Australia isn't at risk of a US style sub prime crisis, according to Anthony Richards, head of economic analysis at the RBA. This may seem obvious, with the style of loans on offer in Australia and the fact that lending standards are much more stringent than in the US. However, the concern has been raised that with first home buyers grants and record low interest rates, many non-suitable candidates for loans will be 'sucked in' and be unable to meet repayments when rates return to normal levels.
As the article mentions, first-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier. Will this mean more defaults? Certainly. Will it mean we will have a sub-prime style crisis? No. These aren't exactly honeymoon rates, and although rates will no doubt return to higher levels, they won't skyrocket in the way sub prime structured loans did in the US. Those were basically loans designed to screw people over and take their homes. Terrible, really.
On another note, the Australian reported yesterday that more dwellings will be constructed in Adelaide next year than in Sydney. You read that right, not on a population/relative basis, but overall. 7500 dwellings are expected to be constructed in Adelaide, with 7300 in Sydney. The gloomy times for the stagnant Sydney property market look set to continue.
DS
Wednesday, March 25, 2009
Top fund managers defy the gloomy times
Even though Hedge Funds suffered huge withdrawals and had to deal with a very tough market last year, it seems some have still managed to have considerable success. Previous bull market titans may have dropped off, but some constant names remain. In 2009, with no bottom in sight and no doubt much more disclosure expected from Hedge funds, will we continue to see these huge numbers? The true great managers who trade both sides of the market and offer full disclosure will continue to be successful, but expect to see another overall drop in the industry this year.
Kudo's to John Arnold, the guy is in his 30's! Paulson near the top for the second consecutive year too, the only guy to remain up there. He has truly capitalised on the fallings of the mortgage backed securities market. He recently launched another fund aimed at lending to other investment banks and firms.
DS
Kudo's to John Arnold, the guy is in his 30's! Paulson near the top for the second consecutive year too, the only guy to remain up there. He has truly capitalised on the fallings of the mortgage backed securities market. He recently launched another fund aimed at lending to other investment banks and firms.
2007
DS
Monday, March 9, 2009
Barack Obama - seeing past the marketing hype
Barack Obama. Oh, how everyone loves you, and why shouldn’t they? He is charismatic. He is relatively young, has a great young family, is the first African American President, and offered something completely different to what was currently out there in American politics. Change we can believe in!
You really have to wonder what in the world made everyone in the United States fall for a generic statement of “change” when the only real proposed “change” was to castrate American Capitalism.
I don’t hate Barack Obama. I really do find him charismatic, and I see his appeal to people who are all about the smoke and mirrors of a political campaign. I think it is fantastic that the United States has ushered in a new era by voting in an African American President who is a great symbol of hope – I just wish it wasn’t this guy.
I am also no fan of Bush. His fiscal irresponsibility and lies to the world ruined the reputation of America to the world. Does that mean Obama is any better? No. America unfortunately like most countries will only ever have a President from either of the two major parties. Bush sucked and ruined Republicans, so everyone flipped to the other side of the coin and became Socialist.
Now I have clearly established I am not a racist republican gun-toting redneck, let me discuss what it is I don’t like about him.
Obama has castrated American Capitalism. For a country built on the ideals of free enterprise to suddenly become a country that looks down upon wealth creation and taxes the rich over and over again is heartbreaking. People can go on about Bush’s fiscal irresponsibility all they like – but Obama has already outspent him after 30 days in office. We have just had the biggest stimulus bill (in the history of the world) and the biggest Tax INCREASE (In the HISTORY of the world!) in the midst of a recession! What is Obama thinking? Taxing the rich and businesses is the way out of a recession? That’s like drinking for sobriety!
Obama is perpetuating a mantra of “they will pay”, they being the rich – conveniently forgetting his democrats of yesteryear perpetuated the entire crisis we are now very much blaming on business.
Charitable donations are no longer tax deductible for those earning over 250k per annum in the US. Is this a joke or what? Say goodbye to the many employed in that industry and say goodbye to a LOT of money going to charity.
Mortgage payments are also no longer deductible in that similar bracket. So much for attracting investors to the housing market, you’re just making it more and more expensive!
Another recent bill was passed allowing Judges to re-set mortgage rates to keep people in their homes. If financial and contractual agreements in the United States cannot be honored, they may as well plunge headfirst into the third world.
