What is going on..?
If you follow the markets, you would have woken up to the shockwaves that happened on Wall Street last night.
The Dow Jones was down an amazing 1,000 points in early trading!
The biggest ever drop since the 1987 crash.
The good news though is that it recovered and ended up 350 points down at the end of trading.
There are not many days in the financial calendar where you would call a 350 point drop in a day a “good day.”
However, after the shenanigans of the morning, you'll probably agree with me that yes indeed, it ended strong (bit of an oximoron, but true).
Reason for the massive volatility?
The Greeks, The Spaniards and The Euro.
Well, there's money to be made with volatility.
My thoughts, closely monitor the Greek banks, there is a massive buying opportunity right now. You could double or triple your money.
Nah, not interested in that?
Ok… Sell off the Spannish banks.
Heaps of profit in that.
Even that's too hard?
Do some technical analysis on the Euro and sell that off when it break through a decent support level (Don't know what that means? Education, my friend).
Still too hard?
Go on a holiday to Europe.
The Aussie dollar is up about 29% against the Euro… Which drives your holiday dollar a lot further.
Yes, it is the best time to go to the Greek Islands, financially, that we've had for over a decade. I'm thinking about it.
But closer to home, we of course have had our own dramas over the last few days, ever since Rudd, Swan and Henry came up with a new tax blueprint.
The word “tax” for me hold no positive connotations. I always get nervous, even when they say that they're going to lower tax.
What I found interesting about the new tax blueprint was the massive effect it had on the resources sector all this week.
$14,000,000,000.00 (14 billion dollars) was wiped off on Monday after Ruddy announced the super resources tax.
Imagine if someone came into your home and said, “We know you're making a profit, and you've got a decent surplus… We're going to increase your tax by 40% because you've been good at making profits.”
You wouldn't stand for that, would you?
But that's what they did with the resource companies, gone in there and said, “Makin' too much money… Give us some.”
There's another group of people who go around doing that, they're called the mafia. For them it's illegal, but if a government does it, it's ok.
But you're probably thinking, “Jon, they're big companies, they can afford it, we should get a piece of the pie.”
You know what that's called?
Ok, a strong word. Maybe we should change that to modern day socialism.
Here's how the resource tax works…
They give with one hand a little, and take with the other a lot.
Ruddy justified the tax by saying that the royalty tax will be removed and this new super-tax introduced.
It might on the surface sound like a fair swap, but here's how it works out.
If you're a start-up business, and you're not making profit, the royalty tax hurts because you have to pay it either way.
So the government's thinking is, “We can help the new businesses get off the ground, become more efficient, and when they start making money they'll be able to pay us more in the long term.”
It sounds like it's fair enough – don't you think?
Help the small companies in the early stages and get paid lots more when projects come into full production and fruition.
But companies aren't stupid. Their agenda is to maximise profits, minimise expenses and keep shareholders happy.
Tax is an expense… and a big one at that.
Big companies aren't going to take this super-tax lightly, they'll do whatever they can to hide profit, pay executives bigger fat salaries, move their focus to overseas projects where the returns on capital are higher and by and large, Australia becomes the laughing stock of the world as our smart resource businesses sell out.
So nobody wins.
I think the boys in Canberra, if they're not careful will cook the goose that is laying the golden eggs.
Ruddy's already doing a back-flip on the super resource tax, quickly trying to patch up the mess that he's created, giving excuses already and suggesting that he wants to work with the mining companies to figure out the best possible solution.
After all, the new tax blueprint was only a suggestion. It still has to be signed off in parliament.
But Ruddy put himself in the corner, didn't he?
After that announcement on Sunday night, surely he would have expected a sell-off the next day in the resource sector…
If he says he expected it, then he's personally responsible for the billions of dollars that shareholders lost through the early part of this week. I'm talking about every day Australians who have invested in the recovery and put all their hard-earned money back to work after the dramas of 2008.
I'm not talking about the fat-cat executives, they'll make money whichever way it goes.
But back to Ruddy's dilemma.
If he says he didn't expect it, then that highlights how stupid the government really is to expect otherwise.
Either way, it was poorly executed and presented.
Knowing how the government does stuff through its advisory channels, it would have all been arranged behind closed doors with very little consultation with the industry – and based on theories and spreadsheets.
There is a thing called reality which works a little bit different.
I wonder how many people who are close to this legislation bought put-options on BHP on Friday afternoon..?
Their friends and families would have made a killing.
In time though, we'll see how dumb politicians really are when it comes to light that potentially related parties took advantage of this information.
It's called insider trading and you go to jail for that. But maybe politicians don't, not sure.
So why am I telling you all this?
Well, you have to get smart about investing and keep your finger on the pulse. No point blaming the governments as to the reason you are poor or not progressing, or not moving forward financially…
It's your responsibility to manage your own money and take advantage of quirks like these in the market.
Lots of people would have made money on Monday, a lot of money.
Simply by following some basic stock market principles and understanding how to make money when the market goes down using either options, futures or cfd's.
Also, there's never been a more important time in Australian history to make sure that you don't fall victim to these socialistic acts of the Government, to steal the wealth of its citizens under the pretence that they're making it a better place for all to live.
So be warned. I think this is the first of many attempts by the government to fill up their coffers with money they don't deserve.
Your job is to get smart, grow your wealth and protect it like a hawk.
That's all for today.
Signed with Success,
P.S. I'm of no political persuasion. Freedom of speech and the freedom to create the lifestyle of your dreams is what I'm working towards. All governments interfere… Some more than others.
P.P.S. I'm sure we've got some die-hard followers who want to jump on the soap box and have a bit of a rant and rave… Go for your life my friends, comment below.