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The NAB Business Conditions survey released in July confirmed what most already knew, that business conditions remain tough in Australia.  While the economy has not entered recession officially, "it just feels like it" for most of the country.

The chart below is the latest survey reading.

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The Business Conditions survey shows that we have not seen this sort of weakness since 2009 which was during the depths of the GFC.  Business confidence is best described as "shot" and will probably not improve until the result of the Federal election is known.

For this reason we remain very selective about where we would recommend to invest in Australia.  We are tending to favour businesses that have overseas earnings rather than those solely based domestically.

This weakness in business conditions could also convince the RBA to further cut interest rates.  NAB themselves have suggested that the RBA could move again in August following the issue of this survey.  This could further weaken the $AUD.

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

The Australian share market has experienced a strong rally over the past 12 months, although it must be said that this rally was off a low base.

So the question that all investors want to know - "Is the share market expensive now?"

One way of determining this is to consider the Equity Risk Premium.  Equity Risk Premium by definition is "The excess return that an individual stock or the overall stock market provides over a risk-free rate. This excess return compensates investors for taking on the relatively higher risk of the equity market. The size of the premium will vary as the risk in a particular stock, or in the stock market as a whole, changes; high-risk investments are compensated with a higher premium."

Below is a chart that shows the history of the Equity Risk Premium in Australia and basically this shows that the higher the risk premium, the better value the market.  Or in other words when the graph is above the "average" line the market can be considered to offer better value compared to when the equity risk premium is below average.

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This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

Friday, 14 June 2013 00:40

Stock tips when the $AUD is falling

Well known Australian investor Roger Montgomery talks about what stocks are likely to do well when the $AUD is falling.

 

http://www.youtube.com/watch?v=jqcqvRZr18U

We all know that the certainties in life are death and taxes.  While technically not a tax, the Government recently changed the rules on inactive bank accounts as a novel way to increase Government revenue.

Bank accounts that have been inactive for 3 years (ie no deposits or withdrawals) will now become the property of the Government after recently introduced changes.

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This serves as a reminder that unless you wish to make a donation to our great nation, please ensure that any bank accounts you may own remain active.

 

 

665200-health-insurance-moneyAs expected the Reserve Bank Board decided to leave the cash rate unchanged
at 2.75% at its June meeting.

The Governor's statement accompanying the decision presented taken as a
whole leaves us comfortable with our existing position: a 2% terminal rate
with the next easing in August.

The key concluding paragraph retained a clear easing bias but also made it
clear the Bank was in assessment mode – not only on the need for further
support for demand but also the degree to which the inflation outlook
afforded scope for further measures. Monetary settings were judged to be
'easy' and sufficient to "contribute to a strengthening of growth over
time, consistent with achieving the inflation target". And settings were
seen as "appropriate for the time being", the phrasing indicating the
Bank's views may be reassessed month to month.

However, the closing sentence gave a more uncertain view on the scope for
further easing: "the inflation outlook, as currently assessed, may provide
some scope for further easing, should that be required to support demand."
That contrasts with the statement accompanying the May decision to cut
rates which had a more definitive assessment that "the inflation outlook
would afford scope to ease further ..." with the Board choosing to "use
some of that scope". The changed emphasis points to the RBA seeking more
comfort on inflation, suggesting any follow on move is more likely to occur
post CPI in August than at July's meeting.

The sharp decline in the AUD is also likely a factor in the more qualified
view on 'scope'. The Bank may be seeking not only to reassess what impact
this may have on inflation but where the current move settles. Notably, the
statement acknowledges the decline in the currency but asserts that the
exchange rate "remains high considering the decline in export prices". That
aligns with our own view that the decline has merely reduced the degree of
overvaluation rather than eliminated it altogether (in USD terms we see the
decline as having reduced a 10c overvaluation to one around 3c). The Bank
may also share our concern that the change in market expectations on Fed
policy (a 'tapering' in QE purchases), which has been a key driver of
recent currency moves is misplaced and could reverse quickly.

The rest of the Governor's statement was brief. Global growth was seen
running a bit below average with "reasonable prospects of a pick-up next
year".  =Australia's growth was seen as "a bit below trend" and inflation
consistent with the medium term target.

The description of the impact of previous policy easing was decidedly more
downbeat though. In April, the Governor's statement boldly asserted that
there were "a number of indications that the substantial easing of monetary
policy during late 2011 and 2012 is having an expansionary effect on the
economy". In May, the view was that there had been "a strengthening in
consumption and a modest firming in dwelling investment". In June though
the statement looks less convincing with simply: "The easing in monetary
policy over the past 18 months has supported interest-sensitive areas of
spending".
Also of note, the view on business investment statement is not touched on
at all. This may be due to heightened uncertainty around the timing of the
mining investment cycle but is notable given the resilience of investment
plans revealed in last week's ABS Capex report.
We saw this has a key factor in the RBA leaving rates on hold this month
and it might have been put forward as a positive sign but instead the Bank
has opted not to discuss the investment outlook directly at all.

