Monthly Archives: August 2014

Gold – new highs or new lows?

Gold is a store of wealth but it pays no dividend and there is always debate as to when one should invest in gold. There are currently widely conflicting opinions as to the future price of gold. There are the ultra bears such as American economist Harry Dent who is convinced that the price of gold will plummet to $750 and on the other hand there is the view that gold could reach $2000 by year end. How can these differing views be rationalised?

Gold is an attractive investment in times of inflation and when other assets are deemed to be insecure. In the current environment with a continuing bull market in equities and real estate there has been little incentive to hold gold, particularly when inflation is unlikely at least in the near future. There is also a reciprocal relationship between gold and the U.S. dollar. In times of… Continue reading

Retirement planning – it’s really all about time

Investment planning is at first glance a simple process but one that most Australians ignore. Why do most people fail to plan their long term investments, particularly for retirement? I reflected on these issues recently when discussing planning for retirement with my children.

There are a number of key questions to ask at the planning stage. They all relate to how much time you have to accumulate investment funds for retirement and how long those assets will last in retirement.

The key questions to ask are: how long will I live, how much do I have to invest, what return on assets can I expect and what are my estimated annual draw downs?

How long will I live? This is the great unknown but is the key question in retirement planning. A good estimate of individual longevity can be obtained from the internet. An internet search with “how long will… Continue reading

The dilemma of the fund manager

Travel provides the opportunity to meet investors and investment professionals from a diversity of backgrounds and nationalities. On a cruise over past weeks I have had the opportunity to talk with a several fund managers from the United States and from the European Union. These were not the average mutual fund manager but tended to be conservative fund managers handling multi-million dollar accounts either for pension funds or for private clients of long standing.   Being aware that the bull market was over-heated they all seem to have been adopting a defensive approach over the past year which means that they have progressively shifted to more conservative stocks such as the in infrastructure sector or in most case have reduced their exposure to equities and moved to alternatives such as sovereign or corporate bonds.

By taking a more conservative approach these fund managers now hold portfolios which are under-performing… Continue reading

“Euro zone shudders to a halt”.

This is the headline from the August 15 issue of the UK Financial Times. The European Union has a GDP larger than the United States so its economy is a major contributor to the world economy. The European Union economy has now reached a critical stage and over the past year the IMF has issued several downgrades so it seems that the European Union is moving closer to recession and/or deflation.

A recent review by John Abernathy offers three scenarios for the European Union.

  • Europe could very slowly return to a normal sustained recovery.
  • Europe could lapse into a deflationary cycle similar to Japan.
  • The European Union asset bubble could burst with a rapid fall in equities and other asset prices.

Confidence within the European Union is low and the rate of recovery over the past six years since the GFC has been extremely weak, bond yields are very low… Continue reading

It is time to revaluate foreign investment in Australia

Australia needs to encourage foreign investment if it is to continue to develop but does that mean foreign investment at any cost or for any project?  Consider the headline in the “Australian” of August 2 titled Tycoon on the prowl” describing how Asia’s richest man is looking at getting a foothold in the Australian property market “including residential, retail and industrial property”.  In the same issue of the Australian there was the headline. “Wave of Asian investment looms”. 

As a result of central bank policies in developed nations there is a surplus of capital available at very low interest rates. The consequences for an open economy like Australia’s are serious. Capital flows particularly from Japan and China have accelerated into Australian bond and equity markets and increasingly into property markets. These inflows are raising the value of the AUD and it seems that capital is now… Continue reading

Is this the correction we had to have?

With oscillators such as the RSI showing strong long term divergences on monthly charts there is the probability of a significant correction on world market.  The IMF has continued to provide downgrades to world GDP over the past year but these have been shrugged off.   Even two significant world events: the Middle East conflicts with the potential for a widespread sectarian war which would impact on world energy prices and the Ukrainian situation which could embroil Europe in conflict, have had little impact on world markets. .   But over the last week all markets have shown significant moves.  Is this finally the start of a very significant world wide market correction?

It is the Ukrainian conflict which has now captured market attention.  The European Union is already suffering significant economic damage with its GDP barely positive and the threat of deflation. In the… Continue reading

Retaining objectivity in a strong bull market

 Bull markets generally run for much longer than investors anticipate and it is usual for a bull market to end with a significant correction which spells real economic pain for most investors particularly novice investors who rarely have an exit plan.

In the light of the exuberant optimism which is always characteristic of a mature bull market, (and we are seeing this now), investors need to retain objectivity and be prepared for a sudden market correction.   It is difficult to make an objective assessment of a roaring bull market particularly when most investors seem to be making or purport to be making big profits.  There are fundamental data which are useful to assess market health and these include the level of consumer and corporate debt, excessive margin lending, declining corporate profits, price to earnings ratios etc.  Sometimes it is difficult to make an objective assessment… Continue reading

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