Everybody is watching closely now
April 16th, 2010 | Posted in General
So we finally found 5,000
It would seem to casual observers that the Australian Share market has a genuine aversion to staying above the 5,000 point mark and they’d be correct.
Despite hitting 5,000 on Monday the All Ordinaries retraced rapidly on Tuesday only to end up above 5,000 Wednesday 14th April. This is a VERY significant support / resistance level.
If you go back to 2006 this was the level the market consolidated around before resuming its extraordinary run to its peak in October 2007. From July to September 2008 it held around this point giving the market hope of an early recovery before plunging to the March 2009 lows.
Everybody is watching closely now.
And this attention may be the very reason it fails to hold. Since September 2009 we have accurately said that the market would track between 4,600 and 5,000, and this has been the case.
Now that the XAO has closed above 5,000 it’s anybody’s guess from here.
The next significant resistance is at 5,200.
All the economic indicators in Australia are pointing towards a sustained recovery despite what our Government is telling us. Not sure why they insist on continuing the stimulus package whilst at the same time the Reserve Bank is falling over themselves to keep increasing interest rates which would indicate that the economy is booming.
Rudd keeps saying “trust me” we’re still in trouble and the Reserve Bank keeps saying “trust us” weren’t not. These conflicting signals are replicated in the market with Australia, embarrassingly following the lead of the U.S. With such mixed signals I am not convinced that the market can continue rising at this point. We have no significant reporting until later in the year. Having said that the share market leads the real economy.
Stockmarket indices around the world have largely traded within reasonably tight ranges. From November last year we were looking for a pause in the upward momentum with price likely to consolidate around the 200 day moving average. This has now happened and we are now looking for the next major market move.
As recently discussed in the Magic Moo Cow forum www.magicmoocow.com.au some of the larger equity markets like the US’s Dow Jones and S&P 500 have made higher highs than those posted in January.
The January high was significant because it was the highest point of most equity market trading ranges.
So basically I have just said the market could go up or down – maybe I should become a politician?
I believe the most likely outcome is the Australian Market will hover between 4,600 or 4,800 and 5,200 for a little while yet.
If this is the case it is good news for investors because the last thing we want now is for the share market to get overheated again.
The U.S. Recession is Over (or not)
Pundits in the US stick diligently to their guns that the recession is still firmly in place in the U.S. which means that monetary policy is still universally tight and interest rates stay low.
There are in fact ample signs that the U.S. recession is indeed over so this position is difficult to fathom.
Despite 3 out of 7 of the (U.S.) National Bureau of Economic Research’s board members publically coming out and saying the recession is over the rest say “it’s too soon to call”. This has spurred on the Federal Reserve’s “lower for longer” interest rate policy to be kept in place.
Whilst this is not good or bad news for us here in Australia it might mean that the doom and gloom continues for a while putting downward pressure on the US market therefore negatively impacting shares in Australia.
Residential Property Investors - Pucker Up!
The RBA lifted rates further last week, by 25bp to 4.25%. “Ouch!” go residential property investors with standard variable rates now hovering around 7% and likely to go higher however most investors are consoling themselves with the capital increases they are getting.
It was the fifth time in which the RBA has lifted rates since it began its tightening cycle in October.
Reading through the accompanying statement, there were two key phrases that stood out to us. Firstly, the central bank has introduced a new sentence explaining its decision, i.e. that “Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector”. In other words, it has accentuated the boost that the Australian economy could receive from such developments. The RBA described the housing market as having “considerable buoyancy”.
The RBA also toned down the phrase on sovereign concerns, stating now: “The concerns regarding some sovereigns appear to have been contained at this stage”, when in March it had said, “Concerns regarding some sovereigns remain elevated”. In the final paragraph of the statement, the RBA continues to maintain that, “…with growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average. Today’s decision is a further step in that process”.
Accordingly, we continue to anticipate further rate hikes this year, in line with the improving economic picture. I would suggest the minimum would be two additional rises of 0.25% with some economists now predicting that Australia’s interest rates, already leading most world economies will continue to rise to restrictive levels by the end of 2010. Traders predict the cash rate will sit at 4.83% by year end according to the futures market. Again this is a double edged sword for investors. Clearly the Reserve is predicting housing growth but at the same time a lot of that growth may be eaten up in additional interest costs.
VOLition
Some of you will have exposure to the VOLition investment. Since presenting it to you we have seen many inferior restructuring offers pushed about the place so I am very proud of the job my team did in getting you the absolute best deal.
To have effectively turned back the clock and reset investors with exposure to the ASX 200 at 4461 on a volatility managed basis is in hindsight extraordinary.
