FEBRUARY 2011
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TOP MONEY TIPS Issue: February 2011
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Welcome to the February 2011 issue of TOP MONEY TIPS.
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IN THIS ISSUE
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=> Could Japan be the next Financial Disaster?
=> Market Commentary
=> You Can' beat the FED.
=> GOLMAN HENRY US50 Fund
=> Macquarie Bank Cheque Accounts
=> Genisis Pwer Bond Issue
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COULD JAPAN BE THE NEXT FINANCIAL DISASTER?
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Japan has the largest debt problem in the G20 by measure of debt-to-GDP ratio near 200%. Moreover, Japan's aging demographics and lack of growth give Japan little ability to pay that debt back.
Nations often default on foreign debt, but this is debt the government owes the Japanese people.
Here are some of the issues that confront Japan:-
Will Japan embark on a huge austerity program in the midst of deflation? Will Japan simply print the money? If so, what happens to interest rates?
Should those interest rates rise to a mere 3% or so, interest on Japan's national debt will consume most of its revenue.
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MARKET COMMENTARY
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Now that we have emerged from the bear market and recession in 2008 and 2009, there are basically two main groups of investment commentators. The first group is mostly concerned with company-specific metrics like valuations, business trends, and so forth. This group is mostly bullish these days, because many sectors of the market are now cheaper than they have been in nearly two decades. In addition, the economies of the developed world should continue to gather steam even though the recovery will likely be modest.
The second group is mostly concerned with the macro situation we find ourselves in, both in the US and Internationally. This group is more bearish, because there are some significant, unsustainable issues that will have to be resolved sooner or later—and the impact on the markets will likely be severe.
Have a look at the Chart here.
Notice that the 2007 market top (1562) was higher than the 2000 market top (1527), and the 2009 market bottom (683) was lower than the 2002 market bottom (801). Higher tops and lower bottoms indicate increasing volatility, which means if you try to use a market timing technique to identify the market top and get out before everyone else does, you might be in for a disappointment.
The smart money is saying that given the current over-bought, over-bullish and over-valued market, this is not a good time to be getting into the stock market.
But, in the words of Dirty Harry, "Do you feel lucky? Well, do you?"
The Three Big Risks
First, the 20% further drop in American house prices we expect in the next several years because of the massive overburden of excess inventories.
Second, a hard landing in China as the country cools the inflationary influences in her economy, a move that would burst the global commodity bubble and could well precipitate a worldwide downturn.
And third, the ongoing financial crisis in the Eurozone that may spill over to any banks with heavy exposure in Europe.
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YOU CAN’T BEAT THE FED
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The USA government has been striving mightily to minimise any domestic recession in the USA. They have been dong this by “Quantitative Easing” (Printing Money), supporting the large institutional mortgage lenders, “Fannie May and Freddie Mac” with the management of defaulting borrowers and continuing with tax cuts to selected parts of income earners.
Certainly the economy went through a deep trough, and the early cyclical indicators have turned up: stock prices are well off their lows, and private businesses have been rebuilding their inventories and adding jobs (modestly).
For those who are starting to think it is time to be getting back into USA equities but are not sure about selecting a suitable group of stocks, there is a specialist fund manager in New Zealand who does this for you.
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GOLDMAN HENRY US50 FUND
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The fund has been operating since May 2004 and has some unique features in a New Zealand run share fund.
THE FUND MANAGER HAS THE ABILITY TO GO TO CASH IF THEY FEEL THAT THE RISK OF A LARGE DOWNTURN IS TOO HIGH.
The fund manager uses the “Risk Grades” method to actively manage the risk profile of the Fund. The risk is kept in the “low-to-medium” range. Though potential investors should be aware that this is a share fund and is subject to all the risks and volatility that applies to the share market. Unit values can go down as well as up. The main objective is for long-term capital growth.
The Fund undertakes all research inhouse.
• The Company filters fundamental data sourced from Reuters and other data sources looking for specific stock characteristics:-
- The filters are:
- Debt ratio - excludes all stock that does not have a low ratio.
- Organic growth – excludes all stock that has growth due to staff cutting etc. Only
companies with genuine sales growth are accepted.
- Dividend history – excludes all stock that do not have a 5 year history of dividend growth
- Forecast of 5 year growth
- Takeovers – identifies potential takeover targets (has a 30 out of 31 record.)
- IPO’s and stocks upgrading to the main board. Manager won’t invest in an IPO until it has a
6 month history that can be analysed.
- Innovation ratio; this is a unique ratio.
PERFORMANCE
In the year to 31 December 2010 the US 50 Fund delivered a +10.2% return
WOULD YOU LIKE MORE INFORMATION ABOUT THE US50 FUND ?
CLICK HERE TO EMAIL ME YOUR POSTAL ADDRESS AND I WILL POST YOU THE INVESTMENT STATEMENT
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MACQUARIE BANK – Cheque Accounts
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The Macquarie Bank has disappointed a lot of New Zealand investors over the last few months. Firstly by closing its Australian Dollar Cheque account to NZ investors, and secondly by now closing down its NZ$ denominated Gilt Edge Access cheque account.
What I liked about the Gilt Edge Access account was that it was a cheque account that paid interest. This made it attractive because the funds I had sitting waiting for an investment opportunity could earn some interest, unlike cheque accounts with the major trading banks who subject cheque accounts to an inventive range of fees.
I have done some research on cheque accounts available in NZ that could take the place of the GEAA.
I selected the Trust Bank Premier Cheque Account. As far as I can find it is the closest alternative.
- It is currently paying interest at 3.75%pa on balances up to $20,000
- If you tell TSB that you are transferring from a Maquarie GEAA they are giving $100 to open an account.
- The internet banking system seems to work well.
BUT there are some issues that you need to be aware of:-
GENISIS POWER BOND ISSUE
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The possibility of a new bond issue from Genesis Power is often mentioned in the financial news releases, but I have yet to see anything concrete.
I will send out the information if it comes to hand.
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IMPORTANT: This email newsletter is not intended as personal
investment advice or recommendation. Investors should ask for
and read the investment statement and/or Prospectus or Product
Disclosure Statement (PDS) carefully and satisfy themselves that
any investments referred to are appropriate for their circumstances and portfolio.
Remember all investing involves some risk.
For any fund or share past performance in most cases is useless in predicting future performance. Believing otherwise can be very dangerous to your financial health.
My disclosure statement is available on request and free of charge.
Happy Investing
Stuart Scott
SavingWorks NZ Ltd
5 Rupi Court, Mt Wellington, Auckland.
Ph: (09)527 8449 0274 901 884
email: stuart@savingworks.co.nz
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