Correct ‘Haircuts’

‘Haircut’ is a term that has a precise meaning in finance. But many journalists and commentators use the term incorrectly, which is unfortunate because ‘haircuts’ have played a major role in the GFC. Knowing what haircuts really are is crucial to understanding the liquidity crises of the GFC.

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Eyes On the Prize

Sporting tournaments, such as Wimbledon, The Masters and The Melbourne Cup, receive great fanfare, but much more important ‘tournaments’ are playing out continuously in the economy.

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Inflation or Deflation?

Inflation fell rapidly in every major economy during 2014 - see the graph below. In 2015 global inflation has temporarily stabilised at very low levels. What will happen next is the biggest question facing global investors

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Bank Hybrid Notes Versus Bank Shares

Bank hybrid notes have received a lot of unfavourable press in the last year. I think many commentators simply don’t understand them. I like them a lot and think their combination of high yields and good capital protection should give them a place in most investor’s portfolios as a solid defensive asset.

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History Moves On a Frame

The Greek debt crisis is in a brief hiatus that can only last for weeks. Then the impasse between the newly elected Government of Greece and a coalition of countries led by Germany will have to be resolved. An important issue here is the rapidly changing way in which the German public perceives the role of their country in Europe.

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Housing Bubbles

There is growing concern that a bubble is developing in the residential property market in Australia. Prices have certainly zoomed up in Melbourne, and especially Sydney, over the last two years; see the chart below of Australian residential property prices.

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Management of Everything

I am a big fan of Jeff Bezos, the founder and CEO of Amazon. Reading his views on ‘complexity’ in business changed my thinking on that subject quite a lot. Bezos says that Amazon’s core competency is the management of complexity. He intends to create value for his customers by allowing them to outsource complex parts of their business to Amazon. But is he getting distracted?

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Going ‘Long Vol’ and ‘Short Vol’

When a share market investor says that they are ‘long volatility’ or ‘short volatility’, what precisely does that mean? Usually being ‘long’ or ‘short’ an asset means that you have bought it or sold it. To go long BHP you would buy BHP shares. To short BHP you would borrow BHP shares and then sell them.

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The Open IPO Channel

A lot of new firms listed on the Australian Securities Exchange (ASX) for the first time in 2014. Over $16 billion of shares were sold in 60 initial public offerings of shares (IPOs). This high value and high number of IPOs represented a re-opening of that market. The well known graph below is taken from the RBA chart pack. It shows that in the six years from 2008Q1 through to 2013Q4 there was only one good quarter for IPOs - in 2009Q4 when Myer was refloated on the ASX.

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Disrupting the Oil Market

What is the biggest market to be ‘disrupted’ in the last 10 years by new technology. Is it retail markets like books and music? Is the taxi market? Is it the print media? No, it is the global oil market. New production technologies have increased the supply of oil and gas to the point where the oil market has been disrupted.

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Value and Growth

It is often stated that things are never as bad as they seem or as good as they seem. I was reminded of that maxim when reading about the fortunes of two firms recently.

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The Volatile Australian dollar ($A)

Currency issues are very salient in the Australian finance system, including wealth management. Australia is, after all, a small open, resource based economy with a floating currency. I am going to talk about the $A quite a lot in this newsletter over time. To begin with I just want to look at the history of the $A to bring out the following points.

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