market flowing into the rest of the economy. It’s been pumping what seems like an endless way to obtain money into the market to originate the flows.

The problem right now, though, is that nobody seems to have any idea how much the market is being propped up by the federal government, or how much comes from real demand from long term investors.

The measures undertaken by the federal government were designed to lower volatility and restore liquidity to the market. However, it might now be getting the opposite effect as traders’ time frames become even shorter.

There appears to be one trade in town the most nimble investors are trying to profit from. It’s trying to guess a level where the Chinese government purchasing will enter the market, and slip in ahead of all of them.

As the buying might only last a day or two, of course, short term traders try to jump away before the buying stops. It might be a vicious circle, and all it will is scare more traders away from the market.

Bloomberg puts the entire trading volume in gives down by a staggering 75% over the last four months. At the same time, volatility offers more than doubled. And the quantity of new investors entering the marketplace has dropped by over 80%.

The government has also intervened in the futures marketplace, just about bringing it to a stop. Short selling as well as margin lending have been severely restricted as authorities search out those deemed accountable for bringing the market to its legs.

30 day volatility chart from the major markets

Source: Bloomberg

The above 30 day volatility chart highlights just how crazy the ride has been in China. It’s certainly quite serious when you compare it to our experience here. I’m not too sure I’d have the stomach to be wading into their market in the near future.

When will it all settle down? That’s what Yellen and her officials is going to be trying to work out. While speculators may dominate a market temporarily, the weight of real money — money focussing on the fundamentals — will determine once the market has bottomed.

Right now, still it seems like it has further to go.

Regards

Matt Hibbard,

Editor, Total Income

Editor’s note: The above article is definitely an edited extract from Complete Income. To find out more about Matt’s strategy for income investing in a low-interest rate world, click here.

From the Port Phillip Publishing Library

Special Report: The End of Australia Vern Gowdie’s new book is known as The End of Australia: The actual Story Behind Australia’s Economic Collapse and What You Can do to Survive It. We are mailing free copies of this book to anyone who requests one online. It does not make for pleasant reading. But the idea is the fact that you’ll be safer (and much richer) in 10 years’ time through receiving a more sober as well as realistic analysis of what’s happening…what happens next…and what you should be doing about it now… (more)

Here we go again.

It seems like only last week that A holiday in greece was in the headlines regarding elections and its debt problem.

Now it is back.

Alexis Tsipras is back as Greece’s prime minister.

What will happen this time? It’s something otherwise for investors to worry about. But in truth, it’s just a sideshow. The real worry for Aussie investors is right here… in Australia.

And there’s no sign it will get better anytime soon…

From a report within the Age:

‘Foreign investors have turned especially bearish on the Australian economy, with one describing it as “toast”, the National Australia Bank statement says.

‘Chief economist Ivan Colhoun said a recent trip to clients in Britain, continental Europe and the Middle East revealed “uniformly negative view on Australia’s prospects”.‘

This is why all of us took the controversial decision to publish Vern Gowdie’s new book, The End of Australia.

You can find out how to get hold of a copy here.

Cue the next recession

Now, although we see bad news ahead for the Aussie economy, seeing the actual mainstream take the same view gives us pause for thought.

But not for too long.

It’s true that the mainstream usually arrives late on the scene with things like this particular.

But it’s not true to say that the actual mainstream is a counter sign.

Typically, the mainstream will grab hold of a story once the impact is already underway.

Then, as the message (positive or negative) filters through to the actual mass public, you’ll understand the biggest reaction in the market.

That’s because, until that point, the mainstream is either ignorant of what’s going on, or hasn’t taken it seriously.

That’s where we are with the Aussie economy right now.

Remember, it is a long time since the last Foreign recession. It’s a shame May well Hockey won’t be around to see the next one…

Source: Bloomberg

Also remember that foreign investors still see Australia as a resources economy. Foreign traders also see the Aussie buck as a commodities currency.

When the actual commodities sector was strong, the Aussie dollar had been strong. When commodities destabilized, so did the Aussie dollar.

An undeniable link

Today, the metal ore price is US$57.30 per tonne.

That’s an extended fall from the giddy heights above US$180 per tonne in 2011.

Here, we’ll show you another chart. If you need much more evidence of the link between the value of the Aussie dollar and also the price of commodities, this is it.

Below is really a chart of the Aussie dollar (yellow line) against the cost of iron ore (white line):

Source: Bloomberg

You don’t have to be Columbo to interpret which chart.