It seems every time Barack opens his mouth to speak it perpetuates fear in the market and the Dow drops another 300-400 points. He has done nothing to show he has the experience or knowledge to lead America in a time where it needs leadership most.
Businesses will start leaving American shores, keep strangling the Golden Goose and eventually it will die.
America needs a leader with some fiscal responsibility who won’t keep spending like a drunken sailor. Bush more than doubled their deficit and Obama is doing his best to push it further into the red.
This is a sad period for the free market and capitalism. Lets hope the world finally wakes up to itself after one term of this mess.
DS
You really have to wonder what in the world made everyone in the United States fall for a generic statement of “change” when the only real proposed “change” was to castrate American Capitalism.
I don’t hate Barack Obama. I really do find him charismatic, and I see his appeal to people who are all about the smoke and mirrors of a political campaign. I think it is fantastic that the United States has ushered in a new era by voting in an African American President who is a great symbol of hope – I just wish it wasn’t this guy.
I am also no fan of Bush. His fiscal irresponsibility and lies to the world ruined the reputation of America to the world. Does that mean Obama is any better? No. America unfortunately like most countries will only ever have a President from either of the two major parties. Bush sucked and ruined Republicans, so everyone flipped to the other side of the coin and became Socialist.
Now I have clearly established I am not a racist republican gun-toting redneck, let me discuss what it is I don’t like about him.
Obama has castrated American Capitalism. For a country built on the ideals of free enterprise to suddenly become a country that looks down upon wealth creation and taxes the rich over and over again is heartbreaking. People can go on about Bush’s fiscal irresponsibility all they like – but Obama has already outspent him after 30 days in office. We have just had the biggest stimulus bill (in the history of the world) and the biggest Tax INCREASE (In the HISTORY of the world!) in the midst of a recession! What is Obama thinking? Taxing the rich and businesses is the way out of a recession? That’s like drinking for sobriety!
Obama is perpetuating a mantra of “they will pay”, they being the rich – conveniently forgetting his democrats of yesteryear perpetuated the entire crisis we are now very much blaming on business.
Charitable donations are no longer tax deductible for those earning over 250k per annum in the US. Is this a joke or what? Say goodbye to the many employed in that industry and say goodbye to a LOT of money going to charity.
Mortgage payments are also no longer deductible in that similar bracket. So much for attracting investors to the housing market, you’re just making it more and more expensive!
Another recent bill was passed allowing Judges to re-set mortgage rates to keep people in their homes. If financial and contractual agreements in the United States cannot be honored, they may as well plunge headfirst into the third world.
It seems every time Barack opens his mouth to speak it perpetuates fear in the market and the Dow drops another 300-400 points. He has done nothing to show he has the experience or knowledge to lead America in a time where it needs leadership most.
Businesses will start leaving American shores, keep strangling the Golden Goose and eventually it will die.
America needs a leader with some fiscal responsibility who won’t keep spending like a drunken sailor. Bush more than doubled their deficit and Obama is doing his best to push it further into the red.
This is a sad period for the free market and capitalism. Lets hope the world finally wakes up to itself after one term of this mess.
DS
Monday, February 23, 2009
2009 - Cash is trash!
There is no doubt about it, 2008 was a shocking year for investors. Equity markets tumbled globally, in some markets property prices fell dramatically and safe havens such as gold and even treasury bonds (which returned NEGATIVE yields in the US!!!) didn’t seem so safe anymore. All over the world Governments tried to appease people by offering guarantees on deposits, in Australia this guarantee spread to deposits of up to one million dollars. With everyone so spooked, the catch phrase of 2008 became “cash is king!”
Why wouldn’t it be? Nobody knew when the equity markets would stop tumbling (heck, even Warren Buffett was wrong as evidenced with his premature buying into of Goldman Sachs) and with interest rates so high, the return on deposits in Australia were actually decent. Coupled with the fact that cash reserves offered investors a chance to re-enter the equity markets on the cheap, and you could see its appeal.
Now let’s fast forward to 2009. Equity markets are still tumbling globally. Governments around the world are fumbling through various stimulus packages, previously unheard of GDP falls are occurring in Japan, and consumers are still completely spooked and there is no sign that the end is near. With interest rates cut in every major economy, the return for cash in Australia is now practically non-existent. Money sitting in the bank will be dead money, making next to nothing.
