What is paper money? And, more specifically what are "paper profits" and "paper losses"?
Recently, I was watching this video, when John, the author, used the term "paper money" to refer to "cash" as well as "contracts", because both were printed on paper. (Ignore that cash is now printed on plastic).
Now, as I've said before, I'm not one to be picky about definitions, but I do take note when I think that someone is using a definition that seems different to my own, as well as being different to what I believe is common usage.
My understanding of "paper money", and again, more specifically, "paper profits" and "paper losses", is that it refers to unrealised capital gains. For example, when an asset that you own temporarily doubles in price, you have a "paper profit" of 100%. The term "paper" is used because a) the asset (eg stock) price, was published in the newspaper, and b) because when you update your personal "paper" balance sheet to reflect the updated market price, you write down the 100% profit.
In this way, neither "cash" nor "contracts of ownership" are considered "paper" money.
Why is this important?
Because the whole concept of "market value", and, more specifically, the extrapolation of the market value of the most-recently transacted shares to the total value of all the shares, ie, "market capitalisation", I believe to be erroneous. I hope to cover the details of that belief sometime in the near future.
But for now, in conclusion, thinking that "paper profits" are real is somewhat delusional..
The delusion...Value Investing
- Why it's the best long term investing strategy. Why most investors don't have what it takes. Why and how individual investors can outperform most fund managers, and why some fund managers are worth reviewing
Other stuff
- What is money, where did it come from, and where is it going? Some tax effective investment structures. The Australian Property Bubble. How investing, insurance, gambling, betting are all the same thing..
Dividend Reinvestment Plans
There are many companies that offer dividend reinvestment plans. These are "automatic share buy orders". Instead of receiving dividends from the company in the form of cash, you will receive shares, generally purchased at the current market price.
I will never participate in a dividend reinvestment plan. The reason is simple. To me, a good investment strategy will only buy assets when they are cheap. Any given "now", without any consideration of price, is not likely to be cheap. So, you may end up buying shares when they are not cheap, or, at worst, when they are bloody expensive.
So, why then do so many companies offer a dividend reinvestment plan?
Well, I think it is a cheap management trick to pump up the share price. If a company can cause a continual buying trend, share prices will tend to rise (until the scales tip back towards balancing with earnings).
The problem though, is that management should not be concerned with the price of the company shares. "Ahhh, but they are!" I hear you say. And you're right. Often Executive bonuses are linked to the share price of the company. This is stupid. Shareholders should let management focus on the profitability and growth of the company, and then the share price will take care of itself. If shareholders vote for short-term reward structures, they will get short-term focused management - to the detriment of the long term performance of the company.
The problem with short-term focused management should be obvious. CEOs that maximize their bonus before walking out the door leaving a hell of a mess behind. This is definitely not in the interest of shareholders.
So, as a shareholder:
(KX9UC8U9WVYT)
I will never participate in a dividend reinvestment plan. The reason is simple. To me, a good investment strategy will only buy assets when they are cheap. Any given "now", without any consideration of price, is not likely to be cheap. So, you may end up buying shares when they are not cheap, or, at worst, when they are bloody expensive.
So, why then do so many companies offer a dividend reinvestment plan?
Well, I think it is a cheap management trick to pump up the share price. If a company can cause a continual buying trend, share prices will tend to rise (until the scales tip back towards balancing with earnings).
The problem though, is that management should not be concerned with the price of the company shares. "Ahhh, but they are!" I hear you say. And you're right. Often Executive bonuses are linked to the share price of the company. This is stupid. Shareholders should let management focus on the profitability and growth of the company, and then the share price will take care of itself. If shareholders vote for short-term reward structures, they will get short-term focused management - to the detriment of the long term performance of the company.
The problem with short-term focused management should be obvious. CEOs that maximize their bonus before walking out the door leaving a hell of a mess behind. This is definitely not in the interest of shareholders.
So, as a shareholder:
- I will always vote against the introduction of a dividend reinvestment plan.
