Monthly Archives: September 2013

Telstra – improving share holder returns.

Telstra has been one of the best blue chip investments on the Australian market over the past few years.  The stock has been on a steady uptrend and pays an excellent fully franked dividend.  The yield on Telstra has been 8% or better based on fully franked dividends alone.  But the return to the share holder on a stock such as Telstra can be greatly improved by using a simple trading approach.

I use a technical approach with the indicator RSI.  This has been discussed in earlier blogs and in some detail in a paper at  This method is based on the RSI divergence signal and an RSI trend line. RSI used in this manner provides a high probability point at which to buy or sell a stock.

There have been two trading opportunies with Telstra over the past 6 months with RSI… Continue reading

Market volatility ahead of the debt ceiling decision!

The failure of Bernanke to announce a tapering of quantitative easing last week was effectively a warning from the Fed that the United States economy is still not robust enough to remove monetary stimulus without causing economic damage.  The market responded to Bernanke’s statement with a one day buying spree but it should have been a warning to investors to treat this market with caution.  Since the exuberance of the market on the announcement day there have been three down days on the American market which have now wiped out the gains which accompanied Bernanke’s announcement.

It seems that the market can only focus on one thing at a time and tapering is only one of a number of issues which can strongly influence the markets.  What about the debt debate?  Investors seem to forget that between 22 July and 8 August 2011, the market… Continue reading

Australia: a lucky country but not smart.

Australia has had 22 years of growth: can this record continue?  It will be a challenge given the slowing economy and our reliance on China particularly when we are so uncompetitive internationally and have had such poor economic management over the short and long term.

Consider that we have had a current account deficit for most of the last 25 years despite the fact that we have had a long and significant mining boom.  Manufacturing has declined to the point where we now make very little and buy most manufactured goods from overseas.  We are no longer competitive because our wages and conditions by world standards are extravagant.  Consider the following table taken from the Business Insider Australia.    wages and competitin

Wages for equivalent jobs in the United States are more than twice as high as in Australia. Australian employees have significant costs which include long… Continue reading

Bernanke’s warning and the madness of crowds

The decision of the United States Federal Reserve not to start the taper should be viewed as a warning and not an encouragement to join an ongoing bull market. Bernanke has in fact given investors a warning that the United State’s economy is not yet robust enough to reduce quantitative easing without significant risks.

Yes the bull market will be stimulated by this announcement but this market is driven not driven by growth but by quantitative easing from central banks and is further fuelled by the desperation of investors needing to find a reasonable return in this very low interest rate environment.  Equities give a better return but are not without risk of significant capital loss, particularly in a “contrived bull market”.  How many investors understand the risks?

While the continuation of quantitative easing simply confirms to investors that they should remain in equities this is a … Continue reading

Is this a bubble or is there value in this market?

Equity markets particularly in the United States are replete with speculative capital with more and more funds coming out of treasuries into equities.  The equity markets must now be considered to be a bubble, since they are now stimulated, not by real economic growth but by the economic stimulus from central banks.  The reluctance of the Fed to taper quantitative easing last night was disappointing and simply means that the equities bubble will continue to expand.  But surely this is a dangerous situation because if the bubble continues to expand then the inevitable correction will be more severe?

This now poses a problem for the value investor.  The equity markets in Europe and US are either at or close to new highs with valuations having little relationship to growth and it is increasingly difficult to find value in this market.

It appears now that the equity… Continue reading

The “September effect”.

Over the long term investors have lost money in the stock market over the September/October period. Since at least 1873 most of our worst crashes have occurred during September/October, whether it was the 1929 crash, the 1931 crash, the 1987 crash, the 2000 crash and even the 2007 crash was in the first few days of November. Could it happen this year? Of course it could and what is the potential trigger?

There are a number of potential black swans, any one of which could trigger a significant market correction. Currently we have a bull market fuelled by quantitative easing and not by GDP growth. Growth remains subdued and weak in most economies despite massive quantitative easing. The following are considered the most significant risks to world economic stability.

a. The European Union

b. Tapering of quantitative easing

c. The Middle East

d. Unknown factors in China

e. ETF leverage… Continue reading

The uncertainty of equities

There is the old adage that “investing is simple but it is not easy”. This is very appropriate because while investing per se is not difficult, investment decisions are always made in the light of uncertainty and investors do not handle uncertainly well.

Consider the Australian market which has about 2000 stocks. Some of these stocks have sound fundamentals while others are speculative and do not pay a dividend. Some stocks have rapid rates of share price increase while others show significant losses. Also, there is too much choice and there is also the problem that there is often little correlation between the intrinsic value of a stock and its performance over the short and medium term. These things considered it not surprising that more than 60% of investors in the stock market lose money.

But the problem of handling uncertainty is not simple because in making an investment decision… Continue reading

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