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Patrick Fresne

In pre-industrial times, the influence of climate and weather on human societies was readily apparent to the World’s predominantly rural populations: inclement weather could result in failed harvests, higher food prices, unrest and revolutions. Show More

Patrick Fresne

California has been pummelled by a deluge of wet weather over the past couple of months. A downpour in February followed on from one of the state's wettest Januaries in history, leading to the well-publicised crisis at the Oroville dam in the North of the state. Show More

I think you make a strong case here. With economic storm clouds on the horizon, a number of economists have been forecasting recession for Australia and thus a higher unemployment rate. But considering the low cost of borrowing at current, this outcome is hardly inevitable. The adverse economic impacts of high unemployment have been widely studied and are well known, and with the Federal Government currently able to borrow at ultra-low rates, there is really no reason as to why the Government couldn't take advantage of this situation to initiate significant new projects to generate jobs, tackling the scourge of high unemployment before it takes hold.

On Should we be borrowing more? -

Marcus, could I politely suggest that there is a significant flaw in your line of argument?. The 'case for the banks' outlined above seems to heavily rest on the fact that there will be no tinkering with tax practices such as negative gearing and franking credits following on from the surprise Coalition win on the weekend. The problem here is that -as you yourself have noted in the past- it is poor practice to invest in assets primarily for tax-related reasons. Undoubtedly, more certainty around negative gearing and lower interest rates might help boost the property market, and thus the bank stocks, in the short term. However, tax practices such as negative gearing, or even interest rates fluctuations, are not the most important macro drivers of the property market. The two most fundamental drivers of the Australian property market are demographics and immigration. And here's the rub: during the election campaign, Scott Morrison promised to cap permanent migration at the 160,000 level for four years. It is hard to see how a substantial drop in immigrant numbers could bode well for property prices over the long run. And the demographic situation hardly inspires confidence, with the last of the 'Baby-Boomer' generation reaching the 60 milestone in the next few years, which is likely to result in a glut of properties hitting the market as the Boomers downsize. Those running into the property market and banks stocks might enjoy a short term bounce, but I suspect that in the wash-up many will end up losing their shirts.

On Go long (and stay long) -

Terrific wire, and impressive research. If I might add a short addendum on the subject of China's tariff increase on US almond imports, it is worth noting that just last week China proposed raising the tariff on US produced roasted almonds by 28%, on top of that 50% tariff imposed on all US almonds last year, according to media reports (I should note that these reports disagree on some details). But assuming that these reports are accurate and that China goes ahead with these stiff new tariff increases, this would most likely render the export of Californian roasted almonds to China as unviable. The food division of Select Harvests is currently expanding into China, and if the new proposed tariff increase on roasted almonds is implemented, Select would appear to be well placed to dominate this niche of the Chinese market.

On A different kind of protein -

Undoubtedly, digital marketing represents a challenge for Coca Cola, but I suspect that a more significant hurdle that has been faced by companies such as Coca Cola over recent years is simply a consequence of modern technology: consumers today are so much better informed than previous generations. When you walk around supermarkets, you sometimes see people looking at their smart phones, searching for details such as nutritional information about products they see on the shelves. Traditionally, Coca Cola has relied on slick advertising to sell their (largely) nutritionally deficient products, but this strategy doesn't cut it in a world where most consumers have a wealth of information at their fingertips. You can see an interesting corollary in the rising popularity of the vegan diet/philosophy over the past decade. This growing trend suggests that as consumers become more knowledgeable about the food they buy, they also become increasingly discerning.

On Coke and kombucha: How the internet is killing traditional brands -

Thanks for the feedback Dani and Patrick, the issue was one I'd been researching for some time and I'm glad that the wire proved to be of interest to some readers. James, on the point you raised regarding RFF, my impression is that they are treading a tight-rope on the issue of climate change: on the one hand, they need to abide by the 'continuous disclosure' obligation, but on the other hand, if the company were to make too much noise about the issue, they may risk spooking their major tenants such as Olam, not to mention prospective future investors. That said, I think you are right that it would be ideal if RFF were more upfront about the issue. The same goes for Select Harvests, as Ian noted above, although given the share-price roller-coaster ride that SHV holders have endured over the past few years, I suspect that the long-term shareholders probably don't need too many reminders that the issue is one of significance for this company!. Finally, I agree with the point made by Mark: it is hard not to suspect that the issues of extreme weather and changing climate are probably impacting more stocks and industries than is widely appreciated.

On The Goldilocks Crop -

Thanks for the kind words, much appreciated. I hope that some readers are able to find some value in the research.

