Introduction

The past few weeks have been messy with Brexit, the Australian election, another terrorist attack in France and an attempted coup in Turkey. In fact, the last 12 months have been - starting with the latest Greek tantrum and China share market plunge a year ago. It’s almost as if someone has listened to Taylor Swift’s song “Shake It Off” and decided to try and shake up investment markets. This has all seen a rough ride in investment markets with most share markets falling into bear market territory at some point over the last year and bond yields plunging to record lows. This note reviews the worry list from the last 12 months, the impact on returns and looks at the outlook going forward.

There’s been a long worry list

The past year has seen a long worry list with:

  • Another Greek tantrum in June-July last year;
  • A 49% plunge in Chinese shares with worries about debt, growth & capital outflows as the Renminbi was devalued;
  • An ongoing collapse in commodity prices;
  • Intensifying concerns about deflation;
  • Recession in Brazil and Russia and concerns about a new emerging market debt crisis;
  • Worries about energy producers defaulting on their loans;
  • Ongoing angst about the end of the mining boom and the risk of a property crash in Australia;
  • A slump in manufacturing globally led by the US & China;
  • Concerns that the Fed raising rates and causing a further surge in the $US would accentuate problems for China, the emerging world and commodity prices;
  • Another soft start to the year for US growth;
  • Falling profits in the US, Australia and most regions;
  • Numerous IS related terrorist attacks;
  • A “surprise” vote by the UK to Leave the European Union setting of a new round of fears that there will be a domino effect of countries seeking to leave the Eurozone;
  • A messy election result in Australia with likely an even more difficult Senate which will make it even harder for the Government to control spending and implement reforms;
  • An escalation of tensions in the South China Sea; and
  • An attempted coup in Turkey.

The success of Donald Trump in the US, the Brexit vote & the close election in Australia highlight a growing angst at rising inequality and a loss of support for the economic rationalist policies of globalisation, deregulation and privatisation. While understandable, the resultant populist policy push risks slower long term economic growth and lower investment returns.

Constrained and uneven returns

The turmoil over the last 12 months has shown up in very messy share markets (with most falling into bear market territory with 20% plus falls from last year’s highs to their lows early this year before a rebound) and a sharp decline in bond yields to record lows. However, unlisted assets like commercial property, infrastructure and listed yield-based plays like real estate investment trusts have done very well. Reflecting the constrained environment, balanced growth superannuation funds saw average returns of around 1-2%.

Source: Thomson Reuters, AMP Capital

Nine reasons why it’s not all that bad

But while super funds had soft returns over the last year they were not disastrous and moreover they averaged 8-9% over the last three years – which is not bad given how low inflation is. What’s more, while the worry list may seem high that has been the story of the last few years now. For example, 2014-15 saw worries about the end of the US Fed’s quantitative easing program, Ukraine, the IS terror threat, Ebola, deflation, a soft start to 2015 for US growth (we hear that one a lot!), worries about China, soft Eurozone growth and on-going noise about a property crash/ recession in Australia. So nothing new really! More fundamentally there are nine reasons for optimism.

First, global growth is okay – there has been no sign of the much feared global recession. Global business conditions surveys point to ongoing global growth of around 3%.

The shift to overvaluation more than a decade ago went hand in hand with a surge in the ratio of household debt to income, which took Australia’s debt to income ratio from the low end of OECD countries to now being around the top.

Source: Bloomberg, AMP Capital

In Australia, growth has in fact been particularly good at around 3%. The economy has rebalanced away from a reliance on mining and it has benefitted from the third and final phase of the mining boom which has seen surging resource export volumes.

Second, central banks have signalled easier monetary policy for longer post-Brexit which is likely to ensure that liquidity conditions remain favourable for growth assets.

Third, while the shift to the left by median voters in Anglo countries resulting in more populist policies is likely to harm long term growth potential, it could actually boost growth in the short term (including under Trump in the US) as it sees a relaxation of fiscal austerity.

Fourth, we may have seen the worst of the commodity bear market. After huge 50% plus falls some commodity markets are moving towards greater balance (notably oil and some metals).