For some people this is fine. A dollar in the bank is better than a dollar down the drain one may rightly argue. The equity markets are so screwed that anyone considering a re-entry in the near future as their key investment strategy should consult their Doctor and have their brain checked, or alternatively go to an ATM, withdraw all their money and flush it down the toilet (it will have the same effect.)
So in this terrible economic climate, what is the best course of action? In my opinion, it is property. Not just any property, but lower end property, generally <450k.
Yes, it may seem crazy to enter the property market when all we can see overseas is capital values plunging, and closer to home it is much harder to get credit than it once was. However, one must consider the facts. With interest rates falling so rapidly and rental yields still remaining strong, positive cash flow properties are becoming more common. Rental is still strong due to the lack of supply in the market and the lack of development which has been taking part in this market to ease this lack of supply. The cheap end of town is still in demand while the Government’s first home buyer’s grants continue and there is all the upside for rental properties of negative gearing/depreciation, and in the future the upside capital growth potential.
Consider for a moment the worst case scenarios. The economy continues to spiral out of control and people continue to lose jobs. Due to the lack of supply, unless we enter a depression where people start living on the streets, rental will still remain solid. It is the top end of the market which in my opinion should be avoided, as poor rental yields and not much demand means the floor for prices is quite a way down.
Positive cashflow properties or properties close to positive cashflow – they are out there!
DS
Why wouldn’t it be? Nobody knew when the equity markets would stop tumbling (heck, even Warren Buffett was wrong as evidenced with his premature buying into of Goldman Sachs) and with interest rates so high, the return on deposits in Australia were actually decent. Coupled with the fact that cash reserves offered investors a chance to re-enter the equity markets on the cheap, and you could see its appeal.
Now let’s fast forward to 2009. Equity markets are still tumbling globally. Governments around the world are fumbling through various stimulus packages, previously unheard of GDP falls are occurring in Japan, and consumers are still completely spooked and there is no sign that the end is near. With interest rates cut in every major economy, the return for cash in Australia is now practically non-existent. Money sitting in the bank will be dead money, making next to nothing.
For some people this is fine. A dollar in the bank is better than a dollar down the drain one may rightly argue. The equity markets are so screwed that anyone considering a re-entry in the near future as their key investment strategy should consult their Doctor and have their brain checked, or alternatively go to an ATM, withdraw all their money and flush it down the toilet (it will have the same effect.)
So in this terrible economic climate, what is the best course of action? In my opinion, it is property. Not just any property, but lower end property, generally <450k.
Yes, it may seem crazy to enter the property market when all we can see overseas is capital values plunging, and closer to home it is much harder to get credit than it once was. However, one must consider the facts. With interest rates falling so rapidly and rental yields still remaining strong, positive cash flow properties are becoming more common. Rental is still strong due to the lack of supply in the market and the lack of development which has been taking part in this market to ease this lack of supply. The cheap end of town is still in demand while the Government’s first home buyer’s grants continue and there is all the upside for rental properties of negative gearing/depreciation, and in the future the upside capital growth potential.
Consider for a moment the worst case scenarios. The economy continues to spiral out of control and people continue to lose jobs. Due to the lack of supply, unless we enter a depression where people start living on the streets, rental will still remain solid. It is the top end of the market which in my opinion should be avoided, as poor rental yields and not much demand means the floor for prices is quite a way down.
Positive cashflow properties or properties close to positive cashflow – they are out there!
DS
Sunday, February 8, 2009
Rudd stimulus package
People seem to have an extremely narrow view of the Rudd Government's recently announced stimulus package. The item that is undoubtedly capturing the most attention and attracting the most debate is the one off 950 dollar payment to those earning under 100k per annum. Rudd has said the Government is willing to spend over 200 BILLION DOLLARS to get out of this mess.
Consider that for a moment...200 billion dollars, from where?
This is a debt that I will be paying off for years, my children will be paying off, and even their children will be paying off. Where is the sense in stimulating the economy in giving spooked consumers more cash which they will likely stash away?
In my opinion money should be invested in business and jobs, reducing ridiculous red tape and draconian taxes such as payroll tax (which penalise employers for employing people...wut?) and land tax (which was supposed to go out with the GST). Get those unemployed working again, they will start spending again, deposits will be made into the banking system and we will finally have consumption again. This current method proposed by Rudd is like resuscitating a dying man by massaging his foot. Stimulate the heart of the economy - business.
