How long to go until this Volatility ends?

How long to go until this Volatility ends is the question participants in the ‘markets’ are asking at the moment.

That is why we did attend this week four presentations from those entrusted to manage billions of your dollars. Lets listen to those who probably know rather than read the headlines from the sub editors.

Hence we listened to four different fund managers this week & their estimates are we have another year of turmoil.

This is also what Peter Q said in May.

Why? It is those European debts who have loaned monies to governments who are unable to pay their loans back. The total that European banks need to be recapitalised is 1.6 trillion according to one speaker on Tuesday. I.e. 1.6 x 10¹² . In the US most banks have done so but not yet in Europe.

Banks too frequently have to be recapitalised which is another reason why they are trading lower as new shares will be offered at a discount to current prices. We recall buying WBC @ 3.05 in 1980 & then when the late Kerry was wanting to buy them @ 2.50 we were concerned then. What percentage fall was that & what have they returned in dividends since then has been much appreciated?

Our first presentation also known as ‘death by PowerPoint’ opened with a slide of DJ’s opening on boxing day. Also now is a great time to buy prestige cars & vineyards.

That was a common theme by the fund managers. I.e. the markets are at a 30 year low. This of course doesn’t imply that they won’t  go lower. We also watch Sky Business & a common theme there is  ‘ bearish’. I.e. there is no great rush to ‘go long’ yet as the trend is still down.

However lets be very aware that deposits in the bank at 6% won’t go to the capital you require to complete the gray lap in style.

Without reproducing the 50 line disclaimer which is at every presentation lets summarise.

·         The 2010 – 2011 financial year All Ords return was 12% from 8% growth & 4% dividends.

·         From 1983 to 2011 Average growth has been 7.5% with dividends 4% giving 11.5%p.a.

·         These are well above bank deposit rates & ‘franking’ would add another 1%.

·         As intuition suggests the longer the holding the less risk. There was no period longer than 7 years when returns were negative. This was over any period in last 100 years.

·         The forward PEs @ 11 are still below the average of 14.8.

·         Developing countries are driving growth & not the tired socialised West.

·         Corporate Australian is strong with cash sitting on balance sheets.

·         One fund manager participated in 650 company meetings. Does an individual do that?

·         This fund manager visited Mongolia which is much closer to China than Australia.

·         A selective view on commodities with iron ore, copper & thermal coal & oil.

·         Currently Australian banks have lower growth but  valuations are attractive.

·         There are sound reasons why credit e.g. bonds should be in a portfolio. [legal right, capital position & more predictable income].

·         This global income fund earned 9.8% over 1 year & the high yield fund 11.8%.

·         Bonds & credit deserve an allocation in your portfolio. [we have suggested previously this to be your age]

·         Bonds have a lower volatility with competitive returns.

·         Bonds provide diversification & enhance income.

·         Bonds provide a less aggressive way to achieve returns.

·         The current banking funding risk is NOT the liquidity crisis of 2008.

·         There is a slow growth fear due to long term debt

·         The G7 countries have debt >70% GNP

·         There are options to deleveraging & there are risks.

·         Interest rates are dropping here & elsewhere.

These are ‘bullet point’s & all can be expanded. However there is plenty of opportunity other than the bank deposit . Jarrod the builder on Wednesday compared that the DIY at Bunning’s with the licensed builder is at best playing but most can’t do the serious building.

 So too the capital you require for a lifestyle shouldn’t  be delegated to DIY.

It’s too important for that. These fund managers in all cases were as gray as we are.

Hence there is no rush yet to invest but invest we must as otherwise we outlive our money & rely on others.

You are welcome to call on 07 3848 1088 or email or visit our websites

We read today that Robbie could have been a maths teacher as we were. We now both coach & have some common background. [yes we did score in front of Miss World although Belinda probably doesn’t remember].

John McAuliffe