China: a Mid-Year Buying Opportunity
China Stock Market
Why has the Chinese stock market performed so poorly over the past year when Wall Street has done well? Is the situation about to change? [Read more...]
Safety beyond the reach of money printing
March 22, 2012 By 3 Comments
The Printing of Money
Central banks are now flooding the world with electronic money that provides a basis for explosive inflation in the future. Why is it unrealistic to expect that a growing number of investors will take the view that some of their wealth is safer in assets whose value cannot be consistently degraded by official policies, because their quantity cannot be expanded without limit by irresponsible governments? [Read more...]
Good Year for Investors
January 18, 2012 By 2 Comments
Good Year for Investors
It Should Be a Good Year for Investors
It is important to have a game plan that shapes our investment tactics – to move forward beyond the short-term volatility of the markets, reduce the risk of emotion-driven wrong decisions, and make it easier to ignore the turbulence. [Read more...]
Why Its Time Again to Buy into Asia
April 20, 2011 By
Crisis provides Opportunities
Crises offer the best opportunities for investors, although we need nerves of steel to seize those opportunities.
You might have expected all the bad news from Japan and the Mideast to clobber Asian stock markets. But they have done nothing of the sort.
After a moderate correction, the markets as a whole remain in an uptrend. The bourse you would expect to be hit the hardest, Japan, plunged immediately after the tsunami, but has already recovered half the ground lost and is now well above levels seen last year. [Read more...]
Ten investments to buy
March 18, 2011 By 1 Comment
Ten investments to buy
Gary Shilling - The Age of Deleveraging
Here are the ten investment categories that Shilling favours for the long term:
• Treasuries and other high-quality bonds. He sees yields on longdated Treasuries (now about 4.7 per cent) falling to or below 3 per cent, delivering significant capital appreciation. The longer-dated the bond, the greater the appreciation.
If the market value of a 30-year Treasury currently yielding 4.7 per cent were to move to a yield of 3 per cent over two years, that would deliver a combined capital gain if realized at that point, plus interest income, of nearly 42 per cent over the period (my figures, not Shilling’s).
• Other income-producing securities such as the stocks of utilities, consumer product companies, healthcare firms, and others that pay meaningful dividends that are likely to rise.
Businesses that pay meaningful dividends are lower-risk because they’re sending a message that they’re generating the real earnings and cash flow needed to finance the dividend cheques, and they will almost certainly continue to be run in a prudent and stable manner.
“The only known return on equity investments is dividends… The rest are hopes and promises.”
Shilling notes: “Another reason that dividend-paying stocks are likely to be popular in coming years is a change in attitude by institutional investors, especially endowments and pension funds,” because they got so burned by the collapse in values of alternative assets in the 2008 crisis.
• Producers and distributors of food and other consumer staples. Basic essentials continue to be bought in bad times as well as good, with a shift towards cheaper “value” products. Deflation cuts, or makes it easier to cut, business costs.
• Suppliers of small luxuries. “Consumers, especially when they’re hard-pressed, tend to buy the very best of what they can afford, even if it’s within a low-priced category.” Top brands introduce lower-cost versions of their designer styles.
Invest in paper with pictures of dead presidents
• The US dollar (relative to other currencies). Crises everywhere else drive investors into the greenback. It’s the global safe haven. It will remain the world’s reserve currency for the foreseeable future.
Other alternatives, such as the euro, are vulnerable. Gold is too narrow a market. Sluggish growth and deflation will be tougher on other economies and therefore their currencies than on America’s.
• Investment advisers and financial planners. They “should be in strong demand in the years ahead” as “low investment returns will discourage do-it-yourself investing and encourage the use of professionals.”
• Factory-built housing and rental apartments. With homes no longer viewed as investments, this will favour smaller and much cheaper factory-built dwellings, and families will increasingly prefer renting to ownership.
• Healthcare. “Explosive growth” is almost guaranteed because of ageing populations, and it will be favoured by government job-creation programmes.
There will be “long-run winners among those that promote cost containment, such as diagnostic testing labs and diagnostic equipment makers, outfits that provide home healthcare services and supplies, and outpatient services and clinics.”
• Productivity enhancers. In a deflationary environment, “increased profits through price and volume increases will be difficult for many firms… Labour cost-cutting has been in vogue lately, but does have its limits. So anything… that helps customers to reduce costs and promote productivity will be in demand.
“Ironically, the very technologies that will continue to increase over-supply and promote deflation – computers, semiconductors, the internet, biotech and telecom – will be in demand to help combat its effects.”
