Australian Dollar to reach US dollar parity in 2008 - The good and the bad

Yesterday the Australian Dollar rose above 92 U.S. cents to a 23-Year high - at this rate it should hit parity by mid next year.  This appreciation is due to continued US housing market driven economic weakness and on speculation that the Reserve bank will raise interest rates next week, thereby widening interest rate differentials between the two countires and drawing investors to the higher yielding Aussie dollar.

The local dollar gained the most amongst  17 of the most-actively traded currencies as the chances of a quarter-percentage point increase by the Reserve Bank of Australia on Nov. 7 climbed to 86 percent, according to a Credit Suisse Group index based on interest-rate swap trading. Rising global stock and commodity prices also encouraged investors to buy higher-yielding currencies.

According to the median estimate of 39 strategists surveyed by Bloomberg News , the prediction is that the Australian dollar will end the year at 88 cents compared with forecasts of 76 cents at the start of the year.  My view is that it will finish nearer 95c and to parity by mid 2008 if the current economic conditions persist. The US news media is predicting ongoing weakness in the US dollar against all currencies.

While it brings a sense of pride that the Aussie "Battler" dollar is running up against the US dollar, it will cause a lot of problems down the road if it keeps rising. It might be helping overseas travellers, electronics goods retailers, importers and others, but it is going to be very detrimental to exporters, local tourism industry and companies that generate their revenue in US dollars. 60-70% of companies fall in the latter category (i.e. profit/revenue are adversely affected by a rising $A).  A number of companies are already trading on high valuations, which are due to expectations of future growth and profit. So if there is a decline in earnings, these companies will be hit especially hard and adversely affect the economy and stock market. Not a situation which any investor wants. So while it is great to see news reports touting how strong the Aussie dollar is, we should beware the long term fallout and plan our investments accordingly.

For a more detailed review and analysts forecasts check out this article : http://www.forbes.com/markets/feeds/afx/2007/10/11/afx4213066.html

An Indian becomes the richest man in the world! and No 2 is a Mexican....

To demonstrate the surge in the market capitalization of developing and emerging markets like India, China and Mexico, the 2 richest men in the world as of October 22nd 2007 are not American - the first time this has happened in the last 40 years.

Billionaire Mukesh Ambani on Monday became the richest person in the world, surpassing American software mogul Bill Gates, Mexican business tycoon Carlos Slim Helu and famous investment guru Warren Buffett, courtesy the bull run in the stock market.  

Following a strong share price rally today in his three group companies -- India's most valued firm Reliance Industries, Reliance Petroleum and Reliance Industrial Infrastructure Ltd -- the net worth of Mukesh Ambani rose to 63.2 billion dollars (Rs 2,49,108 crore). In comparison, the net worth of both Gates and Slim is estimated to be slightly lower at around 62.29 billion dollars each, with Slim leading among the two by a narrow margin. Warren Buffett, earlier the third richest in the world, also dropped one position with a net worth of about 56 billion dollars.

Ambani's wealth of about Rs 2,49,000 crore includes about Rs 2,10,000 crore from RIL (50.98 per cent stake), Rs 37,500 crore from RPL (37.5 per cent) and Rs 2,100 crore from RIIL (46.23 per cent).

According to information available with the US and Mexican stock exchanges where these companies are listed, Slim currently holds shares worth a total of USD 62.2993 billion, with more than half coming from Latin American mobile major America Movil. Slim is closely followed by Gates with a net worth of 62.29 billion dollars currently.

How long will be it be before a Chinese name is on the list? Not long. Given the explosive growth in these "developing" economies which is being reflected in the stock market, in 5-10 years I bet you will be hard pressed to find an American on the list of the richest people in the world. All the more reason to invest in countries like China and India - directly and indirectly.

New Website Layout

On another note, as part of my website migration to the domain name www.financeviewpoint.com, I have update the site design and layout. I have added another pane to the left which allows me to spread out the large number of financial links/resources I have found. On left pane I have news sources and interesting aussie news feeds (updated daily). The centre block contains the posts and the right pane has useful finance links. I am still working on the colour scheme - not my strong point, so let me know if you have any suggestions.

