Today’s Money Morning takes a different format than usual.
It’s Australia Day, so the Australian market is closed, and so is the entire Port Phillip Publishing office.
But seeing as you’ve opened this email today, my bet is you’re like me. You’ll still spend at least part of today reading about the markets and figuring out what to do next.
In that case, let me see if I can help…
Investing is all about ideas.
If you don’t have any ideas you’ll never know what to do with your money.
The same goes with financial advisors. A financial advisor should have ideas too. Some financial advisors just copy ideas. They just follow the crowd, doing what everyone else does.
The best financial advisors come up with their own ideas. They think up original ideas. Or if they can’t come up with their own ideas they at the least have the vision to get in on an idea early…before the rest of the crowd.
That’s the point where you enter the frame as an active investor. If you want to control your savings and build long-term and lasting wealth, you have to make yourself familiar with these ideas and then decide which are most likely to help you achieve your investing goals.
Up until now, this issue of Money Morning may have seemed like any other. But from here on things change.
An Australia Day Treat
I said at the top of this Australia Day edition of Money Morning that I’d like to help you out. I’d like to give you a helping hand with building your wealth.
Now, I can’t do that directly. I can’t give you the secret to eternal wealth. But I can do the next best thing. I can introduce you to some of the best investment ideas from the best investment thinkers on the Aussie market today.
In order to find out what these investment thinkers have on their mind right now, I’ve gone through their latest research reports and notes to pick out the key themes they’re discussing with their readers right now.
I hope you enjoy it, and I hope it gives you something to think about as you enjoy the rest of your Australia Day holiday…
Big Thinker #1
First up is my old pal Dan Denning. Dan is one of the best big picture thinkers I know. I’m not sure that there’s a trend he hasn’t been among the first to spot in the nine years I’ve known him.
And now Dan has three big trends that he sees forming in 2014. Dan says the Aussie market will perform worse than overseas markets this year:
‘Without an ambitious plan of money printing from the RBA, local shares won’t compete with their blue-chip brethren overseas in 2014.‘
This will also be bad news for the Aussie dollar and the Aussie economy. Dan sees the Aussie falling further this year:
‘The weaker the balance sheet, the more dangerous for the Aussie dollar, which is the RBA’s main liability.‘
But if you think the outlook is bleak for the Aussie dollar, things could look even worse for gold investors. Dan says:
‘For commodity and gold investors, more pain could come before the big rebound begins…‘
In fact, Dan doesn’t just see a minor downturn; he’s pegged the Aussie economy to enter a full-blown recession. In a recent weekly update to Denning Report subscribers he wrote:
‘Higher unemployment will add to government welfare payments. But the real effect is in the dollar. The Aussie dollar fell nearly 1% after the jobs data came out. The dollar is beginning to price in higher unemployment.
‘The weaker dollar is a mixed bag. It should be good for companies that sell overseas. That’s a move you could try and trade. But the mixed part is that a weaker dollar means higher import prices, which will pressure retail stocks. What the weaker dollar giveth, the weaker dollar taketh away.
‘The stock market hasn’t begun to factor this in to prices. Most economists and fund managers believe that because unemployment is a lagging indicator, this suggests that the worst is behind us. I’m afraid to say they’re wrong. It’s no fun pointing it out. But it is what it is.‘
You can get more insight into Dan’s thoughts here.
Big Thinker #2
Taking a slightly different view on the outlook for the Aussie economy and commodity prices is Jason Stevenson, our new Diggers and Drillers analyst.
Jason’s primary role is to uncover the most exciting resource stocks on the planet. The good news for Jason (and his subscribers) is that most of the best opportunities are right here in Australia.
The fact is that Australia has a comparative advantage when it comes to natural resources. Other countries can’t just create iron ore, copper or bauxite from thin air.
Sure, it’s luck. But heck, it’s one thing to be dealt a good hand; it’s another thing to make the most of that hand. For the most part Aussie mining firms have done that over the past 50 years.
But now, after the commodity crashes of 2008 and 2011, it’s time for Aussie mining stocks to reset and start again. The same is true of investors. It’s time to rethink old investing ideas and focus on the future.