Fifth, deflation risks look to be receding. Oil prices which played a huge role in driving deflation fears look to be trying to bottom and a shift towards more inflationary policies by governments and some central banks are likely to start shifting the risks towards inflation on a 2-5 year view.

Sixth, the profit slump may be close to over. US profits are showing signs of bottoming helped by a stabilisation in the $US and the oil price. Australian profits are likely to rise modestly in the year ahead as the commodity price driven plunge in resource profits runs its course.

Seventh, the latest falls in interest rates and bond yields have further improved the relative attractiveness of shares and may unleash yet another extension of the search for yield.

Eighth, investors have been more relaxed about the latest decline in the Chinese Renminbi - reflecting slowing capital outflows from China, reassurance from Chinese officials and a growing relaxation about fluctuations in the value of the RMB.

Finally, all the talk has been bearish lately – Brexit, Chinese debt, US slowing, messy Australian election – which provides an ideal springboard for better investment returns!

What about the return outlook?

The August–October period can often be rough for shares. But looking through short term uncertainties and given the considerations in the previous section, – it’s hard to see the outlook for investment markets differing radically from what we have seen over the last few years albeit stronger than over the last 12 months for shares. Growth is not flash but okay, inflation is low and monetary conditions overall are set to remain easy. For the main asset classes, this has the following implications:

  • Cash and term deposit returns to remain poor at around 2%. Investors remain under pressure to decide what they really want: if its capital stability then stick with cash; if its a decent stable income flow then consider the alternatives.

Source: RBA, AMP Capital

  • Ultra-low sovereign bond yields of around 2% or less, with a third of the global bond index in negative yield territory, indicate that the return potential from bonds is low.
  • Corporate debt should provide okay returns. A drift higher in bond yields is a mild drag but with continued modest global growth the risk of default should remain low.
  • Unlisted commercial property and infrastructure are likely to benefit from the ongoing “search for yield”.
  • Residential property returns are likely to be mixed with some cities continuing to see price falls and a further slowing in Sydney and Melbourne property prices. Very low rental yields are not good, particularly in oversupplied apartments.
  • The rising trend in shares is likely to continue as: shares are okay value, monetary conditions remain very easy and continuing moderate economic growth should help profits. Within shares, we favour European, Japanese and Chinese/Asian shares over US shares.
  • Finally, the downtrend in the $A is likely to resume enhancing the case for global shares (unhedged).

Things to keep an eye on

The key things to keep an eye on over the year ahead are:

  • Global business condition PMIs – these currently point to constrained but okay growth.
  • Signs of European countries seeking to leave the Eurozone and investors demanding higher borrowing rates to lend to countries like Italy, seen to be at risk of leaving. Italian banks are also a risk worth keeping an eye on.
  • When/if the Fed starts to raise rates again later this year and the impact on the US dollar.
  • Chinese economic growth readings.
  • Whether Australian non-mining activity keeps improving.

Concluding comments

The September quarter is historically a rough one for shares and the prospect of a Trump victory in the US and worries about Italian banks may cause some nervousness. But looking beyond near-term uncertainties, the mix of reasonable share valuations, continued albeit constrained global growth, easy monetary conditions and a lack of investor euphoria suggest returns are likely to improve from those seen over the last year.

 

Shane Oliver

Chief Economist AMP

Thursday, 28 July 2016 14:27

Scam Watch

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How to spot some of the most common frauds


Scams are all around us. In fact, they're so common that more than 105,000 scams were reported to the Australian Competition and Consumer Commission ACCC last year, resulting in losses of more than $84 million. And that's just the tip of the iceberg: many more scams went unreported, often because the victim was too embarrassed to tell authorities about the crime.

So, to help you identify and avoid the increasing number of scams, we've compiled a guide to 12 common scams that we've recently come across. 

1. The urgent transfer

What it looks like: You receive an email from a friend, family member or senior staff member telling you they need urgent access to funds. The story adds up (they're probably overseas and short on time). Besides, it comes from their email address and looks authentic. 

What's really happening: Their email account has been compromised andyou're transferring your money straight into the scammer's bank account.

 

2. The tampered ATM

What it looks like: You use a busy ATM to withdraw money. You notice nothing unusual and receive your money, just as you always do.

What's really happening: You've just passed your card through a skimming device, which has captured all of the data on its magnetic strip. Meanwhile a pinhole camera catches you entering your PIN. The scammers can use this information to create a dummy card that lets them draw on your account.

 

3. The mail that never came

What it looks like: That credit card you applied for never seemed to arrive.

What's really happening: Scammers accessed your letterbox and intercepted the card before you had a chance to receive it. They've changed the PIN and are now using it for themselves. In the process, they're racking up a significant debt in your name.

 

4. The parcel pickup

What it looks like: A postal services company sends you an email telling you that you have a parcel that can't be delivered. If you can't collect it within 30 days it will be destroyed. But first, you need to print off a label to redeem your package.

What's really happening: Rather than printing a label, you're actually downloading dangerous ransomware. Once it's installed, scammers can use it to lock files and even destroy them. The only way you can take back control is to pay them. Making sure your computer is regularly backed up can also help counter-effect the impact of ransomware.

 

5. The tax refund

What it looks like: You receive an email from a government agency advising you of a tax refund. To receive it, all you need to do is follow the link to your bank and enter your account details.

What's really happening: The link takes you to a fake site set up by the scammers. Instead of giving your account details – and internet banking password – to your bank, you're actually delivering this vital information straight into the scammer's hands.

 

6. The 'free' wifi

What it looks like: You're at the airport or hotel and need to connect your laptop or mobile to the internet. When you search for a connection, you're in luck. There's a free hotspot right nearby.

What's really happening: You've actually just connected to a fake network. This allows a scammer to intercept all network traffic and steal your personal information. And the pain doesn't stop there. From now on, every time you turn on your device, you could be transmitting the same 'free' wifi to other unsuspecting users. You should only connect to wifi that you know is legitimate and, if in doubt, pay to access a secure network. You should also make sure your anti-virus software is up to date and your firewall is turned on.

 

7. The overseas placement

What it looks like: A recruiter posts an advertisement for a job in another country. When you apply you need to pay the recruiter for your visas, travel or other expenses before you start.

What's really happening: You've just handed money, and possibly your personal information, directly to a scammer who now disappears, never to be seen again.

 

8. The unrealistic job offer

What it looks like: You respond to an advertisement that promises you'll earn good money from the comfort of your home as an 'accounts processor'. All you need to do is set up a bank account and forward any money that comes into it, onto another account. You even get a cut of each transaction for your troubles. 

What's really happening: You're being used by fraudsters as a “money mule”: an everyday person with no criminal history through whose bank account they'll move the proceeds of crime. If you're in any doubt about the seriousness of what you're being asked to do, just remember that intentionally laundering money carries a prison sentence of up to 25 years.

 

9. The speeding fine

What it looks like:  A government body/law enforcement agency, emails you to tell you that your vehicle has been caught speeding. You need to download the photo they've taken to confirm you were driving.

What's really happening: The link you click on downloads ransomware to your computer. You'll have to pay the scammers to get back the files they encrypt.

 

10. The love interest

What it looks like: You sign up to a dating site and meet someone like you've never met before. Luckily for you, they fall fast too. Before long they want to move it beyond the internet, the only problem is they're overseas. So they need you to wire money to them so that they can come and visit you.

What's really happening: The love of your life never really existed. You've been scammed.

 

11. The computer problem

What it looks like: You receive a call from your internet service provider. They've detected a virus on your computer and it's sending error messages. The good news is that they can fix it, so long as you give them remote access.

What's really happening:  You've handed control of your computer to a scammer. They'll probably try to steal your personal data or hold your computer to ransom until you pay.

 

12. The store voucher

What it looks like:  A well-known brand uses its social media account to post that it's giving away gift vouchers or free flights or another very attractive perk. To claim your prize, all you need to do is like the post.

What's really happening: You've fallen victim to a 'like farming' scam. The page isn't authentic but has been sent up by a scammer who's trying to get as many likes as possible. They'll on-sell these likes - and your profile - to other fraudsters, who will start pushing spam posts in an effort to get hold of your credit card data.

 

And that's just the beginning...