Cost-cutting can also come from low-tech sources such as outsourcing of call centres and routine medical and legal work (using infotech), and temporary labour agencies.
• North American energy. Concern in the US over dependence on imports from unstable countries will lead to promotion of local sources, despite their relatively high cost. Shilling likes regional producers of oil, gas and coal, the Canadian oil sands, liquefaction of gas, nuclear power. But “renewable energy sources such as ethanol, wind farms, solar and geothermal all require heavy government subsidies that strike me as unreliable.”
Because I am not as pessimistic as Shilling, I don’t agree with all his conclusions. For example, I think he is too negative on China and other emerging economies, and therefore on the outlook for commodities.
Nevertheless, his book is packed with a lot of examples of how economies really work – so often in ways different from conventional opinion – and useful ideas about where to invest in the “new normal” environment.
* The Age of Deleveraging by A Gary Shilling, pub. by John Wiley & Sons. $39.95. ISBN 978-0-470-59636-4.
CopyRight – OnTarget March 2011 by Martin Spring
This article followed on from – 12 investments to sell or avoid
and is part of the series starting with – Survive and Prosper in the Grim Decade
12 investments to sell or avoid
March 17, 2011 By 2 Comments
Here are some kinds of investment to avoid
Big Ticket Consumer Purchases
The 12 categories on which he is negative are:
• Manufacturers and distributors of big-ticket consumer purchases such as cars, appliances, air travel, cruises, and leisure and hospitality providers. As consumers save more, they’ll curtail spending on expensive postponable items.
• Credit card and other lenders to consumers. They’ll be burdened for years by the new focus on saving, and horror stories about what personal debt can do to you.
• Conventional home builders and suppliers. Burdened by excess inventories from the past building boom and the evaporation of home-owner investment interest.
• Antiques, art and other tangibles. They need high inflation and upper-income people flush with cash to do well.
• Banks and similar financial institutions. Their executives are likely to act very conservatively for a generation, with a focus on lowering risk rather than boosting earnings.
• “Junk” (high-risk) securities. Deflation will be lethal because the borrowers will find it difficult if not impossible to service their bonds.
• Flailing companies. Below-average revenue growth, high fixed costs and big debts will be “a lethal combination in an era of slow growth.”
• Low- and old-tech capital equipment producers. In the advanced economies the focus will be on productivity-enhancing equipment rather than capacity expansion.
• Commercial real estate. Vacancies are rising, rental levels for new tenants have collapsed and prices are plunging.
• Commodities. Excess supply and muted demand will keep prices under pressure, but more important will be the collapse of investment/speculative demand.
• Developing country stocks and bonds. Emerging markets overwhelmingly depend for their growth on exports to the US, where there is going to be major retrenchment in demand.
• Japan – “a slow-train wreck.” An ageing and shrinking population, cautious consumers, huge government debt, failure of the money-printing policy.
CopyRight – OnTarget March 2011 by Martin Spring
This article followed on from – Prediction: unemployment to continue rising
and is followed by – Ten investments to buy
and is part of the series starting with – Survive and Prosper in the Grim Decade
Prediction: unemployment to continue rising
March 16, 2011 By 2 Comments
Prediction: unemployment to continue rising
Unemployment to Rise
Shilling says the US economy will grow at an average rate of only 2 per cent a year — compared to the growth rate of 3.3 per cent needed just to keep unemployment stable, let alone soak up the existing pool of un- and under-employed. A study by the Federal Reserve of Kansas suggests this means that unemployment, instead of falling, will continue to worsen, at an average of nearly 1 per cent a year.
“The mind-set of American business will probably promote robust productivity growth in future years” from the internet, biotech, telecom and semiconductors. “As in the past decade, American businesses will likely continue to be more interested in not hiring people than in firing them.”
Over the next decade, because of slow economic growth, unemployment will be high and rising – unless there are huge job-creation programmes by the federal government. Shilling believes that is definitely going to happen as no government, whatever its economic philosophy, “can withstand high and rising joblessness for long.”
Shilling lists “12 investments to sell or avoid,” and “ten investments to buy.” I must warn that these recommendations are made from an American perspective. He largely ignores prospects in specific sectors of other economies, or for government bonds other than those of the US.
CopyRight – OnTarget March 2011 by Martin Spring
this article follows on from – A surfeit of leading-edge production plants
which was led by – Survive and Prosper in the Grim Decade
