Key Points
- US equity market steadying to move higher
- NASDAQ Composite at new highs
- Small caps in US at highs and readying to rise further
- Global equities confirming positive outlook
- ASX small caps likely to follow suit
- Technical revolutions underway
- Resources to do very well
Call me to discuss ways of participating bdawes@mpsecurities.com.au +61 2 9222 9111
What extraordinary times we live in!
In amongst the most bearish sentiment in decades the past few years have provided some of the most stunning equity market and economic performances of a lifetime.
And it can only get better.
Yet so many around the world are still on the sidelines.
Long time readers might recall the references in Dawes Points a couple of years ago to the cabal of politicians, bureaucrats, financiers, welfare activists and recipients and the fawning media that feasted on the spinoffs from around the raising of almost US$100tn in bonds issued at `free money’ rates to accommodate worried capital seeking refuge from the coming `Greater Depression’. Bonds reached 35 year lows in yield (including bizarre negative yields) and highs in price but that was just a great confidence trick because the quality of the issuers was probably never poorer and the prospects of investor getting the `return of their money rather than a return on their money’ (Samuel Clements) was never riskier.
That game is now over and reality is that the refuge for capital was never really necessary and that the needs of individuals globally are rapidly confirming that rising living standards for at least 3300m people in Asia are more important than short term US or ECB Monetary Policy.
The demand for capital to invest in basic infrastructure of accommodation, energy, transportation, food production and water together the myriad of new technologies that are now extending well beyond web-based applications to include transportation, energy, manufacturing, robotics and domestic technologies is very robust. This demand will be funded by the vast reservoirs of cash bank deposits and redeployment of funds in bonds that are not being rolled over.
An additional factor has emerged in the disruptive actions of one Donald Trump who just happens to hold the position of the chief executive of the world’s most powerful nation.
Like him or loathe him but `Cometh the time, cometh the man’.
The markets themselves have been anticipating this disruption through their actions over the past few years and through the application of technologies such as mobile phones (are they really just phones anymore?), global reach media and the numerous goods and services that can be supplied or ordered online the disruption is here.
They have also been suggesting a far better world is developing for so many people despite the problems of global debt, Islamic imperialism and the Axis of Evil being Iran and North Korea.
Mr Donald Trump may be unwittingly (or quite deliberately – who can really tell) be the catalyst that removes the Iran-NoKo threat to global order and ushers in a global boom of major historic proportions.
Readers might recall this from graphics from an earlier DawesPoints of how the Sth Korean KOSPI was by making new highs and anticipating reunification quite some time ago in Sept 2017 and how it ignored the missile launching hysteria earlier in 2018.
The internal uprisings in Iran may be pointing out the end of another oppressive regime there. Likewise for Venezuela.
So many people have been reluctant to spend because the outlook was so forbidding.
With markets up so much around the world, who’s sorry now?
Just look at the massive reduction in unemployment in the US as confidence is restored.
In the US, which is just one of the leading economies, the strong performances of the NASDAQ Composite and the Russell 2000 have been overshadowed by the those of the S&P500 and the Dow Jones 30 which all the doomsayers and handwringers delight in telling us that a recession is imminent and a market crash is inevitable.
Australian investors seem to like to listen to these doomsayer dummies which along with poor performances by the finance and banking sectors here have allowed the All Ords to be a chronic underperformer. Nevertheless, it is reluctantly joining the global bull market.
In contrast, the Dow has confidently bounced off its breakout line and is now ready to move higher.
The implications of this, the commentary above and the graphics below are pointing strongly to the Dawes Points Global Boom ™.
The NASDAQ Composite has ignored the bears and has made new highs and the recent successes of Apple, Microsoft, Amazon and Google with growing global sales (Apple had 65% of March Qtr revenues from non-US sources !) give strong indications that there are many years left in this extraordinary bull market in equities that will bring commodities along with it.
The channel analysis is indicating much much higher levels for many sectors as new technologies like Artificial Intelligence, VR/AR, Robotics, Electric Vehicles, Medical Technologies, High Speed Rail, Space Technology and new energy sources create important new industries.
Note that despite the all time highs, many of these indices are at within the lowest of the uptrend channels !
