Edition 11 - Chartered 21 July 2010 - Smart Investment & Financial Strategies for the New Financial Year

8/9/2019 Edition 11 - Chartered 21 July 2010 - Smart Investment & Financial Strategies for the New Financial Year

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Smart Investment & Financial

Strategies for the new financialyear

By

Joel Hewish

B.Bus (Bank & Fin), GDipAppFin, GCertFinPlan, SA Fin


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The advice contained in this Seminar is general advice only. It hasbeen prepared without taking into account your objectives, financialsituation and needs. You should consider the appropriateness of the

advice by taking into consideration your objectives, financialsituations and needs before acting on the advice. Fortrend does not

offer any information in this Seminar as a substitute for financialadvice and recommends you obtain your own independent financial

advice prior to making any decision based on any informationcontained in this Seminar.

Joel Hewish is an Investment/Financial Adviser at FortrendSecurities. The opinions expressed are his own.

General Advice


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Investment Themes for 2010 and Beyond

26 April 2010 marked the end of a 13 month cyclical counter trend rally which forms

part of a larger degree secular bear market and the commencement of Part 2 of the

Global Financial Crisis.

Very High probability of another wave of debt deleveraging most likely on a scale

larger than GFC Part 1.

Very High probability that global share markets will continue to fall significantly over

the next 3 months.

Very High probability that global share markers will decline below the lows of March

2009 before the end of 2012, but quite possibly much sooner than that.

Expect most commodities to decline inline with global financial markets including

GOLD during this same period.

Expect the USD to APPRECIATE significantly against major currencies during much

of this same period.

Wealth Management


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BOTTOM LINE

THE FUNDAMENTALS AND TECHNICALS ARE

SIGNIFICANTLY SKEWED TO THE DOWNSIDE FOR

THE COMING 24 MONTHS..

BUT.

You can still make money andLOTS OF IT!!!!!!!!!!!!

Wealth Management


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The Macro Economic

Environment

The Great Debt problem


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Debt to GDP before the GFC

Approximate level of US

Total Debt which

contributed to the 1930s

Great Depression

(Source: McKinsey Global Institute, ABS, Morgan Stanley research)


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1920 1930 1940 1950 1960 1970 1980 1990 2000 20100

50

100

150

200

250

300

350

400

450

Household

Total Private

Government

Total

US Debt to GDP Ratios

PercentofGDP

Total US Debt to GDP Ratio Now!

Approximately$56 TRILLION

(University of Western Sydney Associate Professor Steven Keen,www.debtdeflation.com/blogs/)


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1 97 5 1 98 0 1 98 5 1 99 0 1 99 5 2 00 0 2 00 5 2 01 00

1 0

2 0

3 0

4 0

5 0

6 0

7 0

8 0

9 0

1 00

0

2 0

4 0

6 0

8 0

1 00

1 20

1 40

1 60

1 80

2 00

Mortgage

Personal

Business

Government

Total Private (RHS)

Debt to GDP Ratios

Perc

entofGDP(c

omponents)

PercentofGDP(

aggregate)

Australian Debt to GDP Ratios

(University of Western Sydney Associate Professor Steven Keen,

www.debtdeflation.com/blogs/)


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1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 20100

25

50

75

100

125

150

175

Australia's Private Debt to GDP Ratio

PercentofGDP

1890s Depression

1930s Depression

But Australias

different right?



Australian Private Debt to GDP

D b C ib i D d &


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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 201010

5

0

5

10

15

20 0

10

8

6

4

2

0

Debt-driven Demand

Unemployment (RHS)

Debt Contribution to Demand & Unemployment (Australia)

Perc

entofAggregateD

emand

Unem

ploymentRate(In

verted)

Debt levels begin to influence

demand in the economy

Debt Contribution to Demand &

Unemployment



H h ld D b R l i G


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Accumulation of US

housing debt increases

Accumulation of

Australian housing debt

increases

Household Debt Relative to Gross

Income

(Source: ABS, Federal Reserve, Morgan Stanley Smith Barney)

US/A li R l H P i


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Australian and US housingprices commence multi-

decade uptrend

US/Australian Real House Price

Index

(Source: ABS, OFHEO, BLS, Morgan Stanley Smith Barney)

i h d d i


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Re-capping what occurred during

the GFC

US k h b bbl


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US Fiscal and Monetary Stimulus (% of GDP)

Peak to Trough

Length

(Months)

Decline in

GDP Monetary Fiscal

Combined %

of GDP

Aug '29 - Mar '33 43 27.0% 3.4% 4.9% 8.3%

May '37 - June '38 13 3.4% 0.0% 2.2% 2.2%

Nov'48 - Oct ' 49 11 1.7% -2.2% 5.5% 3.3%

Nov'73 - Mar '75 16 3.1% 0.9% 3.1% 4.0%

July '81 - Nov '82 16 2.6% 0.3% 3.5% 2.8%

July '90 - Mar '91 8 1.3% 1.0% 1.8% 2.8%

Mar '01 - Nov '01 8 2.0% 1.3% 5.9% 7.2%

Dec '07 - ? 3.8% 18.0%* 11.9%* 29.9%*

Keeping the bubble alive appears an unlikely options next time. At some stage deleveraging will

be needed, orderly or not.

