Lies! Lies! Lies!


Sigh. Governments are lying again. Perhaps they never stopped. We only see it when they get caught.

We have two significant examples today.

Both show how your investment strategy can get hijacked if you pay attention to politicians and their power games.

Today’s Profit Watch delves into case studies in deception!

ABC News reported on Wednesday that the sitting federal government of Australia deliberately ignored advice from its own Treasury Department.

This was to do with Labor’s proposed policy changes to negative gearing.

The Coalition ran a scare campaign that this would ‘smash’ house values with a ‘sledgehammer’.

To quote:

But it can now be revealed Treasury explicitly told the Government it should not even claim home values “will” fall under the proposal.’

I could go on with debunking the bogus claims about negative gearing. You get the point.

The report suggests Australian Treasurer Josh Frydenberg uses forecasts that the property sector produces instead.

It’s at moments like these you don’t know whether to hold your stomach from laughing — or wipe the tears from your eyes.

What a bunch of clowns!

But in the grand scheme of the global economy, Australia isn’t much more than a quarry with nice beaches.

It’s China that everyone is concerned with…

China’s economy: smaller, but…

They’re full of BS too!

The Economist cites a recent study done out of a collaboration between researchers at the universities of Chicago and Hong Kong.

They argue that official figures have overstated the size of the economy by US$1.5 trillion by puffing up the real GDP growth data between 2008 and 2016.

This urge to fiddle with the numbers doesn’t come from Beijing, as you might be inclined to think.

It comes from the provincial leaders sending data back to the central government.

This is consistent with what I’ve read everywhere. China is more decentralised than most of us assume. But the regions are incentivised to produce high economic growth figures.

That’s how local Chinese politicians move up the greasy poll toward more power — hitting those high growth numbers. No wonder they fiddle the statistics here and there.

There’s an irony here. If this report from The Economist is correct — and I believe it — then it has some good implications…

One stock as your China consumption guide

Here’s why.

If you’ve followed financial markets for some time, you’ll know we’ve all been lectured constantly that China was ‘overinvesting’ in infrastructure and suppressing consumption.

Not only this…but the return on capital (debt) in China was approaching something close to zero.

So went the narrative.

This latest piece suggests that figures for investment are inflated and the returns are higher.

But here’s the one thing we care about the most: consumption is much more important in China than people assume. It’s an engine for growth.

We’ve seen the distortion around this play out in these very pages.

You might recall earlier this year I said I was astonished to see Alibaba Group Holding Ltd [NYSE: BABA] fall below $US150 per share.

I also suggested taking the opportunity to accumulate it while it was on sale.

That was based partly off an inconsistency I saw.

Alibaba’s Singles Day last year smashed their previous record for sales.

That suggested Chinese consumption was a little better than perceived.

Alibaba’s growth rate, in terms of revenue, was still high.

And yet Alibaba sold down hard in 2018.

Those two things didn’t square. The upside looked very good relative to the downside.

It’s certainly bounced back now. It was US$136 at the start of the year.

It’s over US$180 now.

It remains my preferred measure of consumption in China too.

There’s an implied hint here.

Alibaba’s results will be much more useful information to you than any government statistic.

That same is true of the Aussie market. Don’t listen to politicians. They can never be trusted.

Build up a watch list of relevant stocks. Watch the numbers and guidance they put out.

Relate those to movements in the stock price. Does the market believe these numbers?

That’s your best shot at making sense of what’s happening. It’s imperfect, granted. But I’ll always go with the market over any government release.

Politicians are power seekers. They don’t care about your wealth building strategy.

Invest with that in mind.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch