Archive
Archive for November, 2009
Early signs in the US are that the Dubai World default may not really mean too much. Sure US Stocks fell by more than 1%…which isn’t too uncommon nowadays…but conversely, US Bond Yields are up suggesting there isn’t too much “rush to quality”. Time will tell but I’d suggest this is quite a tame reaction.
Nouriel Roubini, famed GFC forecaster, apparently believes this may be the first of more sovereign defults…if so, then that’s a different kettle of fish. But at this stage…the US markets aren’t convinced.
Got this Fox News chart from flowingdata.com…possibly a little tragic but I can laugh at this all day.
The front page of the Australian Financial Review today talks of the toughening of education standards the FPA requires from 2015 (I’d rather they start now)…anyway…apparently the FPA expect financial planners to be tertiary qualified, pass a national examination, accreditation process, and from next year complete compulsory ethics training.
I think higher education standards for financial planners in this country is long overdue so well done to the FPA.
The irony in this is that it wasn’t that long ago that FPA Australia was handing out CFP status to anyone that called themselves a financial planner…the old CFP from a cornflakes packet accreditation.
I can hear the planners now…more compliance, more education requirements, changing our business model away from commissions…looks like fee for service might look very expensive.
My favourite Nobel Prize Winning economist’s article can be found here…This is quite an astounding conclusion but not too far fetched given the evidence. What really concerns me is that whilst the US Cash Rate ideally should be much lower, our Reserve Bank and (judging by the Yield Curve) our markets envisage significant cash rate hikes over the next 12 months….mmm…do you think we Australians are being just a little optimistic about our growth potential or expectations given the clearly disastrous economy of the US (& Japan, UK, Euro zone etc)?
For a fascinating outlook for the US Economy and property sectors, Federal Reserve of San Francisco’s Janet Yellen’s 10 November speech is a must read. Access it here.
With the government downgrading its June 2010 unemployment expectation to 6.75% it appears we will be creeping there slowly given we have been around 5.8% for much of the last 6 months. This is largely thanks to a drift from full time to part time employment and of course the downside is that on average we are working much less and therefore earning less.
The number of unemployed persons in Australia is now 669,000 (increasing by 34.3% over the last 12 months) and this is the highest since late 2001. From an Australian perspective, we must be thankful thta we are no where near the horrific unemployment levels of the US at 10.2%…things must be very tough there with small signs of recovery but most economists believe that US recovery will exclude employment growth.
Does this look scary to you? Highest PE Ratios since 2002 for MSCI World and highest for MSCI Australia since before the start of the chart?! I hope these are wrong, as I’m pretty confident the expected growth does not warrant these types of valuations.
Macquarie have a series of managed funds whereby they guarantee the index return, for whichever asset class, to the investor with an ongoing MER of zero. This series of funds is called their true index series. What Macquarie is saying and doing is that they have the ability to outperform the index after costs and they make money from whatever outperformance they can generate. The investor is effectively taking on counterparty risk of Macquarie.
There are so many fund managers out there who claim that their method of active management is the best, will outperform by x% or whatever…my challenge to them is to put their money where their mouth is just like Macquarie has. If their active management method style is so good, then give me a guaranteed return of their index (say ASX200 Accumulation Index) plus 10bps (no point matching Macquarie..may as well better them) and watch the money flow in. Active managers struggle to outperform the index over the long term but for those managers that reckon they’re so good….this challenge will guarantee outperformance of the index every year…as long as they stay solvent.
The following extract was taken from David Swensen’s book, “Pioneering Portfolio Management”, and for those who don’t know who David Swenssen is…he is the Chief Investment Officer of the Yale Endowment Fund and possibly the finest multi-asset class investor ever.
“Foreign currencies, in and of themselves, provide no expected return. Some market players, as part of so-called macro strategies, speculate on the direction of foreign exchange rates. Foreign bond mutual funds provide a vehicle through which investment managers sometimes take speculative positions. Top-down bets on currencies fail to generate a reliable source of excess returns, because the factors influencing economic conditions, in general, and interest rates, in particular, prove far too complex to predict with consistency. Sensible investors avoid currency speculation.”
Now whilst currency can provide diversification benefits for high risk asset classes such as equities, by itself, as suggested, it should be avoided. It is currency markets, one of the toughest markets in existence, that Mum and Dads can sucked into from these get rich quick trading courses…I wish ASIC could close down all currency trading schools and stop retail investors from trading in currency related CFDs…if its too tough for Swensen, I’m pretty confident it’s a loser’s game for the average retail investor.