Decline in GDP would be much worse if it wasn't for the extraordinary level of stimulus

US response was to keep the bubble

alive.

(Source: Federal Reserve, US Department of CommerceBureau of Economic Analysis, Congressional Budget Office; as cited in Grants

Interest Rate Observer)

* As estimated by James Grant in Grants Interest Rate Observer


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0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Aug '29 - Mar'33

May '37 - June'33

Nov'48 - Oct '49

Nov'73 - Mar'75

July '81 - Nov'82

July '90 - Mar'91

Mar '01 - Nov'01

Dec '07 -

US Fiscal and Monetary Stimulus (% of GDP)

Concerns of a debt induced deleveraging deflationary crash between 2000 - 2003 after the dotcom bubble lead to fiscal and

monetary stimulus which appears out of proportion to other past crises. It now appears that given the size of the past stimulus

and the current levels of debt in the US economy that debt saturation appears as though its likely here.

Graphing the stimulus

(Source: Federal Reserve, US Department of CommerceBureau of Economic Analysis, Congressional Budget Office; as cited in

Grants Interest Rate Observer)


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Total Financial Exposure of US Government ($bln)

Asset

Purchases

Hard

Guarantees

Implicit

Guarantees

Soft

Guarantees

Total $2,269 12,890 7,286 $6,624

Cumulative $2,269 $15,159 $22,445 $29,069

All this from a government that is collecting just over $2.0 trillion dollars in revenue a year, is spending

approximately $3.5 trillion and has ran 4 budget surpluses since 1970.

(Source: Federal Reserve, Congressional Budget Office; as cited in Grants Interest Rate Observer)

US Government Exposure


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US Government Fiscal Position

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

1970

1971

1972

1973

1974

1975

1976

TQ

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010estimate

2011estimate

2012estimate

2013estimate

2014estimate

2015estimate

Receipts

Outlays

Surplus or Deficit()

Just 4 budget surpluses in the past 40 years!!!

(Congressional Budget Office)


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US Government Debt Position

$0.00

$5,000,000.00

$10,000,000.00

$15,000,000.00

$20,000,000.00

$25,000,000.00

Gross Federal Debt (000,000)

(Congressional Budget Office)


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US Federal Reserve Expanding its

Balance Sheet
http://research.stlouisfed.org/fred2/graph/?s%5b1%5d%5bid%5d=BOGUMBNS


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US Financial cycle US

Timeperiod

Characteristics Aust Financial

cycle

Aust

Timeperiod

Characteristics

Technology Boom 1995

2000 Internet lead technology revolution.

Initially lead by quality companies and

market leaders.

Followed in the later stages byspeculative companies with no or low

cash flows.

Resource Boom 2003

2008 China urbanisation lead resourcerevolution.

Initially lead by quality companies and

market leaders.

Followed in later stages by speculative

explorers with no or low cash flows.

Technology Bust 2000

2003

Interest rates lowered to record lows.

Record fiscal deficits

Shallow recession

Resource Bust 2008

2009

Interest rates lowered to record lows.

Record fiscal deficits

Shallow recession (3rd qrt 2008 and 1st

qrt 2009)

Stimulus InducedHousing Boom &

Economic

Recovery

2003

2007 Low interest rate fuelled housing andconsumer lead recovery

Stimulus InducedHousing Boom &

Economic

Recovery

2009? Low interest rate fuelled housing andconsumer lead recovery

Sub-Prime Lead

Housing Bust

2007

2009 Record defaults by borrowers who

were suspect from the start

First Home

Buyer Lead

Housing Bust?

? Risk of default by highly indebted lateGen Xs early Gen Ys.

Extraordinarystimulus lead

stabilisation

2009

2010 Non-conventional stimulus approach ? ? ?

But Australias different right?Or are we just lagging by one cycle


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With all that liquidity and therecent stock market recovery, we

are surely looking at a V shaped

recovery.............

ARENT WE???


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So why is the Money Supply

Contracting?


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"Its frightening, said Professor Tim Congdon

from International Monetary Research. "The

plunge in M3 has no precedent since the Great

Depression.