As the world becomes alert to the prevalence of scams, scammers are responding by becoming more creative. So, as these 12 scams start to become less effective, it's likely that newer and more sophisticated ones will take their place. That's why it pays to stay vigilant and to report any suspicious activity to both Scamwatch and the police.

Wednesday, 29 June 2016 18:45

Brexit Video Update - June 2016

Written by

One of the best macro economic thinkers in Australia, Hamish Douglass (CEO Magellan Financial Group) talks about Brexit.

In particular he assigns a 25% risk that the UK will not actually end up leaving the EU.

He believes that Brexit is not a financial event and not a re-run of 2008.

Media

Monday, 27 June 2016 19:57

Yes Minister - European Diplomacy

Written by

Given the Brexit vote last week - we take a look at UK diplomacy from a comical perspective, courtesy of the funny men who created "Yes Minister".

 

 

Media

Monday, 27 June 2016 19:12

Brexit Commentary - Platinum Asset Management

Written by

 

 

 

 

 

The decision by the British people to withdraw from the European Union (EU) took markets by surprise.  Yet, it did not occur in a vacuum.

 Britain's vote to leave the EU needs to be seen in the context of a confluence of global social and economic trends.

  • Large scale migration within Europe (from East to West) as well as to Europe, from Africa and the Middle East.  Lured by both the pull of better economic prospects and driven by the horror of war, these movements of people raise a formidable challenge the social and political fabric of Europe.
  • The long-running trend of international economic integration – Globalisation – has removed trade barriers and opened labour markets to competition, allowing both labour but especially capital to migrate across national borders.  International business and political leaders promoted ever-greater internationalisation over the increasingly vocal fears and frustrations of the Western middle class who faced job insecurity and financial regression.
  • A European Union whose weak form of political representation (at the European level) and barely integrated financial structure was ill-equipped to cope with the fallout of the Global Financial Crisis (GFC) in the absence of the traditional currency devaluation pressure-release valve.

The frustration and sense of powerlessness of the middle-class has become increasingly tangible since the GFC of 2008 and is manifesting itself in a shift away from traditional political parties of the center. The vote to ‘Leave’, is simply one expression of voter dissatisfaction with this state of play and, in the European context, downright anger at the refusal of the unelected bureaucrats in the European Commission to acknowledge their plight.

Turning to the ‘Remain-Leave’ campaign itself, the debate was focused on ideological and rhetorical arguments which were fanned by a cacophony of emotional pleas in the media, rather than points of fact raised by the Treasury and Parliamentary Commission in the lead-up to the vote.

So what now for Britain?

The prospect of a re-run of the referendum is unlikely, couched more in hope than reality.

The immediate effect will be a jolt to consumer and business confidence in Britain, depressing investment and spending, and resulting in significant economic weakness and probable recession.

The Bank of England is highly likely to cut interest rates from 0.50% to zero in coming weeks.

Further weakness in the British pound is to be expected.  In the six months preceding the vote, the pound has traded in a range between 1.40–1.45 per US dollar.  It’s trading around 1.35 per US dollar today, a mere 5% depreciation from the mid-point of this range.  Britain is now a small, open, economy that is heavily reliant on foreigners to finance its large current account deficit.  We expect the pound to act as its primary shock absorber and depreciate significantly to absorb this economic shock, but first expect a back-up of decisions by consumers and businesses.

Turning to the Continent

We expect a re-appraisal of the relationship between the European Commission and the sovereign states of the Union and hence, implicitly, the electorate.  This will result in some conciliatory measures to reassure voters who share the deep frustration and sense of powerlessness of their British counterparts.  Less high-handedness by the Commission and a more consultative approach are likely.  There will also be questions raised around the Head of the Commission who epitomises the powerful elite, unanswerable to the electorate.

Further accommodation by the European Central Bank (ECB) is also likely.  It is imperative that it be seen to be doing something, at least to demonstrate that they are in control.  This will represent a worrisome raising of the stakes.  With sustained economic growth proving elusive despite negative interest rates and quantitative easing in full flight, the market is becoming increasingly unnerved by the seeming impotence of Central Banks globally.  The ECB is thus forced to walk a dangerous line between having to do something and revealing its impotence.

