Keystone Financial August 2016
Finance Market Update
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Well there you have it. Apparently another .25% drop in rates is what the Aussie economy needs to keep it
moving. If you read my last update you would know that I felt a rate decrease was a good possibility last week.
But the result wasn't quite what I expected to occur. A lower rate should have hit the AUD but it actually
strengthened and remains elevated! This is very interesting and probably frustrating for the RBA.
Banks and lenders are NOT passing on the full decrease to borrowers. Why, you may be wondering? Put
simply: a banks main source of income is 'Interest' on the money they loan out. Their margins have been under
pressure for the last 7 yrs and by not passing on the full decrease they will effectively make more money. It will
be interesting to see how they go with profits in the next reporting period. I reckon we will see bank profits
plateauing in the next 12 months. As long as they preserve their dividends we are OK. If dividends start to
waiver then look out below as the bank share prices will get hit.
We also had US Non Farm payrolls last Friday. According to the completely fabricated Labor statistics the US
created 255,000 jobs in July. To that I say 'Big Deal'! Firstly, the number is complete fiction as they use a
'Births/Deaths' model to estimate job creation (they don't actually count them). In other words it is an utterly
useless data point that investors hang on to. What's even more bizarre (and I've commented on this before) is
that the unemployment number in the US doesn't include 'long-term' discouraged workers. You drop out of the
calculation if you have been looking for work over 12 months. So the real unemployment rate in the US is north
of 9%! In fact, there are over 93 million Americans out of work. This is staggering!
Anyway, as with all numbers they will matter when they matter.
The jobs report is often used a pre-cursor to smash the metals and this very thing happened last Friday. It
happens with such regularity that it's quite comical. One month of good job numbers (that are totally fictitious)
and the market thinks the Fed will raise rates. Not gonna happen!
Today as I write this (and overnight) the metals were stronger and the mining shares have clawed back some
of price declines over the last 48hrs. Not that I care about 1-2 days of market action as anything can happen on
any given day. But what is interesting is that the sell offs are less violent and we are seeing a quick bounce
back in share prices.
This my friends is further evidence of a strong bid for the metals (and miners) and further confirmation that we
are in a Bull market. In bull markets they say to use sell offs to BUY (buy the dips) and I did that very thing
yesterday in my SMSF account.
Here's what I'm watching:
-Oil continues to bounce around the USD $40-$42 a barrel range. Not sure yet what the catalyst will be to take
oil higher but at these levels I think it's a good idea to initiate an energy position. In 5 yrs I think you'll be
laughing. I've got a new Energy related ETF in the model portfolio that is perfect for the energy exposure.
-Interest Rates - apparently worldwide there are 19 Trillion of gov't bonds with a negative yield. That is an
incredible number and very, very scary. It effectively means that investors are more worried about the return of
their money and not a return on their money. As I've said before, we are in uncharted waters with this situation
and it remains to be seen how it will effect us.