There are two types of investor.
Those who look for opportunities to invest…and those who look for opportunities not to invest.
We can sum that up in two stories, both published overnight by Bloomberg. The report quotes famed fund manager David Einhorn:
‘During the gold selloff in the quarter we sold a small amount of gold to take advantage of opportunities in the gold-mining stocks that were in free fall.’
We love that attitude. Einhorn and his team did what any investor should, they rebalanced a portfolio to ditch one investment and buy another. We can’t say the same for the other Bloomberg report:
‘U.S. stock-index futures declined, indicating the Standard & Poor’s 500 Index will retreat for a third day, amid investor speculation the Federal Reserve will pare bond purchases as the economy strengthens.’
That’s financial claptrap for investors who are too lazy to think about investing seriously. They would rather the US Federal Reserve direct things so they can ride the Fed’s coattails.
It’s no wonder the stock market is so volatile. Central bankers are playing investors for chumps…
To be fair, we’re not completely on board with Einhorn’s strategy — selling gold to buy gold stocks. Our strategy would have been to keep the gold and use spare or new cash flow to buy gold stocks.
But then again, Einhorn isn’t investing his own money. His job is to make his clients money in the short to medium term. And there’s a reasonable chance that gold won’t move very far in the short to medium term.
So we’ll give him a pass on that.
Besides, we’ll save our biggest criticism for the drone investors who buy and sell purely on speculation of what the Fed may or may not do — will it or won’t it taper (cut) bond purchases?
We’re surprised this is still an issue. We can’t believe that anyone actually believes the Fed or any other central bank has any intention of raising interest rates. Haven’t they heard of Japan?
Inside the Central Bank Gameplan
If you watched the Aussie market yesterday you saw the S&P/ASX 200 fall 1.8%. It was a big drop following a month of almost uninterrupted gains.
Why did it drop? You got it — will or won’t the Fed taper. Some analysts even seem to think the Reserve Bank of Australia (RBA) has finished cutting interest rates.
We’ll go out on a limb and put our reputation on the line with what we’re about to say. If we’re wrong you can call us out on it and we’ll cop it on the chin (we’ll post this article to our Google+ page later today so you can call us out on it any time there).
OK. Get this straight…
The US Federal Reserve won’t do anything that will cause interest rates to rise significantly higher.
The RBA didn’t say anything in its last statement to suggest it had finished cutting rates. We’ll bank on one, perhaps even two more rate cuts before the end of the year.
And we wouldn’t be surprised if the RBA does something ‘innovative’, such as cutting rates in 0.125% increments rather than 0.25% increments. That way it can spread out the cuts over a longer period.
But look, you shouldn’t think the central banks hate the volatility and uncertainty. This is exactly what they want.
While they want asset prices to go higher, they’re quite happy for stock markets to rise at a steady pace rather than at a bubble-defying pace. It’s part of the asset price strategy we’ve written about.
If the central banks came out and said they won’t raise rates for another 20 years, stock prices could take off to bubble-like levels…and then crash, as it would be impossible for investors to sustain the boom.
But if they can keep investors guessing and gradually manipulate the markets higher, well, that achieves their gameplan of gradually increasing inflation and asset values.
This is why the whole focus on the Fed is pointless. Instead, investors should focus on the genuine opportunities to make money in stocks now before the Fed and RBA manipulate prices higher. That’s exactly what our old pal Nick Hubble is doing with a brilliant piece of recently published analysis…
Small Aussie Firm Gains from NZ Blunder
Nick has done some great work in his Money for Life Letter. While the goons in the mainstream focus on the irrelevant, Nick has done the hard yards by researching and analysing a stock opportunity that most have ignored.
He first reported on this story in the February issue of his newsletter. Since then things have gradually fallen into place.
Nick picked up the story in good time, before the big headline grabbing news hit the markets in the last few weeks. The story, if you missed it, is the contamination of Chinese powdered milk products.
That may not sound like the most exciting investment news you’ve ever heard, but trust us, it’s a huge opportunity.
One of the major suppliers to the Chinese market is New Zealand firm Fonterra. As Nick details in the essay below, the company made a fateful decision that may have destroyed its reputation and potentially shut it out of the market.
That’s bad news for Fonterra…but good news for the small Aussie company Nick told his readers about in February. See below for more details.
In short, if you only look at the central banks you’ll miss out on the great stock stories on the market. As proof, the stock Nick recommends to take advantage of Fonterra’s blunder has gained 20% since he tipped it in February. By contrast the main Aussie index has barely added 1.4%.
This is what we mean when we advise you to put the big picture comings and goings to one side and to instead focus on the great individual stories. Nick has done that, and it’s paying off for his readers.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: China’s Other Big Problem
Daily Reckoning: The Global Trend Towards Wealth Protection
Money Morning: Two Approaches to Investing…
Pursuit of Happiness: Learning to Avoid the Governments ‘Noble Wealth Trap’
Australian Small-Cap Investigator:
How to Make Big Money from Small-Cap Stocks
