Monthly Archives: January 2016

Equity markets are living on borrowed time.

When one considers the moves on world equity markets on the last Friday in January it might be assumed that we are on the cusp of a new bull market. But how can that be true? On Friday markets were buoyant after yet more quantitative easing from the BOJ. In fact, most market action over the past few years is related directly to the quantitative easing by central banks who are desperate to stimulate their economies. As a result, investors in a low interest environment have been encouraged to take more risk and this further buoys the markets. Few investors seem to recognize that this asset bubble fueled by low interest rates and increasing debt is now a very high risk.

Rising world equity markets should reflect increasing world growth and productivity but this is now not the case. The IMF data show that the global economy is weak and… Continue reading

The United States dollar, debt and default.

This week we have seen a market recovery (or is it a bear market rally) spurred by an increase in the price of oil and central bankers’ promising yet more stimulus in the light of some real economic concerns.

The world debt situation continues to worsen and world GDP growth continues to fall. As expected, the decision of the Fed to raise interest rates has not calmed the United States dollar index (see chart below) which is very high and can be expected to go higher. Apart from depressing United States company growth, a very high USD puts huge pressure on emerging nations which have big debts in USD with little or no capacity to repay those debts. While economic basket cases such as Nigeria, Venezuela and Russia spring to mind there are also Middle East countries who are now facing big problems with declining revenue as a result of… Continue reading

Is there a probability of a bear market?

World equity markets have made a very negative start to the New Year. Consider the Australia market which has been more negative than other major indices over the past year.   On the weekly chart below, the ASX200 is clearly in a down trend. After a recent positive move at the end of 2015, the index was unable to break the down trend and the 30 period eMA (red line) remains very negative. Support at around the 5000 level for the ASX200 has held on several occasions in recent months and is very significant since this level is based on the 50% retracement of the 2008 bear market. It will now be very important that the 5000 support level holds.XJO jan bear

Further insight into the Australia market can be gained by looking more broadly at the world equity markets. The monthly chart of the S&P500 below, includes the previous bear… Continue reading

Look for growth stocks in 2016

In a world where world growth is not only slow but in all likelihood will continue to decline it seems absurd to talk about investing in growth stocks. Yet consider the possibilities. The Australia stock market is dominated by resource and finance stocks which in general have performed very poorly during 2015 and as a result the ASX200 index has fallen significantly and during the past 9 months has fallen by about 14%. By contrast an investment in growth stocks has significantly outperformed the ASX200 index.

The following chart compares the performance of a portfolio of 10 such growth stocks (the red line) to the ASX200 index (the black line) over the past 3 months. During this period the index moved sideways while the growth portfolio which included Blackmores, APN Outdoor, Bellamys and NetCom outperformed the index by about 20%. 160101 Growth

Growth stock selection is simple and based on the… Continue reading

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