This graphic for Apple is extraordinary. It is at all time highs yet stiil within the lowest uptrend channel.
This is not bearish !
And Warren Buffet recently purchased 75m shares for about US$13bn at around US$170per share to take his holding to 170m shares. He wanted to own the whole company !
Apple with 5bn shares at US$190/share is closing in on US$1,000bn market cap and is just 14x EPS!
This strong performance is not restricted to the mega caps.
The Russell 2000 Index for small caps is doing well and also making new highs as stocks here embrace these new technologies.
This index and the following Russell Microcaps Index are showing the spirit of entrepreneurship that these new industries are reflecting.
This newly discovered Russell Microcap Index is also making new highs.
The pressure on the upper trend channel line to get into the next channel is strongly reminiscent of the early September 2017 position of the Dow before that fabulous 4000 point run.
Look at this company and its performance.
Edwards Lifesciences
There are many more like this.
Not your usual widows and orphans conservative go nowhere dividend payers stocks.
The doomsayers and handwringers can’t even be bothered to look outside the S&P500 Index itself to see the lay of the land.
In addition, while the tech sector may be leading, bricks and mortar in the pentup US housing requirement as the Millenials finally enter the market and raw material demand in Asia will ensure the commodity sector will also do very well.
New Privately Owned Housing Units Started 1960-2018
So while the doomsayers are watching in the rear vision mirrors, the new waves of entreprenuers are globally changing the landscape and creating vast value while disrupting the old order.
The swamp IS being drained of the cabal alligators.
Commodities are doing very nicely now and the big picture is for much more to come.
The prices of the traditional LME metals are rising and nickel is rejoining the party.
Price index
Most of these metals have demand profiles that should exceed supply for some years yet.
And look at China crude steel production in May 2018! Up 8.9% on a year ago. China recession ?? Where are those China bears ? Stand up please and just leave.
And who has been saying Global Boom TM ??
And whilst commodities themselves are good, this sort of thing where the producers are generating so much cash is much better!
Whilst this is all good fun and is making money for the early adopters there is an express train running in many of the small to mid cap resources stocks.
The Mining Boom of A$440bn of investment in iron ore coal and LNG is really paying off with strong earnings being reported by the major key players and Australia’s resources sector export revenues are surging as well.
But resources are far more than this.
I have been a great supporter of the entreprenuerial sector of the Australian Resources Industry.
The results have been very impressive and can be best seen through the gold industry.
Exploration is up
And Australian gold production is heading for a record in 2018.
The appalling and totally unrepresentative ASX.XGD Gold Index has maintained its uptrend, broken its 2011 downtrend and has broken above the critical 5000 level.
And look at this seasonal pricing structure. That’s 30 years of data saying June often provides a low !
The opportunities in small gold stocks are numerous. The EOFY Sale opportunities are extraordinary !
But those in the copper, battery metals, oil and gas have been busy as well.
Exploration data figures are now flooding in with many impressive results announcements in such volumes that are difficult to absorb.
This is indeed a boom.
So just think about those hundreds of ASX small cap resources that are remarkably cheap. Gold, battery metals, oil and gas, industrial metals, mineral sands, uranium, rare earths, iron ore and coal.
It is all there and reflecting the resource sector and its special brand of geotechnical entrepreneurs.
ASX Small Resources is ready to fly!
Make sure you take advantage of the current End of Financial Year Sales !!
Value is remembered long after price is forgotten but those low price purchases early in bull markets are never forgotten.
Could you forget CDU at A$0.40 on its way to A$10, or MMX A$0.25 at A$6.40, SMM at A$0.046 to A$6.47, CMR from A$0.10 to A$6.25? Custom Mining from A$5 to A$105 plus MacArthur takeover?
Where will these be in five years time ?
PSA
MGT
HPR
CTP
RIO
BHP
MLX
WGX
IMA
BLK
ARV
DEG
ASP
NST
Sitting and growing richer.
Will you be there with me?
Call me to participate +61 2 9222 9111
Barry Dawes
BSc FAusIMM (CP) MSAA
I own all the stocks mentioned in this report.
21 June 2018