DS
Consider that for a moment...200 billion dollars, from where?
This is a debt that I will be paying off for years, my children will be paying off, and even their children will be paying off. Where is the sense in stimulating the economy in giving spooked consumers more cash which they will likely stash away?
In my opinion money should be invested in business and jobs, reducing ridiculous red tape and draconian taxes such as payroll tax (which penalise employers for employing people...wut?) and land tax (which was supposed to go out with the GST). Get those unemployed working again, they will start spending again, deposits will be made into the banking system and we will finally have consumption again. This current method proposed by Rudd is like resuscitating a dying man by massaging his foot. Stimulate the heart of the economy - business.
DS
Monday, February 2, 2009
Making money in a falling market
It seems almost impossible to make money in the current equity markets; constantly in the red and few signs of positivity. However money can be made by recognising these weaknesses and shorting the stock. Below are some key points I have picked up from some recent reading.
So what needs to be considered before shorting a stock?
When trading stocks, you need to go in full force or don’t bother going in at all; don’t dabble.
Shorting is great as it can reduce portfolio risk by including inverse positions.
When looking to short a stock, look for:
● High Price Earning ratios
● Low to no earnings and a flawed business plan
● Look for companies with low product depth, ie – one major product (croc shoes)
● Ask to speak to top customers
● Look for low barriers to entry
● Just plain bad products
● A company diversifying away from the fundamentals
● Lots of management changes, and changes in auditing procedures
● High receivables
●Revenue and earning deceleration
● High inventories
Also, look for a catalyst. A major one is a company with slowing revenue growth which have kept their earnings looking good by cutting expenses.
Stock, even if fundamentally flawed, should not be shorted unless it has started showing signs of weakness.
When looking at earnings reports, make sure to focus on GAAP rather than Pro Forma earnings. This is VERY IMPORTANT! GAAP (Generally Accepted Accounting Principles) are the guidelines that all companies must adhere to, whereas Pro Forma earnings can leave out valuable information such as depreciation, goodwill, amortization, interests and taxes and one time expenses.
So what needs to be considered before shorting a stock?
When trading stocks, you need to go in full force or don’t bother going in at all; don’t dabble.
Shorting is great as it can reduce portfolio risk by including inverse positions.
When looking to short a stock, look for:
● High Price Earning ratios
● Low to no earnings and a flawed business plan
● Look for companies with low product depth, ie – one major product (croc shoes)
● Ask to speak to top customers
● Look for low barriers to entry
● Just plain bad products
● A company diversifying away from the fundamentals
● Lots of management changes, and changes in auditing procedures
● High receivables
●Revenue and earning deceleration
● High inventories
Also, look for a catalyst. A major one is a company with slowing revenue growth which have kept their earnings looking good by cutting expenses.
Stock, even if fundamentally flawed, should not be shorted unless it has started showing signs of weakness.
When looking at earnings reports, make sure to focus on GAAP rather than Pro Forma earnings. This is VERY IMPORTANT! GAAP (Generally Accepted Accounting Principles) are the guidelines that all companies must adhere to, whereas Pro Forma earnings can leave out valuable information such as depreciation, goodwill, amortization, interests and taxes and one time expenses.
Tuesday, January 27, 2009
Harley Davidson
Well, its been quite a while since my last post. I make no excuses; I have been on holidays and had my mind in other places, namely working on an exciting entrepreneurial venture. I realised the other day though that I have gone back to my blog a few times to check on my opinions in the past to see how they hold today, so I will be posting a lot more.
This post will focus on Harley Davidson, but its key points apply to not only HD, but also to the American auto industry who only sold their poor cars through sub prime auto loans and similar businesses who rely too much on their finance arms.
The following is an extract from a report I wrote for University on Harley Davidson midway through last year;
Today more than ever, economic considerations will have an enormous impact on not just Harley Davidson, but very company in the world. The credit crisis has brought global equity markets to a stand still, and will have significant impacts on both consumer confidence as well as other sectors of the Harley Brand, most specifically their financial business.