- I will be wary of any management that suggest the introduction of a dividend reinvestment plan.
- I will always vote against executive remuneration linked to short term objectives, such as share price.
- I will never participate in dividend reinvestment plans.
(KX9UC8U9WVYT)
Labels:
dividends,
management,
shareholder responsibilities
Family Trusts
Disclaimer: I am not a lawyer. I am not an accountant. I am not a financial adviser. The description below is written in layman's terms, by a layman. It may not be accurate. Seek professional advice.
At about the same time that I setup my SMSF, at the advice of my accountant, I also setup a Family Trust.
A Family Trust is similar in structure to the SMSF, in the sense that it a legal entity, essentially created by the existence of a deed document. It can own assets.
So, why setup a Family Trust?
A Family Trust allows me to distribute any income received by the Family Trust to the beneficiaries of the Trust in a discretionary manner. The beneficiaries of the Trust are the people (generally immediate family members) that can receive income generated by the Trust.
The real advantage of the Family Trust is the discretionary nature by which income can be allocated. Basically, income can be allocated as required (or, at the sole discretion of the Trustees) as to maximize the net benefit (ie, after tax) to the beneficiaries.
So, in my case, my partner and I will likely alternate being the primary income earner and the primary care giver across a number of years. Using the Family Trust structure, we simply put the name of the income earning assets into the name of the Trust, and can then (in any given tax year, and changing between tax years) allocate income to primary care giver first, ensure that we maximize our net earnings.
We can also allocate $3,000 per year to each child, without paying any tax on that income.
You should be able to see the effectiveness of the Family Trust structure, in building and maintaining the financial well being of your family.
Setting up the Family Trust...
Setting up the Family Trust was quite similar to setting up an SMSF, in the it consisted of:
The cost of setting up the Family Trust was about the same as the SMSF, ie, a few grand, but it is definitely worth it. I may be wrong, but I doubt it. :-)
At about the same time that I setup my SMSF, at the advice of my accountant, I also setup a Family Trust.
A Family Trust is similar in structure to the SMSF, in the sense that it a legal entity, essentially created by the existence of a deed document. It can own assets.
So, why setup a Family Trust?
A Family Trust allows me to distribute any income received by the Family Trust to the beneficiaries of the Trust in a discretionary manner. The beneficiaries of the Trust are the people (generally immediate family members) that can receive income generated by the Trust.
The real advantage of the Family Trust is the discretionary nature by which income can be allocated. Basically, income can be allocated as required (or, at the sole discretion of the Trustees) as to maximize the net benefit (ie, after tax) to the beneficiaries.
So, in my case, my partner and I will likely alternate being the primary income earner and the primary care giver across a number of years. Using the Family Trust structure, we simply put the name of the income earning assets into the name of the Trust, and can then (in any given tax year, and changing between tax years) allocate income to primary care giver first, ensure that we maximize our net earnings.
We can also allocate $3,000 per year to each child, without paying any tax on that income.
You should be able to see the effectiveness of the Family Trust structure, in building and maintaining the financial well being of your family.
Setting up the Family Trust...
Setting up the Family Trust was quite similar to setting up an SMSF, in the it consisted of:
- Creating the Trust Deed document, which, amongst other things, contained the list of Trustees (the people that control the Trust), the list of Beneficiaries (the people that benefit from the Trust).
- Getting ABNs and TFNs for the Trust
- Setting up bank accounts in the name of the Trust.
- Moving existing assets into the name of the Trust.
- Had over $100,000 in funds to manage.
- Had family members that were either temporarily or permanently in lower tax brackets.
- Had at least one child, although the more the better.
The cost of setting up the Family Trust was about the same as the SMSF, ie, a few grand, but it is definitely worth it. I may be wrong, but I doubt it. :-)
Labels:
accountant,
Family Trust,
investing structures,
tax effective
The tortoise and the hare
There are 2 types of investors - tortoises and hares. Nearly everything taught and written about investing these days is written for hares, by hares. After all, the hares wear the best suits, have the best jobs, drive the fastest cars, etc. The tortoises, however, have more wealth.
