Read the highlights of Australian finance market last October 2016 compiled by PJ Patterson of Keystone Financial. Find out how it will affect certain business sectors and influence you to invest wisely.\n
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Finance Market Update
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I hope you had a great weekend. Weather is a bit up and down but summer is slowly taking hold and
the weekends are getting better and better.
Friday’s NFP (Non Farm Payrolls) was not good. It came in at 156,000 jobs created (and remember
this number is completely made up). The ‘expectation’ was for 176,000 jobs AND the August number
was revised DOWN by 7,000 jobs. Of interest was that the unemployment rate ticked up to 5.0%,
more on that in an moment.
In typical fashion the FED come out and talked up the economy and the market has now priced in
about a 65% chance of rate hike for December. Honestly, who knows and frankly it doesn’t matter.
To re-iterate something I’ve mentioned a few times. The US Fed has increased rates ONCE in the
last 8 years (last December) and by only .25%. So really, all of the consternation over rate hikes is a
waste of energy and a side show. If rates do start to rise the equity market won’t like it and for that
matter neither will the bond market.
But what about the unemployment rate, why is it now increasing all of a sudden? Remember that
about 93 million (probably more) Americans are out of work. The labor force participation rate is at
one of it’s lowest levels since the 1970s as many people have just flat out given up on trying to find a
job. So the increase in the unemployment rate is likely a sign that people are out there again looking
for work which leads me to a speculation. IF people do think the economy is improving they are
going to look for work and if the jobs aren’t really there (I don’t think they are) then the
unemployment rate is going to start rising again, rapidly. This will put further pressure on the Fed to
lower rates as they seem to think they have a mandate to drive job growth.
So what did Gold do? It went up on the news. I expect to see follow through this week. Why? The
Chinese are back from a week long holiday and will probably be buying into this manufactured dip.
Also, US markets are closed on Monday so for at least a day and half we may see true price
You see, the west trades paper gold and the east trades real gold. The COMEX (a US Futures
Exchange) deals in paper gold and as such can manufacture many thousands of ounces in a split
second and sell them on the open market. It’s typically a cash settled exchange so in actual fact it’s
really just a big casino.
On the other side of the world we have the Shanghai Gold Exchange. Members wanting to trade
there MUST have the fizz (physical gold) in their accounts to trade. It’s gold backed and eventually I
believe the price of gold will be set in this market as opposed to the US Exchange.
To put this dichotomy into perspective you need to know this: Annual Global gold production is about
2,400 tonnes (and declining BTW). That’s worldwide. In the course of the last week 1,000 tonnes of
paper gold were sold onto the market. That’s 40% of global production and I can assure you it wasn’t
companies ‘hedging’ forward sales. It was the bullion banks and BIS trying to push the price down
while China was on holiday. This move will back fire as smart money will take the opportunity to buy
Something interesting right now is the USD strength against most currencies. It is the world reserve
currency which gives it special status but the reality is that it’s the least ugly in the global currency
beauty contest and will also go to zero. Since 1915 the USD has lost 97% of it’s purchasing power
demonstrating once again that paper is not a way to preserve your wealth.
Here’s what I’m watching:
-US Pres election – we are 29 days from finding out who will be President. I have been paying a bit
more attention to this and frankly, as an American I must apologize for the stupidity of my country. I
honestly cannot believe that the two candidates are the Best we could do. Whoever wins will not
change anything IMO.
-Gold/Silver –I’m really proud of those that contacted me looking to ‘buy the dip’. You are
understanding what it takes to be a successful investor and that is to do the opposite of what the
herd is doing. To re-iterate, we are in a bull market in the metals and in bull markets you can take
inevitable sell offs as an opportunity to add to positions.
We need to see Gold get back above USD $1300 an ounce and hold. I don’t know if there will be
any further downside but USD $1250 an ounce seems to be a pretty good area of support.
-Aus Reserve Bank – you may not have noticed but Glenn Stevens term ended and a new chief,
Philip Lowe took over last month. He is a true academic having spent his entire working life working
for the RBA. However, he did a 2 year stint at the BIS (Bank for International Settlements) from
2000-2002. This pretty much means he is hooked into and is part of the cadre of global Central Bank
-Australian Housing – I know property is a religion in Aus but I think the market is reaching
exhaustion. Prices in capital cities are so ridiculous that I don’t know how FHB’s are going to get into
the market. I also don’t believe this ‘supply’ issue. There is something like 700 units of supply under
construction right now within 1KM of my office. I expect to see more lending curbs for investors next
year as I believe the RBA is very concerned about housing.