Strategy: AFL’s version of events

In 2016 an extra week was inserted into the calendar of the Australian Football League (the AFL).  No games are played in that week, which sits between the end of the regular season and the beginning of the finals series (the play-offs).  Football fans were baffled and annoyed by the change.   But it does make sense in product strategy terms.  The extra week is part of the creation of more than one ‘version’ of the AFL’s product.  The full product – the 23 week regular season plus the 4 weeks of finals – for the domestic audience, and a shorter version of just 4 weeks duration for the global audience.

Read More

Bathtubs versus Stagnation

Does the recent acceleration of growth in the global economy mean that we are finally turning the page on the GFC, which began in 2007?  That depends on which narrative of the GFC you subscribe to – the Rogoff and Rinehart ‘bathtub’ explanation or Larry Summers’ ‘secular stagnation’ explanation.  If Rogoff and Rinehart are right then the GFC is a banking crisis which after 10 years of slow growth is coming to a predictable end.  If Summers and Co are right then the GFC is an expression of something much deeper, longer term and problematic in the global economy.

Read More

Personal investing: The extra return to hybrid notes

Avoiding complex investments is a good guiding principal for investors.  Bank hybrid notes are an exception to that rule.  Yes, they are complex relative to plain vanilla shares and bonds.  But their reward-to-risk ratio, and their defensive qualities, are so attractive that investors should consider bank hybrids despite their complexity. 

Read More

Global economy: Janet and Mario go too early

Inflation bulls are currently in the ascendency.  The US Fed raised its overnight rate again in June and is discussing the unwinding of quantitative easing (QE).  The European Central Bank Governor Mario Draghi now says that the "deflationary forces have been replaced by reflationary forces".   It is good to talk up inflation, but let's not get too excited.  A look at the long term interest rates picture shows that deflationary forces were decades in the making.  Have those forces really now reversed?  Or, are we simply in a hiatus before the fight against deflation resumes in earnest?

Read More

Personal investing: Buckets for money

About 450,000 affluent Australian families hold their investments in some combination of superannuation, family trusts and direct ownership of negatively geared property.  But over the last year, changes in tax rules and changes in property market conditions have shifted the relative benefits of these arrangements.  Family trusts have been made comparitively more attractive. Investors should consider whether their 'structuring' and tax planning is still optimal.

Read More

The Swap Curve gets Weird

The biggest global markets for transferring risk (by far) are the interest rate (IR) risk markets.  A key relationship in these markets has recently broken down.  It is the relationship between the treasury yield curve and the swap rate curve.  It is another example of how broken the global financial system is, and it seems to have actually been caused, in part, by over-zealous banking regulators.

Read More

Show me the money

During the commodity price boom from 2004-2011 BHP Billiton's board raised the firm's dividends to unsustainable levels and now in the commodity bust it has been forced to cut dividends by 75%.  Well, so what?  A firm that experienced an unanticipated surge in cash flows paid out a large part of that cash to shareholders as dividends - terrific.  That is a lot better than wasting the cash on bad projects or value destroying acquisitions.  Strident critics of BHP's dividend management need to explain exactly what the BHP board should have done with its surplus cash instead of raising dividends.

Read More

A convergence trade: Qantas and Virgin

There is something odd about Australia's airline duopoly at the moment.  Over the last two years Qantas shares have risen in price by 225%, but Virgin Australia's shares are up a mere 25%. It is not so unusual for two firms in the same industry to have highly divergent fortunes, but it is unusual in a cosy duopoly that is effectively closed to new entrants. If you think that some of Qantas's share price out-performance relative to Virgin will be reversed – that the paths of their share prices will converge – then how would you act on that view?

Read More

Inflation is the Only Way Out: Part I

Many economists believe that an extended period of inflation is ultimately the only way out of the low growth aftermath of the GFC. Moreover, the measures needed to stimulate inflation, such as: quantitative easing, negative interest rates, higher inflation targets and commitments to ‘do whatever it takes’, are blunt instruments. Therefore, a degree of overshooting – inflation that is too high – should be expected. Deflation is the immediate danger but investors need to plan today for inflation in the medium to long term.

Read More

Robo-Advice

Robo-financial advice is an idea that is as old as the web itself. Vanguard had plans for a robo-advice product in 1999. Now there is a new surge of energy in this space with a large group of fintech startups going after the opportunity. Imagine that you were building a robo-advice product, then what would your business model look like? What service would you provide? What market segment would you go after? What would your revenue model be?

Read More