Of course, some will state that the Aussie economy is changing. Mr Colhoun, from National Sydney Bank, told Bloomberg:

‘At the present period, the improvement in the non-mining economy is much more than outweighing the drag through mining, particularly in an employment feeling.‘

That may be true. But what about in an ‘export sense’?

That doesn’t seem so clear. Look, we’re not saying that the Aussie economy is just good for digging things out of the ground and selling them to China.

As someone who has followed small-cap and microcap stocks on the Aussie market for more than a decade, we know there’s plenty of innovation in Australia.

But digging up resources and promoting them to China is different in order to innovating in technology and selling that technology to the world.

The world doesn’t need Australia for this ‘resource’

When it comes to resources, Australia is one of the world’s leaders. If China wants iron ore, it has two options — Australia or Brazil.

But when China (or any other nation) wants a different kind of source — technology — Australia isn’t the first place that springs to mind.

China has a home-grown technology industry. If it cannot get what it wants at home, it can get it from the US, Singapore, Hong Kong, Europe…and elsewhere.

For many years investors, commentators, and economic experts worried if China might adjust its economy towards the future. They may well possess a cause for concern. But here in Australia, folks need to worry about Australia’s ability to adjust.

It may do so. But even if it does, it will take quite a long time. It’s why we recommend investors get hold of Vern Gowdie’s new book right now.

It has the details on how issues will pan out for the Aussie economy, and what traders (and non-investors) can do to prepare for this. Go here for details.

Cheers,

Kris

If fear and greed are the dominant emotions in markets, hope reigns supreme in the field of politics.

Less than a week following Malcolm Turnbull’s coup to win the Prime Ministership, the country is infused with hope. That’s not terribly astonishing given what we’ve just been through.

Tony Abbott’s conservative reign all of a sudden seems like something out of the Ancient. His economic ignorance had been his downfall. For me, that will be forever captured in his reaction to a question about the risk to Australia from China’s economic downturn. According to Abbott, the Grocery Signal of Conduct would protect us.

No wonder we’re optimistic. Turnbull at least recognises the economic challenges Australia faces. That’s why Abbott as well as Hockey, the Treasurer, are both eliminated. Australia’s former economic team was a disaster.

Still, Scott Morrison, the new Treasurer, has a huge task in front of him. The reality of the situation may be plain to see, but the politics of producing change and reform will be very difficult.

The other shining light in Turnbull’s cabinet restructure over the past weekend is the handing over associated with defence responsibilities. Marise Payne is the very first women to ever hold the job of defence minister. Good on her. I’m responsible for succumbing to hope and gender prejudice here, but I’d much rather a women within the defence portfolio than a traditional male.

Once the enormity of the political coup settles lower though, the big question is, may Turnbull bring the electorate together with him. This will be the big challenge. Australia has had it good for a long time. The current house price boom in the face of economic decline just confirms for many people that there isn’t a problem.

Although RBA boss Glenn Stevens does not seem to think we’re in this bad state either. In his semi-annual testimony to the senate upon Friday, he was relatively sanguine about the prospects of the Foreign economy.

Keep in mind one of their roles is that of confidence maintainer. Whenever growth is fragile, you can’t have the boss of the RBA displaying signs of concern. In Friday’s Q&The session following his talk, a school student asked the way the economy will achieve 3% growth by 2017. Steven’s answer is, well, simply hopeful.

‘Growth of over three per cent is wanting to be achieved through 2017, according to the overview of the RBA. However with fewer mining projects on-going, falling commodity prices as well as deteriorating terms of trade, how do you predict this growth will be achieved?

‘Mr Stevens: It has to come from other parts of the economy than mining. The big question, of course, is really as mining slows down does the non-mining pick up? It is picking up–it is picking up a little bit more slowly than I would have liked but it is, I believe, picking up. We need that to help keep happening and strengthen further over the next several years. I think there are reasonable grounds to consider that it will do that, and the policy settings are certainly made to accommodate that and encourage it. What are those non-mining things?

‘We build houses, we build things other than mines, consumers do okay and so on, and hopefully a few of the export industries like travel and leisure, education, business services, actually some parts of manufacturing grow faster as they get help from the low exchange rate. I think all those things are starting to happen. However it is just a forecast, so we have to wait and seehow it turns out. I believe there are reasonable prospects we’ll get those outcomes.‘

As I said in the monthly issue associated with Crisis & Opportunity ?last week, this pick up in the non-mining part of the economy is very fragile indeed. The message from the stock market is that these non-mining industries point to a slowdown ahead.

I showed two crucial charts that hold the key to the Aussie economy. If they break beneath their support levels, we’re staring at our first recession in nearly a quarter of a century.