Fiscal stimulus is now probable and we expect the 3% fiscal deficit ceilings to be ignored.

Looking further afield, we expect that the shockwaves will be felt in Emerging Markets, Asia and the United States.  However, it is reasonable to expect the impact to significantly dissipate as we move from the UK and Europe.

The US dollar will likely absorb some of the shock for the world economy by appreciating while the prospects of higher interest rates in the US will be put on hold for some time.

Why should I own shares in this environment?

The ‘Leave’ vote is but one instance of a broader push back against ever increasing globalisation and demands for redistribution of the economic pie by a middle class that feels increasingly more marginalised and frustrated.

Where it can be expressed through the ballot box, governments will respond with measures to placate this angst.  Ultimately, governments don’t create wealth, they re-distribute it.  This is already underway.  Monetary policy is being used to push interest rates to zero or even into negative territory, effectively taxing savers.  Fiscal expansion will need to be financed by taxes, excessive borrowing or simply by printing money.

While cash or bonds might seem like a safe alternative, they entail risks that need to be carefully weighed.  As a saver holding cash or bonds, your interests are diametrically opposed to those of governments who are large borrowers and are in a position to dictate both your return on capital and return of capital.  Essentially you need to believe that the government will act in your interest and not those of the electorate.

The global economy continues to grow and civilised society continues its inexorable progress, questions around the distribution of wealth notwithstanding.  Shares represent an ownership interest in real assets and in corporations that can marshal human and financial resources to participate in various economic activities.  Businesses are living organisms that possess the flexibility to adapt to new threats and opportunities, unlike bonds or cash.  Good businesses will have numerous opportunities to grow and thrive, and reward their shareholders, regardless of the economic environment.

When fear and uncertainty prevail, share prices can fall sharply.  While it may be tempting to simply respond to the financial pain that these price falls cause, it is worth remembering that it is precisely these price falls that open the best wealth creating opportunities. 

 

Platinum Asset Management

Monday, 27 June 2016 18:58

Brexit Bulletin - from Westpac Economics

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Here is an executive summary of the special edition "Brexit Bulletin" from Westpac Economics.  The full bulletin can be downloaded from this article by clicking on the "Download Now" icon.

Last Thursday, the UK voted in favour of exiting the European Union.

• 52% of the population voted in favour of the decision, on a turnout of around 72%.
• The decision was against market expectations, bringing about a savage market response.
• Subsequent to the result being announced, Prime Minister David Cameron resigned, effective by October. The opposition is also in disarray, with ten or so members of the shadow cabinet having quit or been fired.
• Until a new Prime Minister takes office, the next step in the Brexit process seemingly will not take place.
• That next step is most likely to be Article 50 of the Lisbon Treaty being invoked, ushering in a two-year consultative period between the UK and European Union.
• Note the UK will also have to enter into separate negotiations with a further 60 non-EU nations, whose trade terms are dictated by European Union agreements.
• Of particular concern for markets is the potential for the ‘Brexit’ decision to trigger similar reviews of EU membership across other member countries and the unity of the UK itself, with Scotland and Northern Ireland voting in favour of the UK remaining in the EU.
• The above highlights that we are at the beginning of a long process full of uncertainty and tension.
• With the end-point of this process unknown, we are unable to estimate the full impact of Thursday’s decision. IMF estimates however highlight it will be substantial: a shock to the level of GDP of between 1.4ppts and 5.6ppts (in the UK) by 2019. Note, UK growth to March 2016 was 2.1%yr.
• Of course, all of this is not happening in a vacuum. The implications for the rest of the world have, and will continue to be, significant.
• Market pricing for the FOMC (United States) has reversed, with a near 20% probability of a cut now priced in by November. A rate hike is not fully priced in until June 2018.
• Policy intervention by the Bank of Japan also seems likely, with USD/JPY nearing the ¥100 mark.
• Elsewhere in emerging Asia, policy makers will be paying close attention, not only for potential implications for their real economies, but also in case funding dislocations become apparent. Europe has long been a key provider of direct and portfolio funding for the region.
• For Australia, the RBA stands ready to act to provide liquidity (if needed), while the Australia dollar has fallen with the shift in risk sentiment.