As the race starts, the hare bolts out of the blocks as fast as he can, and heads where all the other hares are going. The tortoise, on the other hand, heads for the wall that contains the train timetable, carefully studies it and plans out his route. He then heads for the station, and sits and waits at the platform. He realises that, although it doesn't look particularly exciting, waiting at the platform for the train will ultimately lead him to the finish line in the fastest possible time. There are lots of hares that run past this particular station, and they all laugh at the tortoise - just sitting there. The tortoise is actually reading while he waits. He is of course planning out what to do once he gets off the train.
Eventually, after what seems like an eternity, the train arrives, and the tortoise boards. Even then, however, the hares laugh at him. For the train takes off so slowly that the hares are still able to run straight passed. The tortoise doesn't notice though, as he has his head down and is reading some more.
The hares stop laughing as it starts to rain. The hares don't like the rain. They turn around and scamper to the last comfortable indoor place they passed to wait out the rain. If the hare hadn't have been on the train, the rain wouldn't have bothered him anyway. He always carries an umbrella - just in case. The hares laugh at him for this too.
Anway, the train that started slowly, has ever so surely been picking up speed as is now moving along very fast. The tortoise looks out the window and sees that the train is moving faster than any of the hares. He then looks around the inside of the train. He notices a few other tortoises on in carriage - some of which he recognises, and some of which he doesn't. Those that know each other, give their friends a wry smile, and then they all go back to their reading.
To be continued...
As the race starts, the hare bolts out of the blocks as fast as he can, and heads where all the other hares are going. The tortoise, on the other hand, heads for the wall that contains the train timetable, carefully studies it and plans out his route. He then heads for the station, and sits and waits at the platform. He realises that, although it doesn't look particularly exciting, waiting at the platform for the train will ultimately lead him to the finish line in the fastest possible time. There are lots of hares that run past this particular station, and they all laugh at the tortoise - just sitting there. The tortoise is actually reading while he waits. He is of course planning out what to do once he gets off the train.
Eventually, after what seems like an eternity, the train arrives, and the tortoise boards. Even then, however, the hares laugh at him. For the train takes off so slowly that the hares are still able to run straight passed. The tortoise doesn't notice though, as he has his head down and is reading some more.
The hares stop laughing as it starts to rain. The hares don't like the rain. They turn around and scamper to the last comfortable indoor place they passed to wait out the rain. If the hare hadn't have been on the train, the rain wouldn't have bothered him anyway. He always carries an umbrella - just in case. The hares laugh at him for this too.
Anway, the train that started slowly, has ever so surely been picking up speed as is now moving along very fast. The tortoise looks out the window and sees that the train is moving faster than any of the hares. He then looks around the inside of the train. He notices a few other tortoises on in carriage - some of which he recognises, and some of which he doesn't. Those that know each other, give their friends a wry smile, and then they all go back to their reading.
To be continued...
Labels:
discipline,
patience,
value investing
Definitions
A friend once told me that it was silly to argue over definitions. I understand his point. If someone starts a conversation with "Let X be blah..", there is no point arguing: "No it's not".
However, what you can argue about definitions is whether or not they are commonly accepted, or, more precisely, how commonly accepted they are.
The other thing you can argue is the usefulness of a particular definition. For example, defining "black" as "white" isn't particularly useful.
So, given various options for a particular definition I will favor usefulness over acceptance.
However, what you can argue about definitions is whether or not they are commonly accepted, or, more precisely, how commonly accepted they are.
The other thing you can argue is the usefulness of a particular definition. For example, defining "black" as "white" isn't particularly useful.
So, given various options for a particular definition I will favor usefulness over acceptance.
Is your family home an investment?
I lost this argument the other night, but I'm still sure that I'm right.
The question was whether or not you should consider your primary residence an investment. I think that you should, but I couldn't convince anyone else.