On The Goldilocks Crop -

I think there is possibly a case for optimism, at least when it comes to Australian stocks. When I think of the current tariff face-off between the US and China, I am reminded of a passage in a book about a stock trader named Jesse Livermore, who was active about a century ago. Livermore was one of the most famous stock traders in the United States in his day, and his early-career experiences were serialised by a journalist by the name of Edwin Lefevre, who interviewed Livermore in the 1920s. These were republished as a book shortly afterwards. One chapter in this book describes the phenomenal stock market boom that took place in the United States during the early years of the First World War. In 1914, at the outbreak of hostilities in Europe, the US government shut down the stock exchange, but trade resumed in December, and a surge in the Dow Jones was to follow, up a massive 70%+ before the end of 1915, and this in an era when stock market returns were more tepid than they are today. Livermore seemed to think that this was the first time in history that the average Joe investor in the US really did well out of stocks. The 1915 US stock-boom was a direct consequence of the War in Europe: the United States, neutral in the early years of the war, was the only country that was well placed to provide all the warring parties with the supplies needed to feed the war-machine. Fast forward to the present today, and it is difficult not to see parallels between the situation of Australia today, with the current trade-war situation, and that of the United States in 1915. There has been a high level of pessimism in the Australian financial media lately around the implications of the rising trade tensions, and the flow on effects of this on local shares. The consensus opinion seems to be that investors should reduce their exposure to stocks. But perhaps the local economists and other finance pundits have misread the situation?. As with the US at the start of WWI, Australia is currently sitting on the fence in this escalating trade war, and assuming the country is able to maintain this precarious balancing act, many listed Australian companies could potentially stand to enjoy substantial share price re-rates, as their rivals in the Chinese or US markets become uncompetitive and lose market share as a result of higher tariffs. Thus it is possible that the stockmarket pessimism is misplaced, and for investors 2019 could prove to be akin to 1915 in the United States, a year to remembered.

On Bulls, Bears, and ‘I don’t cares’ -

I agree Tim, the fact that a dozen or so 'dinosaur' stocks dominate the local sharemarket is undoubtedly part of the problem as well. Given that most of these companies have poor growth prospects it wouldn't be surprising if their share of the pie starts shrinking over the next few years, and you would hope that eventually this should lead to improved returns for the local market.

On Matthew Kidman: Uncut -

An interesting point raised by Kidman in the interview is the question as to why Australian equities have underperformed against those of other regions over the past decade or so. I have a suspicion that this underperformance might possibly be related to the high rate of annual net overseas migration in Australia over the past 12 years: the rapid population growth has pushed up property prices and rents in the major cities, and as a result, most people have had less money free for investing in shares.

On Matthew Kidman: Uncut -

Interesting wire. Here and elsewhere in the financial media, I've noticed quite a few Australian commentators have proffered the view that Brexit will prove an economic boon for Britain ( 'the Singapore of Europe', theory, as mentioned in the wire). But the idea that a nation of over 60 million can thrive as a tax haven is probably as absurd as it sounds. Ironically, the biggest beneficiary from Brexit is probably the European Union, considering the highly favourable terms the UK enjoyed while it was a member state.

On The politics surrounding Brexit -

Unusual and refreshing viewing; commentators seldom seem to give consideration to the outlook over such long time frames. I think the key question for Australian investors looking ten years ahead is whether or not the 2020s will bring another commodity boom, as this question will underlie the future performance of every other asset class.

On Planning for the next 10 years -

I have a suspicion that Andrew Latham of Rio Tinto is probably right about tin, though the apparent lack of enthusiasm for this wire might suggest that most investors are yet to cotton on to the tin potential.

On What metal is most impacted by new technology? -

Interesting take on Turnbull. It does seem as if the climate-change sceptic brigade in the Coalition are unwilling to give up control of the policy direction of the party, oblivious to the fact that they are steering the government right towards the precipice.

On Why History Will Judge Turnbull as One of the Great Australians -

Compelling reading. The RBR Group in particular is an intriguing stock, given Africa's status as, the 'young continent', with a large and ever-growing population hungry to learn. That said, RBR currently have too much exposure to the one African country, Mozambique, and the one industry, LNG, which could put off prospective investors. If the company increased their exposure to other African countries and other industries, such as agriculture -Africa's largest industry- the stock would start looking all the more interesting.

On The New Criterion: hard labour for the recruitment firms -

Hi Graeme. This is just my impression, but I suspect that many consumers have been substituting the soft drinks for bottled water, rather than substituting bottled water for tap water. I recall reading some research from Ben Gilbert, an analyst from UBS, who suggested that the decline in carbonated soft drink sales over the past several years seems to be related to the increasing popularity of water and energy drinks. Certainly, this would explain the gradual shift by Coca Cola and Pepsi into the bottled water space.