 

Saturday, 25 June 2016 08:26

Brexit stage right - what it means for Australia

Written by

 

Ben Wellings, Monash University

Britain’s decision to leave the European Union has opened a fundamental crack in the western world. Australia’s relationship with the United Kingdom is grounded in the UK’s relationship with the EU.

Given Australia’s strong and enduring ties with the UK and the EU, the shockwaves from this epoch-defining event will be felt in Australia soon enough. Most immediately, the impending Australia-EU Free-Trade Agreement becomes more complicated and at the same time less attractive.

What will happen to trade ties?

The importance of Australia’s relationship with the EU tends to get under-reported in all the excitement about China. We might ascribe such a view to an Australian gold rush mentality. Nevertheless, Australia’s trading ties to the EU are deep and strong.

Such ties looked set to get stronger. In November 2015 an agreement to begin negotiations in 2017 on a free-trade deal was announced at the G20 summit in Turkey. Trade Minister Steven Ciobo said in April 2016 that an Australia-EU free trade agreement:

… would further fuel this important trade and investment relationship.

When considered as a bloc, the EU consistently shows up as one of Australia’s main trading partners. Consider the statistics below:

  • in 2014 the EU was Australia’s largest source of foreign investment and second-largest trading partner, although the European Commission placed it third after China and Japan in 2015;

  • in 2014, the EU’s foreign direct investment in Australia was valued at A$169.6 billion and Australian foreign direct investment in the EU was valued at $83.5 billion. Total two-way merchandise and services trade between Australia and the EU was worth $83.9 billion; and

  • the EU is Australia’s largest services export market, valued at nearly $10 billion in 2014. Services account for 19.7% of Australia’s total trade in goods and services, and will be an important component of any future free trade agreement.

This is all well and good. But when not considered as a bloc, 48% of Australia’s exports in services to the EU were via the UK; of the $169 billion in EU foreign direct investment, 51% came from the UK; and of Australia’s foreign direct investment into the EU, 66% went to the UK.

You get the picture.

The UK was Australia’s eighth-largest export market for 2014; it represented 37.4% of Australia’s total exports to the EU. As Austrade noted:

No other EU country featured in Australia’s top 15 export markets.

In short, the EU is not as attractive to Australia without Britain in it.

Beyond trade numbers

But the Australia-EU-UK relationship cannot be reduced to numbers alone. It also rests on values shared between like-minded powers.

Brexit represents the further fracturing of the West at a moment when that already weakening political identity is in relative decline compared to other regions of the world, notably Asia (or more specifically China).

EU-Australia relations rest on shared concerns such as the fight against terrorism advanced through police collaboration and the sharing of passenger name records. The EU and Australia also collaborated to mitigate climate change at the Paris climate summit. And they work for further trade liberalisation in the World Trade Organisation – but don’t mention agriculture.

Without the UK, these shared political tasks become harder.

Clearly, Australia-UK relations rest on a special historical relationship. However, it has seen efforts at reinvigoration, as British governments buckled under the pressure of the Eurosceptics among the Conservatives.

David Cameron addresses the Australian parliament in 2014.

Beyond everyday trade, historical links have been reinforced through the centenary of the first world war and the UK-Australia commemorative diplomacy that has come with this four-year-long event.

Cultural ties are most regularly and publicly affirmed through sporting rivalries such as netball, rugby and most notably cricket. Expect these ties to be reinforced as the UK seeks trade agreements and political support from its “traditional allies”.

For those with British passports, there will be a two-year period of grace as the UK negotiates its exit. After that, it will be quicker to get into the UK at Heathrow, but this might be small consolation for the loss of a major point of access to the EU.

The vote to leave is a major turning point in Europe’s history. It marks a significant crack in a unified concept of “the West”. It is not in Australia’s interests.

It’s time for Australia to make new friends in Europe.

The Conversation

Ben Wellings, Lecturer in Politics and International Relations, Monash University

This article was originally published on The Conversation. Read the original article.