Say, for example, that you have $500,000 that you are currently managing through various investments. If you use this money to buy your family home, does it suddenly not become an investment? If not, where did that investment go? How do I report on that portfolio?
Of course, if I let someone else live in this home and pay me rent, then it's suddenly becomes an investment, obviously, and, even if I leave it vacant, it is still an investment. Yet, for some reason, the moment that I walk into it with a pillow, it is no longer an investment.
That is, of course, unless I happen to sell it some years later for a profit, at which point, people will say "You made a great investment there".
This argument actually came up during a conversation about current house prices in Australia, and whether or not now was a good time to buy a house. I think it was raised by the housing bull, as a last ditched effort to justify buying in the current climate - that is, at the peak of the housing bubble.
Having been pounded by arguments against the possibility of rising house prices in the coming years, he resorted to "but you shouldn't consider your primary residence as an investment".
Right, I get it now. So, because it isn't an investment, I can then justify the 30% capital loss. Pure genius - or slightly delusional.
The question was whether or not you should consider your primary residence an investment. I think that you should, but I couldn't convince anyone else.
Say, for example, that you have $500,000 that you are currently managing through various investments. If you use this money to buy your family home, does it suddenly not become an investment? If not, where did that investment go? How do I report on that portfolio?
Of course, if I let someone else live in this home and pay me rent, then it's suddenly becomes an investment, obviously, and, even if I leave it vacant, it is still an investment. Yet, for some reason, the moment that I walk into it with a pillow, it is no longer an investment.
That is, of course, unless I happen to sell it some years later for a profit, at which point, people will say "You made a great investment there".
This argument actually came up during a conversation about current house prices in Australia, and whether or not now was a good time to buy a house. I think it was raised by the housing bull, as a last ditched effort to justify buying in the current climate - that is, at the peak of the housing bubble.
Having been pounded by arguments against the possibility of rising house prices in the coming years, he resorted to "but you shouldn't consider your primary residence as an investment".
Right, I get it now. So, because it isn't an investment, I can then justify the 30% capital loss. Pure genius - or slightly delusional.
Predictions for the Australian Housing Market Bubble
Wow - an Australian first. A dinner party discussion about the Australian housing market where the bears outnumbered the bulls. It was incredible. One only needs to go back a couple of years and it would have been the unanimous position that house prices in Australian could not go down, let alone that Australian house prices would go down.
The arguments given by the lone bull were the pretty typical, but we weren't convinced. We knew all about the Australian Housing Market Myths.
Anyway, for posterity, I thought I'd put the survey results here. The question was on the change in the median Melbourne house price over the coming years.
Now, I would never use a voting system to determine correctness on a given issue, as usually I'm the delusional one getting out-voted. However, from the survey results above we can conclude one thing for sure - at least 1 person at the table was delusional.
The arguments given by the lone bull were the pretty typical, but we weren't convinced. We knew all about the Australian Housing Market Myths.
Anyway, for posterity, I thought I'd put the survey results here. The question was on the change in the median Melbourne house price over the coming years.
| Person A | Person B | Person C | Person D | Person E | |
|---|---|---|---|---|---|
| 1 year | 0 | -10% | 0 | -5% | 0 |
| 2 year | +10% to +15% | -15% | -15% | -10% | -10% |
| 3 year | +17% to +35% | -25% to -30% | -30% | -15% | -15% |
Now, I would never use a voting system to determine correctness on a given issue, as usually I'm the delusional one getting out-voted. However, from the survey results above we can conclude one thing for sure - at least 1 person at the table was delusional.
Labels:
Australian housing bubble,
predictions
Self Managed Superannuation
Having cunningly devised what I believed to be a great investment strategy, I needed some capital to put it to the test. Fortunately, in Australia, there is this thing called superannuation, which is basically legally enforced retirement savings.
Like most youngish people, I had paid little to no attention to super, despite the fact that it is my money. The commercial super companies love people like me. I had changed jobs several times, had multiple super funds with multiple fund managers, and they creamed all the fees they could.
