Matt states that Greece & Spain will default

Yes Matt is a fund manager of 2.3Billion who occasionally leaves his four simultaneous computer screens to appear on business TV or face financial advisers.

There was plenty to take out of his presentation but as always we are interested in the future & so some notes working backwards from his answers is a way to summarise his case.

I.e. the last 30 years is no guide to the next 10 years.

So expect less capital gains & focus on risk & income.

·         Earnings growth of companies to be below average

·         Asia to be the global growth driver

·         Interest rates to rise

·         The main driver of returns to be income growth

·         Lowest risk debt is corporate & not government

·         Preferred risk hedge is income producing assets & not US bonds

·         Asset exposure to emphasis quality & not growth

·         The Australian $ will remain above parity.

Currently the markets [share]have priced in all the bad news & are the lowest in 20 years.

Matt did have some great slides which included comparing returns of the 5 major asset classes over various periods. [which we have for you to view]

The key point out of those & hence wealth creating was reinvesting the income back into the class & allowing compound interest to work. This had a dramatic long term impact.

And the winner was  over any 20 year period ,you guessed it, shares with a multiple of 160 times original as they are exposed to the real economy. [Property was 44times & cash 25 times].

Matt also showed a slide comparing previous similar cycles & where we are on the current one.

As Peter Q has also shown us we are ‘grinding’ towards the big upswing in the markets.

The markets are going to be dominated by long term trends according to Matt. i.e.

·         hard commodities down as we see this week although we are a ‘gold fondler’.

·         Emergence of income investing as a source of wealth creation

·         Downward earnings & valuations in advanced economies.

·         An evolution in risk return dynamics

Matt comments ‘that it wont be the smartest or fittest investor that benefits from the new environment but the investor that who is most adaptable to change’.

We had PIMCO [huge global bond manager] asking ‘ Will action follow words in Europe?

They suggested 6 key areas that Europe needs to focus on and

This is a challenging list, especially for the next few weeks; and it requires the type of political leadership and coordination that, hitherto, has tended to elude the eurozone.

When we read that SMSP trustees are putting their retirement funds into residential houses or Australian property & cash we understand that anything else is too hard.

However as Matt clearly showed its income that creates wealth & the net rental return from such property is 1% from all the observations we have made. Matt mentioned an income  fund that was returning 7% & there are plenty of such income funds.

 Debbie told us the worst  decision & experience she made was a rental property. We  as a baby boomer are well aware that contempories are retiring & finding the negative cashflow from such properties too much. They are selling which isn’t helping the housing market as we know.

We observe today on our Linkedin sites that an ex colleague is selling houses in USA. An ex Coalition leader has a trust for similar. Greece & Spain maybe buys after their default. These maybe better options but who is going to look after them for you?

Although  the bus driver asked us if we had a seniors card on returning from Matt’s talk we have the same challenges as we expect to Bat as long as our late ‘Auntie’ Freda i.e. to 95. Wealth creation is a challenge & evolutionary & for those who live & breathe the markets.

Of course getting  to age 95 needs Brilliant health & at 95 we might need Aged Care advice.

 We have solutions for both challenges.

As the European meddlers return from holidays &the looming ‘fiscal cliff’ & as the Volatility index VIX is very low then as Richie says D for defence could be the best strategy for the short term.

However Cash or rental property won’t  achieve the 1,000,000 Capital we need outside the house.

 Mark suggested that they could do better budgeting. When he also pays 35,000 in taxx then there must be a better way as high incomes also need tuning.

You are welcome to call on 07 3848 1088 or email or visit our websites  as we have helped tune finances for 28 years. We do have  for you to view Matt’s presentation but we admit we are not Matt.

 

John McAuliffe