Yes markets still need to move higher over the respective remaining terms and there are no guarantees but this is potentially a very attractive investment.
In tracking the unit prices some clients have asked why the unit prices aren’t quite a bit higher given where the ASX 200 currently sits.
The answer is twofold. Firstly you may remember that a large part of the investment was a bond at a fixed interest rate that will effectively grow back to $1.
Given interest rate movements upwards since the resetting of the investment the current valuation to break the investment is impacted by the increase in interest rates.
This impact will become less and less over time as the investments get closer to maturity. Secondly the option that gained the ASX 200 exposure is volatility managed and its pricing, because it is an option, will not always move 100% in line with the market this far out from expiry.
Suffice to say I think this investment is following the money and will play out well if the market continues its run in the medium term.
WOW! Now that’s REAL property!
Some spectacular Queensland (commercial) property went on the market recently filling up the front pages of the Financial Review including ‘Marina Mirage’ and ‘The Paradise Centre’ on the Gold Coast and ‘Waterfront Place’ in Brisbane. The owners of these mega-blue chip properties must be really hurting to put them on the market at this point in the cycle. If you had a few spare hundred million it would be fantastic to swoop on.
Commercial Property is still in the doldrums and that is impacting the unit pricing of A-REITs (Australian Real Estate Investment Trusts). Whilst there is now activity coming back into the market I think it will, unfortunately still be some time before these funds recover.
Is it time for leverage again?
Whilst hardly a blanket recommendation we have recently been suggesting to clients with higher risk profile that they may consider a small amount of leverage for share and managed fund investments again.
Whilst few could have predicted the devastating effects of the GFC there are lessons to be learnt. As an example, liquidity in this post GFC world is rather important. Whilst many investors will continue to vote with their emotions, smart investors are taking leveraged bets with known outlays in our favourite themes.
One of the issues we faced with traditional structured products is the inability to exit the product during a falling market. This lack of liquidity was a hard earned lesson for all of us, however the basic concept of leverage still applies.
We have been exploring other ways of gaining highly leveraged exposure to the market without the downsides of traditional structured products. After the popularity of our “Accelerator” product we are investigating other call option style investments.
Investment Banks are happy to structure these for our clients and the potential payoffs are promising.
I am currently negotiating an offer that will target two of my favourite themes in Berkshire Hathaway and Global Resources. Both offer plenty of potential upside and I look forward to presenting them to you in the coming weeks.
Accelerator doing well
Our new Accelerator Fund has been doing well with its average distribution being 1.85 cents per unit per month since inception. Given the unit price is around the $1 mark this equates to approximately 1.8% per month distributed to unit holders, at the top end of our 1% to 2% per month expectations.
I must say it has been fantastic sending money to investors every month. The majority of investors have chosen to reinvest these dividends into the fund rather than take the cash yield. This is of course the smartest thing to do – it’s rare that you get the opportunity to compound your returns on a monthly basis and smart investors have twigged to this. Markets move up and markets move down.
Sometimes they move sideways. Generating a yield through the Buy Write strategy each and every month on a mechanical basis will go a long way to reducing risk and increasing yield in a variety of markets.
And now that the Accelerator Fund is in place all investors can access this strategy with as little as $5,000. Letting go of focussing so much on predicting price and focussing more on process than immediate day to day outcomes will stand investors in good stead. The Magic Moo Cow Game at www.MagicMooCow.com.au and the Accelerator Fund at www.AcceleratorFund.com.au have been designed for this very reason.
Wealth Magic - The first time in 6 years, the last time ever
As a personal favour to a friend I have agreed to do my famous “Wealth Magic” seminar one more time. It’s been 6 years since I swore I would never present it again but I think it will be a lot of fun to revive it one more time. Many of you reading this will have attended. Over 10,000 people have attended the seminar over a decade. For many people it changed their lives and I still receive regular emails from people who have made literally millions of dollars since.
I’d love to do a big promotion but I’m not going to. I’d love to have big numbers there (we got up to 2,500 people at one seminar once) but that’s unlikely (I’m expecting between 50 and 100) but I would like to have you, your family and friends along to this once-only event.
In addition I will have a very special guest – Ben Doyle who will be helping me with the Property sections. Ben is a protégé of mine. Starting as my security guard over a decade ago who initially got his Real Estate license, won the REINSW “Rookie of the Year” and then went into property development.
Since then he has bought, renovated and sold literally millions of dollars in property. His hands-on insights will be highly valuable to those of you keen on property.
Wealth Magic is the quickest way to boost your wealth creation in any economic condition because it provides a complete strategy, blue print and methodology that almost anybody can follow to successfully create wealth and financial freedom for themselves, their family and those they care about.