Richard L. Gruner, University of Western Australia

Woolworths is ditching its Select private label range. It intends to launch a new brand for a more focused range of products that promises more bang for the buck. The move comes after Woolworths decided in March to axe its Homebrand label as part of its strategy to compete with Aldi.

The move makes sense, but will likely do little to restore consumer trust and sales growth.

Management guru Michael Porter has long argued that products need a clear positioning in consumers’ minds as either special and expensive or convenient and cheap. Woolworths Select was neither, stuck somewhere in the middle. This positioning was confusing for customers.

But will fixing this problem make a difference, and perhaps even keep growing Teutonic supermarket force Aldi at bay?

Unlikely. After all, similar efforts are only baby steps towards what truly distinguishes growing companies: the ability to make consumers' lives simpler. Think of Uber, Netflix, Amazon, but also Aldi. That’s the common denominator.

And yet, research shows that most companies keep confusing the gobbledegook out of us. A lot has been written about how consumers get more than they want, and how more product choice often makes us less happy.

But consumer confusion extends to other tactics too, like pricing and discounting. Shoppers increasingly ask questions such as: why are some products almost always on special (while others never are)? Do half-price offers mean that we usually pay twice as much as we should?

At best, discounts have become meaningless. While discounts were used successfully in the past to move excess merchandise, they have become ubiquitous and permanent, providing little incentive to respond. It’s a bit like the guy in the audience of a stadium that stands up to see more: it’s an effective tactic so long as not everyone else is standing up too.

Another major concern that emerges is product claims and packaging; for example, most consumers do not know the difference between “Product of Australia” and “Made in Australia”.

Also, products claiming to be “natural”, “real”, or “healthy” are usually hiding behind meaningless terms, undefined in labelling law and merely meant to persuade rather than inform people. The result is ever more confusion.

So what should brands do to simplify the consumer experience? Ironically, the answer to this question is not simple. It takes an awful lot of work to make things less confusing. An app that you visit once in a while and find easy to navigate may be the result of years of painstaking work, with many difficult decisions made behind the scenes about what should go where, and just as importantly, what to leave out.

Companies should start making every aspect of their product offerings simpler. Consumers do not appreciate clutter; they appreciate everything being transparent, clean and easy.

Marketers should understand that consumers rarely inherently care about brands. In some countries, only about 5% of brands would truly be missed. Whether consumers order an Uber ride, or buy a carton of milk, they often want to invest the least amount of effort and time in making the right decision.

Overloading consumers’ already saturated brains with all kinds of marketing tactics, including dynamic pricing and even heavy discounts can backfire or fall flat. This was clear when consumers showed a lack of interest in even 90% discounted product at Dick Smith’s closing down sale.

Instead, every decision brands make should be guided by a desire to help customers feel confident about their choices. Fortunately, we can learn from a handful of companies that have long understood the principle of simplicity in driving customer satisfaction.

Aldi’s success, for example, is often attributed to its simple business model of providing consistently low and transparent prices for a reduced range of high quality products.

No discounts, no confusing ads, no loyalty cards, no bullshit.

The Conversation

Richard L. Gruner, Asst Professor, University of Western Australia

This article was originally published on The Conversation. Read the original article.

Tuesday, 31 May 2016 15:16

The Squatty Potty

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Buy at http://squattypotty.com - Pooping will never be the same. This Unicorn shows the effects of improper toilet posture and how it can affect your health. The Squatty Potty toilet stool has been featured on Shark Tank and Dr OZ show and has thousands of happy customers.

 

Over the course of Platinum’s recent 2016 adviser and investor roadshows in Sydney, Melbourne, Brisbane, Perth and Adelaide we conducted an investor survey which contained an embedded experiment.

The first part of the survey asked roughly half of the total number of attendees in each venue what they considered the biggest investment opportunities were in the current market, and the other half was asked what they considered the biggest risks were. The findings from the some 1,200 surveys collected were broadly consistent across the groups.

The second part of the survey asked all attendees to give their estimate of market returns. The answers here appeared to have been influenced by the positive or negative framing of the first question. While not true in every sample group, across the aggregate data there was a marked degree of greater optimism among those who had considered opportunities compared to those who had considered risks.

