Should you listen to the merchants of gloom and doom?

Marc Faber doom gloom share market investment
WEEKLY MARKET REPORT

If there is one thing that all share market investors must get used to it is the constant barrage of information and stern warnings from doomsayers.

That is particularly the case during a rising market such as we are experiencing at the moment and you can sort of understand the sentiment – why buy something today that was cheaper just a week ago?

Well, the short and sweet answer is that the company is now worth more and – hopefully – will be worth even more in another week’s time.

Sometimes the doom and gloom purveyors are highly experienced and know what they are talking about – at other times they are just worried friends and relatives that can’t understand why you would ever put capital at risk.

Dr Doom makes an impact

The issue of market doomsayers was brought to the fore this week by the racism furore surrounding Marc Faber, the Dr Doom investment guru whose Gloom Boom & Doom Report has long been a staple for perennial pessimists and a comprehensive catalogue of all that is scary on financial markets.

Leaving aside Faber’s wildly inaccurate claim of “thank God white people populated America, and not the blacks” – African Americans having made a huge contribution to that country for centuries – there are several other great reasons to potentially not listen too closely to Faber and the rest of the doomsayers.

One is that they need to constantly keep repeating and modifying their claims of impending disaster to remain relevant.

Early warning system

Faber is most famous for warning his clients to get out of stocks before the 1987 stock market crash.

The only problem with that claim to fame is that he had actually been warning of an impending crash for a very long time, so those who escaped to gold and cash when he first started warning were actually still well behind those who remained invested and enjoyed the rapidly rising bull market before the crash.

Many projections are wrong

Since then his predictions have been almost universally wrong – most notably his claim that hyperinflation and global recession would follow low interest rates in 2009.

Here is a talk Marc Faber gave whilst in Melbourne late last year:

The difficult truth that all investors need to face up to is that nobody knows what will happen next and while it is always interesting to read a great analysis of the world economy or the share markets, it is always worth remembering to treat all predictions, both bullish and bearish, with considerable caution.

There will always be a reason to sit on the sidelines and cry wolf and to avoid the unpleasant climb up the wall of worry as markets rise and the even less pleasant sharp falls but the fact remains that in general fortune favours those who wisely invest their capital.

Follow the rules

That doesn’t mean you should ignore crucial rules such as appropriate asset allocation, dollar cost averaging, stop losses, diversification and seeking professional financial advice before making any investment decision.

Another solid week – towards 6000?

This week has been generally another solid one on the Australian market as the ASX 200 closed at 5907 points and the all ordinaries at an impressive 5968.6 points.

That really kept up the pace of the climb towards 6000 points on the ASX 200 that I wrote about last week.

Will the market get to 6000 points before Christmas? – well, maybe but remember my earlier warning about believing people who make predictions about a future that is inherently unknowable.

Certainly the economic news has been a bit more helpful for the Australian market this week with the strongest jobs growth in 12 years reported and unemployment hitting a four year low.

The Reserve Bank minutes from the last monetary policy meeting were also quite bullish about the Australian economy in general and more specifically made it clear that the RBA won’t be rushed into raising interest rates simply because other central banks have begun to tighten.

The RBA also noted the high state of indebtedness of Australian households was perhaps not as bad as commonly perceived, being easier to repay than a decade ago due to lower interest rates.

There has also been some strong support from offshore markets, particularly the US.

MGC Pharma doubles up

At the small caps end of the market it was a really interesting week, capped off by a stellar performance by medical cannabis company MGC Pharmaceuticals (ASX: MXC), which clinched a supply agreement for its cannabidiol (CBD) cosmetics with South Korean company Varm Cosmo.

The deal is expected to generate $40 million in annual revenue and caused the stock to double on Friday after the announcement was posted.

Under the agreement, MGC Pharmaceuticals’ Derma division will initially supply five CBD products equating to 15,000kg a month to Korean cosmetics manufacturer Varm.

Varm will then sell the products to its existing consumer and distribution networks.

The deal means MGC will soon generate its first month’s revenue of $3.3 million, making it the first of the so called “pot stocks’’ to generate significant revenue.

Benitec bonus

Also enjoying some share price action was biotechnology company Benitec Biopharma (ASX: BLT) which secured a US patent for its hepatitis B treatment, which has the potential to provide a “functional cure” for the disease.

Hepatitis B is a common and costly disease, infecting about two billion people a year and killing around a million people a year.

The disease also kills many other sufferers through hepatocellular carcinoma and other liver complications such as chronic hepatitis and cirrhosis, so the patent protection is vital for Benitec should its treatment prove effective.

Pilbara gold rush continues

Pilbara gold rush company Artemis Resources (ASX: ARV) continues to impress with an annomuncement that diamond drilling had shown its conglomerate-style gold mineralisation at Purdy’s Reward was continuous through the project.

That is further confirmation of similarities with the Witwatersrand basin in South Africa which hosts the world’s biggest known gold deposit in a similar, watermelon pip style of nuggets in conglomerate.

The drilling was performed by joint venture partner Novo Resources which sparked the Pilbara gold rush with its projections that the conglomerate style deposit may be much more extensive in the region than previously believed.

Fellow Pilbara gold explorer De Grey Mining (ASX: DEG) gained more ground in the region after closing a binding option to acquire 70 per cent of the Blue Moon tenement, which has given up more than 1500 ounces of gold to shallow prospecting in recent months.

Small scale and shallow prospecting at Blue Moon has produced 1500 ounces of gold, with De Grey Mining operations manager Andy Beckwith describing one specimen as the “richest and most spectacular gold veining and nuggets” he has seen in his entire career.

Dr Grey also turned up some positive results elsewhere in the Pilbara, striking some high grade lithium at its King Col prospect near Port Hedland.

Yowie to the rescue

One of the sweetest stocks on the market, confectionary maker Yowie Group (ASX: YOW), launched its ethically sourced chocolate in Canada and engaged Mondoux Confectionery to distribute the product.

The deal will see Yowie chocolates in a variety of grocery and retail across the country, with consumers still warming to its “natural’’ status, being free of nuts and gluten and with no contentious ingredients such as palm oil, trans fat, corn syrup and GMOs.

The chocolates also come with replica animals inside complete with information about the animal, its habitat, food sources and conservation status.

Yowies have done well in the US so venturing over the border to Canada was a natural progression.

The week ahead

It is a fairly busy week for Australian economic announcements with the keenly awaited inflation numbers due on Wednesday.

On Monday the CommSec State of the States report will show how the economy is changing across Australia’s different regions and on Tuesday consumer sentiment numbers are out.

On Thursday there is a speech titled Uncertainty from Reserve Bank Deputy Governor Guy Debelle, which could be interesting reading and on Friday producer prices detail are out.

There is also a slew of US data with the potential to move markets, including economic growth numbers, and data on home prices and sales and manufacturing.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.