That’s the other challenge that Turnbull faces. Bringing about tough reforms in a changing market environment will make things more difficult. Global markets are in the process of changing from the bullish to a bearish mood.

For example, the US Federal Reserve left interest rates on hold last week. The decision resulted in a sell-off. What used to be bullish news is now bearish.

I stated on Friday how buying and selling volumes fell as the All of us market attempted to rally from its previous steep falls. That was a sign of unwillingness to buy from higher prices. And you know what? Volumes picked up again in Friday’s trading session in the US, because prices fell heavily. That points to a desire to sell the actual rallies, and a lack of buying enthusiasm.

This is how sentiment changes. It’s flowing through to the Aussie market this morning. At the open, the ASX 200 is lower 100 points, or almost 2%. The important support level of 5,000 points remains intact for now, but gravity seems to be getting the better of Aussie stocks.

Alas, there is no hope-fuelled Turnbull bounce this morning. Greed is giving method to fear amongst stock market traders. Is this the end of Australia’s ?economic golden run?

Cheers,

Greg

Dear Reader,

‘Meet the new boss/same as the old boss’

The Who, ‘Won’t Get Fooled Again’

And so — FINALLY — change comes to Australia.

Great, capturing change.

Politicians are weird, aren’t they? They argue simultaneously for change and stability. What we need is something different. But what we really need is for things to stay the same.

And that’s exactly what happens in Australia. We change the prime minister here as often as I used to change girlfriends in high school (and, from what I can gather, for equally lightweight reasons).

But — weirdly — things always stay the same. They argue with regard to change but campaign upon stability. The pack is shuffled. The suits are all still there, just in a different order. Occasionally hearts are closer to the top; other times clubs.

Yet all of the municipal systems that preside over our lives are still in place. We’re all nevertheless plugged in to them — regardless of who is sitting in the big office. I wish Malcolm Turnbull well…I suppose…but I doubt very much that he gives any more of the rat’s ass about your escape strategy than Tony Abbott did.

And so on we go. To change!

Of program, you and I both know that in order to affect real change in your life, you need to be the one doing all the changing. Wait for a politician to help you and all you’ll hear are more arguments for ‘stability’ and ‘security’. They only want ‘change’ when they’re in opposition (even inside their own party!).

In any case, exactly how secure can you feel — really — while you are still shackled to these big establishments and organisations? Not just government…but the stock market…the banks…and corporate Sydney? How stable is a federal government that changes its innovator every five minutes?

How safe is a stock market that loses 15% of their value in five several weeks — chiefly because leveraged traders looking for short-term returns are easily spooked through political rumour?

Meanwhile, what are YOU doing? Sitting at the office thinking: ‘Why am I here?‘ Struggling to make money, live well and be at liberty?

We exist to illuminate escape routes to better living. But most people who give the idea a break only ever escape so far — still within the confines of the ‘system’ or ‘grid’. It’s kind of like Stephen King’s Under the Dome. An invisible barrier is all around us. We can do (virtually) what we want inside it. But we can’t escape it.

That does not stop some Australians attempting, though. In the last few weeks I’ve been inspired by these Aussies. I’ve been reading their stories…chewing over their ideas…and providing more thought to the idea of off-grid living.

This is quite a polarising topic. So let me clear about what off-grid living means to me personally. I’m not talking about setting up a non-urban commune, living 100% off the land, harvesting rainwater and all that gubbins. Even though that life sounds satisfying on many levels, and there are definitely some useful applications you and I could adopt within our urbanised lives — but as a lifestyle, it’s not really for me.

I’m not talking about prepping for the apocalypse either. You won’t find gold or grain if you dig up my back yard. Just possum poo.

Although I must acknowledge I met a couple of hardcore preppers at a conference in Melbourne a couple of years ago and found them utterly credible and persuading — not to mention charming. These guys aren’t all zealots. They’re deadly, comfortably serious.

They are certain the end of civilised society is nigh…and that failure to prepare for what comes next is really a gross dereliction of duty.

To me personally, they’re jumping ahead *a little* too much of the curve. It’s fascinating, and exciting (yes, thrilling) to talk to survivalists. But I’m not in love with the fundamentals of their argument…yet.

Still, all of us sense something isn’t very right — with the country…and the stock market. What I’m saying is, our lives needn’t be tied to their fate. We are able to affect change — subtle, however useful — that reduces the influence of these structures on our lives…but still allows us to live the type of life we want.

So what Shall we be held talking about?

