This article first appeared on The Constant Investor website at this link: It is behind a paywall for subscribers only https://theconstantinvestor.com/stephen-koukoulas-overview-170114/#Whydosofewpeoplenegativegearstocks
Why do so few people negative gear stocks?
In recent times, a lot of the focus of public policy has been on negative gearing and how the associated tax rules encourage ‘excessive’ investment in the housing market. This in turn, it is argued, pushes up house prices and freezes first home buyers out of the market. There is something in that argument which will no doubt carry on in 2017 and probably beyond.
What is often overlooked in the debate is the fact that negative gearing investment strategies also apply for shares, in the form of margin lending and related products. So why is it that the overwhelming focus of investors when they negative gear is dwellings and not shares?
Over the past decade or so, as property investment borrowing has boomed, margin lending for stocks has slumped.
According to data from the RBA, outstanding credit for investor housing stood at $562 billion in November 2016. This was up a staggering 319% from the level in December 2007 when it stood at $134 billion.
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/aussie-dollar-where-art-thou-035132180.html
Why the Aussie dollar is flying high
The Australian dollar has been rising strongly over the past six months and not just against the US dollar where this morning it is hovering just under 78 cents.
The Aussie dollar is also buying over 0.72 euros, the highest level it has been since early 2015 and is up some 10 per cent since May last year. It is also strong against the British pound, Japanese yen and Canadian dollar. In simple terms, the Aussie dollar is flying.
The reasons for the strength are clear.
Importantly, Australia has some of the highest interest rates in the industrialised world which means global investors are keen to pick up a positive yield with their Australian holdings versus those in other countries. With the RBA signaling that is has no plans to cut interest rates and rates in Europe, Japan and Canada unlikely to be hiked any time soon, the Australian dollar is likely to remain attractive for some time.
This Thursday sees the release of the January labour force data. We will see the update on a wide range of labour force measures including for unemployment.
In December, the unemployment rate stood at 5.82 per cent, which was the highest unemployment rate since January 2016. It was a poor result and reflects the ongoing sluggishness in the economy. The RBA, curiously and without much attention to the hard data, concluded in its regular Statement on Monetary Policy that the labour market was poised to improve. Who knows, it might turn out to be accurate. If so, terrific! The improvement must start now for the RBA to validate is upbeat stance and recent reluctance to cut interest rates.
If not and say the unemployment rate stays at 5.8 per cent or worse, rises, there will need to be a serious rethink about the current policy settings, including Australia having some of the highest interest rates in the industrialised world with an unemployment rate that is also above most non-European countries.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/why-a-piece-of-bread-half-an-avocado-and-a-few-crumbs-of-feta-costs-16-045746860.html
Why a piece of bread, half an avocado and crumbs of feta costs $16
Have millennials trimmed their spending on smashed avocado brunches and other food indulgences and started saving for a house?
No one can be sure, but there might some tentative evidence that the smashed avocado debate of last year had some influence on consumption patterns and not just away from smashed avocadoes, but overall spending in restaurants and on takeaway food.
The retail sales data shows that spending in cafes, restaurants and take-away food shops has dropped in recent months. In October last year, when the smashed avocado debate reached its pinnacle, spending in cafes, restaurant and on takeaway reached a record high $3.6383 billion.
In November, spending was $36.6 million lower than this peak, while December spending was still down $30.7 million from the October high. Something was happening in this segment of retail trade.
I wrote the article below in 2011 when there was a discussion about the role of an economist and what makes a good economic forecast.
It is possible, if not likely, good economists can be wrong with a spot forecast, but for investments based on that forecast to be highly profitable.
Being correct and successfully forecasting something that is fully priced into the market (ie, the RBA will not adjust interest rates at its February meeting) is a largely useless forecast versus a forecast for, say, the AUD to hit 0.8000 at the end of the year (from a spot price of 0.7200) and it gets to that level in June and then eases back in the second half of the year. Or forecasting rate cuts for, say, 6 months time and none are priced in and the cut is delivered in 3 months. That forecast is wrong but investments based on that forecast would make a lot of money.
I have highlighted in bold the key point of the old article.
Economists and Traders - Like Chalk and Cheese
Christopher Joye’s particularly interesting and well-reasoned article here did a good job shedding some light on the similarities and differences between money market traders and market economists. His conclusions were largely based on an assumption that market economists and traders were trying to do a similar thing, that is, working out where markets were going. The difference was that traders take a shorter run perspective and economists or strategists look at the longer run and are required to produce "point" forecasts (e.g., the cash rate will be 3.25% in December 2012).
