Monthly Archives: December 2013
Quantitative easing is expected to continue to stimulate strong equity markets during 2014. Equities entail increased risk, part of which is related to unknown factors which are external to the company. Investors should be aware of these unknowns or black swan events which could trigger a market correction during 2014. The following five potential black swans are considered to be most important:
- A banking crisis in the European Union.
- Economic issues in China.
- Potential Asian conflict (China, Japan or North Korea)
- Further escalation of conflict in the Middle East.
- The Japanese experiment.
A banking crisis in the European Union is possible and this is a major risk. The European sovereign debt problem has not been solved and heavily indebted and leveraged countries are only able to borrow at reasonable rates because of ECB guarantees. It is a question whether the ECB can continue to… Continue reading
With an active bull market it is becoming difficult to find stocks with value on the Australian stock market. While the high dividend paying blue chips such as Telstra and the banks have good yields, all of the benefit of good yield could result in a much greater loss of capital in a market correction. With rising unemployment the banks could be considered to be increasingly a risk.
There is however a number of small/mid cap stocks which have good fundamentals and good yields and in many cases have suffered reversals over the past 6 months. Many of these are trading at a discount to their intrinsic values and some have already shown a 5-10% rise over the last trading weeks in 2013.
Some examples here include New Hope Colliery, SMS Management, Oroton, Spark infrastructure, New Hope Corporation, Webjet, and Thorn Group.
Most of these stocks… Continue reading
Gold is the traditional storage of wealth particularly in times of inflation and at times when other assets are deemed to be insecure. In the current environment with a continuing bull market in equities likely to continue, there is not a great incentive to hold gold, particularly when inflation is not a problem and in fact deflation is the concern in most developed economies.
Gold has fallen nearly 40% from its high of $US1920 per ounce some two years ago. This year it has fallen nearly 30 percent on fears that a scale back of quantitative easing would further harm its inflation-hedge appeal. So it was not surprising that gold fell a further 3% earlier this month after the Fed announced a scaling back of its massive quantitative easing program. This was taken as sign of economic recovery in US and had the effect of strengthening the United… Continue reading
Let me speculate on the potential for Australian equities in 2014. The following appear to be the important issues for Australian investors in the coming year.
- Continued quantitative easing will support world equity markets
- Low interest rates will persist world-wide and in Australia
- The AUD will continue to fall
- Unemployment in Australian will continue to rise
- China growth will continue
A consideration of the above points suggests that equities should again be the best investment asset class in 2014. Although the Australian market should do well in 2014, a falling AUD will continue to see repatriation of overseas funds so our market can be expected to continue to underperform compared to major world markets.
The continued accumulation of funds in superannuation accounts in this low interest rate environment means that high dividend paying blue chip equities will continue to be in demand. TLS is the standout… Continue reading
“Economic forecasts are almost useless”. That is the contention of Charles Morris in his book “The Sages” (2009) where he cites the example of the White House Council of Economic Advisers which comprises some of the best economists in the world. How accurate were their forecasts?
Consider the economic forecasts of this august committee over a decade, starting from the years 1997 to 1999 when they underestimated the US growth by about 50%. Realising their underestimation they increased their estimates for the years 2000 to 2003 in time for the tech wreck and recession when for this period they significantly overestimated the… Continue reading
Telstra is a prime holding in the portfolios of most investors. Not only does it pay an excellent fully franked dividend but it has provided a capital gain of more than 100% over the past 3 years.
The chart of TLS is now very interesting. Over the past 10 years there has been very strong resistance at around the $5.00 region and recently this stock has again retreated from this resistance region. The previous two corrections by TLS over the past 8 years have resulted in retracements of 20% to 40%. The current charts suggest that similar correction is about to… Continue reading