There are special deals for Wealth Club members and family.
Seats are limited, so I really do suggest you register sooner rather than later to ensure you get in to see the last Wealth
Magic seminar that I will be presenting live. Click here to book or call 1800 878 878.
The 8 Key Principles of Success
Your simplest, most productive path to wealth revealed
1. The Corn Flakes Principal
You will notice that in everything I have written I have said words like "simple", "easy", "basic", "straight forward" and so on. That’s because over time I learnt that the simplest way is more often than not the best way.
A lot of people seem to like to add complexity into everything, and think that will produce a better outcome. It rarely does. And when it does it comes from intense knowledge, application and expertise.
And quite frankly that type of learning, dedication and experience is beyond most normal people who are dealing with everyday life - families, work, relationships and so on.
What you need is a simple, easy to implement and most of all successful system of investing success, and that's what Wealth Magic gives you.
A step by step success formula that suits most people who want to succeed at investing but don't want it to rule their lives.
2. The Karate Kid Principal
Wax on, wax off. Wax on, wax off.
In the famous movie "The Karate Kid" the key character was taught the essentials of karate through seemingly menial and repetitive tasks like cleaning a car or painting a fence. What he didn't know at the time was that those basic movements repeated over and over again were the foundations of success in the endeavour of karate.
ALL systems have their basic success elements that once discovered can be repeated over and over again and will almost inevitably produce the same outcome. Wealth Magic will demonstrate those investment principals to you – simple easy to understand things that when repeated will produce results.
Highly successful people are not the most creative, talented, lucky or intelligent people - get that out of your right head now. Highly successful people have discovered a system which they repeat over and over again honing it, developing it, up-skilling it until it reaches optimum. Only then do they move onto the next endeavour with the single goal of discovering the basic success elements of that system.
Investing in property has basic success elements. Investing in shares has basic success elements. You probably already know some of them, maybe even all of them. But do you know the precise sequence to apply them, do you know how they all work together in symmetry, do you know which are the weakest links in the pattern and which are the constraints? With respect, probably not, and that's what Wealth Magic reveals.
Over 20 years of development and understanding of the basic drivers of success - all my knowledge and skill will be explained to you. Saving you literally years accumulating the knowledge of learning on your own. That's a large part of the value of a seminar like this - to cut through the learnings and give you the benefit of the years of my experience.
3. The Oompaloompa Principle
Even the dumbest, least talented person can be successful if they have a good system!
And part of systemisation is sequencing. What happens when.
Have you ever noticed how some people are significantly more productive than others? They have probably mastered prioritisation - doing the most important thing first.
But, unbeknownst to them they also have probably mastered sequencing - doing things in the right order.
That's what successful production lines do. Break everything down, make it simple and build it in the right sequence so even oompaloompas can do it.
So for example, most people waste weeks in renovations because they get the sequence of tradespeople out of order. Tradespeople have to arrive in a precise sequence and you need to allow room for error in your sequencing. If your water proofer doesn't finish on time then your tiler can't start, and he's not going to wait around - he'll go onto his next job costing you days, maybe weeks and putting everybody else back too.
A one week delay will cost you about $769 in interest alone. Do that a few times and it adds up - big time, and that eats into your profits. Not only that, most of the stress from renovating comes because people don't understand the correct sequence so they are always running around putting out fires.
This is a simple example but I am sure it illustrates how important getting the sequence right is.
Once you've got that you can put your system almost on remote control and breeze through investing only having to pay close attention when the unexpected happens. This could take you years, even decades to develop on your own. Wealth Magic can give you the fast track to that knowledge.
4. The David Copperfield principal
How does David Copperfield fly? Wires.
You know that, I know that, he knows that we know it, so why do we still pay big dollars to see it? Because he creates the illusion that it's magical!
The trick is not knowing that it's done with wires, it's the elegance in which it is done that is magic, but he's still got to master the wires before he can make it elegant.
With wealth creation and investing most people still think it's some mythical thing that’s hard and scary and unreal - like flying, but in reality investing is just understanding where the wires are.
That’s why this seminar is called Wealth Magic - because we strip away the illusions and reveal the wires of investing. For example investing in shares is not as complex and scary as everybody makes out. That is an illusion.
It is an illusion created because there is a BIG industry (which I am a part of by the way) that makes lots of money investing for people.
Knowledge is power.
The assumption is that if you all know how to do it you won't need us. That's codswallop of course. I believe you'll get me to invest on your behalf when you trust me, understand my methodologies, decide for yourself that they suit you and would prefer to get on with your life than do what I do for a living - invest.