One of those ideas is what investors can expect from the gold price. In a recent weekly update Jason told his readers:
‘Although I’m bullish on the sector, I continue to say that gold could go lower (my target is $1,037.34/ounce). That won’t come as pleasing news if you’re still hanging out for gold to go to $2,000 or even $5,000 as some commentators have claimed over the years.
‘The reason for my near-term bearish view on gold is that it’s in a long-term technical downtrend. It has been falling for the past two years. It’s now down around 36% from its peak.
‘When you’re looking at investments it’s important to look at these trends. I don’t like going against the trend because more often than not, you end up ‘catching a falling knife’ and losing a lot of money. As the saying goes, ‘the trend is your friend’.‘
That view will be a shock for those looking for $5,000 gold. But the role of an analyst is to tell it as they see it. I’m in Jason’s camp on this one. I view gold as an integral part of any portfolio, but I wouldn’t hold my breath waiting for it to do much soon.
You can find out how to get more of Jason’s analysis here, including his latest research on the best iron ore stock to buy today (clue: it’s not BHP Billiton).
Big Thinker #3
It’s easy to think that investing is all about which stocks to buy and sell.
There’s no doubt that’s the exciting side of investing. Think about the financial news reports on the TV. What video images do they usually show you?
That’s right, it’s usually the frantic trading floor of the Chicago Board of Trade or the brokers and market-makers milling about on the floor of the New York Stock Exchange.
(Although to be fair, since the move towards computerised trading, the trading floors aren’t as frantic as they used to be.)
The one image they don’t show you is of an investor sitting back in a chair reading a book, hitting balls on the golf course, or sipping pina colada’s on the beach while income ‘cheques’ from their investments drop into their bank account on a regular basis.
There’s no excitement in that. And yet for most people, taking a relaxed (but not passive) approach to investing is a much more realistic way to handle their investments.
This is exactly the investing approach advocated by my old buddy Nick Hubble, the editor of The Money for Life Letter. Just last week he told me a story about a retiree named George.
According to Nick, George isn’t your typical retiree. You can find out why here.
Big Thinker #4
Someone else with a relaxed attitude to investing is Vern Gowdie. Vern has been something of a controversial figure since he joined Port Phillip Publishing last year.
That surprised me, in a way. But in another way I can see why it’s not surprising, and why his investment strategy has ruffled so many feathers among readers.
To look at Vern, he’s the last person you’d expect to put someone offside. But his investment allocation strategy is controversial. Unlike most financial planners (Vern was in the game for 26 years before joining our team) he’s not interested in shoving investors into investments just so he can earn a commission.
In fact, arguably Vern doesn’t currently recommend any investments for anyone – unless you count straight cash as an investment. That’s right, Vern’s simple asset allocation strategy involves holding cash and nothing else.
Vern recommends cash because he fears a catastrophic stock market collapse.
Now, Vern isn’t saying the market will crash tomorrow. He admits he doesn’t know exactly when the stock market will hit the skids. But what he does know is that the current global economic set-up of huge government and personal debt levels isn’t sustainable.
Because of this risk he suggests investors stay in cash until stocks return to a more reasonable level.
It’s a brave call. You won’t find many investment professionals who are prepared to tell their clients to hold nothing but cash. For that reason, even if you end up disagreeing with Vern’s view, his thoughts make for compelling reading. Check out more from Vern here.
Big Thinker #5
At the opposite end of the spectrum from Vern is tech guru Sam Volkering.
Sam’s the last person who would recommend an all-cash investment strategy. In fact, Sam’s more likely to think that cash – in its current form – won’t even exist within the next 10 years.
That’s one of the key themes Sam has followed since I hired him to be the technology analyst for Revolutionary Tech Investor.
Sam sees the future of money as a purely electronic medium of exchange. He sees the future of money in crypto-currencies like Bitcoin. He sees people buying goods not using cash or a credit card, but rather using biometric technology such as finger print or eye scanning.
Or more radically, he sees the future of money as a subconscious transaction, where it just happens without you thinking about it or needing to do anything to make it happen.
It may sound like a strange concept, and you may think that it’s too bizarre to ever happen. But to a large degree the technology already exists. Kids at some schools in the UK can already pay for their lunch using biometric technology.