Off-grid living, to me, is more about financial freedom than anything else. Yes, there’s a philosophical argument to be made for the ‘sovereign individual’, living completely independently of the state. Additionally, there are an ecological argument to be made for reducing our footprint on the land. I’m genuinely interested in both of these arguments.

But right now I want to explore the PRACTICAL applications (and financial benefits) of reducing the influence big establishments have on your life.

How would you reside a simpler, freer life? Can you cut costs, and be more self-sufficient, without having to hunt your own lunch? Are there any risks to creeping yourself from the grid? Can you still reside a rich, happy, healthy existence outside of the system?

Those aren’t rhetorical concerns, by the way. I’m keen to hear your ideas. The dial marked ‘recession’ is being notched-up in the media. I feel this is something we should talk more about.

How can Team Esky help? Exactly what simple, practical suggestions are we able to make to help you save money and live more freely?

Are you interested in this kind of thing?

Email me personally: letters@moneymorning.com.au and type ‘letter to Esky’ in the subject line.

Some earlier thoughts I had on this subject…to get your cogs whirring…

Ideas, help and encouragement to begin your own business: (somewhat obvious — however this is the only way to truly link your hard work to prosperity and financial security).

Solar energy: is it worth it? How much can you actually save? Can you REALLY make your own panels?

LPG: what are the long-term benefits of sticking an enormous gas tank in the boot of your Falcon?

Cheap diesel generators: can they provide you with energy security? What are the benefits and risks? Are they as well noisy?

Biodiesel: can anyone make it? Is it safe? Will it ruin your engine? Where are you able to buy it? Is it legal? How much money can you save over regular diesel?

Rainwater harvesting: can you really do it in Australia with success? Exactly how good (and expensive) are water filtering systems? Is there enough rain to provide the water a household needs? If you’re living ‘off-mains’ how expensive is it to have your own waste management system?

Grow your personal vegetables: what are the best, cheapest, most proven ways to grow your own produce? What seasonal considerations do you need to keep in mind when growing? Can you sell your create if you have a bumper crop?

Keep chickens in your garden: is it really worth this from a financial point of view? Does it pay off? Or are they just too noisy/messy?

Bitcoin: is it practical? Where do you need it? Why would you use it? Do you know the risks?

Protect yourself online: can you ‘go dark’ on the internet and limit the government’s (and rogue entities) ability to monitor and hack you? That should you be wary of online? And can technology actually HELP you become freer?

Physical gold: We joked about it earlier…but should you hold some? How much? Where and how should you store it?

Personal security: how do you protect your home, and your self, from others? Should you be concerned? Are there any simple self-defence techniques you can now learn to quickly immobilise intruders?

Owning your personal home: should it be your priority to pay for down home loan debt? Or should you be borrowing while money is cheap to build a profile of investment properties? What’s more important to the off-grid life: becoming debt free or having a income source?

Bartering: are there any simple but fundamentally useful skills you can learn to trade for cash, food or accommodation?

Fishing 101: can the ocean (or local river) provide your family with all the meals you’ll ever need? How do you catch, gut and prepare fish without killing your family?

Reduce your tax burden: another obvious one. The less you pay the government, the less on the hook you are.

There are loads more ideas where that came from. My personal head is buzzing together, in fact. But I’ll stop there because I think you catch my drift.

I’m not looking for answers to the specific questions I’ve posed in this list. Only a broad yes or no to this question:

Is living with less reliance on the federal government, banks and corporations — off-grid living — something want to know more about?

Please email me here and let me know: letters@moneymorning.com.dans and remember to type ‘letter to Esky’ in the subject line.

Ciao for the time being,

Simon Munton

Contributing Editor, Money Morning

Ed Note: The above article first appeared in Escapologist

From the main harbour Phillip Publishing Library

Special Report: The End of Australia Vern Gowdie’s new book is called The End of Australia: The Real Story Behind Australia’s Economic Collapse and What You Can do to Survive It. We are mailing free duplicates of this book to anybody who requests one online. It does not make for cheerful reading. But the idea is that you’ll be less dangerous (and much wealthier) in Ten years’ time from receiving a more sober and realistic evaluation of what’s going on…what happens next…and what you should be doing about it now… (more)

Development, development, development.

You can see it happening everywhere. All around the world, as well as right here in Australia too.

I know there’s a lot to worry about. There always is.

But just take a look at what is happening in the property markets. You’ll see why the outlook we have at Cycles, Trends and Predictions is so positive.

Make no error either — there’s big money involved here.

You can see it within what’s begun in central Melbourne — not to mention what’s on the drawing board — to get an idea.

It’s nearly unbelievable.

Source: The Age

Here’s a further taste.