On A tale of two shorts -

I sometimes get a sense that the core problem faced by Coca-Cola and comparable companies stems from the IT revolution over recent decades: with a wealth of information at the fingertips of the average person today, it seems that consumers are becoming increasingly conscious regarding what is in the food they eat. For example, you sometimes see people in the supermarket using smartphones to look up details of products on the shelf, such as nutritional information. For many decades, companies such as Coca-Cola have relied on slick advertising to sell nutritionally barren food and beverages, but thanks to the internet and smartphones, consumers today have the opportunity to think twice before loading sugary products into their trolleys. Health food companies appear to be the beneficiaries of this trend.

On A tale of two shorts -

Just an observation: I get the impression that the Australian financial media often spend more time analysing Tesla than all the listed Australian clean tech stocks put together. There are some very promising home-grown clean tech stocks that I think are certainly deserving of more attention than they are given by the local media.

On The bigger picture for Tesla -

Australian agriculture stocks could also stand to benefit from a trade war between the US and China. Apart from the boost provided by a weaker Australian dollar, China has also increased tariffs on a large number of US agricultural exports into that country in response to the Trump tariffs, and this should provide a competitive advantage to many Australian agricultural producers exporting to China. In addition, it could potentially provide these companies with an opportunity to steal market share from US food exporters.

On Winners and losers from the trade wars -

Hi Nathan, interesting read. I have a question about this topic: Do you think that selling through is a viable way for listed Australian companies to gain exposure to the Chinese market?. My reason for asking this is because the 'China strategy' of one company I follow seems to largely consist of selling their products using the website. I have been wondering if this should be just dismissed as spin or alternatively perhaps should be viewed as a strategy that might have some merit?.

On JD.Com: Growth at all costs -

Hi Albert and Joycern, I'll send a message from my private email in the few days.

On 100 Baggers Common Traits -

Good topic, Patrick. I have subscribed to several of these newsletters over the years. I found 'Under The Radar' to be good value for money. I have also subscribed to Marcus Today a few times, and while it isn't the cheapest option, the quality is generally good. I have found that some of the international newsletters are also interesting.

On The ultimate guide to data feeds and stock tips -

An investor called David Ryan won a US investing championship three times between 1985 and 1990 using a very interesting methodology which was detailed in a 1990 newspaper interview that I stumbled across many years ago. I attempted to replicate this method in 2013, and found that the returns were very impressive: over that year, the average for ten stocks picks identified using this methodology was 136%. Interestingly, in more recent interviews with the media, David Ryan has stated that he employed William O'Neil's CANSLIM method during the investing championships, though this is not quite what was he described in the 1990 interview: my suspicion has been that he subsequently changed his story in an attempt to protect his 'trade secrets' as he started managing a fund from 1992 onward. I'd be happy to share this method if anyone happens to be interested in this, though for individual investors only.

On 100 Baggers Common Traits -

Interesting analysis. A number of bluechip healthcare stocks do seem to attract unqualified support from the pundits and investors. Yet it is curious to note that prior to 2000, the performance of Australian healthcare stocks overall wasn't particularly impressive.

On The bubble in quality -

No rich journalists, Harry?. Warren Buffet might disagree.

On Frankly, this is unfair -

Hi Marcus, hope you are well. Given the increasing trend towards investing internationally, could there be some logic in focusing on Australian stocks (particularly smaller ones) that attract attention on international news sites?. The number of investors in the US or Asia vastly outnumber those in Australia, so if investors in (say) the US or China suddenly take interest in an Australian stock after seeing it featured on a local news website, it is not hard to imagine that the number of buyers could quickly swamp the number of sellers. To give one possible example, I notice that the shareprice of Phoslock has been on an upward trend ever since it was featured on an a Chinese stock picking website in 2016.

On Where ideas come from -

I suspect you could be right regarding the consensus view with respect to the RBA and interest rates: perhaps the next rate hike could be sooner than most expect. However, the next rise in interest rates may not necessarily be dependent on the rate of unemployment or inflation. It could be argued, for example, that ultra-low interest rates inadvertently damage business and consumer confidence: like an early-modern plague cross, abnormally low interest rates may serve to signify that the economy is unwell, and might even result in political unrest. In the US, for example, the decision by the Federal Reserve to keep interest rates at extreme lows for an extended period may have played a role in the rise of Trump, who made a lot of noise about this issue during the 2016 election campaign.

On Are the Pieces Falling into Place for an RBA Rate Rise? -

Hi Tim, interesting read. Just out of curiosity, on the topic of mining and Africa, have you done any research into a company called 'RBR Group'?. The company is a service provider for the resources sector in Africa. It seems to be an interesting company but I don't think it has yet been covered by any analysts.

