News

Should we be worried?

It appears that many and possibly even the majority of economic experts are predicting a good year for investments in 2011.  There are sound reasons for this, such as the strength of the emerging economies, 'growth' – albeit at a low level in many developed economies and positive results from companies.

However some serious challenges remain.  The level of debt in many of the developed countries is not reducing and in some cases it is getting bigger.  This needs to be repaid at some stage  but paying interest and principal will limit the  ability of Governments to stimulate economic growth. 

It was interesting to hear President Obama encouraging US businesses to start employing again.  His logic is, those that are employed can start buying and adding to company sales.  All very true, but it does show that the Government is now looking at businesses to make a greater contribution to the economic recovery.

There is also the possibility of an unexpected event having an impact.  We only have to look at the start to 2011, with significant weather events here and overseas and also tensions in Egypt.  This latter issue in particular, seems to have the possibility of having a bigger impact if it spreads throughout the Middle East.

Whilst the consensus is positive, things do not always end up the way we expect.

Performance Tables in the media

The start of a new calendar year sees much of the media presenting performance tables of various investments that allegedly include your portfolio and that of nearly everyone else. 

There are a number of problems with the accuracy of these tables.  Firstly, the comparisons often combine very different investments.  This is because, what one organisation calls a balanced fund may actually include a high portion of growth assets.  In a good year this will show above average performance results but in a tough year it will lead to poorer returns, due to the extra risk.

Also, your portfolios are not represented in these 'very general' tables.  Your portfolios are made up of investments selected by us; the type and mix of those investments is extremely unlikely to match anything else in generic performance tables.  The bottom line is that they are fairly meaningless to most people and totally meaningless to you.

The markets have improved

The table below indicates the performance of the markets (not any individual investments) for the 12 months ended 31^st January 2011.  Whilst still not where we would like the results to be, they are improving. 

In addition, our portfolios that we operate for you have been adding value above these averages.

The US – are they on the right road?

The problems facing the United States have been well documented.  The chosen solution could be regarded as 'the easy road'.  The approach of printing more money and devaluing their currency (whilst complaining about others doing the same) is unlikely to be a permanent or sustainable solution.

It doesn’t change the fact that the US is no longer as competitive as it was.  It is cheaper to make things overseas and if the US is not making real products then it is harder to justify employment increasing.

Printing money was useful in reducing the impact of the GFC in the short term, but over the long term more action is needed and the loans have to be at least reduced.

Despite this, there will still be investment opportunities in the US and other similar economies.  We will leave that decision to the experts that we engage.

Floods and other extreme weather events

The start to the year has been terrible in terms of the above.  Seeing the news unfold has been tragic.

There will also be significant implication for our economy and investments.  The initial impact will be negative as production is lost in key industries such as agriculture, coal, tourism and retail.  Part of the impact of the lost production will be offset by higher prices.

The next stage will reduce the initial impact.  This will see a boost to economic activity from the rebuilding that is needed.  The outcome will still be negative, but manageable.

Seminars

This month, we have two exceptional presentations.  The first is aimed at those considering or already with a Self Managed Super Fund. 

It will give you a comprehensive understanding on how to effectively operate your own SMSF.  This free seminar will run for 45 minutes in our Boardroom.

Our second presentation will be held at Bis Cucina and will be of benefit to everyone.  It will be presented by Dr. Chris Caton. 

Chris Caton is the Chief Economist for BT Financial Group.  We have used Chris in the past and he is an outstanding presenter.  The feedback from attendees has always been excellent. 

The topic will be a general economic update with Chris’ views on the direction of markets and other factors.  He is able to communicate in a very easy to understand manner.

For more information, please check out the details on our website at: www.dmgfinancial.com.au/seminars 

Reserve your seat by contacting:

Jarrah Hodge

Ph: 03 5143 7403

jhodge@dmgfinancial.com.au 

Or

Shona Anderson

Ph: 03 5143 7438

sanderson@dmgfinancial.com.au