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The Big Story Isn’t What You Think It Is: Investing Guide at Dee

Issa Owen


Published on December 1, 2014

For the past six years, the mainstream has looked for the one thing that would cause markets to crash. They’ve come up with no end of ideas. Each has failed miserably. After a few wobbles here and there, the market hasn’t crashed. That doesn’t mean that it won’t one day, but so far the mainstream has gotten it horribly wrong. The one thing the mainstream has picked up on is the falling oil price. But even there they haven’t got it 100% right. As usual, they have only scratched at the surface. They aren’t looking at the layers beneath. The key to understanding the falling oil price is that it’s not just about slowing economic growth or cheaper fuel at the petrol pump. It’s about understanding the knock-on effect of lower oil prices on the oil industry, on the economy, on consumer confidence, and on the rest of the financial markets. If there’s one thing you should know about the markets and economies, it’s that everything is connected. The oil price can’t rise or fall by US$20–30 a barrel without it impacting every market sooner or later. If the oil price stays below US$70 per barrel, or continues to fall even further, it will have a huge impact on the world’s markets. It will create an environment where stocks ultimately rise to a record high over the next four years before crashing in spectacular fashion. That’s right, the downturn that happened on the ASX recently was nasty. But it wasn’t the big event. Nonetheless, that volatile period scared many investors out of the market as they thought it was the big crash. As the market settles and begins to rise, these same investors will realise their mistake and begin piling back into the market. When they do, stocks will take off again. That can seem hard to believe with all the scary headlines in the papers. But that’s how markets work. Sometimes they scare the heck out of investors. Investors panic and sell. Then they panic and buy back in again. The result will be what I see as a four-year rally that will take stocks to a record high in 2018. And I don’t just mean a small advance from where the Dow Jones Industrial Average is today. I’m talking about the Dow rising another 50–100% from where it is today…and the Aussie index taking out a new high as it surges past the 2007 peak. It could mean that the Aussie index doubles, perhaps triples from where it is today. Again, I know that may sound outrageous. It’s supposed to. Bull markets tend to begin when the market is in the throes of despair. But you shouldn’t for a moment think that I’m cheerleading for stocks to go higher, or that I’m ignorant to the problems facing the world economy. This isn’t about stocks doubling over the next four years and then continuing to rise forever. This is about the events that are happening today that will lead to an extraordinary stock rally and then a just as extraordinary bust. China isn’t the only fraud It’s not just the Aussie market and oil taking a beating — or gold, although it has rebounded recently. The Chinese market continues to get roughed up. Despite China’s huge growth rate of 7.3%, the market still seems to be more focussed on the slowing growth rate rather than the aggregate growth. It’s amazing. Even if China’s growth rate stock market averages 5% in the years ahead, the economy will still double in size from where it is today in less than 15 years. Just think about that for a second. As big as China’s economy is today, in 15 years it could be twice as big. At the moment China’s GDP is around US$10 trillion. The US economy’s GDP is around US$18 trillion. So if China grows at a 5% average growth over the next 15 years it will exceed the size of today’s US economy. I don’t know about you, but to me that’s incredible. And yet the mainstream can only focus on one thing, the potential for China’s economy to collapse. It explains this report in the Financial Times: ‘China’s foreign exchange regulator has uncovered $10bn in fake cross-border trade since April last year and has turned 15 cases over to police in a crackdown aimed at curbing hot money flows… ‘The gap between Chinese customs data on exports to Hong Kong and Hong Kong customs data on imports from China hit an all-time high of $28bn in March last year. The gap is viewed as a proxy for how much exporters are inflating their invoices. But by July this year, the gap had fallen to $9bn.’