On The New Criterion: a fresh approach to the Witwatersrand gold rush -

I wonder if many of those quoted above may be underestimating the probability of an RBA rate hike in the short term? For a number of reasons, there is a real possibility that in the months ahead there could be a jobs boom in Australia, leading to a significant fall in the rate of unemployment which could in turn prompt the RBA to increase rates, perhaps as early as July. One point to keep in mind is that following on from the most recent move by the US Fed Reserve, US interest rates are now higher than local rates for the first time since 2001, when one Australian dollar was worth less than 0.60 USD. It is possible that strong commodity prices might limit the downside to the AUD this year, but it is hard to see how strong commodity prices is negative for the Australian jobs market. The combination of solid commodity prices and a weakening Australian dollar could be a 'Goldilocks' scenario for the Australian economy, and it is not unreasonable to conclude that such an economic backdrop could provide a substantial boost to the local job market.

On When will rates rise in Australia? -

The ongoing divestment campaign against fossil fuel companies has been weighing down oil stocks lately, and as such, the performance of the energy sector over recent months may not be the most reliable indicator as to the future direction of oil prices or of measures such as inflation.

On The Battlelines Are Drawn -

I agree Frank, Galaxy and Orocobre were in the lithium space when there wasn't much interest in the commodity, and so it is fair to assume that their lithium assets sit somewhere near the top of the totem pole.

On Emerging winners from the electric vehicle megatrend -

While this is an interesting article, I don't agree with the suggestion that back in 2015 no-one was arguing that inflation would eventually result in a substantial rise in interest rates. I recall, for example, one Livewire article by Jordan Eliseo which noted that a group called Incrementum AG had forecast a shift to 'rising inflation' back in 2015: There were certainly others at the time who were also sceptical of the then pervading 'deflation is the new normal' narrative. It is the nature of the financial media that the more popular narratives end up getting beaten up, whereas those with contrarian views usually end up getting drowned out.

On Why Rate Rises Will Crush All Asset Prices -

Assuming that the company can be bothered to disclose price-sensitive information at all. I often get the impression that the management in many listed companies have somehow concluded that the 'continuous disclosure' requirement is optional.

On Would I lie to you? The 6 company mistruths to be wary of... -

For those who took part in the 2018 Livewire survey: what stock did you pick and why?. My choice was ETE, based on the assumption that the higher oil price would re-rate the company.

On The ten most tipped stocks for 2018 -

Thanks for that Ian. I didn't want to re-post the question myself as I figured it would look like a bit of a broken record impersonation. The Livewire team are usually fairly prompt in responding to comments so I guess it is just that time of year.

On Lighten up, it’s just a prediction -

Agree with your sentiments, Emma. It is looking like there could be an interesting year ahead; my information is that there are some notable IPOs currently in the pipeline.

On The Summer Series is coming -

Good point regarding the carbon emissions associated with bitcoin, notwithstanding the fact that most Australian financial commentators don't appear to take the issue of carbon pollution particularly seriously. That said, gold mining is not particularly environmentally friendly either, and it does seem that the production of most commodities tends to be carbon intensive. I think Dave is correct in suggesting that it might be wise to look at more environmentally friendly alternatives,

On Is Bitcoin a rational investment? -

Interesting read. While doing research into demographics I noticed that major stock market booms in the US seem to occur several years after surges in immigration (for example, the 1950s and early 60s, late 90s and early 2000s). Given that long stockmarket booms take place when the number of prospective buyers is increasing at a faster rate than the total number of shares available, it would seem logical that a decline in the total number of shares relative to the number of buyers would have a similar impact.

On The Equities Drought in the USA -

Is it possible that Africa, rather than Asia, might prove to be the fastest growing region in the years ahead?. Ethiopia and Ivory Coast are already on the top ten list, according to figures compiled by the IMF, and a post-Mugabe economic recovery in Zimbabwe could also provide a boost to neighbouring countries in southern Africa.

On All roads lead to Asia in 2018 -

Hi Andrew. I notice that three of the eight 'high conviction' stocks listed by Morgans relate to the automotive industry. I was wondering if there was a broader logic underlying Morgans recent focus on this sector?.

On High conviction stocks for November -

I suspect part of the problem is simply that there are too many resource companies relative to the level of investor interest. 700+ mining companies is probably excessive, even taking into account the commodity price recovery of recent years

On Resources Stocks: What's The Problem? -

Daniel, although the writer of the wire did not mention this issue, there is a looming skills shortage in the industry. In the US and Canada, a large percentage of the oil & gas workforce was born before 1965. In the USA, for example, enrolments in petroleum engineering degrees peaked in 1983 in the 20th century: only a few years ago was this peak surpassed, but it has since slumped once again. Part of the problem is that today Elon Musk and Tesla are talk of the town (as you know) and so few school leavers are interested pursuing oil and gas careers as there is a question mark hanging over the long term prospects for oil. But oil demand has increased massively since 1983, and when those older workers retire, the skills shortage will most likely have an impact on the supply side, flowing on to a higher oil price.

