28 Feb 2018
Taxation: Game Changer
- Posted by Dejan Pekic BCom DipFP CFP GAICD
Growth asset prices (both property and shares) are stretched and defensive asset prices (bonds) are also stretched when compared to their long term mean or average.
Question, could this bull market in the United States (third longest in history) go longer?
Answer, yes given that on 22nd December 2017 the United States signed into law the reduction of the corporate tax rate from 35% to 21%.
This is big.
This is a 40% reduction on the amount of tax that a business currently pays the Internal Revenue Service.
This is extremely good for companies that generate most of their income in the United States and for non-US companies with significant earning in the United States.
It permanently raises after-tax earnings and cash flow which is likely to result in more capital investment and increased dividends to investors.
Click to view.
This could end up being the key game changer that keeps the current bull market in the United States going longer and asset prices stretching further.
21 Feb 2018
Asset Bubbles: Priced to perfection
- Posted by Dejan Pekic BCom DipFP CFP GAICD
Mean reversion is the theory of prices and returns eventually moving back toward their long term mean or average.
You can go back to 1864 for the G7 group of countries (Canada, France, Germany, Italy, Japan, United Kingdom and the United States) and you cannot see a bigger collapse in bond yields than over the immediate past four decades (refer Chart 1).
Consequently we have the highest bond prices in recorded human history fueled by Central Banks printing money which have ballooned their balance sheets to having in excess of US$15 trillion in IOUs (refer Chart 2).
This collapse in interest rates together with quantitative easing has helped the United States record its third longest period of business expansion over the past 164 years (refer Chart 3).
Click for Charts.
Financial assets are stretched, so remember, when fear and panic take hold during the next financial catastrophe, investors will be presented with the opportunity to buy more quality assets at discounted prices.
16 Feb 2018
Friday Tidbit: How to Borrow Money
- Posted by Dejan Pekic BCom DipFP CFP GAICD
A client sent us the following exert from a book titled ‘The Bodley Head Leacock’ by Stephen Leacock.
The individual tales would be quite comical if it were not for the fact that they actually reflect the trials and tribulations of borrowing money.
The message, borrowing money is quite easy provided you borrow big.
Click to read.
12 Feb 2018
Entrepreneurial Genius: Mother of Invention
- Posted by Dejan Pekic BCom DipFP CFP GAICD
As a parent myself we wish nothing but success for our children.
We want them to thrive and find happiness in life.
So how do you raise children for success or is it just random luck?
Attached is one Mothers take on parenting and how to produce a family of entrepreneurs.
Click to read.
Interestingly, hardship appears to be a key ingredient in the mix for building the right attitude for success.
7 Feb 2018
Market Metrics: Dow Jones Industrial Average (DJIA)
- Posted by Dejan Pekic BCom DipFP CFP GAICD
Important to pay attention but beware of market noise.
The DJIA reached an all-time high close of 26,616 points on 26 January 2018 and over the past 11 days has fallen 2,065 points to close overnight at 24,551.
Yes the points fall is big but the actual movement is only 7.7% which does not yet meet the technical definition for a market correction, defined as a 10% fall from recent peak.
The real excitement begins when the market crashes, defined as a 20% plus fall from recent peak which is when fear and panic take hold and investors are presented with the opportunity to buy more quality assets at discounted prices.
Will this become the next market crash, don’t know yet, just be ready for when Mr Market has his big manic depressive fit which is coming.
1 Feb 2018
Investor Risk Profile: Patience
- Posted by Dejan Pekic BCom DipFP CFP GAICD
Returns for growth assets (defined as property and shares) have been good to great since the 2008 Global Financial Crisis with calendar year 2011 being the only significant exception having resulted in -11.4% for Australian shares.
Effectively a decade of good times and the challenge is that investors begin to assume that good times are the norm.
The fact however is that the good times will most definitely come to an end and that is why there must be a plan for when and not if the next financial catastrophe occurs.
The attached is an excellent educational piece on patient investing and unsurprisingly it espouses the value investing principles put forward by Benjamin Graham.
Click to read.
Remember, when fear and panic take hold during the next financial catastrophe and they will, investors will be presented with an opportunity to buy more quality assets at discounted prices.