I was also quite bearish about 2010, and so was uncomfortable letting someone else manage my money.
So, I started looking into setting up my own self managed super fund (SMSF), which turned out relatively straight forward.
The first step was consolidating all my super funds with a single fund manager, and changing the fund profile to "Cash". Hopefully, this would protect me in the event of another stock market crash whilst I was setting up the SMSF.
Setting up the SMSF was simple enough, but the duration that it took surprised me. End to end it took about 3 months.
There are a number of decent web sites how to set up your own SMSF. But I didn't use any of them. I simply went to my accountant and said "I want to run my own SMSF". He could see the determination in my eye, and so didn't question my rationale.
The first delay was caused by the fact that I had asked him about this in May, which was towards the end of the financial year, and he suggested that waiting until the next financial year - which started in July. This made sense, as there was no point paying full accounting fees for only a 1-2 month period.
The initial step was to create the Deed document, along with a whole bunch of other documents, including product disclosure statements, meeting minutes, etc. There was no effort in this, as it was all done in a single meeting with our accountant, which as it turns out, was rather comical, as it included appointing trustees (me and my partner), signing applications for membership (me and my partner), accepting membership applications (for me and my partner), etc.
To my horror, one of the template documents that my accountant had prepared for me was the Investment Strategy. Having spent the last 12 months devising what I thought was the ultimate investment strategy, I was somewhat insulted that I was being asked to sign a template document. My accountant explained that while legally compliant, it was fairly loose in it's asset allocation "recommendations", and would suffice regardless of what my actual strategy was. I explained that I would get back to him with a merged document.
Once the fund deed was created I could register for an Australian Business Number (ABN) and a Tax File Number (TFN). I did this online without too much trouble, although it took about 1-2 weeks for the numbers and documentation to come back.
Once I had these, I had all the necessary documentation to be able to apply for bank accounts in the name of the fund. Rightly or wrongly, the first bank account I created was a Comsec account. I wanted to create high interest online savings accounts, but each of these (UBank & RaboDirect) needed to be linked to an existing account.
Creating the initial account required me to go to the post office (or chemist) and have them witness the original deed document, and sign that the photocopy that I was about to send away was legit. I could then snail mail the application form. Once I had the Comsec account setup I could repeat the process for the online accounts.
Once I had the SMSF bank accounts setup, I could fill out the forms to transfer money from my existing Super Account, into the new bank accounts. Again, the paperwork was a little painful, as they need to be convinced that you're actually a ligitimate super fund. The guys at the post office now knew my by name.
The next thing I knew, the existing funds had sent me a cheque, so I forwarded that on to Comsec, had hey presto, a few days later, the money appeared in my account. I could then commence the "Cash Management" phase of my strategy, and allocate to other accounts and term deposits as required.
Along the 3 month SMSF journey, I went to an ASX investor hour on SMSFs, which was reasonably interesting. The first hour was all about SMSFs, and the second hour was a sales pitch by an investment mob. In future, I'll only go to the first hour of those seminars.
I took a few useful tidbits out of the seminar. These were:
1. There are about 90 responsibilities associated with being an SMSF trustee, however most of these are designed to prevent people getting early access to their funds for dodgy reasons. As I was planning to invest my money sensibly and use it when I retire, most of these were not significant to me.
2. The only thing that your Super Fund is allowed to own that you are allowed to live in is a commercially viable farm.
3. The average commercial Super Fund is worth around $70,000, and the average SMSF is worth around $900,000. This is presumably more because of the historical high cost of entry, which previously restricted SMSFs to high net worth individuals, as opposed to the performance of SMSF funds in comparison to commercially run super funds.
On point 3 above, our accountant advised that the minimum amount of funds required to make a SMSF viable was around $300,000, as the accounting costs per year would be around $3,000, which equates to 1% of the fund. Any less and the management expense becomes burdensome.
