Bullish? That's Tops!

August 12, 2002

We certainly live in interesting times, and the current political, social and economic problems are all combining to create somewhat of a disturbing atmosphere that could have ramifications for many years to come. The economic problems the US is currently faced with, and the bullish outlook for gold has been well documented on GOLD-EAGLE, however I feel it is worth taking a sizeable step backwards and look at the potential problems emerging in everyday family life. Behind the massive personal debts including mortgages and credit cards, lays the struggle for many to provide the basics for their family whilst attempting to maintain the lifestyle that easy credit bought. Those days of spending up big at Harvey Norman on three years interest free on 1/3 deposit, may be coming to haunt many as they have normally received a credit card and extended credit limit, and are now struggling with significant monthly payments that are no longer manageable as the credit card juggle becomes focused on sharp and dangerous instruments.

THE MUMS AND DADS STRUGGLE

I was recently speaking with someone that had just purchased a small property in Sydney's lower north shore, for in excess of $600,000. I was then told how this was a wonderful investment and that the value of the property would increase to in excess of $1 million over a few years. This is the problem that is gripping the eastern states property market of Australia, as many are being forced to purchase at excessive prices due to the fear of missing out on one of the greatest property booms of our generation. The though of selling into the market strength is clearly beyond many persons comprehension, as they feel that if they indeed sold out they would have to pay more to buy a similar property. For many the thought of renting, despite attractive opportunities is not an issue based on their financial grounding that has been based on the great Australian dream, oblivious to the fact it could bring them financial ruin over the next 2-3 years.

As housing prices in Sydney and Melbourne continued to boom, we were then faced with the hype on prime time television as everyday people in front of cameras had to prove how rich they were and outbid others in fear of being viewed a loser on national TV. These programs simply added fuel to the real estate fire, and if anything I would expect many will wipe over their videotapes in sheer disgust that they paid overs for an average property that is now weighed down in negative equity and personal debt.

There would be other families earning the average wage, with no stock market investments that were not on the financial merry-go-round in 1990/1991 when you could earn 18% on a term deposit. They will often scoff at the stock market and how they are safe in bricks and mortar, and continue to bellow the benefits of buying a house with the help of the government and on no deposit. For a $200,000 mortgage the repayments are around $1500 per month, and I would expect that many average families are living off $500 per month and surviving on juggling debt and borrowing from loved ones. I would shudder to think what would happen when they are lumbered with mortgage payments that effectively match their disposable income.

Economists should chart the pizza delivery employment opportunities advertised in local papers, as when the credit crunch hits there will be a rush for limited vacancies amongst university graduates struggling to pay off their houses and credit cards.

CREDIT CONTROL FROM BANKS

I have noticed that the focus on overdue credit card and mortgage payments has increased from the dreaded collections officers. It is normally on a Sunday morning after a heavy night on the drink that the phone rings, and it's your credit provider chasing the $25 overdue on your visa card. Letters from utilities providers are now in different colours with urgent stamped on the front (look a lot like speed camera ticket envelopes that we all dread). One gets the feel that internally the banks and service providers are starting to take notice of customers struggling to meet payments, and hence whilst they remain somewhat friendly and courteous the game is changing somewhat. Late payment fees are now being added to phone bills and some discounts are now being offered for early payments. Any hint of higher rates, and the problem will be exacerbated, as bankruptcy for many will seem the only logical way out of the hideous debt burden. When times are good anyone that pays a little extra and on time, is offered regular credit extensions and perks, however they are starting to dry up and to an extent we all wish we didn't take the extra $5k during the Nasdaq boom as we are paying for our indulgences now.

A DECADE DOMINATED BY CONFLICT?

The one common theme throughout studying the history of the Dow Jones and major events that shaped it from 1920 was the sporadic nature of major conflicts that clearly indicates that human nature has remained somewhat consistent throughout time. Of course there will be calls of "The war to end all wars", however there is the impression that the only change will be the venue.

AN INSTANT SCRATCHIE

I found it amazing that in 2019 the odds of being wiped out by an angry space rock will be greater than winning the maximum prize on a scratch and win ticket. Whilst it is 17 years away, I think it is something that should demand greater attention over this decade. I will have to go and take out Armageddon and Deep Impact, and brush up on big wave riding skills.

FINALLY INVESTORS ARE SHOWING SOME ANGER

It has been over two years since the Nasdaq bubble burst, yet only recently have we seen investors start to vent their anger. Whilst switching between the Rugby League/sports channels I took note of an interview on CNBC where the presenter was visibly pissed off with the interviewee in relation to allegations over dirty tactics in researching biotech stocks. I guess it all boils down to hope turning into despair and it is clear that this takes considerable time to evolve. These days it would appear that Donna Hay is not the only one selling cookbooks, and I feel that we have not even scratched the surface in relation to this matter.

PRECIOUS METALS

From what I am seeing on the screens over the last fortnight, I am of the impression there is a considerable ground swell building in precious metals stocks. The dips are getting smaller, and finally I am seeing clients actually look forward to $5+ down days. The junior stocks are holding very well and some are actually starting to firm up on increasing volumes. The term "technical buying" in gold was used last week by Michael Pascoe on C9, and whilst I am not a fan of technical analysis (never used it and never will) it is encouraging to note that gold is now on the radar screens of the TA players. One might get the feeling that gold needs a further lift from the more mainstream gurus to set the scene for the next enthralling battle at the much-touted $330 level. I have read articles where an explosive price of gold could lead to social unrest and prolonged economic hardship, however it is the charge of the mainstream that will cause the problems when the bubble eventually bursts. We do not need a gold price in excess of $1000/oz to make an absolute killing from gold stocks, and with some explorers another $40 per ounce and a well-directed drill hole could provide enough fuel in the tank for a ten-bagger. Whilst there are eternal hopes for a long-term bull market, lets not discount the potential for considerable rallies once gold again enters another bear phase.

ITS TIME TO GO…

"The fear of a stock market crash is often far worse than the crash itself"

The sooner the mainstream and cheerleaders let go of the 20-year (stock) bull, the sooner the excesses of the 1990's binge can be unwound and a new growth phase established. It is like a long running TV show (E.G Hey Hey Its Saturday), that simply runs too long, and despite the calls from loyal fans it is axed as ratings are finally trying to find a bottom. I guess it is like the return of Tony Lockett to AFL, where the memorable occasion of being the highest goal scorer is overshadowed by a return that was a considerable failure. Lets face it, the vast majority want the bull market to miraculously reappear and gain momentum from the hideous valuation levels we are still faced with today, however regardless of whether or not we get a powerful summer rally in the US or not, the party is effectively over. The consumer is a spent force, there are conflicts emerging on a number of fronts and getting back to absolute basics, families are struggling to make ends meet. It just simply does not add up to a resumption of the raging bull, nor does it indicate a painful sideways movement where earnings will eventually catch up to valuations. I am starting to get the same feeling I did just prior to September 11, 2001 and as the Father of a nine-month old baby girl, your priorities are quickly reinforced in times of difficulty and/or conflict.

The bullish analysts can rave all they like, as I am not remotely interested in their mainstream dribble. My priority is my family, putting my property on the market, increasing my PM holdings and offloading to the bubble brigade when the time is right. Whilst tensions may temporarily calm and the press machines focus may shift from one South American country to another, things just don't seem right these days. The events from 1999- are going to make great reading in twenty years time, where new stock market investors will be saying, "Lucky our market is more sophisticated now than it was in 2002". This is probably the same argument the bull brigade use now to wipe out any chance in their minds that we may yet see an event to rival 1929.

One cubic foot of gold weighs more than half a ton (1,306 pounds).