Record Debt Bubble Why Managed Funds & Their This is the scariest current risk Role in Asset Allocation By Bruce Baker BSc MBA DFP Risk 1. Deflationary crash Certified Financial Planner Director, Puzzle Financial Advice Pty Ltd , AFS licence 230050 An independently-owned financial planning business http://www.puzzlefinancialadvice.com.au Not sustainable PH (07) 3371 8112 ���������������� �������������������������������������������������������������� Mission of Puzzle Financial Advice “To be researcher & financial-advice partner to experienced investors seeking high-quality, conservative, unconflicted, soundly-researched tax planning and investment advice.” • This chart does NOT provide a timing indicator for any future event. Just identifies a major risk. AIA presentation 20/10/07 www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au Record Global Liquidity Liquidity bubble is creating a cluster of bubbles • Milton Friedman: US real house prices 1890-2006 is normally steady. – To the extend we have excess money supply we should get inflation. – Yes, we have seen massive asset price inflation – last 12 years Reversion to the mean would be very ugly – Has not yet fed into consumer price inflation. Risk 2. Serious inflation 4.5 Chart from Professor Robert Shiller – author Real M3 increase since 1959 To 1/6/2007 4 “irrational exuberance” who was one of those to say the US had a share market bubble in late 1990s Real GDP growth since 1959 3.5 – and says that the US has a property price bubble 3 now. Cause of last 12-years of great returns 2.5 That which gives can take away 2 Liquidity bubble is not sustainable Source: Puzzle Financial Advice 1.5 1 Dot Com, Large Growth in 2000 The liquidity bubble 0.5 Uranium, Nickel, other base metals?, housing? Western property 0 generally? Jan-59 Jan-64 Jan-69 Jan-74 Jan-79 Jan-84 Jan-89 Jan-94 Jan-99 Jan-04 Jan-09 www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au 45000 Japanese Nikkei 225 daily share price since 1955 40000 And Asia non-Japan to 16/ 8/ 2007 35000 30000 Japan is at a 25000 Ser ies1 20000 very different Goldman Sachs P u zzle F inan cial A dvice P ty L td 15000 stage in cycle 10000 P ho ne (0 7) 33 71 8112 5000 0 1- J an- 54 3 0 - D e c- 6 3 2 7- D ec - 73 2 5- D ec- 8 3 2 2 - D ec- 9 3 2 0 - D ec - 0 3 Asia non-Japan currency & asset price appreciation set for decades ahead www.puzzlefinancialadvice.com.au And is China & India to do to US, what US to Europe in the last half of 1800s. www.puzzlefinancialadvice.com.au 1
In a world of fiat currency, with central banks “printing money”, And Asia-non-Japan drives shouldn’t you be assessing your investment returns in a “real” currency like Gold? resource super cycle for decades • The experience of emerging Japan & Korea points towards this • For example Dow Gold Index www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au Some key themes for long-term investors What role should precious metals play? • Shares $1,000 – Overweight Asia – possible bubble developing Gold in Aust $ - LHS • Managed funds $900 Inflation adjusted Gold in A$ - LHS – Overweight Japan $800 • managed funds Gold price in A$ – Little exposure to USA $700 • no broadly-held International share funds $600 – Resources – may develop into a bubble in this climate • Including energy – remember peak oil + Asian demand $500 • managed funds (Listed & non-listed) and/or direct $400 – Expect high volatility in the above Source: Puzzle Financial Advice Pty Ltd (07) 3371 8112 • Property ( including infrastructure) $300 – Look for Asian exposure including Japan $200 – eg listed managed funds • Cash $100 – (including Gold Bullion eg ETF) – may develop into a bubble in this climate $- Be prepared for periods of extreme volatility so don’t take too much risk Jan-70 Jun-75 Dec-80 Jun-86 Nov-91 May-97 Nov-02 May-08 Major economic shocks are likely over next few years www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au Be prepared for periods of extreme volatility • Major economic shocks are likely over next few years Mission of Puzzle Financial Advice • At some point I think we will see a deflationary crash “To be researcher & financial-advice partner to experienced investors seeking – When virtually everything will fall in price high-quality, conservative, unconflicted, soundly-researched tax planning and – Might be some years away investment advice.” • And we might see very nasty inflation before that • So go with the flow – Deal with the risks as they emerge Salary & Estate Tax Super- Investment Investment Wages Planning annuation Products Markets • Don’t take too much risk – wild downswings in various asset classes likely – But also inflation risk means • it is also important to take enough of the right risks www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au 2
Today’s presentation But are all markets in the same • Quick review of basics of modern portfolio theory phase of the cycle? • Then need to consider – What are the current major investment risks? avoid. • Long-cycle mood swings between overoptimism and over-pessimism – Inflation outlook? Inflation/deflation both BIG risks now. Which of the following, does history tell us tends to be most attractive? – What are the 10-15 year investment opportunities? over-weight. Markets that have boomed over the last 26 years – Risk management strategies for these times • These determine best current asset mix (sectors) – then seek best investment building blocks OR – To achieve target asset allocation • listed or unlisted • managed or direct . Bottoming markets after 15 years down? • Some of best building blocks are managed funds www.puzzlefinancialadvice.com.au www.puzzlefinancialadvice.com.au 3
Recommend
More recommend