The whole world is suffering hugely. The United States, being the largest market for Harley Davidson, is amongst the worst affected. As the economic carnage piles dangerously higher, the Federal Reserve is considering again lowering interest rates in an effort to stimulate the economy. This statistic means that consumers aren’t buying, and will have a very detrimental affect on Harley Davidson. Vanishing jobs and diminishing paychecks have forced American consumers to cut back significantly. (Shedlock, M 2008) For a company which is reliant on middle class disposable income as its target demographic (Grant, R 2008) things domestically look very worrying for Harley Davidson.
Europe itself is in a similar predicament. The United Kingdom has experienced a contraction in growth, emerging European markets such as the Ukraine have relied on IMF bailouts to save any remains of their economies, whilst Germany and France are also suffering. (Shedlock, M 2008)
The effect of the US currency on Harley Davidson sales is now a moot point. With deflation occurring and the entire world going into a recession, sky rocketing unemployment and frozen credit markets, Harley Davidson, which are largely bought as weekend toys by the middle class demographic, will likely be a luxury many people can no longer afford. The habit of negative saving by the American consumer(Shedlock, M 2008), has finally caught up with the market, and the unprecedented pain which is about to be felt will severely impact Harley Davidson both domestically and internationally.
Harley Davidson may have prospered from its lending business, but with credit market illiquidity non-bank lenders are experiencing unprecedented levels of suffering as they struggle to raise the credit necessary to operate their lending business (X Inc Finance, 2008).
The economic outlook for Harley Davidson, as well as the rest of the economy, is very poor.
Just yesterday I read in the newspaper how Harley had to lay off 1100 workers after reporting a 6.8% fall in sales and 58% fall in fourth quarter 2008.
So what does this mean for investors? STAY AWAY from companies which relied so much on their finance arms to sell their products; just watch as the US auto manufacturers go begging back to Congress in the next couple of months for even MORE money, because they're dying. I doubt they can all survive 2009.
DS
This post will focus on Harley Davidson, but its key points apply to not only HD, but also to the American auto industry who only sold their poor cars through sub prime auto loans and similar businesses who rely too much on their finance arms.
The following is an extract from a report I wrote for University on Harley Davidson midway through last year;
Today more than ever, economic considerations will have an enormous impact on not just Harley Davidson, but very company in the world. The credit crisis has brought global equity markets to a stand still, and will have significant impacts on both consumer confidence as well as other sectors of the Harley Brand, most specifically their financial business.
The whole world is suffering hugely. The United States, being the largest market for Harley Davidson, is amongst the worst affected. As the economic carnage piles dangerously higher, the Federal Reserve is considering again lowering interest rates in an effort to stimulate the economy. This statistic means that consumers aren’t buying, and will have a very detrimental affect on Harley Davidson. Vanishing jobs and diminishing paychecks have forced American consumers to cut back significantly. (Shedlock, M 2008) For a company which is reliant on middle class disposable income as its target demographic (Grant, R 2008) things domestically look very worrying for Harley Davidson.
Europe itself is in a similar predicament. The United Kingdom has experienced a contraction in growth, emerging European markets such as the Ukraine have relied on IMF bailouts to save any remains of their economies, whilst Germany and France are also suffering. (Shedlock, M 2008)
The effect of the US currency on Harley Davidson sales is now a moot point. With deflation occurring and the entire world going into a recession, sky rocketing unemployment and frozen credit markets, Harley Davidson, which are largely bought as weekend toys by the middle class demographic, will likely be a luxury many people can no longer afford. The habit of negative saving by the American consumer(Shedlock, M 2008), has finally caught up with the market, and the unprecedented pain which is about to be felt will severely impact Harley Davidson both domestically and internationally.
Harley Davidson may have prospered from its lending business, but with credit market illiquidity non-bank lenders are experiencing unprecedented levels of suffering as they struggle to raise the credit necessary to operate their lending business (X Inc Finance, 2008).
The economic outlook for Harley Davidson, as well as the rest of the economy, is very poor.
Just yesterday I read in the newspaper how Harley had to lay off 1100 workers after reporting a 6.8% fall in sales and 58% fall in fourth quarter 2008.
So what does this mean for investors? STAY AWAY from companies which relied so much on their finance arms to sell their products; just watch as the US auto manufacturers go begging back to Congress in the next couple of months for even MORE money, because they're dying. I doubt they can all survive 2009.
DS
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