The Mid Year Economic and Fiscal Outlook released by Treasurer Scott Morrison in December 2016 gave us an update of the budget numbers for the current financial year and the forecasts or estimates for the next few years.
They are always interesting to analyse to judge the size of government, the accumulation of government debt, change in tax and spending and other issues associated with managing a $1.75 trillion economy that will be a $2 trillion economy in 2020.
I was looking through the numbers, in a welcome distraction from issues relating to Donald Trump, and found the following facts.
This article first appeared on the Yahoo7 web site at this link: https://au.finance.yahoo.com/news/the-link-between-education-and-incomes-unwapped-052209833.html
Education delivers high incomes and low unemployment
It’s back to school week for thousands of children around Australia.
Let’s celebrate the fact that at the end of this year of learning for all children, from kindergarten to year 12, students will be better placed in life because of that education and learning. It will also be good for the economy as the link between educational attainment, unemployment and income is irrefutable.
This year of learning does not mean that all of our children are on a path to become rocket scientists, medical researchers or actuaries. A good education system will ensure that every student reaches their full capacity and opportunity, including knowing how to read, write and add up, and having a mind set that allows them to be flexible within the ever-changing work place environment.
The recent Melbourne University Household Income and Labour Dynamics survey dug into the Australian experience of education and incomes. Its findings were stunning.
For women, for example, a diploma or higher educational attainment saw a 10 percentage point increase in the probability of full time employment compared with maximum educational attainment of Year 11 and below.
This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/business-finance/countdown-economic-trumpageddon/
Countdown to Economic Trumpageddon
United States President Donald Trump is a proverbial ticking time bomb for US and global economic conditions and financial markets.
While US stocks have generally been strong since Trump’s shock election win in November, the optimism has been based on a yet-to-be-tested policy approach, which is focused on high infrastructure spending, cuts to company tax, and policies aimed at supporting domestic manufacturing.
These may prove to be positive for the US economy, but what is being understated by the markets is his approach to trade and old-fashioned protectionism. These policies by themselves have the potential to dislocate trade flows and unwind decades of successful specialisation, which has resulted in a rapid productivity growth, sustained low inflation and falling prices for many goods and services. This in turn has been pivotal in reducing global poverty and increasing the wellbeing of the bulk of the world’s population.
Trump has already bullied a number of US car manufacturers to abandon their plans for investment in efficient, low-cost producing countries such as Mexico. Those cars will now be produced in the US, clearly at a higher price to consumers and a loss of jobs and investment in Mexico.
I am going to sell both Dow futures (hopefully around 20,080) and S&P500 futures (at around 2,293). This new trade to be instigated at or near open on Monday 30 January and is based on my view and is not investment advise in any way. Please contact your financial advisor before investing.
[UPDATE: 10.10am Monday 30 January: Entry level a little less favourable than hoped: Dow 20,045: S&P500 2,288]
The reason for the trade is simple. Trump is smashing and trashing the US economy and soon, the US stock market will follow.
His extremist approach to policy settings, both on economic and social issues, has generated a huge discontent in the US that runs the risk of derailing the momentum in economic growth over the past year. Business and consumer sentiment, and with it investment and spending, does not usually react well to political upheaval and divisive policies. There is a very real risk that the likely fall in sentiment will upset the economy and market sentiment.
In 2015-16, Australia’s imports of goods from Mexico outpaced exports to Mexico by 4 to 1. That is, there were $2.4 billion of imports into Australia from Mexico and just $600 million of exports to Mexico from Australia.
I am waiting for One Nation or some crazy galoot to suggest that Australia should put a tariff on those nasty Mexican exporters to pay for, I don’t know, politicians travel? A fence around Parliament House? An anti-halal campaign?
To be fair, any one in Australia who suggested a tariff on Mexican imports would be laughed out of the room; treated with contempt; ridiculed for the absurdity of such a suggestion. So One Nation just might propose it? Ha - surely not, it wont happen.
Meanwhile, in the US, President Trump is promising to impose a tariff of 20 per cent on Mexican imports into the US to fund a similarly ludicrous issue, building the wall between the US and Mexico. Amid the justified ridicule there are, amazingly, some people supporting the idea. And no, they are not all the inmates from the Cuckoo’s Nest.