On The Looming Oil Shortage -

The aquaculture space seems to be becoming a little crowded lately. I've noticed that when you have a number of new entrants into a sector it tends to put downward pressure on the share prices of other comparable stocks.

On The New Criterion: two ways to invest in living creatures -

Some interesting thoughts here; however, if you think that Australia is probably headed for a recession surely that is a reason to be optimistic about Australian stocks? A recession would probably lead to a weaker AUD against most other currencies, and given that a majority of listed stocks benefit (to some extent, at least) from a lower Australian dollar, you would think that would provide a boost to local stocks.

On Could Australia be headed for a recession? -

As noted noted above by Graeme, short selling is a highly risky activity and few short sellers survive for long, so there aren't too many of them. This is why I am sceptical about the frequent claims that the poor performance of a particular stock is due to short selling. If you do a bit of digging into the details, more often than not you find such claims are dubious. The probable explanation as to why Ramsay shares have been falling is simply because it is overvalued.

On Confident Charlie & The Ramsay Shorters -

Moribund local share market? More likely an inability on the part of Australian fund managers to recognise the value that is already there. Ramsay is currently only the 89th most shorted stock on the ASX, and in my opinion if you want an example of an unappreciated stock targeted by short sellers look at Select Harvests, currently the seventh most shorted ASX stock. This is not a new thing, Select has often been a favourite punching-bag of the short sellers, but my long-standing suspicion has been that the shorters only have a vague idea as to the the real strategic value of the company.

On Confident Charlie & The Ramsay Shorters -

Thanks Jordan, it is an interesting read. As you note in that article, gold has been recognised as a store of value across the world for over three millennia, but it is worth considering that over most of that period the average person was confronted by death and decay on a regular basis. Gold was an important symbol of permanence when people lived a fragile existence, hence the high regard in which the metal was held. But the generations born after WWII have benefited from improving living standards thanks to household electricity and advances in medicine, and as a result, gold has lost some of its symbolic clout. Will steadily rising living standards across the world result in declining interest in gold in the decades ahead?. Very hard to determine, which makes it hard to estimate demand for gold over the long term. That said, the supply side does look pretty challenged over a three or four year time frame.

On Gold on the Ropes as Markets Hit All Time Highs -

One long term concern I have about gold relates to Africa: for several decades South Africa produced most of the world's gold supply, and I wonder if a number of other African countries could likewise become major gold producers in future.

On Gold on the Ropes as Markets Hit All Time Highs -

I suspect that the autonomous taxis will soon end up full of leaking beverage containers, half-eaten hamburgers and vomit, and as a result many will refuse to use them.

On Avoiding the losers from self-driving cars -

Though it is probably true that there is too much complacency regarding the chances of a significant military conflict taking breaking out, a WWIII scenario is perhaps less likely, as the demographics of the major world powers (China and the US) are quite different from those of the major powers on the eve of both the World Wars.

On Hedging nuclear war's downside risk -

Agricultural stocks should also be in the 'Winners' box, as a housing downturn would likely put downward pressure on Australian dollar, thereby making agricultural companies more competitive internationally.

On The winners and losers from a downturn in housing -

You seem to have a different investing time frame from myself and most other investors, Damen. If your mid-19th century investor had placed a punt on horse power being replaced by a some variety of horseless carriage they would have been dead long before they made any money. Investing is all about the timing, and jumping on board a theme too early is as risky as getting in too late.

On The automation of everything -

Back in the mid 19th century, someone who saw a train speeding past for the first time might have assumed that horses and carts were on the way out: a fair enough assumption, given that a steam locomotive could travel as far in an hour as a horse drawn cart could cover in a day. But in fact, demand for stablehands and carters soared in the late 19th century, due to the fact that trains made it so much cheaper and more convenient to travel, and as a result the number of travellers increased dramatically over the course of the 19th century. When all those travellers got to the end of the line, they needed horses and carts to cover the last leg of their journey, hence the increase in demand for horses and carts. My point is that the argument that robots/automation will result in mass unemployment might be overly simplistic, like someone in 1850 arguing that trains will soon send horses to the knackery.

On The automation of everything -

Re inflation, keep an eye on the situation in California. According to some reports, millions of acres of farmland has been flooded as a result of the recent storms. California is a major exporter of fruit and vegetables, and so any supply issues there could result in higher prices for a wide range of agricultural commodities.

On 7 top hedge funds share their best bets -

Minack's view may prove to be correct in this case, though I can't help but remember that his last big call, that 'Australia had run out of luck' and thus had a good chance of entering a recession before the end of 2015, turned out to be wide of the mark.