Conclusion
The Reserve Bank has retained an easing bias, but it is not an urgent one.
The path of easing from here will depend on developments in demand; the
financial markets (the $A, as it jointly impacts demand and inflation) and
the inflation story itself. The most important piece of information on the
latter front will come to hand between the July and August meetings, in the
form of the second quarter CPI. We have a more downbeat view on global growth next year and our domestic forecasts are also lower than the Bank's. As such we
already see a strong case for further monetary policy easing. However, the
tone of today's statement implies that the RBA Board is looking for further
evidence before acting again, which points to rates being kept on hold in
July.  However, it is likely to signal at that meeting that the forthcoming
inflation print could provide scope for it to support demand further within
the context of its target. That intent would then be actioned at the August
meeting. Beyond that point, we see two further 0.25% rate cut moves, in the last quarter of
this year and the first quarter of next year.

 

Westpac Economics Team

 

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

Mark Draper talks with Hamish Douglass (CEO of Magellan Financial Group) about the next big thing that investors should keep an eye out for, which is - What happens when the  United States stop Quant Easing?

Quantitive Easing has been referred to as the printing of money and involves the US Federal Reserve expanding their balance sheet to purchase US Government Bonds, which in turn has resulted in long term interest rates being kept artificially low.

Watch a 7 minute interview that explains what investors should be paying attention to over the next few years, from one of Australia's best macro-economic thinkers.

 

http://www.youtube.com/watch?v=seGsi57g0WU

A research report from UBS recently described Australian Bank share prices as a "bubble".

We ask this question of Kerr Neilson (CEO) and Andrew Clifford (CIO) of Platinum Asset Management.

They do not believe that Australian Banks are in a bubble - but believe that there are many other banks globally with superior growth characteristics at far cheaper prices.

 

http://www.youtube.com/watch?v=Vsa4r56TEcI

Saturday, 18 May 2013 23:15

$AUD - is this the bottom?

We talk with Kerr Neilson (CEO Platinum Asset Management) and Andrew Clifford (Chief Investment Officer Platinum Asset Management) to discuss the future of the $AUD.

 

They provide a very candid view on the Australian dollar and how Platinum's portfolio's are positioned to take advantage of the currency.

 

 

http://www.youtube.com/watch?v=ei8rQUL1zmA

Wednesday, 08 May 2013 04:02

How low can interest rates go?

Interest Rate ImageWe expect the Reserve Bank will complement its May rate cut of 0.25% with a follow up move of 0.25% in June. Rates are expected to eventually
bottom out at 2% by the first quarter of 2014 (that is 0.75% lower than today).

There are ample precedents for a May/June move. Over the last 10 years the Bank has moved rates on four occasions in May with two of those occasions being followed up in June.

The really key new developments over the last few weeks have been evidence
of an even lower than expected trajectory for inflation and, as pointed out
in this note, a Reserve Bank that is clearly open to further action.

Given this scenario we think that the most likely policy option is a follow
up rate cut in June of 0.25% which will be implemented for the same reasons
as we have seen today complemented by further evidence of softening
confidence and weak business investment.

We have also always argued that our assessment of the global economy is
more subdued than the consensus. The IMF is expecting 4% world growth in
2014 – we are closer to 3%. For Australia's terms of trade, the peak to
trough decline in the 2011–12 period was 17%, while we forecast a 2013–14
decline in the region of 10%. We have long maintained that from a world
growth perspective, 2014 will feel like 2012.

The threat of a disruptive event in Europe remains ever present.

The US story does not convince us. We confidently expect that the US
Federal Reserve will persist with its quantitative easing policy through
most of 2014.

China has already begun the process of recalibrating its monetary and real
estate policy settings and the support it received from the export sector
in Q1 is already receding. Indian domestic demand is flagging badly and the
required policy support has not been adequate. Japan is something of a
bright spot, but its gross acceleration will far exceed the net from a
global growth perspective as it takes back market share.

From June we expect the Bank will be patient to assess the impact on
domestic demand of the low rates. However by year's end it will become
clear that further stimulus will be required to offset the impact of a
softening world economy while the response to the low rates in the domestic
economy will be disappointing.

We anticipate two further rate cuts will be required in the December
quarter of this year and March quarter of next year. That would see the
cash rate bottom out at 2% from its current 2.75%. Having driven rates down
to that level we expect rates to remain on hold through the remainder of
2014.

Our specific profile for the Australian dollar, which had incorporated a
steady cash rate of 2.75% (with downside risks) and a softening world
economy, saw AUD back at USD 0.97 by June next year, partially due to a
gradual narrowing of the overvaluation premium.

With our lower RBA rate profile there is some modest room for further
moderation in the fair value of AUD with our June 2014 target being lowered
to USD 0.96. However, the key to a more significant fall in AUD is a more
marked reduction in that over valuation premium – something that lies
essentially outside the RBA's influence.

 

Bill Evans - Chief Economist - Westpac Banking Corporation

 

This material has been provided for general information purposes and must not be construed as investment advice. This material has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. Investors should consider obtaining professional investment advice tailored to their specific circumstances prior to making any investment decisions and should read the relevant Product Disclosure Statement.

 

Trauma insurance pays a lump sum upon diagnosis of a specified range of illnesses including cancer, stroke and heart disease.

The payouts can be very helpful for those who suffer these illnesses to pay down debt or to pay for necessary changes to their houses.

How likely are people to be diagnosed with the illnesses covered by trauma insurance though?

The graphic below outlines some of the statistics.

If you would like a quote on Trauma insurance, please contact your adviser.

 

Trauma Picture