By Ambrose Evans-PritchardPublished: 9:40PM BST 26 May 2010

Telegraph.co.uk

Significance of M3 Contracting


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Why is the Money Multiplier

falling off a cliff?


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Because US Banks are hoarding

cash!!!


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Maybe because no one can afford

to borrow!!!


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Number of new mortgages

declining rapidly

A f


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WE ARE HERE

And the second wave of mortgage

resets has just started

E i C l R h


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Since 1968 a reading of -8.3% has

ALWAYS been associated with a

recession!!

Economic Cycles Research

Institute

B l i D I d


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Break of uptrend and sharp decline.

Down 61.4% since Nov 09

Baltic Dry Index

B l i i ??


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Does this look like a yield that signifies a major bottom?

Major Bottom

(Source: Standard & Poors, Robert Shiller)

S&P 500 12 month

Trailing Dividend

Yield

Major Top

Major Top

But arent valuations attractive??

NO.... THEY STINK!!!

Major Bottom

Major Top

M t l F d F ll I t d


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Mutual Funds Fully Invested

All thi d I h t t h d


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The Debt & Deficit problems of..

Greece Spain

Portugal

Italy

Ireland

Japan

United Kingdom

Dubai

Eastern Europe

OR

Chinas property bubble or its over exposure to US Federal Debt

All this and I havent touched on

Wh th f j t th US?


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$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

2008 Gross Domestic Product - Published by the World Bank 7October 2009

Why the focus on just the US?

Gl b l G D ti P d t


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23.4%

8.1%

7.1%

6.0%

4.7%4.4%3.8%

2.7%

2.7%

2.6%

2.3%

2.0%

1.8%

1.7%

1.5%

25.1%

2008 Gross Domestic Product - Published by the World Bank 7October 2009

United State

Japan

China

Germany

France

United Kingdom

Italy

Brazil

Russian Federation

Spain

Canada

India

Mexico

AustraliaKorean Republic

Other

Global Gross Domestic Product


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The Technical Outlook

&

The Secular Bear Market & Market Tops

Elli tt W Th


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Elliott Wave Theory

(elliottwave.com)

We are hereGFC Part 2End of Dotcom Bubble

End of Dotcom Crash

Start of GFC

End of GFC Part 1

Elli tt W Th
http://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svghttp://upload.wikimedia.org/wikipedia/commons/f/f0/Elliott_wave.svg


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Elliott Wave TheoryBasic Theory

Markets are patterned

Those patterns subdivide into fractals (self-similar patterns appearing at everydegree of trend) or degrees of patterns and are reflective of changes in social

mood (investor sentiment).

Markets are the best indicator for a change in social mood

Social mood can be measured in waves, 3 waves up with 2 counter trend

waves between. Social mood and changes in social mood dictate economic conditions NOT the

other way around.

Extremes in optimism indicate a change in social mood to pessimism is likely

and vice versa.

3 Basic Rules

Wave 2 never retraces more than 100% of wave 1.

Wave 3 is never the shortest wave.

Wave 4 never enters the price territory of wave 1.

(elliottwave.com)

Elli tt W Th


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Elliott Wave Theory3 Guidelines

The three-wave correction following an impulse usually terminates within the

price territory of the previous fourth wave.

If wave 2 is sharp and steep, wave 4 is usually a sideways correction, and vice

versa.

The wave most likely to extend is wave 3; the next most likely is wave 5.

Key wave characteristics Wave 3 is always the strongest impulse wave.

Wave C is usually the strongest corrective wave.

Impulse waves always sub-divide into 5 waves.

Corrective waves sub-divide into 3 waves, or a combination of 3 waves that

move in the opposite direction of the larger trend.

(elliottwave.com)

US S&P 500


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US - S&P 500

D J I d t i l A


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Dow Jones Industrial Average

A t li S&P ASX 200


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Australian - S&P ASX 200

U it d Ki d FTSE 100


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United Kingdom - FTSE 100

German DAX


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Germany - DAX

Japan Nikkie


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Japan - Nikkie

AUD/USD Since 1983 Float


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AUD/USD Since 1983 Float

AUD/USD Cross Rate


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AUD/USD Cross Rate

Spot USD Gold Price


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Spot USD Gold Price

Spot USD Gold Price


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Spot USD Gold Price

Recommended Portfolio Strategy


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Recommended Portfolio StrategyConservative Investors

Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills. Long - Short Term USD Cash, Short Term Government Debt.

Refinance property to enable extraction of equity for potential opportunistic purchases.

Take advantage of high property prices.

Aggressive Investors

Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills.

Long - Short Term USD Cash, Short Term Government Debt.