On Gerard Minack’s Global Recession thesis is playing out (sort of) -

This is a well written article and you make a convincing case regarding the US housing recovery, although I have a question. You argue in the article that many more houses will need to be built in the US in the years ahead to compensate for the lack of house construction in recent years. Although Boral would benefit from this, my understanding is that following on from the Headwaters acquisition, over half of Boral's revenue will still be generated in Australia. Given this, do you think it is possible that Boral share price could be weighed down by concerns that there could be a severe downturn in the property market in Australia in the near future?. It could be argued that if you are optimistic about the US economy it would make more sense to look into buying a company or commodity (for example, lumber) that provides more direct exposure to the growth in US housing.

On The long awaited recovery in the US housing market -

There is an indirect connection between the rising zinc price and rising lithium price: the metals lead and zinc are almost always found together, so a large chunk of the world's zinc output is a byproduct of lead mining. However lead mines have been closing in recent years, partly due to the 'battery wars': the most significant industrial use of lead is in the manufacture of lead-acid batteries, but the lead-acid battery has been falling out of favour due to competition from lithium-ion batteries. As result of the increased competition, the lead price has been weak in recent years, and lead mines have been closing, which in turn impacts the zinc supply, given these two metals tend to be found together.

On Metalicity (ASX: MCT) - Unique Zinc and Lithium Exposure -

I wonder if Kidman's forecast of a 15-20% gain for Australian shares this year may actually prove to be a little too conservative. One of the reasons I suggest this is that over the long term, the performance of Australian shares has tended to be comparable to that of US equities. But over the past ten years or so, the Nasdaq and Dow Jones have vastly outperformed the local sharemarket. I think the reason for this is mostly due to the fact that in the US interest rates have been much lower than in Australia over the past decade. But that could change if the US Fed Reserve raises rates a few times over 2017: we could see a dramatic 'catch up' rally in Australian shares, fuelled by the weaker Australian dollar and the record low interest rates as the underperformance of Australian equities finally corrects itself. Thus, I would argue that a 20-30% surge in the Australian sharemarket could be a real possibility for 2017.

On The #1 stock picks for 2017 -

I think that is an interesting chart. Just a thought: is it possible the high growth rates in Laos , Myanmar and Cambodia may be more down to the increasing 'electrification' of these countries than it is Chinese investment?. Historically, when countries undergo rapid electrification it tends to boost economic growth, as electricity is a 'force multiplier' (for example, the prosperous 'roaring 20s' coincided with a dramatic increase in the numbers of people with access to electricity in cities in the US, Europe and Japan; likewise the strong economic growth in the Soviet Union in the 50s and 60s coincided with a big drive towards electrification by the Soviet government). Myanmar and Cambodia have the lowest access to electricity in Southern Asia, although this has been rapidly increasing, and I suspect this may be being reflected in those strong economic growth numbers.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

I recall that John Robertson wrote an article about three or four months back suggesting that gold was overvalued. Not a popular view at the time but not unwarranted considering the recent gold price plunge.

On Fool's Gold? Know Thy Enemy! -

The assumption by the authors that most countries no longer need infrastructure is perhaps questionable in consideration of the parallel trends of global warming/rising sea levels. Incidentally, one of the preferred countries listed in the conclusion -the Philippines- is often cited by experts as one of the countries most likely to be adversely impacted by climate change.

On The best strategy piece since the US election -

Some car companies such as Toyota seem to be backing hydrogen fuel cell vehicles over electric vehicles, do you think it is possible that these HFC vehicles could end up being the dominant type of 'zero emissions' vehicle?.

On Electric vehicles: Are they disruptive? -

Interesting chart on house price growth in Australian cities, I know a number of people who have left Sydney within the past two years partly due to the housing situation, I wonder if Sydney house price growth has started to get into a vicious circle, whereby any more growth ends up self-correcting because it results in increasing numbers of people leaving.

On Four wires that caught my eye -

The Saudi attempt to drive the US tight oil and gas companies out of business may be cannier than it appears on first glance, as the US oil and gas industry has a serious demographic imbalance. A disproportionately large number of US oil professionals were born before 1965, and these workers will be difficult to replace when they retire. As such it is likely that that before the end of this decade the US oil & gas industry will be faced with a significant skills shortage. Saudi Arabia is not faced with the same demographic challenge, and so in this regard it has time on its side.

On We like the signals from the Oil Market -

You mention the growing income disparity between the top 1% and the bottom 90% of earners over the past 45 years, but isn't it really just one form of inequality being replaced by another?. For example, in 1971 when Nixon ended the gold standard, the largest gold producing country worldwide was apartheid South Africa, then one of the most inequitable countries in the world. Likewise in Australia the last vestiges of the White Australia policy were only dismantled in the 1970s. Over this period there has also been a marked increased gender equality, with female workplace participation in Australia increasing from around 40% in 1970 to almost 60% today. So although these years have seen a growing income disparity between the top and bottom, at the same time there has also been dramatic increases in racial and gender equality.