If, however, any of the bearish scenarios play out of the next few years, commercially run super funds will struggle to get a positive return. In this event, having $100,000 in a bank account earning 5% will still grow your fund at 2% per year, after the $3,000 costs. So, in my humble opinion, if I only had $100,000 (and a solid investment strategy) I would be better off with a SMSF.
Anyway, the SMSF has been up and running now for a few months. Has it been worth while? Yes, definitely, if only for peace of mind.
Will it be financially beneficial? I did it because I believe that I can outperform the market and outperform my previous commercial fund manager.
Delusional? Perhaps. Time will tell..
Disclaimer: I am not a financial adviser.
Like most youngish people, I had paid little to no attention to super, despite the fact that it is my money. The commercial super companies love people like me. I had changed jobs several times, had multiple super funds with multiple fund managers, and they creamed all the fees they could.
I was also quite bearish about 2010, and so was uncomfortable letting someone else manage my money.
So, I started looking into setting up my own self managed super fund (SMSF), which turned out relatively straight forward.
The first step was consolidating all my super funds with a single fund manager, and changing the fund profile to "Cash". Hopefully, this would protect me in the event of another stock market crash whilst I was setting up the SMSF.
Setting up the SMSF was simple enough, but the duration that it took surprised me. End to end it took about 3 months.
There are a number of decent web sites how to set up your own SMSF. But I didn't use any of them. I simply went to my accountant and said "I want to run my own SMSF". He could see the determination in my eye, and so didn't question my rationale.
The first delay was caused by the fact that I had asked him about this in May, which was towards the end of the financial year, and he suggested that waiting until the next financial year - which started in July. This made sense, as there was no point paying full accounting fees for only a 1-2 month period.
The initial step was to create the Deed document, along with a whole bunch of other documents, including product disclosure statements, meeting minutes, etc. There was no effort in this, as it was all done in a single meeting with our accountant, which as it turns out, was rather comical, as it included appointing trustees (me and my partner), signing applications for membership (me and my partner), accepting membership applications (for me and my partner), etc.
To my horror, one of the template documents that my accountant had prepared for me was the Investment Strategy. Having spent the last 12 months devising what I thought was the ultimate investment strategy, I was somewhat insulted that I was being asked to sign a template document. My accountant explained that while legally compliant, it was fairly loose in it's asset allocation "recommendations", and would suffice regardless of what my actual strategy was. I explained that I would get back to him with a merged document.
Once the fund deed was created I could register for an Australian Business Number (ABN) and a Tax File Number (TFN). I did this online without too much trouble, although it took about 1-2 weeks for the numbers and documentation to come back.
Once I had these, I had all the necessary documentation to be able to apply for bank accounts in the name of the fund. Rightly or wrongly, the first bank account I created was a Comsec account. I wanted to create high interest online savings accounts, but each of these (UBank & RaboDirect) needed to be linked to an existing account.
Creating the initial account required me to go to the post office (or chemist) and have them witness the original deed document, and sign that the photocopy that I was about to send away was legit. I could then snail mail the application form. Once I had the Comsec account setup I could repeat the process for the online accounts.
Once I had the SMSF bank accounts setup, I could fill out the forms to transfer money from my existing Super Account, into the new bank accounts. Again, the paperwork was a little painful, as they need to be convinced that you're actually a ligitimate super fund. The guys at the post office now knew my by name.
The next thing I knew, the existing funds had sent me a cheque, so I forwarded that on to Comsec, had hey presto, a few days later, the money appeared in my account. I could then commence the "Cash Management" phase of my strategy, and allocate to other accounts and term deposits as required.
Along the 3 month SMSF journey, I went to an ASX investor hour on SMSFs, which was reasonably interesting. The first hour was all about SMSFs, and the second hour was a sales pitch by an investment mob. In future, I'll only go to the first hour of those seminars.