The ‘ultra wealthy‘ Deague family began construction on a $330 million apartment project within Box Hill, Melbourne a week ago. According to the Australian Financial Review it will have the tallest tower outside the CBD on completion within 2017.

According to the paper,

‘Box Hill, a suburb 14 kilometres of east of the Melbourne CBD with a big Chinese population, has turned into a suburban high-rise hot spot with more than 20 projects underway.’

A little further south of the city, Amstel Golf Club within Cranbourne is selling its property to a property developer as well as moving elsewhere.

The Age believes that it is a $40 million deal. The current course will make way for housing estates.

And it’s not just Victoria…

Up in New South Wales, 2 airports were put up for sale in Bankstown and Camden in May. The seller received bids rumoured to well exceed the $200 million figure. The initial expectation was for about $195 million.

The Australian Financial Review reports that Bankstown is the fifth busiest airport in Australia. There was ‘huge interest’ in the offer, according to the paper.

Here’s the probable reason:

‘Bankstown is going to be among the big winners of big solution spending on major road and rail projects by the?New south wales government. It is also adjacent to a development proposed by Bob Ell’utes Leda Group which could open up more opportunities for Altis should it buy [the] airport.’

See what I mean here? There are so many opportunities in property and stocks that spring from all this.

Do yourself a favour and look for what they are here.

The boom no one’s watching

I wrote an article last week on the boom I don’t think many people are following. It’s on the Oriental, especially Chinese, travel boom. You can check the article out on the Money Morning website.

But for a quick snapshot, you can get an idea from the forecasted demand for pilots. That’s because of this graph from the Wall Road Journal….

An estimate for the quantity of tourists to come out of China is 200 million within 5 years.

I mention this now since i received the following feedback through Cycles, Trends and Forecasts editor Phil Anderson,

‘I got back to the UK tonight. We spent one and a half hours within the passport queue and was thinking about this very thing. I’ve absolutely no idea how airports and security are going to deal with this. There is not an airport in the world that has planned for it.‘

And this, from Revolutionary Tech Investor‘sSam Volkering in London,

‘Mate of mine flies with regard to EasyJet over here, he’s about a 12 months off becoming a Captain. He was telling me that the Asian (Chinese) airlines are poaching ‘Western’ Boat captains much in the same way the Middle-East airlines were over the last couple of years.

‘He reckons the money being thrown about is insane as in getting close to a mil a year. And one of the main reasons they’re recruiting Western Captains is to reduce their insurance premiums.

‘Also because the regular of training in Asia is fairly poor compared to the West they convey these experienced captains on-ship to help train up their own First Officers and students. Then they can also claim to have Western pilots, when in all reality the bulk of them aren’t.‘

And here’s this from senior British pilot whose title I’m not at liberty to say…

‘I know a lot of Far Eastern air carriers cannot get enough pilots to operate all the routes they want to expand onto. Certainly the south-east Asian area is expanding like crazy.’

Like I said before, there is so much to be positive about. Start here to develop on these opportunities.

The misconception of America’s decline

If you’re interested in what is happening in China, I desire you to listen to the interview Used to do with Shaun Rein. It’s free on The Daily Reckoning Podcast. Shaun is based in China, and runs a successful research home.

You can check it out here upon iTunes or Android here.

Shaun Rein is Episode Twenty one.

The latest is with a man called Josef Joffe. He wrote a book by what he calls the ‘myth’ of America’s decline.

I called him up to chat more about that idea. What he says is quite true. Ever since the 1950s America has been written off. There’s always already been a contender that’s considered on the threshold of dethroning the US from its perch.

In the 1950s it was the Soviet Union. In the Sixties it was Europe. Later this became Japan. Today, states Joffe, it’s China.

That’s not to say China is about to collapse. But the All of us still has a lot going for it. Its economy is still regarding double China’s in term of GDP.

In fact, one of the factors we make in the newest issue of Cycles, Trends as well as Forecasts is that a slowing The far east will have little effect on the united states.

He had a lot more to say around the current balance of power in the world.

As above, check it out right here on iTunes or Android here.

Cheers,

Callum

From the Port Phillip Publishing Library

Special Statement: The End of Australia Vern Gowdie’s new book is known as The End of Australia: The Real Story Behind Australia’s Economic Collapse and What You Can do to Survive It. We’re mailing free copies of this guide to anyone who requests one online. It does not make for cheerful reading. But the idea is the fact that you’ll be safer (and much wealthier) in 10 years’ time from receiving a more sober and realistic analysis of what’s going on…what happens next…and what you ought to be doing about it now… (more)