Framing

In asking guests to focus on the market from two different angles (opportunities versus risks) prior to making an estimate of returns from global markets over the remainder of the year, the experiment we conducted attempted to highlight the risks of framing.

Forecast returns in each venue were measured across the adviser and investor sample and averages and medians of the opportunity and risk groups were compared.

The aggregate data is tabulated below, with over 1,200 surveys completed – the bottles of champagne on offer to the best forecaster in each session appeared an appropriate incentive!

(Average/ Median)

Opportunities Group

Risks Group

Bias

Investors

5.6% / 5.1%

3.8% / 4.0%

1.8% / 1.1%

Advisers

6.1% / 6.0%

4.6% / 5.1%

1.5% / 0.9%

The findings suggested that there was a positive bias in forecasts exhibited by those who had been given the positively framed survey. The extent of this appeared to be around 1-1.5% against an average forecast level of about 5%.

This is consistent with behavioural psychology studies on the framing effect, which is a cognitive bias that causes our analyses of information and decision-making to be influenced by “variations in the framing of acts, contingencies, and outcomes”. Tversky and Kahneman famously demonstrated that depending on whether questions are formulated in terms of gains versus losses, our perception and assessment of risk and rewards changes even though actual probabilities are the same.

The survey results also showed a tendency for advisers to be more optimistic than investors, perhaps itself an interesting topic. Also worthy of noting is that returns forecast tended in aggregate to be broadly consistent with long-term returns from equity markets in the high single digits, with 5% to the end of the year equating to about 7-8% annualised before dividends, an additional 2-3%. This suggests no particularly strong view from the group surveyed that they believe markets are excessively cheap or expensive.

Opportunities and Risks

In the first part of the survey guests were asked to select the three biggest opportunities or the three biggest risks from a list of 12 options.[1]

Healthcare polled as the leading opportunity in each of the samples, with agriculture in the Top 3 of every group except for Sydney advisers. Advisers were interested in e-commerce which had a Top 3 position in all adviser surveys, while no investor group ranked this in their Top 3. Meanwhile every group of investors saw the Chinese consumer as a Top 3 choice, but only Sydney and Adelaide advisers were convinced. Clients may be encouraged to know that our portfolios have considerable exposure to their areas of interest.[2] Chinese consumer growth and e-commerce have been key areas of Platinum’s focus for some time and the presentations by Andrew Clifford and Clay Smolinski address our key investments in some detail.

biggest opportunities


On the risk side, both investors and advisers had the same Top 3 concerns and deflation and negative interest rates caused a little more alarm than the Chinese slowdown or a debt-driven GFC-type event. Here, while the China slowdown concerns a lot of people, Sydney investors were the only group to rate this #1, perhaps symptomatic of their perception of what has been driving their home apartment market. We feel that our clients absolutely had their fingers on the pulse – how to find interesting investment opportunities in an environment of chronic low rates is the top question on our minds as is on yours. In fact, low interest rates are the central theme of this year’s keynote presentation by Andrew Clifford (Chief Investment Officer and Co-Manager of the Platinum International Fund) who drew some important lessons from similar periods in history. More specific insights on how to navigate such a deflationary low-rates environment as investors were addressed in further detail by Clay Smolinski, drawing lessons from our direct experience with Japan.    

Donald Trump’s tilt at the US presidency was the most interesting, as it concerned 40% of Adelaide attendees, versus 20% across the other venues. This could to an extent be a case of “recency bias” as the Adelaide session took place on the day when headlines were dominated by the news that he was to be the Republican nomination. Recency bias, also known as availability heuristic, is the tendency to give more weight and attribute more relevance to information with greater “availability” in memory, which is often influenced by how recent the memories are.

Sudden interest rate rises seemed only to be a concern of advisers – perhaps after the presentation around the lack of inflationary pressures, we hope this fear may have been assuaged somewhat.
greatest risks


This data is a telling snapshot of what is on investors’ and advisers’ minds at this juncture, and along with the illustration of the impacts of framing, it provided a useful interactive lesson amidst this year’s roadshow. We hope our clients in turn gained some useful insights from the presentations by Andrew and Clay on the challenges and opportunities in today’s world of investments.