While ever you think that flying is magical you'll never fly. Ordinary everyday people just like you are succeeding at investing because they know how the wires work. That's what Wealth Magic reveals - how the "wires" of investing work. You'll still need to develop the skill of investing and master that to be successful but once again Wealth Magic could cut the time and learning phase for you significantly.
5. The Buffett Principal
Warren Buffett, the world's most successful investor says the number rule of investing is to "preserve capital". And that the number two rule is to always remember the first.
Defensive strategies in investing are just as important as offence. Yet most people barge off like a bull in a China shop over extending and not even thinking about, let alone planning for, the downsides of any particular strategy.
For example, one of the downsides of property is it is illiquid. It's hard, costly and time consuming to buy and sell. Nobody really thinks about the consequences of that. In the last few years a lot of people have been caught with property they simply can't sell in a timely manner. People blind themselves with illogical thinking and say "I'll wait" until the market improves but every minute between the decision to sell and actually selling is a cost. It is a cost of interest and fees, and it is an opportunity cost.
One of the downsides of shares is volatility - price movement (good when it's up, not so good when it’s down). If you are going into share investing what is your strategy to deal with that, how will you cope emotionally if your portfolio drops, will you be ready and able to take advantage of that situation, what will you do?
Wealth Magic helps by providing you with the answers to these questions, and more importantly providing you with strategies to counteract potential negatives, again speeding your learning.
6. The Candy Shop Principal
Candy Shops (or more correctly in Australia - Lolly Shops) present you with an overwhelming choice of yummy possibilities. Investing is like that. There are so many things to choose from.
What you've got to do is find the bag of Lollies that suits you.
When it comes to choosing lollies, even if the choice is overwhelming we somehow seem to know what we like and what we want.
You've got to develop the same skill in investing. Wealth Magic will help with that.
Research shows that successful investors demonstrate the ability to observe, discern and act upon investing opportunities.
In other words they see opportunities where others don't, they can tell the difference between a good investment and a bad one (or perhaps more importantly they know what their strategy is so they know instantly if an investment presented to them fits or not), and when they decide yes they don't procrastinate or let their insecurities get in the way of making a rapid decision.
All this comes from experience, skill and knowledge. Experience and skill you can only get in the real world but Wealth Magic will accelerate your knowledge and you will gain my personal experience and skill and use that to help keep you from investing mistakes.
Most people invest without discernment because they fear missing out. Sadly over my 20 year career, I have seen most pain come from this simple issue - people invest in things that are not right for them or their strategy.
You can avoid that pain by :
1. Having a strategy (and Wealth Magic will help you develop yours) and..
2. Sticking to it (and Wealth Magic will help you have the confidence to do that).
Pretty simple..
Then it's just a matter of curiosity and discovery. Getting out there and finding opportunities (and Wealth Magic will show you the way there too).
7. The Ferrari Principal
Ferrari's are beautiful cars but more than anything else they are FAST. Every part of the development of a Ferrari from its handling, its weight, and its engine is designed to achieve only one thing - speed. There are safer cars, there are more comfortable cars but there are fewer faster cars.
The key to wealth creating is to hasten slowly. Once you have a successful system, a repeatable strategy of success it's time to press the accelerator. Wealth Magic will help you understand when to hit the gas and when to back off.
8. The Buddha Principal
A little fat man teaches the path to enlightenment! That sounds like me.
Seriously though, unless you get self aware you will continue to sabotage even the best strategy.
• Do you ever procrastinate making a decision even though you sense it's the right one to make and you know it'll cost you a packet? Sabotage!
• Do you ever get fearful that the strategy you are doing will not work, that it's going to fail, that you're going to fail (and don't recover from those feelings quickly)? Sabotage!
• Do you ever listen to people who are not experts in their field and take that advice like it was actually wisdom? Sabotage!
• Do you ever act impulsively without thoroughly understanding what you are doing or do you over analyse and never invest through paralysis by analysis? Sabotage!
I could go on and on about self-sabotaging behaviour.
The truth is 80% of success is psychology and the other 20% is action. More than anything else Wealth Magic helps you understand your relationship with money and how that is working for you and against you. How it is contributing to your success and how it is sabotaging you.
You don't need to have a PHD to get that, you probably learnt most of what you know about investing and money from your parents and I'm guessing their name wasn't Rockefeller, Buffett, Packer or Murdoch. If that's the case, with respect to your folks, your thinking is probably deeply flawed when it comes to wealth, success and at the heart of it - money.
And those flaws will manifest themselves in your lack of financial success. Even if you are quite successful already if you know that there are things holding you back from achieving your true potential, Wealth Magic may just be the shot in the arm you need.