I would like to thank the tips-for-new bloggers website for the information that helped me update the website. For new bloggers, this is a great resource.

Andy.

Some sound financial advice

Vanguard Chairman and CEO Jack Brennan, in his weekly newsletters provides financial advice and tips from his experiences. I have a few Canguard funds, so like to read this newsletter. Here are some pertinent points from an Australian context:

What are examples of good financial habits when it comes to retirement planning?

Raise your level of superannuation participation. Take advantage of that opportunity to maximize your pretax savings, because pretax savings are a fabulous way to help create a comfortable retirement (including the 15% contribution tax)

"You have to forgo a little bit of consumption in order to establish the good habit of saving and investing … It's no different than deciding you're going to start an exercise program. You have to say, 'I am going to do this.'"

The second habit, and it is very much related, is to put retirement saving "in the budget." Make it part of how you think about your monthly income and outgo—a little bit stashed away for the future. Once you establish that habit, it's something that is painless to maintain for the rest of your working life.

Are good financial habits about sacrifice?

There's no question, you have to forgo a little bit of consumption in order to establish the good habit of saving and investing. But you only need to sacrifice once and then you reset your spending habits, your lifestyle habits, and that sacrifice compounds to your advantage for as long as you maintain it.

Is that a way young people can start growing a healthy nest egg?

Absolutely. Young people generally are at a stage where they will see reasonably rapid increases in their compensation well above inflation, and their lifestyle costs shouldn't rise that much. They may have college/university debt, but it should be at a relatively fixed rate so they know what that is in the budget. They may have a car loan and so on. So if your lifestyle costs don't rise, take the raise and put it away.

What if someone who is established in a career isn't saving yet? How do you break bad money habits?

One word, and it's "discipline." It's no different than dieting. It's no different than deciding you're going to start an exercise program. You have to say, "I am going to do this."

"The biggest mistake that I have seen over the years is assuming somebody else will take care of your financial future, or 'I'll get to it down the road.' Both are mistakes of significant proportions."

Let's talk about the sandwich generation. They are raising kids and caring for elderly parents. How can they keep their retirement plans intact?

It's a huge challenge, and I think sometimes people too glibly dismiss the challenge of those pressures of caring for the people who cared for you and those who are dependent on you. I would never diminish how challenging that is for so many families.

All that said, if it's important to you not to be a burden to your own children, you come back to the discipline of fighting the temptation to be dragged into the consumer society. You do come back to the idea that a little bit of sacrifice today can be beneficial to everyone tomorrow. And, again, it sounds easy to say and it is hard to execute, but our privilege here is serving millions of families. I meet people in the sandwich generation who tell me they can afford to help their parents because they followed their parents' example in being disciplined and sacrificing a little bit. Again, with a long-term outlook, discipline pays off in spades.

What are some of the key mistakes people make when it comes to saving for the future?

The biggest mistake that I have seen over the years is assuming somebody else will take care of your financial future, or "I'll get to it down the road." Both are mistakes of significant proportions. Maybe someday you will inherit some money. Maybe some rich guy will adopt you. Don't plan on it. Deferring participation in a plan, deferring sacrificing a little, is more expensive than you can believe.

New domain/site name

Great news - I got my own domain/site name - www.financeviewpoint.com. As I am getting more serious with this blog, I thought my own domain is prudent. My readers/subscribers should not notice any difference, but if you do let me know. The ozfinance.blogspot.com site will be redirected to the new domain!

I will continue to use the Google Blog engine so you should not notice any difference in the layout either. I hope there are no other complications.

For folks that link to this site, can you update the name of the link to "Finance Viewpoint"

Cheers,
Andy

What Australian Shares Americans buy

For regular American investors, a simple way to get exposure to the Australian market is via the iShares MSCI Australia Index Exchange Traded Fund (ETF). The code for this in this ETF is EWA, and trades on the New York Stock Exchange (Dow Jones Index). What I want to share in this article is how Australian investors can use this ETF's information to help with portfolio selection/diversification and as a guide of the day to come on the ASX.

