News Articles
Select Article:  
Title: August Newsletter 2018
Created: 2018-08-20

Good afternoon all

Well, in about 4 weeks I will become a granddad for the first time, with my daughter-in-law getting ready for the arrival of the little monster, I mean “grandson”. Nadia is in full bloom at the moment and looking really good. I must say my son chose well as she is a nice person as well as a saint for putting up with him J. Talking about the boy, he has finally got full time work out in the middle of nowhere around Laverton, close enough to the middle, doing traffic controlling on a drive-in/drive-out basis. At last he is going to be making money and leaving his poor Dad alone for the moment. It’s so true what most of you say; they may leave home but they never leave you alone. It’s okay, I never wanted to retire anyway. The rest of my children are going fine. My eldest is back at University studying Health and Nutrition, having left business studies and not wanting to be like her Dad. The other three trouble makers are just costing a small fortune still and eating me out of house and home. My thirteen year old son is a scary person…. he can eat anything and lots of it. His favorite dish at the moment is anything between two slices of bread so you can see he is not fussy as long as there is bread.

Anyway, on to the markets. There is a variety of events occurring in financial places at the moment. Currently we have the Turkey Lira falling through the floor and giving people something to worry about even though there is nothing to worry about. Turkey is a very poorly run country and the current ruler has no idea on how to run an economy, hence the reason why things are going so bad. Turkey leads the world in current account deficits, even being worse than Argentina. This is not going to cause too many problems around the European Union as the lending that was done by some of the European Banks was only minimal with as little as 2.5% from any one Bank. Fortunately most countries that get into this position take prudent steps like cutting costs, increasing interest rates or asking for a bail out from the IMF, unfortunately Turkey is pretending that there is no problem and hence going backwards at a great rate.

At present the markets, especially the USA, is roaring along with most markets up and the dollar strengthening to the highest it’s been in two years. Both Wall Street and the NASDAQ are growing nicely and returns are good. Here in Australia, apart from our currency taking a hit due to the slowdown in China, we are going okay due to commodities being written in American dollars and that currency is far stronger than ours at present. I think as we speak the cross rate is 72.25 cents for every dollar so we are getting a free 27 cent increase in Iron Ore etc. Gold has taken a bit of a hit recently with the strengthening dollar but the cross rate has helped keep prices up. In all Australia is going okay but the slowdown in real estate is starting to hurt the economy as, after the mining boom, the real estate building boom took over as the biggest employer. There will be some interesting times ahead as far as tax revenue goes as we have not had any pay rises across the country in the last five years and even though there is employment most of it is part time and once contracts are finished many people will find themselves in a lesser paying job, which will hurt the federal budget in the coming years.

I did digress away from the markets. I am good at taking left hand turns during conversations; just ask those closest to me…. I can change mid-sentence and start a whole new debate! Anyway, the topic that we will be addressing over the next year will be the strength in the US economy and what it means to the rest of the investment world outside of the USA. Due to the high dollar, obviously it is going to cost more to borrow money as the USA is the world leading currency and most money borrowed by developing countries is in US dollars. As the dollar rises the cost of servicing the dollar increases with each movement. Over the last three (3) months the dollar has grown by 7 dollars but this increase is causing a downward push on cross currencies so the gap widens very quickly. Also, the USA has increased interest rates by .50 basis points and they will increase these by at least another .50% in the coming year. When you have billions on loan an increase in interest rate together with an increase in currency cross rate means the repayment gap widens and increases to a larger amount. This puts pressure on emerging markets, who are the main lenders, which in turn will affect their return to investors. So we will be monitoring carefully and will make switches if there is a negative effect on your portfolios.

The main area that most people are concerned about is the possibility of another GFC at some point in the future. As we all know market pull backs happen every ten years or so and we have gone past the ten year mark and some are getting anxious. At this point there appears to be no major problem with the world economy and there is no obvious problem area that could cause a financial reaction that will trigger a fall in markets. The interest rate divergence has eased with the long term and short term bond rates moving away from each other suggesting an easing of long term borrowing. Employment is strong in most parts of the world, especially the USA. There is a trade war going on between China and the USA but it appears that goods and services have a funny way of getting into the USA via alternative routes, so maybe it is not so much of a trade war. I understand the disagreement between the USA and China and get why the USA wants more lenient access to China as China has to the USA. At present you can’t walk into China and buy a business without Chinese shareholding and control but China can go around the world and buy anything, as it is currently doing.

Apart from Brexit, the market and investments are working their way out and returns continue to roll along. Last year we had a great set of returns and this year is shaping up to be another one around the 10-12% mark. As usual we may have a hiccup and the returns may vary but it appears that a good run is going to happen in international and domestic markets but may be subject to a slowdown in emerging markets but we shall wait and see. It is also good to note infrastructure is making a return in profit which helps boost portfolios.

I have attached some interesting reading for you to go through especially form Shane Oliver.

Until next time happy investing and take care.

Regards

Allan

 

  Home About Us Services Find Us