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Title: November Newsletter 2017
Created: 2017-11-21

Good morning all

I trust this email finds you all well and very prosperous in whatever it is you are doing at the moment. Sorry that I am a bit late with an email but things have been quite hectic in the office, being tax time, I have been seeing clients by the hour and concentrating so as not to make any errors to be sure clients are not at the mercy of the tax man. It was a very interesting tax season as I got to talk to a vast number of people about what they have been up to and the financial problems that they encounter in their daily lives. Sadly, I also sometimes get to hear about the troubled side of their life but that’s another story.

The family news is that I am now down to three children at home. My eldest son has flown the coup for work in Perth. This leaves my downstairs empty, which is very strange to say the least. One minute you have kids going in all directions and the next it is somewhat quieter. I know I still have three at home but unfortunately I have the most expensive as well, our second daughter. I told the wife that now she is sixteen we would get a good dowry for her but alas the wife thinks that she should stay around a few more years as thing are getting too quiet at home. Everything else is going well. As I don’t have to travel very much anymore I get to walk the dogs every night and enjoy free time on the weekends. Well, truth be told the weekends are hectic and I am glad to get back to work on Monday morning. One bit of news is that I have a new dog called Ava. She is a staffy cross, is very spritely and loves to run, chew and terrorise Indi, old beagle I have. I bought Ava so that Indi would not get lonely but sometimes I look at Indi and can tell that she is asking why I did that because all Ava wants to do is play and chew Indi’s collar off at the first available bite. It is nice that the old girl has company and she is getting much better at pinning the pup to the floor when she has had enough, but that won’t last long as the little dog is getting the bull terrier build with the wide chest and solid stature.

On to the markets… as you should all be seeing your accounts have been rising nicely this year with very good returns coming through on your funds. Our staff have been working overtime getting the right mix of assets together to produce good long term consistent returns and we are pleased to be getting the rewards for you. We have been spending many hours researching the markets and asking research houses and fund managers their worldly view on what the markets are doing and where they are heading both now and over the next couple of years. The general consensus has been that both infrastructure and emerging markets are going to be the growth areas so we have allocated portions of your funds to theses for the weightings that they should have. The good news is that they have performed well but not only that, the local share market has risen to over 6000 on the All Ordinaries for the first time in a decade. Even better news is that the small caps of the market have realised some great gains as well. Adding international shares that have been doing well has helped portfolios get some very good returns. I have always said if a good consistent return of 9% can be returned over a long period, being 10+ years your portfolio will be in good shape. Your portfolios are well on the way to exceeding this benchmark in 2018.

As you all know, well at least those of you that have been with me for many years, there are swings and roundabouts when it comes to investing. Some years are good, some are bad. On top of this a fund manager will perform one year but then perform badly in the next year. The main theme we are pushing is consistency over the long run. Yes, there are times when some funds outperform ours and some funds do have cheaper fees (including industry funds). However I am pleased to say that over the long term, 10 years plus, we have outperformed with consistent return. To be honest we sometimes do get things wrong within a portfolio, by either leaving it in the wrong options for too long or the wrong sector and we have seen return below the benchmark but, we have learned much over many years and we are continuing to refine our procedures to make sure this happens on very few occasions. The reason I mention long term is that it has now been 10 years since the GFC when many of your portfolios took a drop of 23%.  I can still remember the first drop in the market followed by the long spiral downhill that caused big losses to the funds. It took between 4-5 years for these funds to recover those losses. One of the reasons I study so hard these days on what is going on is that if anything like this was ever to occur again I would be well warned and ready for such an event.

Just a quick note on the economy at the moment and my thoughts of what is going on. I’m sure you are all aware that this is usually my favourite part of the email. As mentioned before the Australian market has lifted to over 6000 on the All Ordinaries (see attached) which is the highest it has been for 10 years, since the GFC. When things went bad back then the All Ordinaries was at 6800 so you can see we are a long way from that peak. One of the reasons for the lift in our market is that the Australian market was a long way behind the rest of the world and so a little catch up was needed. Australian businesses have been recording good profits this season even though the rest of the economy has been lagging behind. As we know Australia is only 1.75% of the world stock market at $1,207,000,000 with world total stock market value over 17 exchanges being $23,048,000,000,000. Yes that’s $23 Trillion dollars and ours is only $1.2 Billion. The international markets have been performing well with some commentators saying the run over the last 5 years is starting to slow but emerging markets, mainly Asian markets, are still on a roll and performing well with growth. As I have mentioned previously I prefer Infrastructure funds to Australian property due to the very high valuations on property in Australia and my concerns about a correction or worse yet, a flat market for a number of years, which is more probable. Another point to make is that the Fixed Interest and Bond market are heading for a long period of very low returns due to excess cash sitting around the world in Banks and the money market. Although short term rates can move depending on inflationary factors the long term rates are proving problematic due to the large build-up of cash, mainly in Asia and China. So the safety net in portfolios is providing low returns and shall do going into the future. This long term low return environment on Fixed Interest and Cash makes working for good returns all that much harder.

The risk of any correction in the near term is very small at this point and the Banks, after the GFC, have had their systems and compliance for lending overhauled to stop any further shudders from the mortgage markets. My view is that the next problem we will experience will be a stall rather than a fall and one wonders what is worse, a correction and forward movement or a stall with nothing happening? The good news is Asia and North America are on growth projections which is giving good consistent returns for international funds. Infrastructure is doing well as the world gets more sophisticated and requires more satellites, mobile phone towers, ports, airports, roads, rail and all the long term low maintenance assets. These assets make good year in year out returns. So things in my view are going well and it seems to be steady as it goes at this stage.

On a final note and you know I like statistics and money, the number Quadrillion has just been mentioned as the price of the World Money Supply as an asset. Most of the World’s assets are in the trillions (that means there are twelve zeros behind the number). The World Stock Market - 73 Trillion, Real Estate - 217 Trillion, Coins and Banknotes - 7.6 Trillion, Broad Money - 90 Trillion. Our global debt is $217,000,000,000,000 which has been made by fractional banking by the Reserve Banks around the World over the last 50 years. We made the big Quadrillion through the Derivative Markets which is securitisation, futures, option and swaps - which are sometimes called synthetic finances. The value of this market, remember that they don’t actually have a true value of it, is assumed at around $1,200,000,000,000,000. Now that’s a number !! Does make your brain do a double take at all the zeros. If you would like to see the price of assets worldwide here they are

Have a great November and I will be back just before Christmas to wish you all well. Please remember that my staff and I are here to help so if you need anything or require an answer, please don’t hesitate to get in touch.

Until next time happy investing and take care. 

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