The Secret Broker: Where are the three Amigos when you need them?
The Secret Broker
The Secret Broker
After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
This week, Donald came out Arnie style and fired off the bazooka of all bazookas with his $US2 trillion ($3.4 trillion) stimulus package, and literately blew everyone out of the water.
He grabbed the headline (again) and Wall St jumped 11 per cent.
It made Australia’s effort look like a couple of sparklers at a now banned one-year old’s birthday party.
Wow, what a showman, but now what?
Two trillion dollars is $US2 followed by 12 noughts or if you remember your maths at school, it’s 1012 or ten to the power of 12 but what’s it all mean?
Part of this money is to going to the ‘repo’ market, which is a daily interchange between banks.
Basically, it allows banks to balance their books and swap quality assets like treasury bonds for cash.
So, if lots of people have been withdrawing their cash to hoard under their bed, then the bank would swap some of their liquid quality assets with the government for cash and replenish their coffers.
Unfortunately, one casualty that got hit with a lump of (bazooka) shrapnel, was the Mexican Peso which got knocked over by 3 per cent, taking its loss since the start of the coronavirus panic to a massive 27 per cent.
Normally a fall of that magnitude would cause an influx of American tourists in lairy shirts and shorts to come over the border for a break, but now the borders are shut, a perfect storm just hit the Mexicans big time.
The currency has kept falling even as the amount of ‘repo’ funding rises and the market realises that the Mexican government does not have enough quality assets to swap for US dollars.
A couple of million avocados and a few tonnes of refried beans just do not rate.
I exaggerate but you get the point.
If the US dollar and the Mexican Peso were valued as toilet paper, then the US dollar would be 3 ply and the Mexican Peso would now be the shiny waxy stuff that I remember was forced upon us to use at school, back in the 70s.
The American tourist dollar has long helped prop up the Mexican economy and I would use this relationship as a way to explain to novice brokers how the banking system actually works and how the same US dollar is used in settling everyone’s outstanding debts.
It goes like this:
An American tourist arrives in a small Mexican village and parks outside the only motel in town. He goes in and says he would like a room for the night but would like to inspect it first. The Mexican owner tells the American that he must put down $US100 cash deposit first.
The American opens up his wallet and slaps a crisp 100 dollar note on the counter. Seeing how overweight the tourist was, the owner sends him up five flights of stairs to the furthest possible room away from reception.
As soon as he sees the Americans colourful shorts disappear up the stairs, he grabs the 100 dollar note and runs to the local tavern to settle up his outstanding tab. When the motel owner leaves, the tavern owner grabs the same 100 dollar note and runs to the butcher’s, so he can settle up the two months of meat he had bought on credit.
The butcher then runs with the 100 dollar note to settle his account with the local prostitute, after she had kindly extended some credit to him during the GFC. She says thank you very much and then runs across the street to the motel and slaps down the 100 dollar note onto the counter to settle the last two rooms she had used.
Just as the motel owner is writing her out a receipt, the fat, out of breath American tourist appears back at the reception counter and tells the owner that the room is not up to his standard, grabs the 100 dollar note, pops it back into his wallet, gets in his car and drives away.
Taking a lesson from how the US dollar performs in times like this, quality will always beat quantity and your portfolio will reflect the same principles. One silky feel 3 ply roll is worth more than three 1 ply finger poking rolls.
Just ask the wife. She will tell you.
Feel free to contact him with your best stock tips and ideas.