Freeman Fox strategy bodes well for clients

September 15th, 2009  by Neil Gynther

Closing Data

	Current	Change	%
Dow Jones	9626.8	21.39	0.2%
NASDAQ	2091.78	10.88	0.5%
S P 500	1049.34	6.61	0.6%
FTSE 100	5018.85	7.38	0.1%
Nikkei 225	10202.06	-242.27	-2.3%
ASX 200	4,531	-65	-1.4%
COMEX Gold - Dec 09	1001.1	-5.3	-0.5%
COMEX Silver - Sep 09	16.623	-0.077	-0.5%
COMEX Copper - Sep 09	280.45	-4.2	-1.5%
WTI Spot	68.86	-0.43	-0.6%
AUD-USD	0.8616	-0.0009	-0.1%
Aluminium	1793	-27	-1.5%
Copper	6145.5	-144.5	-2.3%
Lead	2045.5	-64	-3.0%
Nickel	16655	-600	-3.5%
Tin	14650	-170	-1.1%
Zinc	1825.5	-89.5	-4.7%

Wall Street closed higher overnight as the S&P 500 hit an 11-month high, helped by buying of industrial and materials  stocks. The Dow Jones closed up 21.39 points at 9626.80, making its sixth gain in seven sessions.

The recent gains for materials and industrials continue a recent trend where both sectors have leapt higher on the backs of improving sentiment surrounding economies around the globe. This improvement in sentiment has been especially helpful for commodities markets, with oil, gas and metals all rising along with the stock market. However this wasn’t the case overnight, with oil slipping below $US69 a barrel after higher fuel inventories kept buyers out of the market.

Gold fell slightly under pressure from a stronger US dollar, but managed to close above $US1000 an ounce.

Australian shares are likely to open higher, as investors with cash on the sidelines look to buy into any dips following a pullback on Monday.

Strategy

We have now hit the 12 month anniversary of the collapse of Lehman Brothers which virtually froze credit markets around the world. What followed was the worst 6 months on investment markets that most investors have ever experienced. As our CEO, Peter Spann, has often said there were a lot on UNKNOWNS during this period. I have been in the investment markets for many years and I have never seen the FEAR factor so prevalent ( and rightly so). How could anyone have confidence in the markets when there was just so much bad news hitting investors each day.

But let’s look at what we have now 12 months down the track. Credit markets are operating again, especially the Commercial Paper market, economies are slowly recovering, the US housing market is showing signs of recovery and the rate in the rise in unemployment is abating. You have probably heard the term “green shoots”, well the green shoots are appearing more and more frequently and the bad news is not AS bad and is less frequent. Now let us not get too carried away, we are not going to see economies or markets at the level they were at the peak of greed for some time yet ( Too much wealth has been destroyed around the world for that to happen) but we will have good gains over the next two years or so. What we are seeing is the fear of the UNKNOWN disappearing. We DO know that Germany and France are showing good signs of recovery, we do know that China will do just about anything to keep their economy moving etc, etc – Green Shoots! We also know that the huge amounts of Government borrowings will have to be managed very astutely by central bankers lest it cause spiralling inflation, higher taxes (probably a given) and higher interest rates, also probably a given.

I think these effects will be subdued and quite some time off as economies will not recover as quickly as the optimists predict and therefore interest rates will be slow to rise, inflation will not be rampant and the rate of unemployment will stabilize but not improve significantly.

What does this mean for our market? Valuations of companies on the ASX are not stretched and balance sheets, in the main, are in good shape. I believe our market will be steady to rising for at least the next 24 months. It will have some dips, slight ones like we saw yesterday, but generally rising as world economies improve. Money invested now with a two to three year time frame will do very well.

The Freeman Fox strategy fits perfectly with this type of market. If you have, say, $50,000 in the bank you will be paid around 4 to 5% interest annually and may have to pay tax on that. If you invested the same money into a Blue Chip share on a Buy and Write strategy you can confidently generate a premium return of 2 to 3 percent per MONTH. If you hold these shares through the dividend period you will collect another 4 to 6% return in dividend which is probably Fully Franked. You can make your money work harder. You may want to save a little to buy the dips but generally I believe you need to be in the market and have your money working for you.

Please feel free to contact your adviser at Freeman Fox to discuss your investment strategy.

 

Contact your Freeman Fox Stockbroker on 07 3031 9960 or 1800 003 369 Ext 7.

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