ShortAustralian sharescovered short sales where available, long put options.

Over Weight ShortUS sharescovered short sales where available, inverse etfs, long

put options.

Refinance property to enable extraction of equity for potential opportunistic purchases.

Take advantage of high property prices.

Investment Advisory & SMSF


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Investment Advisory & SMSFAdmin Services

Investment Advisory

Personal Ongoing Investment Objectives & Risk Profile Assessment

Personal Strategic Asset Allocation Advice

Minimum 4 x Quarterly Tactical Asset Allocation Reviews

Minimum 4 x Quarterly Investment Reviews

Minimum 4 x Quarterly Liquidity Reviews

Discounted brokerage on share transactions

Notification of new issue of securities

Automatic settlement account for share transactions

Notification of change in investment recommendations

Notification of new investment opportunities

Portfolio administration and record keeping

Internet access to your investment portfolio

Pre-completed administrative documentation

Investment Advisory & SMSF


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Investment Advisory & SMSFAdmin Services

SMSF Admin

Establish new funds including establishing Trust Deeds together with Product Disclosure

Statements to be given to members of the new fund. ($1,237.50 - $1,775.00)

For existing funds, if required, we can:

Arrange for a review of your funds Trust Deed and provide a Deed of Variation to ensure that theDeed is up to date and your fund can be administered effectively and does not pose any

unnecessary restraints upon the trustees (Cost to transfer an existing fund is $1,375.00).

We maintain records of all transactions of the fund;

We maintain records of all transactions of the Fund;

We assist clients with documentation requirements;

We provide clients with online access & reporting on all transactions and investment performance

through the Investment Advisory & Administration Service.

We prepare all the funds annual financial statements, tax returns and audit; and

Where desirable register the fund for GST.

Fees & Charges


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Fees & ChargesInvestment Advisory Service

Sliding ScaleFunds Under Management

Australian brokerage = 0.825% subject to minimum $110 incl GST

Australian brokerage = 0.825% subject to minimum $110.00

International brokerage = 2.00% subject to minimum $100.00

Account Keeping Fee = $374.00 incl GST

SMSF Admin Service

$121.00 per hour. Fees generally range between $1,100 to $3,300 depending on number of

investments & complexity.

FUM Value % on FUM incl GST

$0 - $1,000,000 1.10% pa

$1,000,001 to $2,000,000 0.88% pa

$2,000,001 and above 0.77% pa

Subject to a minimum $4,400 pa incl GST

How Our Costs Compare


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How Our Costs Compare

VIC SUPER FEES FORTREND SECURITIES FEES

Admin Fees @ 0.5% capped at

$1,500 per annum

$1,500.00 pa Admin Fees @ $121 per hour $1,100.00 to $3,300.00 pa

FUM @ b/w 0.53% - 0.55% $2,650.00 - $2,750.00 pa FUM @ 1.1% $5,500.00 pa

Financial Adviser Fee b/w0.80%1.10%

$4,000.00 - $5,500.00 pa Account Keeping Fee $374.00 pa

Australian listed securities

($500,000 x 60% x 10% x 10%

x 0.825%)

$495.00 pa

International listed securities

($500,000 x 20% x 10% x 10%

x 2.00%)

$400.00 pa

TOTAL FEE ESTIMATE $8,150.00 - $9,750.00 pa $7,869.00 - $10,069.00

Assumptions

$500,000 investment portfolio invested in a balanced investment portfolio

60% invested in Australian listed securities

20% invested in International listed securities

20% invested in Australian cash and term deposits10% portfolio turnover i.e. 10% exiting sold and 10% newly purchased

The above fees have been provided as a guide only. Actual outcomes will vary depending on a range of factors including the alternative

advisory firm used, investment performance, investment conditions, investment risk tolerance, investment options chosen etc. We

recommend you speak to your adviser to gain a greater understanding of your likely fees and charges.

Fortrend Securities Wealth


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Fortrend Securities WealthManagement

Please do not hesitate to contact us to arrange a time to meet with

one of our advisers for a free no obligation meeting to discuss your

needs and circumstances and find out how we can help you.

Contact details

Website www.fortrend.com.au,

Email [email protected],

Phone During business hours (03) 9650 8400,

Fax (03) 9650 8740,

Toll Free: 1300 362 684,Postal address Level 41, 55 Collins Street Melbourne, Victoria 3000 Australia.

ABN: 95 055 702 693

AFSL: 247261
http://www.fortrend.com.au/mailto:[email protected]:[email protected]://www.fortrend.com.au/

Documents

Edition 11 - Chartered 21 July 2010 - Smart Investment & Financial Strategies for the New Financial Year