On Anniversaries, Smart Money, and Regulation: It’s all about Trust! -

I think you make a good point, but keep in mind most of the companies in the sector are junior exploration companies, and in general it isn't too difficult for such companies to shift focus from one out of favour commodity to another one more likely to attract new investors: For example, a large number of former copper/zinc/nickel explorers have joined the search lithium over the past six months. As a result, there are now around 40 companies exploring for lithium, roughly the same as the number of listed companies representing the Australian agriculture sector. Overall it does seem that there are too many listed resource companies given the current level of investor interest, though hopefully this situation will gradually correct over the next couple of years.

On The Resources Story - Poor Returns and Little Excitement -

The 20th century silver to gold ratio averaged out at about 47 ounces of silver to one ounce of gold, so assuming 'reversion to the mean' that might imply the ratio will wind up somewhere back around this level.

On More to Go on Silver Adjustment -

Bear in mind that the 'Brexit' issue could put upward pressure on the unemployment rate locally. The uncertainty might result in increased numbers of English or Welsh looking to move to Australia for work, likewise some of the 100,000 or so Australians currently working in the UK might decide to return home. Higher unemployment could hurt consumer confidence, which would be a negative for many retail stocks.

On Tagliaferro: Brexit reaction is nonsense -

To produce a kilo of grain requires over 1000 litres of water- so it is the production of feed for the animals which uses the most water, not the direct water consumption of the cattle. The livestock industry is particularly vulnerable to weather extremes due to the water intensity of the industry, which is part of the explanation for the poor performance of the listed beef producers over the years. Australia's oldest listed beef company, and one of the largest, AACo, hasn't paid a dividend since 2008. And this from a company which owns around 1% of the land in Australia and has a market cap of over 700 million. If you are looking at the beef industry from an investing perspective (which is my concern) it is hard to avoid the fact that the industry has had a less than impressive track record. Unfortunately the poor performance of the likes of AACo has put Australian investors off agriculture investments in general, as the investor community doesn't seem to make a distinction between different agricultural segments.

On Slim pickings for the tree-crop investor (approved community submission) -

Hi Bill. On the original article, there was a link to the relevant website but the link hasn't come across in the PDF format. My comment regarding the water usage is sourced from the following webpage: The figure regarding beef and water is taken from the table in the middle of this article.

On Slim pickings for the tree-crop investor (approved community submission) -

I agree that the outlook for Australian equities in patchy over the next six months or so, however looking ahead 12 months, for various reasons I feel the outlook is more positive for local stocks. There is a reversal theory regarding Australian and US equity and property markets: the argument goes that when US equities outperform Australian shares for several years, it will usually mean that Australian shares will do well in subsequent years. Australian equities haven't gone anywhere for ten years (at least that is true for the index, anyway) however US stocks have done overall quite well over the same period. So conditions might be right for a reversal, with Australian stocks outperforming US stocks for a few years. I think the same could be true for property markets in both countries: thanks to low interest rates and relatively low rates of unemployment, Australian property has outperformed US property over the past ten years, but now with low unemployment in the US and the rising minimum wage in many US states, property in the US might be set for a significant rebound.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

This is an interesting topic. Although the Dutch Tulip bubble is the most well known, it appears that there were a number of speculative bubbles in 1630s Europe (for example, there was a real estate bubble in Switzerland about the same time). The primary driver seems to have been the Thirty Years War and other interrelated conflicts across Europe, which led to money flooding into the few remaining islands of safety.

On Bubbles of History | Tulip Mania -

The inflation rate will be an interesting measure to keep an eye on over the next 12 months. If this rally in commodity prices turns out to be the beginning of of a sustained commodities resurgence, that would challenge to the notion that disinflation or deflation and low interest rates are the 'new normal'.

On 3 wires you should read this weekend -

The resilience of the Australian employment statistics is not so surprising if you take a number of demographic trends into account. For example, Australia currently has the largest population of children on record, as well as record numbers of people retiring. I believe that both of these trends are putting significant downward pressure on the unemployment rate. Indeed, these trends are likely to continue so it is possible that the unemployment rate may end up falling to around 5% within the next two years.

On Employing the jobs data: what conclusions can be drawn? -

I wouldn't argue with the forecast that US equities are likely to struggle in 2016 and 2017, but does it necessarily follow that Australian shares will also perform poorly during these two years?. Since 2010 the S&P500 has outperformed the ASX200, and for various reasons I think you could make a strong argument that in 2016 and 2017 we will see a reversal of this trend.

