Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
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Ben Hurley – the AFR journo typical of Gen Y – will soon be buying a house cheap from boomers who have no-one else to sell to.
Last week Ben (here) wrote:
“I would love to own a home. I could upgrade my crappy electric stove, get a hot water system that actually fills the bathtub, and stop asking the landlord for permission to put a nail in the wall.
But I’m reluctant because I think buying a home is a dud deal. And renting, while expensive, is less of a dud deal because renters typically give the landlord a return of about 3 per cent on the asset’s value. A lot of my friends in their early 30s feel the same way.”
Ben goes on to explain why renting makes more sense than buying and I reckon he’s right, but for an entirely different reason.
Portfolio point: Reporting season is in full swing and there have been some excellent results. We always watch GWA because it’s a company that has the potential to regain its crown but the 2012 results didn’t inspire.
GWA is a leader in the design, manufacture, import and distribution of bathroom & kitchen products, door and access systems, and heating & cooling products. Brand names of these three core building fixtures and fittings divisions include Caroma, Dorf, Fower, Brivis, Dux, Gainsborough and Trilock. Analysis of virtually every financial measure over the past five years has seen GWA demonstrate bond like qualities.
On December we explained that just as Gerry Harvey needs to sell more plasma tvs at deflated prices to generate the same profit because of margin squeeze, the same laws of arithmetic would apply to miners of ore and coal.
It’s not difficult to imagine a world where a company like Atlas Iron ore (AGO) will need a bailout!
One of our brokers wrote to us today;
“Big downgrades to our FY13 expectations are coming. On our estimates for FY13 and against market consensus we believe there could be downgrades to NPAT estimates of 31 – 96% for the producers”
It comes from the same analyst that told us to buy mining services businesses in April.
You might recall Vale’s massive June quarter slump. Aussie market investors seem to be in denial or just hoping for iron ore price to bounce. Neither strategy preserves retirement savings.
Stay tuned.
Learn of Roger Montgomery’s thoughts on the latest changes to the Carbon Scheme announced by the Gillard government in the this edition of ABC1’s Inside Business broadcast 2 September 2012. Watch here.
For all you budding economists: Unemployment rose in the Euro-zone in July. There was also a jump in inflation above expectations in August. Inflation rose for the first time in a year, from 2.4% to 2.6% and above consensus. The view now is that the downturn in household spending will worsen in the second half of this year. There were 88,000 additional people unemployed leaving the unemployment rate at an unchanged record high of 11.3%. June’s number was revised higher from 11.2% to 11.3%. Unemployment is worst in Spain where the proportion of people without a job is a staggering 25% or more. But French, Dutch and Belgian rates all rose too. It all suggests consumer spending will continue to fall over the next few months at least. Many now expect the ECB will adopt additional measures to support the economy either this week or in the next few.
Roger Montgomery discusses why earnings are not all equal in this Australian article published on 1 September 2012. Read here.
In his September 2012 Money Magazine article Roger outlines ongoing declining prospects for JB Hi-Fi (JBH). Read here.
Last week’s reporting results flop for the flying kangaroo set the social web alight, with a mixture of sentiment from followers of this blog, the general public and the mass media alike. The first shots were fired during my impromptu guest appearance on Bloomberg…
The below follows the tale through social media curation platform Storify.
Fortescue Chief Nev Power yesterday said he was confident that the iron ore price would rebound to the US$120/tonne level following its recent weakness. We have been scanning the Chinese economy from a number of angles for some time now, and the indications we see are rather less optimistic. Remember, before 2002 the iron ore price averaged between US$15-$20/tonne. Currently US$90/tonne. History suggests that the maintainable price might be significantly below present levels, even after the large declines.
At the opposite end of the market to Fortescue, nano-cap Merchant House makes industrial boots in Tinajin, close to Beijing, and has been making them ever since Deng Xiaoping began the process of economic reform some 30 years ago. For FY2012, Chairperson Loretta Lee reports rising input costs, increasing wages, and new taxes and regulatory burdens. She states: “It is becoming increasingly obvious that China is no longer the world’s low cost factory”. The implications for China’s exports and the flow on into areas such as fixed investment should not be underestimated.
From: http://www.bloomberg.com/news/2012-08-28/australia-mining-slowdown-hitting-economy-never-down-on-its-luck.html
“China’s iron-ore imports are going to slow down dramatically,” Xie, a former World Bank economist who researched globalization and bubbles, said in an interview from Hong Kong. “It’s not just because of the economic downturn; it’s because construction of property and infrastructure has peaked” in Australia’s No. 1 customer, he said.
Premier Wen Jiabao in March cut the government’s growth target for China to 7.5 percent for this year, the lowest since 2004, as policy makers there seek to reduce the role of large- scale fixed-asset investment in favor of greater consumer demand. China also has applied limited stimulus relative to 2008-09, as officials rein in property market speculation.
“I don’t think there’s ever been a miracle economy that ultimately lived up to its billing,” said Dylan Grice, global strategist at Societe Generale SA (GLE) in London, who cited the Japanese experience of the 1980s, Thailand before the 1997-1998 Asian financial crisis and Ireland’s “Emerald Tiger” period last decade. “This year’s miracle is next year’s disaster.”
