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Markets gone bananas

Bananas and the $A soar, but world stock markets continue to fall. The Motley Fool has an investing strategy for all seasons.

Another day gone, another day the U.S. gets closer to defaulting on its debt obligations.

You know things are getting a little serious when respected newspaper The Washington Post has a countdown clock on the home page of its website.

5 days, 14 hours, 59 minutes and 23 seconds to go, as of writing.

Who’ll blink first?

Our view all along is that the political game of chicken will end sometime in the next 5 days, 14 hours, 59 minutes and 23 seconds, and the U.S. debt ceiling will indeed be raised.

The alternative, even to American politicians, some of whom are multi-millionaires in their own right, is totally untenable.

Is it any wonder the American people are in uproar? We can’t blame them. It makes our carbon tax look like the non-event it really is.

There’s nothing like a falling stock market to grab the attention of the millionaire Congressmen. The Dow tumbling close to 200 points, its fourth straight session in the red, will focus the minds.

Enough!

“Politicians are really taking it to the pain threshold, where the everyman investor has just about had enough,” said David Waddell in The Wall Street Journal.

A stock market crash is every investor’s greatest fear. Those who lived through the October 1987 crash, with world stock markets plunging over 20% in a single trading day, will tell you how painful it can be.

Are we on the edge of another crash? We don’t think so, although markets are clearly on edge. If you really are scared, you might want to check out our free report, “Read this before the market crashes.” The title says it all.

Bananas to you

Back in Australia, we’ve got a problem of a different kind.

Banana prices rocketed 138% in the June quarter to be 470% higher than in January.

Woolworths (ASX: WOW) is selling a single banana for $2.94 and the Wesfarmers (ASX: WES) owned Coles is charging almost $14 a kilogram for the bendy yellow fruit.

It’s a shocking problem, for sure, but in comparison to the rest of the world, it’s a nice problem to have.

Ex-British prime minister Tony Blair said as much on the ABC

…you guys in Australia actually have done pretty well. I mean, most of us come here, look at your economic statistics and think, My God, I wish we had that back home.

The Poms might have the Ashes, but we’ve got them on the economy. We’ll get them in the Olympics too, this time next year.

On the other hand, if it’s bananas you want, the UK’s Tesco is selling them for just 12p each. At current exchange rates, that’s just 18 cents a banana. We’re off to London. Hopefully the beer is as cheap.

As an aside, how do you think the Poms would react if their bananas cost 1633% more than current prices?

Interest rate shock

There are a couple of serious points here…

1) Banana prices are high because Australia was the victim of devastating floods and a cyclone. We hope such events are never repeated.

2) Inflation in Australia is on the rise. Bananas are the headline act, but underlying annual inflation has risen sharply from 2.25% last quarter to 2.7% in the June quarter.

“Inflation rise fuels fears of rate increase,” says The Australian Financial Review.

“$A sets new record on high inflation data,” says ninemsn.

It might be music to the ears of the growing band of forex currency traders (most of whom will end up losing their shirts, but that’s a story for a different day), but it strikes fear into the hearts of the mortgage belts across the country.

Whilst many economists were previously predicting interest rate cuts, they are now thinking a rise is likely before the end of the year. Who’d be an economist?

Investing for all seasons

Still, you have to admire Bill Evans of Westpac Banking Corporation (ASX: WBC). He’s sticking by his forecast of a series of interest rate cuts, saying in The Age “Consumers aren’t buying. The bank will start cutting rates late this year or early next.”

The likes of David Jones (ASX: DJS), Myer (ASX: MYR), JB Hi-Fi (ASX: JBH) and Harvey Norman (ASX: HVN) must be hoping he’s right.

We’re not into economic predictions, but if push came to shove, we’d probably side with Mr Evans.

That said, we’d never let the economy, or politics, or the price of bananas influence our investing strategy. Ours is one for all seasons – buy good companies when they are going cheap.

The current stock market wobbles have us licking our lips.

More reading:

What you should do in this falling market

Of the companies mentioned, Bruce Jackson has a beneficial interest in the 3Ws – Westpac, Wesfarmers and Woolworths. He also doesn’t like bananas. The Motley Fool’s disclosure policy doesn’t expire.

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