On Looking at the Bigger Picture -

The problem with this argument is that, unlike human workers, robot workers don't pay any tax. The corporations who own the robots do pay tax, but the lion's share of government tax money comes from taxing individuals (as it is much easier to tax individuals than corporations). So if in future there are far less tax-paying human workers and many more robots, the logical conclusion would be that the government will have to tax corporations more aggressively.

On Will robots steal your job? (and why it's good to be a shareholder) -

I think you could argue that the sell-off of the small resource companies over recent years was not solely due to the low commodity prices, but also had something to do with the rush into high yielding stocks over the past few years (because small mining companies regularly require injections of shareholder money, the exact opposite of a dividend stock). Even half-decent small resource companies ended up being priced for failure, so this rebound in the small mining and energy stocks might become a bit of a trend for 2016.

On Big moves in unloved sectors -

I think you are right regarding the elevated house prices in western Sydney... the counter arguments used to justify the high house prices in Sydney (land constraints and international investor interest) are only true for the eastern suburbs and a few suburbs north of the harbor. These arguments don't explain why people seem willing to pay close to a million dollars for houses in suburbs well to the west of Parramatta or Hurstville. However, I feel your assessment on the outlook for unemployment is too bleak: I think there is a strong case that some powerful macro forces have been putting sustained downward pressure on the Australian unemployment rate, and this will probably continue to be the case.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

I agree, there are some companies that just shouldn't be listed on the stockmarket. Airliners are one example. There are so many external factors that can adversely impact these companies I don't know how investors in the sector get any sleep at night.

On How did we get Qantas so wrong? -

This is an interesting article, however I think more detail is needed: I suspect there is a significant degree of variance between individual companies in each of the sectors listed above (especially the 'Industrials' and 'Consumer Staples' sectors)

On Is climate risk an issue in your portfolio? -

The fall in the US participation rate over the past seven years would surely largely be due to the fact that the number of retirees has started to exceed the number of new people entering the job market?. If this is taken into consideration, the falling participation rate may not necessarily reveal much about the state of the US economy.

On Sunset Strip | Aussie Afternoon Institutional Market Wrap -

I wonder if there could there be some logic behind this move by hedge funds?. Last month, a number of the top performing assets were metals, including gold, silver and iron ore. While it is not wise to read too much into such short term fluctuations, there is a possibility that we may be entering the early stages of another commodities boom. My point is, that if there was a resurgence in the resources sector in Australia, the RBA would have no choice but to raise interest rates, and this might cause problems for property valuations in Melbourne and Sydney, as the excessive valuations in these cities seem to imply that property investors have made an assumption that interest rates will stay low over the long term (which of course would not be the case in the event of a new mining boom).

On Hedge funds attack major banks -

Why is it that so many Australian financial professionals ignore the issue of climate change?. This is surely is as big an issue as the three 'Ds' mentioned in the above article. And there is some reason to believe that the global response to the challenge of changing climate may present one of the best growth opportunities for investors: in 2015 lithium was one of the top performing commodities, for example.

On Headwinds: Debt, demography & disruptions -

Miller was wrong on the Australian economy last year and he may well be wrong again in 2016. The looming problem for Australia and many other Western countries over the next few years is unlikely to be a rising unemployment rate, but the opposite: a shortage of workers due to the en-masse retirement of the post war baby-boom generation.

On Blackrock: Get set for one, maybe two rate cuts this year -

I suspect the reason you are facing so many queries from investors about stocks such as Blackmores and Bellamy's is due to the fact that investors are concerned about structural shifts that have been underway in the Australian and global economy. And their concerns are legitimate: many stocks that were once considered 'value' stocks have taken a battering in recent years: look at Slater & Gordon, Cash Converters or Woolworths. Five years ago, how many Analysts thought that these would turn out to be such dud investments?. In the current unpredictable environment, it is very difficult, if not impossible to reliably forecast what will happen to any particular stock five years hence, even in the case of stalwarts such as Woolworths. Considering this, there is some logic behind the current interest in riskier growth stocks.

On Forget the headlines - look five years out instead -

Given the strength of the recent employment numbers it wouldn't be too surprising if the unemployment rate fell to 5.5- 5.6 within the next six months. It increasingly appear that the stubbornly high unemployment rate over the past two years had much to do with the political situation.

On Chart: Australia's jobless rate -

The last major El Niño, from late 1997 to 1998, resulted in widespread flooding across California. With another strong El Niño on the way, the state of California may now be even more at risk of flooding, due to excessive pumping of groundwater by Californian farmers which has in turn resulted in widespread subsidence in many agricultural regions. If the current El Niño brings as much rain as the 97-98 ENSO event, many of California's sinking almond growing regions are likely to be inundated. Whatever happens, with 80% of the World's almond supply grown on a few strips of land in the Western USA, Select Harvests looks like it could be set to enjoy the strategic little niche in which it has found itself for a while longer.

On Select Harvests enjoying higher production and higher prices -