Yes it is motivational, but more important it is revealing. If you are ready to hear the truth, if you are ready to evolve then Wealth Magic will peal back, layer by layer, all your excuses, inadequacies and blockages and replace that sabotaging behaviour with quality skills and abilities designed to get the right mind-set for success.
So if you'd like to:
1.Develop a high quality wealth plan that could lead you to financial security forever
2.Fast track your investing success
3.Add a raft of investing strategies and opportunities to your investing tool kit
4.Figure out how to protect your wealth from downturns and take advantage of chaos
5.Learn how you sabotage your own wealth creation and how to get out of your own way
6.Learn the 8 key wealth creation strategies from property to shares
7.Lean how to build a diversified investing portfolio that will perform in almost all market conditions
8.Achieve investing results simpler, easier and have a better life faster
Then Wealth Magic is for you.
Book in by calling 1800 878 878 now - our team have a lot of different options for you that can save you money.
Signs of the times
What I thought was somewhat entertaining were the results of the recent prestige number plate auction held in Qld.
The “Cayenne” plate sold for exactly the same price as the “Cooper S” plate ($4,500) so clearly the Porsche posers are doing it tough. The “New Farm” (trendy inner city suburb) plate ($3,500) trumped older more established “Toowong” (hardly worth a mention at $1,750) but good ol’ “Surfers” trumped them both ($10,500).
Maybe the truest sign of the times was that “Dentist” ($9,500) outsold “Plumber” ($7,000) putting the order of the universe back in place for “professionals”. But “Builder” beat ‘em both at $13,000 and “Sold” which I presume went to a real estate agent reigned supreme at $25,000. I wonder what “HedgeFundManager” would have gone for?
Bye Bye Bessie
A couple of weeks ago I was offered an extraordinary price for my Bentley. These opportunities don’t come up all that often and certainly not in these markets so it was no time for sentimentality as I readily agreed to the price.
Interestingly I noticed today that there were 185 Ferrari’s for sale on www.carsales.com.au and only 55 Bentleys and only one of those a GTC (like mine) so I’m guessing that’s why I got such a good price for it.
Amongst those Ferrari’s are 9 brand new California’s.
Does this mean “old conservative money” (Bentley) is holding up whilst “nouveaux riches” money is still struggling?
Positive Signs and Positive Times
So it all seems very positive at the moment for the economy and both the property and share markets.
There is some hesitation with interest rates and surging shares but all in all the signs are good.
Employment and other key economic indicators are up and friends of mine in big businesses are positive.
The chances of a double dip recession have now receded to almost negligible.
I have written many times about your mind-set and approach and this will be the last time. I know it’s been tough for some people. It’s sure been tough for me. But opportunity abounds and it’s time to look at the positives and not the negatives.
I am increasingly enthusiastic about the medium to long term prospects and I am looking forward to continuing to rebuild any lost wealth with greater experience and knowledge.
Good investing,
Cheers
Peter Spann
Important Information
Peter Spann is a representative of Freeman Fox Ltd ABN 17 010 763 041, the holder of an Australian Financial Services licence (AFSLN 246510). This general advice is provided by Freeman Fox Ltd. It does not take into account your investment objectives, financial situation, or needs. You should consider the appropriateness of this advice having regard to these matters, and read the relevant Product Disclosure Statement (PDS) before making any decision to invest.
Macquarie Alternative Assets Management Limited ABN 30 103 237 181 (“MAAML”) is the responsible entity of the VOLition Fund ARSN 136 856 383.
Fundhost Limited ABN 69 092 517 087 AFSL 233 045 (“Fundhost”) as the Responsible Entity is the issuer of the Excela Australian Equity Income Accelerator Fund™ ("Accelerator") ARSN 139 641 946. Excela Pty Limited ABN 25 124 028 244 (“Excela”) is the Investment Manager for Accelerator. Excela is a Corporate Authorised Representative of Freeman Fox® Limited which is the holder of an Australian Financial Services Licence (246510) and a Market Participant of the Australian Securities Exchange (“ASX”).
Information contained in this update is obtained from various sources. The changing character of markets requires constant analysis and may result in changes. Past performance is not a reliable indicator of future performance. All investments contain an element of risk. Actual performance will be different and returns are not guaranteed. While information in this update is given in good faith and is believed to be reliable and accurate, Freeman Fox gives no warranty as to the reliability of accuracy of the information, nor accepts responsibility for any errors or omissions of third parties. Opinions expressed are subject to change.
If you require assistance in relation to your personal investment situation please contact a representative of Freeman Fox Ltd on 1800 000 369. For a copy of our Financial Services Guide, please go to http://www.freemanfox.com.au.