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Hi, Daniel Kertcher, CEO and Founder of Trading Pursuits, and welcome to the monthly market
review for January 2014.
Now before I get started there are just a couple of quick little points I need to share
with you. Number 1, what you hear in this presentation is what we call General Advice;
it is not individual specific advice. Furthermore, we have taken consideration your personal
financial objectives. Trading involves risk, past returns does not mean you will get the
same in the future. And finally, our company, Trading Pursuits with holds an Australian
Financial Services License.
Okay, we've had some interesting news over the past month or so, first thing is that
you see the SP 500 the big top 500 in America they've recently hit their All-time Record
high of just shy of 850 points. Now this is come on the back of the announcement by the
Federal Reserve.
Now, Ben Bernanke at his last speech as the Chairman of Federal Reserve before he stands
down this coming month. And now said, they are actually going to reduce their bond buying
program. For the last two years David was called two in three or quantity of easing
three. And that is where they spend 85 Billion dollars per month of new money they create
in order to buy mortgage back securities and US government bonds. They actually announce
that they are going to; actually it has already started to reduce their 85 Billion dollar
bond buying program back down to 75 Billion dollars per month. Now, they importantly stressed
though that they'd see no end to stimulus any time soon. In other words, they plan to
continue printing more money and continue to buying mortgage back bonds and government
bonds in order to help stimulate he overall economy. The initial goal is to keep doing
this until unemployment got down to 6.5 percent but they now stated that they will continue
the stimulus program even once unemployment gets down to 6.5 percent or less so long as
inflation remains below 2 percent. The Federal Reserve is quite concerned about a low inflation
environment as the inflation beefed up to over 2 percent. Not now more than 3 or 4 percent
so they wanted to keep it in that happy range between 2 to 3 percent and now keeps stimulating
and printing money until it actually happens.
Now, we can see here that US unemployment has high surge, the unemployment rate has
now dropped down to 7%the lowest level we've seen in over the past five years. So, good
news for the US employment market. We can also see that ISM manufacturing this is the
index of manufacturing in America now up at 57. This is one of the highest levels we've
seen in the past five years and what it represents is that manufacturing in America is expanding.
So a very strong bullish sign for the US economy.
If we look at the Baltic Dry Shipping Index is an index of the cost of shipping raw materials
across various oceans. You see though it has surged just recently, in fact up to the highest
levels it's been in the past five years. So this means that the cost of shipping particularly
across the pacific is much higher than they've been many years now. And this gives us an
indication that the amount that is being shipped internationally is growing, hence again another
bullish sign for the overall economy.
With the strong economic data it's no surprise though that Gold has been falling down and
has been languishing down pretty much a production cost for the past few months. In fact around
1240 dollars an ounce.
Typically an average where it cost most go producers go today to produce Gold so there
is not much profit in it for Gold miners these days. Again, there's a strong economic data
coming in the United States coming has been flowing on ti the US property market and we
can see that new home sales in America had been raising. Now there are still nowhere
near the highs back in the previous years but however they are raising which again a
bullish sign for the overall economy.
What we are looking out here is the Case-Shiller index, now this goes over cross twenty different
cities in America and it estimates the increase or decrease in value of homes year on year.
What we can see is that homes in America on average now across twenty different cities
in the country are now rising greater than ten percent per annum. Now this puts it way
back in the average as we saw back in 2005 2006 back in those boom times. And seeing
this graph back in 2008 property market prices was falling in excessively 20% per annum.
So not only they have property price falling they are in fact now rising and they are rising
at a similar pace to what we saw back in 2004 20015 and 2006 which you can consider boom
times back in the United States real estate market. This course has been helping consumers
confidence we can see consumer confidence has been rising strongly in the last few months
now it's not again the super highs that we saw last 2005 2006 or even the previous highs
back in 1999 2000 in fact if you look back in the last 60 odd years you can see consumer
confidence now around mid-way we still have a long way to go to get into a an overzealous
over boomed type mentality however all the other economic indicators are pointing real
estate, stock market, bonds, etc. are all pointing to rising consumer confidence.
Now, AGG, this is a Broad Based Bond Fund, what it does it attracts a variety different
types of bonds like government bonds, corporate bonds, emininsible bonds. And given the fact
that the Federal Reserve are a massive bond buying program for the last few years is also
surprising though that bond prices rose, the last year and a half has been expected that
bonds the Federal Reserve will seize their bond buying program and of course just like
what I have mentioned that they have just announced that they will reduce their bond
buying program from 85 Billion dollars to 75 Billion dollars per month. So now, surprising
that we've seen bond prices fall recently there is no doubt the Federal Reserve will
continue to decrease their bond buying program in time but with Ben Bernanke now leaving
Janet Yellen now coming in as new Chairman of Federal Reserve, will have to wait for
months to see what she says reducing and tapering the bond buying program. So for now we are
expecting bonds basically to track sideways as the market raves for more news.
So we see here the bonds are holding value, now having look at the commodity price, the
CCI index is the top 17 most heavily traded commodities around the world. And as you can
see with again the strong economic data driving up stock market, driving up in keeping bond
prices commodity prices have been falling. Now they have steady now over the last six
months and we're not surprise to see commodity prices fall further, however we pretty much
feel that commodity prices now are pretty stable. With Gold for example down with production
cost, the crude oil price has been falling but look at the moment. So we are not expecting
commodity prices to fall so dramatically but we're also not expecting them to raise too
dramatically either. With real estate and stock market certainly their recipients of
a lot of money that's flooding into the market at the moment.
And we have to look at the crude oil price; we can see how the crude oil price now is
down to $93 per barrel. So is this price about a month and a half ago and has been languishing
around this price for the last year and a half. So it's been up to a hundred and ten
in the middle of last year and we expect the crude oil price to pretty much stay in a 90-100
dollar range for the next 6-12 months.
How they look back in Australia now, we can see how, if we see on the website of Federal
Reserve of Australia, that the inflation rate in Australia maintains around 2.2 percent,
it has been sitting there for the last few months. Now if you have to look at the index,
the indicator as to how likely the RBA be the change in Australia this coming month
we can see that there is in fact a 93% chance that they will not be changing these rates
in the coming month. So if you own a home and the current interest
rate sits by the Reserve Bank Australia at 2.5% you can rest pretty easy that the interest
rates are very unlikely to change in the next month. And my personal opinion was not like
this is going to change for at least 3-5 months either. And even if they did move will be
a very small amount, it will 2.5% in any direction.
Flowing that unto the Australian stock exchange we can see how the ASX is essentially been
following the US now back up with highs for the past five years however it is still nowhere
the ultimate high that we had back in 2008. So unlike the SMP 500 which is at all-time
record highs we have been recovered back to the highs in 2008. But we are back to the
highs for the past five years well 5,320 points.
And finally the Australian dollar, now you have probably noticed that the Australian
dollar has pulled back into an 89 cents at the moment, and this represents the lowest
price that we've been trading at for about the past year and a half because we had that
big rally a few years ago. Now its our expectation that the Aussie dollar
will probably fall further and you can see now, the 89 cents, that's a pretty strong
support line. So if we see it drop we expect to the fall down to the mid 80's potentially
below 80's. Now that will low down help out exporters to help the Australian markets surge
a little bit on that but so long as commodity price is just keep languishing down near production
cost the real drive of the Australian economy will pretty much stay pretty neutral. And
as a consequence we expect to see that stock market stay pretty neutral as well.
I certainly hope you enjoyed this presentation, May I wish you profitable investment.