And wi-fi technology already exists that can send data wirelessly between electronic devices. The only thing that’s delaying the end of bank notes and coins are the concerns about security. Once cyber security firms can nail down that issue, it won’t take long before consumers and businesses convert to using 100% electronic money.
The end of money as you know it is nigh. Sam has picked out two cyber-security firms he says are poised to benefit from the shift to a cashless economy. Details here.
Big Thinker #6
In a similar vein to Sam is small-cap analyst Tim Dohrmann. Tim’s background involves time in London working on the equity desk for one of the world’s biggest investment banks.
He now brings that experience to the Aussie small-cap market, helping to identify investment opportunities for Australian Small-Cap Investigator subscribers.
To be honest there’s nothing complicated about the small-cap market. It’s pretty simple. You find stocks trading at a discount to their future potential value, and then you buy them and wait.
Sounds easy right? The only problem is that of the 2,000 ASX-listed stocks, around 1,800 of them can be thought of as small-cap. To add to the difficulty is the fact that not every small-cap company will achieve its promised potential.
That’s where analysts like Tim have to knuckle down and filter the wheat from the chaff (sorry for the cliché, but it’s true).
So, where is Tim looking for small-cap investment opportunities? Here’s what he recently told Australian Small-Cap Investigator subscribers:
‘My best bet for 2014 is to get involved in emerging growth. This typically – but not exclusively – means investing in small technology companies.
‘The stage has been set with low rates, improved business confidence…, a backlog of companies wanting to float and weakness in the Australian dollar. These factors all drove the flurry of IPO activity we saw into the end of 2013.‘
Tim has his eye on more IPO opportunities this year. Not all of them will make the grade. But it’s not just IPO’s on Tim’s watchlist. He also likes small-cap financial stocks, the kind of companies operating in markets where the big banks won’t tread.
One such company made it to the top of Tim’s list in the January issue of Australian Small-Cap Investigator. Get access to Tim’s research now by clicking here and following the instructions.
Big Thinker #7
Finally, our old pal Greg Canavan. Like Dan Denning, Greg sees plenty of problems ahead for the global economy. Greg writes the big picture investment newsletter Sound Money. Sound Investments.
One of Greg’s key themes in recent years is the problems facing China. Greg fears that China’s infrastructure spending binge and high personal debt levels will be one of the big issues to hit the markets in the near future.
Responding to an article in Reuters which explained that one-third of wealthy Chinese have already left China, Greg wondered what these wealthy individuals know that the rest of us don’t.
As he wrote in the free daily eletter, The Daily Reckoning:
‘If 30% of wealthy residents are bailing, does that bode well for the future? Probably not. They’re either taking their ‘wealth by corruption’ before it’s confiscated, or they’re genuinely wealthy and don’t like where China’s headed.
‘Either way, it’s a reflection that wealth won’t be so easy to come by in China in the coming years.
‘In fact, it won’t be so easy anywhere. The “Great Reflation” has just about run its course. We’ve just experienced five years of unprecedented monetary stimulus. Can we get five more years? Sure, but the central bankers will have to take things to another level if they want to get greater “results”.
‘That is, it requires ever greater amounts of monetary fuel to keep the fires of inflation going. If you stop, the flames die down. If you stop for long enough, they go out. It becomes cold, and deflation emerges.‘
Deflation is the hot topic among central bankers. They hate it, and they’ll do anything in their power to prevent it from taking hold. You can read more of Greg’s thoughts on deflation and the prospects of further central bank manipulation in The Daily Reckoning each weekday. Click here to subscribe for free.
*****
That’s all for this special Australia Day version of Money Morning. I hope that in some way it has helped you get through the day while the ASX is closed.
As I said at the top, investing is about ideas, and finding the ideas that best suit your style of investing.
You may not agree with all the views in today’s issue of Money Morning, but it should give you something to think about when you next have to make a choice about investing your money.
As for my take? I’m on record as saying that the Aussie stock market still has much further to go. I’m a buyer of stocks for as long as interest rates stay low and central banks see the need to meddle with the markets.
You’ll have to wait until the end of the year to see whether I’m right or not. So, why not keep a copy of this email handy? You can refer back to it at the end of the year to see which of our ‘Big Thinkers’ have got it right, and which got it wrong.
I’ll be back tomorrow with your regular edition of Money Morning.
Cheers,
Kris+