An ETF is a fund which tracks a particular stock market index (Australia's ASX in this case) and which can be traded on an exchange like a share. This is a very popular vehicle in the US and allows investors to get exposure to specific sectors (link financials, defense) or country indexes (like China and Inida). For a full list of country ETF's click here.

For investors looking to see if they have a balanced portfolio or for new investors trying to decide what quality shares to buy, it is worth looking at the holdings of this index fund. This should indicate what the top Australian stocks (by market capitalization) are and I think a good way to build a diversified portfolio. It is not practical for most Australians to buy the EWA ETF due to taxes, transactions costs etc or unless you live in the states. However you can buy similar funds in Australia or even the top stocks in the ETF. Here are the EWA ETF top holdings - how many of these do you have?

Source : Yahoo Finance

The EWA ETF as expected is made up of mining and banking stocks which dominate the ASX. Most of the names should be familiar to you and I would say you should have at least half these stocks in your portfolio if you want diversification.

I have also found that the EWA share price is a better guide of what the market expects the ASX to do the following day (since the US trading day is 15hrs behind Australia's) rather than look at the Dow Jones or Nasdaq index numbers. As there seems to a much better correlation in the EWA share price trend and ASX trend, you could use this as an indicator.

Money, Appearances and Happiness

At times when the market takes big downturns and we all feel poorer - based on paper losses at least, it is a good time to reinforce that money and wealth are nice, but not everything. I came across a nice article in the Wall Street Journal - You're Not Super Rich? You Lucked Out, by Jonathan Clements which got me thinking about this concept. Here are some excerpts from it with my view points, that ring especially true.

On the face of it....

We all swoon over nice and expensive things - a big house, flashy car dinner or private jets. We see others with these things and wish we could have them - a completely natural instinct But the fact is, while it is comforting to be financially secure, money is no measure of self-worth, no guarantee of happiness -- and no reason to be impressed.

We all tend to sit up and take notice when we come across people with fancy titles, hefty incomes and immense riches. Yet these aren't signs of genius or virtue. Want proof? All it takes is two words: Paris Hilton. Wealth may be inherited, which means the beneficiaries' struggle for riches didn't extend beyond the delivery room. Legendary investor Warren Buffett, the billionaire chairman of Berkshire Hathaway, has described "the idea that you win the lottery the moment you're born" as "outrageous."

Displays of wealth can also be misleading. Folks can appear wealthy -- but the mansion may be fully mortgaged, the cars might be leased and the landscaper may still be awaiting payment. Even if you come across somebody who can easily afford the trappings of wealth, the trappings themselves are not a sign of wealth, but of wealth that has been spent. The money lavished on the cars, homes and jewelry is now gone. True, these purchases could always be sold. But there's no guarantee they will fetch the price that was paid -- and, in the meantime, they may require hefty maintenance costs.

Don't get me wrong: There is nothing wrong with spending. The whole reason for saving and investing now is so we can have money to spend later. That said, I can't imagine why I should find this spending impressive -- and I am not sure it is making the spenders happy.

As the old adage goes, money doesn't buy happiness. Yes, those with high incomes and more wealth often say they are happier. This may, however, be a so-called focusing illusion. When the well-heeled are asked how satisfied they are with their lives, they contemplate their position in society -- and they realize they're pretty fortunate. But research has found that, when high-income earners are asked about their emotions on a periodic basis throughout the workday, they don't report being any happier -- but they are more likely to say they are anxious or angry.

No Satisfaction....

All this might have you scratching your head. It seems obvious that your life would be better if you had a gardener to maintain the yard, a chef to prepare your meals and a private jet to whisk you off to exotic locations. And if you were suddenly handed all these things, life would indeed be grand -- until you got used to them. Unfortunately, after a while, you would become accustomed to the great food and the no-hassle travel, and you would be hankering for something even better. This is the old adage of is enough ever enough?

Finding Purpose....

Having enough money is important, but having heaps of it doesn't guarantee happiness. Instead, what matters is doing something that you enjoy and that gives you a sense of purpose -- Most times if you find something you believe in and are passionate about, the financial rewards will follow. It is the journey, who you share it with and how you get to that goal will bring real happiness.

