Insightful Insights

We are again delighted to provide an update on the results for The Montgomery Fund.

Whilst it is still early days and you must understand that past results are not a reliable guide to future returns, we continue to be encouraged by the combined performance of The Montgomery Fund’s 33 constituents.

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by Roger Montgomery Posted in Insightful Insights, Value.able.

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It was pleasing to see figures released last week by Tourism Research Australia that revealed Chinese tourists were still flocking to Australia’s shores. According to the report, there were 573,071 Chinese arrivals in the 12 months to September, which was a 17 per cent increase over the previous corresponding period.

While there has been a lot of commentary on the state of the tourism industry, there is one company that is frequently cited as the shining example of a group that can successfully capture the opportunities in this growing tourism market, and that is Crown Ltd.

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by Ben MacNevin Posted in Insightful Insights, Tourism.

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A few months ago we commented here on an article in the AFR speculating that Gen Y may soon be buying a house cheap from boomers who have no-one else to sell to and why renting makes more sense than buying. Since Roger bought the bigger family home in 2006,he has argued that house prices would cease rising to new highs – especially the six and seven bedroom variety.

Whilst the mere mention of Australian housing and prices can stir up passionate and spirited argument for and against house price rises, just this morning I stumbled across the below series of charts produced by Citigroup’s Matt King.

Similar to the M/O ratio which plots P/E ratios against the ratio of the middle-age cohort, age 40–49, to the old-age cohort, age 60–69 from 1954 to 2010, Matt looks at the relationship between the inverse dependency ratio (the proportion of population of working age relative to old and young) and maps that against real house prices over time. This produces a longer-term measure of prices home owners are willing to (or have to) pay for housing.

The charts are a powerful representation of a force driving all economies and prices: demographics. Whilst prices have somewhat lagged the dependency ratio on the way up, give or take a number of years and almost every country here shows that the peak in real estate prices is highly correlated with the peak in dependency ratio.

Its worth contemplating whether the recent past, characterised by rising gearing levels and falling price to income ratios (affordability) is the new normal, or whether, as we transition into an environment where there are more pensioners than workers and therefore fewer people to ‘downsize’ too,what may transpire in the future in Australia is anything like the experience in the US, Japan, Ireland, Spain and the UK.

As always, delighted to hear your thoughts.

by Russell Muldoon Posted in Insightful Insights.

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Few Australian management teams and their boards have been successful over long periods of time in ‘rolling’ up businesses under one roof. Inevitably, too much is paid; they struggle to deploy systems to drive scale and efficiencies; and retaining key management becomes a key problem once their lock-in period expires. It’s why we are so cautious of business strategies that revolve largely around acquisitions to grow the business. While it is easy to ‘grow’ by simply purchasing another business’ earnings, unless the return on the equity employed remains stable or improves, such capital allocation decisions will erode shareholder wealth over time.

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by Ben MacNevin Posted in Companies, Insightful Insights, Insurance.

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Prior to 1990 the Reserve Bank of Australia did not publish an official cash rate setting and cash rates going back to 1960 was a proxy of the current measure. Historical data shows the lowest cash rate proxy was 2.89% in January 1960.

As detailed in yesterday’s blog, “data points from manufacturing, the job market and the terms of trade are all pointing to weaker GDP growth”.

Assuming the Reserve Bank of Australia cuts the cash rate from the current “emergency low” level of 3.0% to 2.75% in early 2013 this will be the lowest level in 53 years.

by David Buckland Posted in Insightful Insights.

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Rising costs, lower productivity and a strong Australian dollar will inevitably be blamed for the collapse of another food manufacturer in Australia this week.

Gourmet Group, the company that owns the iconic Rosella Brand of tomato sauce has been placed in receivership with reports it owes as much as $50 million.

But this additional nail in the coffin of our collapsing food manufacturing industry is exactly what the government wants, it may also be what the ACCC wants and it is what Australian consumers want. And if they all complain that they don’t want it, it’s what they’re going to get.

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by Roger Montgomery Posted in Insightful Insights, Manufacturing.

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Yesterday, the Reserve Bank of Australia cut their cash rate to 3.0%, down from 4.75% at October 2011, and the lowest level since mid-2009. Data points from manufacturing, the job market and the terms of trade are not cheery reading – all pointing to weaker GDP growth – and we expect the cash rate to fall further in 2013.

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by David Buckland Posted in Insightful Insights.

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In this 4 December 2012 edition of Ross Greenwood’s 2GB radio show, Roger discusses how finding great quality businesses will provide an exceptional alternative to investing in high dividend yield stocks in the current period of low interest rates.  Listen here.

by Roger Montgomery Posted in Insightful Insights, Radio.

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On 27 July 2012 I wrote “over the past fifty years, US housing starts have averaged 1.5m per annum. Currently starts are less than half the long-term average. Deutsche Bank is looking for US housing starts to jump to 1.0m by 2014 and to 1.4m by 2016 as follows”.

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by David Buckland Posted in Insightful Insights, Value.able.

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The daily lease rates for bulk carriers have risen by 20% to 25% in the past three months. The graph below details those daily rates for two categories of bulk carriers over the past two years; 28,000 dry weight tonnes which are around 170 metres long and 45,000 dry weight tonnes which are around 230 metres long.

The daily rates are currently US$6,550 and US$7,250, respectively, and reflect the perception China’s imports have recently recovered. For example, after three months of decline, China’s total coal imports hit 16.8 million tonnes in October 2012, up 13% from 14.9 million tonnes in September, and up 7% year on year.

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by David Buckland Posted in Insightful Insights.

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