I took a few useful tidbits out of the seminar. These were:
1. There are about 90 responsibilities associated with being an SMSF trustee, however most of these are designed to prevent people getting early access to their funds for dodgy reasons. As I was planning to invest my money sensibly and use it when I retire, most of these were not significant to me.
2. The only thing that your Super Fund is allowed to own that you are allowed to live in is a commercially viable farm.
3. The average commercial Super Fund is worth around $70,000, and the average SMSF is worth around $900,000. This is presumably more because of the historical high cost of entry, which previously restricted SMSFs to high net worth individuals, as opposed to the performance of SMSF funds in comparison to commercially run super funds.
On point 3 above, our accountant advised that the minimum amount of funds required to make a SMSF viable was around $300,000, as the accounting costs per year would be around $3,000, which equates to 1% of the fund. Any less and the management expense becomes burdensome.
If, however, any of the bearish scenarios play out of the next few years, commercially run super funds will struggle to get a positive return. In this event, having $100,000 in a bank account earning 5% will still grow your fund at 2% per year, after the $3,000 costs. So, in my humble opinion, if I only had $100,000 (and a solid investment strategy) I would be better off with a SMSF.
Anyway, the SMSF has been up and running now for a few months. Has it been worth while? Yes, definitely, if only for peace of mind.
Will it be financially beneficial? I did it because I believe that I can outperform the market and outperform my previous commercial fund manager.
Delusional? Perhaps. Time will tell..
Disclaimer: I am not a financial adviser.
Labels:
accountant,
investing structures,
SMSF,
super,
superannuation,
tax effective
Disclaimer
The content on this blog is the opinion of the author only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation, no matter how much it seems to make sense, to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy.
The author has no position in any company or advertiser reference unless explicitly specified.
Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who claims to have a qualification before making any investment decisions
The author has no position in any company or advertiser reference unless explicitly specified.
Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult someone who claims to have a qualification before making any investment decisions
2011 Economic Survey
Economists make poor predictions. In today's The Age newspaper, various economists made predictions about various economic metrics for 2011. I noticed that to protect the article's credibility, they didn't publish last year's predictions and results, because that would just make the economists look silly, and there predictions for 2011 obviously useless, rather than just useless.
I also note that of the 21 economists that made predictions, all but 4 work within the finance sector, and hence have a vested interest in a bullish performance. It is not surprising then, to find that the two most bearish predictors are Steven Keen and Jakob Madsen - both academics.
For 2011, these 2 bears predict that interest rates will fall to 4.125%, the AUD/USD will fall to 90c, the ASX200 will fall to 4350 in July, and to 4000 by EOY. Yes, I did some averaging to get these numbers.
I have no idea what 2011 will bring to Australia. There are certainly a lot of risks present, including an impending housing market crash, an impending Chinese growth crash, a Euro breakup or default, more US housing/banking foreclosure debacle.
What can an investor do under these circumstances other than play for safety, and wait for value?
I also note that of the 21 economists that made predictions, all but 4 work within the finance sector, and hence have a vested interest in a bullish performance. It is not surprising then, to find that the two most bearish predictors are Steven Keen and Jakob Madsen - both academics.
For 2011, these 2 bears predict that interest rates will fall to 4.125%, the AUD/USD will fall to 90c, the ASX200 will fall to 4350 in July, and to 4000 by EOY. Yes, I did some averaging to get these numbers.
I have no idea what 2011 will bring to Australia. There are certainly a lot of risks present, including an impending housing market crash, an impending Chinese growth crash, a Euro breakup or default, more US housing/banking foreclosure debacle.
What can an investor do under these circumstances other than play for safety, and wait for value?
Labels:
2011,
predictions,
steve keen
Credit
Giving credit where credit is due, I'd like to thank Delusional Economics for the name, the education, and the inspiration.
This blog will be nothing like DE, but I am sincere in my thanks.
Hopefully, more useful and insightful posts are to come.
This blog will be nothing like DE, but I am sincere in my thanks.
Hopefully, more useful and insightful posts are to come.
Subscribe to:
Posts (Atom)
Posts
