All Posts Tagged With: "asset"

Take a deep breath and relax. Today’s issue of the Daily Reckoning is not about the Reserve Bank. Maybe it will raise the cash rate to 4.75% tomorrow and maybe it won’t. But frankly we are tired of pretending to take the RBA seriously as it pretends to know how to perfectly manage the price of money. Instead, then, let’s talk about the upcoming float of Queensland Rail. It’s a great exercise in understanding how to value assets and why the private sector manages better than the public sector.

Watch the bonds… We could be seeing the first crack in the bond market. But it seems too early to us. It seems more likely that the bond market will stretch this out…bringing more and more hapless investors on board before finally sinking. Everything takes longer than you expect.

For nearly two years, gold hasn’t had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%).

So land banking is back then? That’s one way of viewing the $1.2 billin bid by Canada’s Agrium for wheat exporter AWB. Agrium is offering a 57% premium to AWB’s share-price before the mooted merger with Grain Corp. Maybe the cashed-up Canadians are taking advantage of a beaten-down share (RSPT and litigation related). But it’s obvious that arable land and food is compelling investment.

You will recall that during the bottom of the previous bear-market, most of the pundits were shunning ‘risky assets’ (stocks and commodities) and they were advocating a heavy exposure to cash and fixed income assets. Back then, the vast majority of strategists and their devotees were erroneously fretting about deflation.

You can’t have steel without iron ore. And you can’t have a resource boom without an iron ore boom. Just ask the government. It’s counting on soaring prices for iron ore and coal (along with soaring volumes) to deliver an extra $6 billion windfall to Federal coffers, according to today’s Australian Financial Review. The government cutting its deficit next year and returning the nation’s finances to surplus by 2012-2013 when the new bill of attainder becomes the law of the land.

The funding model for the funds industry was seriously strained by the outflows. As we understand it, the funds have three sources of funding: deposits, bank credit facilities, and the mortgage payments it receives from mortgagees (commercial and residential). The bank credit facilities are exercised either to make new mortgage loans or pay out withdrawals that exceed what the fund takes in via mortgage payments.

So from a strategic point of view, we believe equity investors want and need to see stronger economic and earnings results to drive indexes higher, while bond investors need just the opposite to calm Treasury yields down.