Rob Coyte's Blog
Recent Blogs
- Prosper or Panic? 06-Oct-2011
- A Revolution Occurring? 13-Sep-2011
- How to Pay Off Your Mortgage 05-Sep-2011
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Prosper or Panic?
According to Bloomberg around US $75 Billion worth of mutual funds were sold in the past 4 months a similar amount to that sold in the period of Lehman Brothers collapse.
So where is the market and what are investors doing?
Bruce McCain, manages US $22 billion told Bloomberg recently “When we’re getting close to a market bottom, the phone starts ringing off the hook and our clients want us to sell everything. Market bottoms are less about an improvement in the fundamental situation, whether the economy or outlook for earnings, and a lot more about getting rid of all the anxious investors.”
“The five months after Lehman were an epic buying opportunity, yet investors liquidated en masse,” Barish an investment professional who mnaages US $8 Billion told said. “Retail unfortunately tends to time things poorly. I don’t expect the current situation to be all that different.”
Where are the underlying fundamentals of the businesses?
Data compiled by Bloomberg show US corporations have been hoarding cash and paying down borrowings. The S&P 500’s net debt to earnings before interest, tax, depreciation and amortization ratio is down to 2.5 from 5 in the second quarter of 2008. Furthermore this year’s earnings will increase 18 percent to a record US$99.57 a share and break $100 next year. This means we have companies at their most profitable and with a strong financial structure (less debt) meaning we are getting an absolute bargain if you are a long term investor.
What is The World's Greatest Investor Doing?
Warren Buffet is not concerned about European debt as he believes it will have fallout but nothing like the GFC. He doesn't believe the US is going into a double dip recession and that a recovery is underway.
His company Berkshire Hathaway is buying back its own shares because "they’re undervalued", Buffett said. He was quick to point out this won't preclude them purchasing shares of other firms or entire companies, who told shareholders in his annual letter that his “elephant gun” is loaded. “If the stock is cheap we will buy it in. If it isn’t cheap we won’t buy it.” said the Oracle.
A Revolution Occurring?
According to Bloomberg, Goldman’s set a Wall Street pay record in 2007, and was subsequently “pilloried by politicians and labor unions for its compensation practices after getting taxpayer aid during the financial crisis”.
It is hard to imagine how employees of banks who have lost billions in capital for their owners and sent the world to the brink of disaster forcing governments to bail out these banks for their misdeeds have been eligible for “bonus” payments. I can’t see how they keep their job yet alone the former.
However, is this a sign that maybe people are starting to have enough?
I have long believed that fund managers or mutual funds in the US have taken a way to passive role in the governance of senior management. They effectively let them get away with whatever they want surely part of the fund managers duty is to scrutinise the reasonableness of staff remuneration the same way they would if THEY owned the business. Clients in fund managers are paying fees and the fund managers should be earning those fees on the governance side by holding senior management to account if actions are not in share holders interests.
How to Pay Off Your Mortgage
However, the most common way that people go about this is to try and pay back the debt as quickly as possible from their wages. This is unfortunately the hardest way to go about doing this given the nature of how our tax structure works.
Lets also take a look at your monthly budget. Your loan repayments, be they principal or interest are only a small part of your expenditure requirements. The rest is made up of food, clothing, ever increasing electricity bills, running cars and all of other our activities that we need or enjoy.
This being the case the notion of financial security depends on 2 things; being able to own your house debt free but also being able to have enough passive income to cover your living requirements. Therefore, if we are focusing purely on the paying off your house debt then we are only addressing part of the problem. This is why I see people who think they are ready to retire and they proclaim "we own our house” only to be bitterly disappointed when they realise they cannot afford to stop working as they still need to earn an income to fund their lifestyle.
What is required
You need to come up with a holistic strategy that will encompass all of your goals that you need to achieve. With the help of our expertise in taxation and finance we can then help you design a strategy that will achieve all of these goals in the quickest possible fashion. This is really a case of working smarter not harder, don’t struggle on the steps for 30 years when we can take an elevator and dramatically reduce the time but also improve the outcome.
The Inside Job - Film Review
It really focuses on the fact that the whole finance food chain is broken and is in desperate need of reform. It also makes the statement that Obama will not be able to deliver the needed reform as he has engaged “current players” to be important members of his staff.
The ineffectiveness of regulators and politicians is a focus of the film. You could even draw a longer bow and say they knew what they were doing and profited themselves. The same can also be said about the academic’s who offer “unbiased” advice and the absolute ineffectiveness of the credit ratings agency’s who got it so wrong. By the time you finish listening to their disclosure and what they are assessing you can see that it is an absolute waste of time paying any attention to anything they say.
The world continues on.
Do you realise that the people that caused the heartache of the GFC have all got away with the money they have stolen? Not one has been jailed or told to give back the money. It has been such a huge transfer of wealth to the rich that effectively figured a way to steal from the poor.
Valuations Determind Long Term Value Not Sentiment
The old saying you make your money when you buy not when you sell is absolutely true. Guess what we are right now in a very exciting time for long term investors.
Last week I read a Bloomberg article discussing the fact that US equity valuations “were stuck at near credit crisis levels”. The article also went onto say that companies were going to increase their profit by 19% in 2011. The article goes onto say that the earnings growth is back in line with long term averages however the index is trading at 13.5 times earnings which is roughly 8% discount to the long term average.
What does this mean...quite simply? The operational performance of the companies is back to “average” however from a valuation perspective investors can acquire these businesses for less than they could on average in the past.
I believe that nothing short of “new” economic dangers surfacing that ceteris paribus this valuation effect could lead to a rise in markets.
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