Fear Versus Greed in Today’s Economy A lazy US$75 billion for Boeing and Airbus… What Tencent’s results reveal about China Plus, why there’s no party line here at the Daily Reckoning Baltimore, Maryland Friday, 17 November, 2017 Dear Reader, There’s certainly one thing we can say about today’s economy: the numbers just keep getting bigger. The Wall Street Journal reports that Airbus and Boeing have got buying commitments worth US$75 billion. Airbus announced a 430 jet agreement on Wednesday this week. That’s for low cost carriers across three continents. This boom is going global. The backlog of orders for Airbus now comes out at five years. Boeing’s latest client won’t see the last of its planes until 2029. They’re getting in now to make sure they’re in line. Admittedly, this may not play out exactly as the months tick over. The aircraft game is like that. But we can see the momentum in the economy in other ways… Global giant reports revenue growth like a small cap Take a look at China. A major tech company over there is called Tencent. Its quarterly revenue growth has come in at 61%. That’s the fastest it's been since 2010. Its market cap is now around US$477 billion. That’s over three times the size of Australia’s largest company, the Commonwealth Bank. There’s about a billion mobile phones in China. Tencent’s WeChat is practically on all of them. Fellow Chinese tech giant Alibaba reported results just as impressive. If there’s a slowdown in China, it’s certainly not showing up here. It doesn't appear to be showing up anywhere else either. And the same story is playing out in major cities all over the world, and shows why the doomsters predicting a major recession have been wrong, and will continue to be. The wealth pouring into real estate proves it. Most of this is coming from the huge expansion in technology companies, and the high wages they pay. Seattle, New York and San Francisco have seen big rises in real estate values since US property bottomed in 2011. Now Los Angeles is booming. Single-family homes are at record highs. According to the Financial Times, a $2 million asking price is now no longer certain to be a luxury home. This is thanks to the growth of ‘Silicon Beach’, LA’s tech scene. Foreign buyers are playing a part too. A similar dynamic is playing out in Berlin and London. Berlin’s prime property is up 27% since 2014. Two-bedroom apartments are going for well over a million euros. Vacancy rates for offices are at record lows too, and the same is true of Paris. ---- Advertisement --- BITCOIN EXCLUSIVE! These 5 ‘small cap cryptocurrencies’ are the hottest plays on earth right now. But because of a crucial Bitcoin event happening around 15 November…they won’t stay this cheap for long. LEARN THE FULL STORY HERE ------------ In ‘Silicon London’, the Financial Times also reports: ‘As tech companies have moved in, local prices have rocketed - by some 124 per cent over ten years in Hackney - and many people working in the area are now priced out.’ To me, this signals a genuine boom based on wage growth and profits, not unsustainable credit and irresponsible lending. Worker shortages but millionaires up I am actually in the USA right now in an east coast city called Baltimore. There’s construction going on, and the restaurant and bars are full night after night. The Wall Street Journal reported this week that US defence contractors are having trouble finding skilled staff in the state of Connecticut. Not only that, Credit Suisse came out and said that the number of US dollar millionaires increased by 2.3 million so far in 2017. Half of these people live in the United States. One analyst came out this week and suggested Amazon’s market capitalisation could hit US$1 trillion in about 12 months. Some might suggest this kind of talk is symptomatic of a bubble when investors lose sight of reality. I’m not sure if that analyst will be right about Amazon, but the global economy looks strong to me. Think back to the aircraft deals I told you about earlier. In Spain, there have been demonstrations this year because too many tourists are pouring into the country and overrunning popular destinations. I mention these things because a reader wrote in, worried about a major financial collapse wiping out his life’s savings. His son had presented a theory of why this had to happen. Anything’s possible, but it’s not something that I see coming in the immediate future. I share more of why this is in the upcoming issue of my newsletter, Small Cap Alpha. That’s not to say the share market can’t be volatile, and turn down sharply. But I believe any move would be met with strong buying. There’s simply too much wealth creation happening all over the world for a major collapse to be a major concern. My colleague Jim Rickards clearly does not agree, and has spent most of this week explaining why. Some people don’t like that we publish conflicting views on the market. But I think it’s essential to read material I don’t agree with. After all, consider any stock trade you might take. If you’re buying, the person on the other side is selling. You should always think about why that might be. If you wrap yourself up in a bubble of confirmation bias, the market will expose you at some point. I suggest you see the bear case Jim lays out for you here. After that, you can decide for yourself. Ultimately, the responsibility for what we do with our money is our own. Regards, Callum Newman Editor, The Daily Reckoning Australia |