It’s a certainty.
The die is almost cast.
It’s just a matter of time.
The issues that have affected most of the Western world’s economies are heading straight for Australia.
If it affects the Australian market in the same way that it affected overseas markets it should be an unprecedented boom time for Australian stocks.
Of course, nothing is certain. But with the market continuing to slide, we’re firmly staking our money on this certain event happening and it providing a crucial boost for stocks…
A report in yesterday’s Australian confirms everything we’ve said for the past few months – the Australian government is in a debt hole, and it continues to dig deeper:
‘Treasurer Joe Hockey is seeking the Greens’ support for an elimination of the debt ceiling, which would do away with the need for Labor support for its proposed $200 billion debt ceiling hike.‘
This shows you the two-faced nature of politics. Not so long ago Mr Hockey was screaming blue murder about the Labor government’s debt position. Now Mr Hockey wants to get rid of any hurdles lying in the way of the government going further into debt.
Not that the Labor party can say much. You may remember that before the 2007 election Kevin Rudd trumpeted his ‘fiscal conservative’ credentials. Within a year fiscal conservatism was out the window as Mr Rudd railed against so-called ‘extreme capitalism’.
The latest move by Joe Hockey proves governments have learned nothing, and yet they’ve learned everything.
Debt Up, Rates Lower…Dollar Down the Toilet
On the one hand governments have learned nothing. You would think that after such a disastrous boom and bust period followed by five years of economic turmoil that governments would stop spending and try to reduce debt.
That’s what an individual would do if they were in a similar position. If a person had borrowed too much, gotten into a lot of trouble, but fortunately managed to keep their job, they would likely think twice about going further into debt.
More likely the person would count their blessings and make sure things never got that bad again.
But that’s not how governments work, because governments aren’t like people. Governments have one trick up their sleeve that’s not available to anyone else – if the government can’t pay its debts using its ‘wages’ (tax dollars) it can just issue more debt…and more debt…and more debt.
This is nothing new. This is exactly what you’ve seen happen overseas. It’s why we say they’ve learned nothing and learned everything.
The attempt to abolish the debt ceiling is the final proof that Australian government debt is about to skyrocket, interest rates are staying low for the foreseeable future, and the Australian dollar is about to head down the toilet.
All of which – bizarrely – should spell good news for Australian stocks…
It Doesn’t Make Sense to Hold Cash Over Stocks
The race to the bottom in the global currency wars continues.
Japan and the US have tried to destroy their currency for years. They’re doing a pretty good job of it too. The Europeans are also getting in on the act. They destroyed a whole bunch of national currencies more than a decade ago when they switched to the euro.
Now they’re intent on destroying the euro too.
Next on the path of destruction is the Australian dollar. It’s following the same path as other currencies. First the government keeps spending and issuing more debt.
It keeps raising the debt until it seems it couldn’t possibly issue any more. That’s when the central bank steps in with what the central bankers like to call ‘unconventional monetary policy’.
Overseas, that policy has involved the central bank buying government bonds. We see no reason why that won’t happen here. In fact, the government has already signalled it will do this. Why else do you think the Treasury recently shifted $9 billion back to the Reserve Bank of Australia (RBA)?
It’s so the RBA can make its first government bond purchase using ‘cash’ rather than freshly printed money. Once the markets and investors have gotten used to the idea of the RBA buying government bonds it will be so much easier to convince them that using printed money to buy bonds is fine too.
This is exactly why, despite the recent wobbly market, Australian stocks will soon hit back. You only need to look at the impact money printing has had on stock prices in Japan, the US and Europe.
Some will continue to argue that money printing is terrible and that it’s madness that the stock market should rally. We agree with that. It is madness. But we’ll also ask would you rather hold on to that devalued money as a cash investment or ditch it and hold something of value (stocks) that should appreciate as cash depreciates?
It’s a no-brainer. If you don’t own stocks not only are you holding on to devalued money, but you’re also missing out on what should be double- or even triple-digit percentage gains.
Cheers,
Kris+
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