Today’s Daily Reckoning can’t help but pick at a mystery, and it’s got nothing to do with the US election.
It’s why the stock market is so sanguine despite China’s current trade tactics against Australia.
News came in over the weekend that part of the reason the copper price is rising is because China is turning away Australian concentrate.
We’ve already seen China hit up Aussie barley, wine, and lobster. And yet the market rises regardless.
Admittedly, none of these exports are huge. But, in the immortal words of The Castle, it’s ‘the vibe’.
There’s no doubt that Australia needs China more than they need us — perhaps with the exception of iron ore.
You would think this is enough to give the market a bit of a wobble at least. Not so.
And, as usual, the market is confusing everyone, including me, by rising despite the US election uncertainty.
Some say we’re in a market ‘nirvana’ because Biden is President-elect — for now — but the Democrats didn’t win the Senate.
Biden can’t get his promised tax rises and other policies through without a lot of wrangling.
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Why the Stock Market Keeps Rising
Maybe. Personally, I think it’s because the market believes that more stimulus and Fed credit creation is coming anyway.
I must admit that I thought Trump would win. There are plenty of people suggesting voter fraud and irregularities. That may be true. So, it’s likely we go to the courts.
What this means for Aussie stocks is less clear, as a group at least. The easiest thing to do is leave the ‘big picture’ as it is — murky — and find individual opportunities.
I’ve been worried about the market since April. There have been cracking trades and investment possibilities the entire time.
I suggested one the other week here in the DR. You might remember I said Tabcorp Holdings Ltd [ASX:TAH] looked like a good play, on a risk versus reward basis.
Well shiver me timbers! The stock shot up near 16% last Friday after the mainstream press suggested two private equity groups were considering making a takeover bid.
That’s a big move for a stock like that. Tabcorp denied any contact thus far with anyone.
Let me admit that my idea for the stock did not even remotely consider that possibility. But that’s the point.
You can worry yourself into doing nothing all the time. Meanwhile, the world — and opportunity — passes you by.
Certainly, the gold sector is worth a look. Most of the Aussie names have been consolidating for about five months now.
The US election seems to have given the US dollar gold price a new kick. It could break $2,000 in short order.
Gold gives you two angles currently. One is a hedge against the current inflationary dynamic of an exploding US money supply.
The second is a general haven against a world mired in lockdowns, trade disputes, and heaving US culture.
Don’t expect this to end anytime soon. George Friedman is an insightful commentator on US affairs. He puts the presidency — whoever occupies it — at much less importance than others.
What Friedman gives precedence to above all else is the regular cultural and financial cycles that occur throughout American history. He wrote a book about it recently. I have my copy right next to me as I write this.
Friedman says we’re entering the end of one of these cycles right now — which began in 1980 and is due to finish in 2030. He calls it the Reagan cycle.
One of the interesting comments in the book is that Friedman says at the end of these cycles a president comes to power who is committed to the principles and practices of the prior era.
Now think Joe Biden does hold the Presidency. He is 78 years old. He’s been in public service for nearly half a century. Likely none of it equips him for the pressures of current American life.
He’s a has-been before he’s even begun, if indeed he has. Thus, we can expect the wrong solutions to new problems going forward.
Debates about tax rates and tariffs won’t change the upheaval of artificial intelligence, genetic engineering, and rampant automation. That’s the future economy, and culture.
That means the constant backdrop of volatility and uncertainty will stay with us in the stock market for a long time to come.
President Trump? President Biden? I doubt it matters a damn either way.
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: Australia’s Great COVID Recession — Learn which investments to accumulate and which ones to avoid in order to give you the best chance of preserving your wealth during the recession. Click here to learn more.
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