It is unlikely that God’s plan for the universe includes making you rich. Success in the stockmarket requires effort, discipline and patience. 90% of success is having the discipline to be consistent.
Ecinya Investment rule #1/ 10, July 1997
The task of a man is not to see what lies dimly in the distance, but to do what lies clearly at hand.
Thomas Carlyle, 1838.
Patience is a minor form of despair, disguised as a virtue. Patience is sometimes considered a virtue when it is merely a case of not knowing what to do.
20,000 quips & quotes edited by Evan Esar, 1968
A wise man seldom fails because he anticipates problems.
Feng Menglong
Domestic Economic Conditions: A significant amount of data had become available since the previous meeting ….Overall, these data had tended to be quite firm………Business surveys were generally showing that business conditions remained at fairly healthy levels. Surveys showed business confidence and hiring plans to be relatively high, but also suggested a degree of caution in many businesses’ investment plans. This was consistent with the recent ABS Capital Expenditure Survey, which suggested that investment outside of the mining sector was expected to remain relatively subdued.
Members noted that the contraction in business credit had slowed noticeably; the January data showed a decline of 0.1 per cent in the month, compared with declines of more than 1 per cent per month a few months earlier. Loan approvals had started to rise and the rate of repayments by firms was estimated to have begun to fall. More generally, banks were now reporting greater willingness to lend to businesses and there were fewer reports from firms of very tight credit conditions, while liaison indicated falls in risk margins paid by some borrowers.
The retail trade data had suggested relatively subdued sales in December but solid growth in January. Household surveys suggested that households were fairly confident overall about the future but (like businesses) were somewhat cautious in their views about spending.
The market for established housing had been very buoyant, with auction clearance rates at high levels, notably in Melbourne. Data for housing prices suggested that nationwide prices had continued to grow at a rate of close to 1 per cent per month in December and January. Building approvals in December and January were running at a relatively high level compared with the past year, but at a rate that was below the levels of previous peaks in home-building. Data for housing loan approvals had declined somewhat recently, consistent with what had occurred in previous episodes of monetary policy tightening. The recent falls were concentrated in approvals to owner-occupiers, with approvals to investors increasing, particularly in Victoria.
There had been no new data on consumer price inflation over the past month. However, the data for the wage price index for the December quarter indicated that growth in private-sector wages had remained quite low, while public-sector wage growth had remained firm. Overall, the staff still expected consumer price inflation to be around 2½ per cent over 2010.
Selected passages from the Minutes of The Reserve Bank of Australia dated 2/3/2010, released 16/3/2010.
ECINYA COMMENT
Two weeks ago we were of the opinion that March would be a good month to stay long and strong in equities. Then last week our technicals and quant data indicated that markets were hesitating and that an imminent retracement might be on the near-term horizon. Over the past fortnight news has surfaced that China may be in bubble territory, particularly relating to property speculation. The Shanghai composite index has retraced some 11% from December 2009 to date, and this provides some support to the emerging thesis that China growth may be slowing as the Chinese fiscal and monetary authorities focus on withdrawing stimulus from the economy. Trade and currency tensions are rising between China and the USA.
Locally, many of the people we speak to are wary of the sustainability of the recovery with some of the view that ‘it is not happening’.
Though ‘patience’ can easily be described as ‘not knowing what to do’ we are remaining cautious and have withdrawn funds from our portfolios, including Cactus.
OUR FUNDAMENTAL FEAR LIST FOR 2010 was contained in our Overview paper published on 12 January, 2010
We set out below those expressed fears in bold, followed by our current view:
America economic aggregates, and policy settings; negative trends in employment, current account and domestic deficits: The economic aggregates in America have worsened considerably over the past 3 months, with persistently high unemployment levels and rising public debt levels. Australia’s domestic deficit appears to be driving interest rates up and the stimulus package policies appear to have been substantially mis-managed.
The aftermath of American foreign policy history and its implications for global resource allocation and growth: The oil price has risen above US$80 per barrel and tensions between Israel, Iran and Palestine remain elevated. America appears to be losing patience with Israel.
The global economy and the possibility of growth rates disappointing as stimulus is withdrawn: This remains a real fear but official GDP numbers have not been revised down at this point in time. We remain sceptical and suspicious as Europe is slowing and the first quarter in the US appears to be sluggish. The Chinese Premier has warned of a double-dip global recession, led by American imbalances.
The lead into various elections around the world that might encourage profligate fiscal behaviour (UK, Australia, and US mid-terms are on the horizon): This is happening and is likely to accelerate as election dates are announced.
Higher global and local interest rates, particularly the latter, in context of rising inflation: Because ‘the global recovery’ is still in doubt, interest rates are likely to be subdued, though the Reserve Bank of Australia has acted pre-emptively and is ahead of the curve.
The unintended consequences of additional stimulation: Insulation batts and the schools building programme, centre-pieces of the last stimulation, are illustrative of this fear.
Another major institutional failure in the USA: Fannie and Freddie still under pressure, but no new notable failures in evidence.
A downgrade of US debt: Moodys have warned Britain and the USA that their AAA rating is in doubt, and probably under review.
China having a few problems which are currently overlooked such as slowing exports, failures in the small business sector, and non-performing bank loans: China fears are on the rise.
Rising taxation levels. In Australia this will be euphemistically called ‘tax reform’: The Henry Review has been withheld.
A break-out in local wages: Good news, not happening.
Unemployment staying persistently high: Real unemployment (adjusting for under-employed and casual workers) is still too high here and abroad.
Commercial property values globally: Commercial property is generally soft.
Municipal and state failures in the USA . The 10 most troubled states in the USA are Arizona, California, Florida, Illinois, Michigan, Nevada, New Jersey, Oregon, Rhode Island and Wisconsin. Other states, not far behind, are Colorado, Georgia, Kentucky, New York and Hawaii.
US local bank failures (144 banks have failed since December 2008 and more are said to be at risk): An additional 26 US banks have folded in calendar 2010.
THE RESERVE BANK MINUTES
A reading of the full transcript is recommended. Particular note should be taken of the qualifying adjectives and sentences e.g. ‘mixed’, ‘significantly’, ‘quite firm’,’ appeared’, ‘relatively’, ‘somewhat’ etc.