Tough week ahead - what to do and what to buy

With the sharp fall in the US markets over the weekend, I expect that the ASX will also suffer heavily on Monday. My prediction is that the local Australian market will fall by 250 to 300 points this week – starting with 120+ points tomorrow. So what I am going to do?

Well, per one my previous posts, the first thing is not to panic. Apart from issues in the US financial and housing markets, nothing else has changed fundamentally. Oil is high, but this is more due to speculation and fear of the geo-political issues in Northern Iraq. Oil inventories are high and I think the oil price shouldn’t spike too much higher.

However, I would not rush in to buy stocks on Monday morning. In fact I think you should do nothing for the first few days next week – just wait and watch. However, use the opportunity later in the week to buy some top quality stocks that have good long term growth. Unless you are a day trader and like speculative stocks avoid trading on the volatility.

So which stocks should you buy? Well, you can’t ignore the issues in the US – it is still the biggest and most influential market in the world. Also it looks like the US dollar will continue depreciating as interest rates there are going to be cut by a further ¼ % point. As mentioned before, I currently live in the states and the drop in interest rates is almost 100% factored in for either this month or next month. So with all this information, you should invest in stocks that primarily generate most of their revenue outside the US and are not directly exposed to the financial sector (i.e. sub-prime or other risky financial assets). Given the Chindia (China and India) economies continue to boom, look for companies that have exposure to these 2 economies as well.

So here are the 5 stocks I would recommend. I am only sticking to the ASX 100 stocks as I believe in times like this, size and quality are important to whether the market fluctuations. Short term these stocks may go down, but longer them they should do well.

1. BHP – The biggest and best run mining company in the world. With its size it has some exposure to the US market, but still generates 70% of its revenue outside the US and has good upside from the Chindia economies. Look to buy if it drops below $44. See my article on BHP by clicking here.
2. WOW – Great domestic defensive stock. No exposure to the US and should benefit as the $A continues to appreciate. It has very strong presence in the Australian grocery market given the woes of Coles. I think it will run to $35 by year end and everyone still needs basic groceries no matter what.
3. WOR – Solid global mining services company. I wished I had got on this earlier, but will look to buy on dips. It has a solid non-US client bases with a strong order book. Continues to grow via acquisitions.
4. MAP – Macquarie Airports generates most, if not all, it’s earnings outside of the USA. It’s portfolio of airports continues to do well. It is at risk from interest rates rises (unlikely in the near term), but is positioned to continue growing and possibly acquire some US airports on the cheap, which should provide for good long term growth.
5. BNB – Babcock and Brown is probably going to take a big hit this week as is a direct player in the financial markets. While it has some exposure to the US market through its holding and subsidiaries, it makes most of its money outside the US. Also has solid upside potential through being able to take some opportunities which may arise from market weakness. See my article on it here.

I would not sell into the market drop we are going to see as I think the downturn is a minor correction and as we have seen previously, the uptrend will resume. The above stocks should follow the market down next week, which should provide good entry points into the stocks for your long term portfolio.

Disclosure : The author has direct holdings in WOW, MAP and BNB.

Black Monday - The '87 Crash and lessons for today

October 19th 1987, 20 years ago from today is known as black Monday because worldwide stock markets dropped more than 20% in one day. Many professional and regular investors who sold out after that day took heavy losses. However, those who rode the fall out or invested just after the crash came out looking rosy. Below is a short video from a US business website marketwatch.com, in which the '87 crash is discussed and the opportunities/lessons following the market fall. The lessons are still relevant for today's investors who should not panic when the markets get volatile. Look at the market dips as opportunities to buy good value stocks, and sell when the markets are getting too exuberant.

What Analysts think BHP and RIO are worth due to booming iron-ore prices

Iron-ore prices have been booming and are up more than 100% in some spot markets over the last year. Prices are forecast to keep increasing over the next few years as supply tries to catch up with demand and delivery infrastructure limitations. All of this strengthens the hand of the big iron-ore producers, especially mining giants Rio Tinto and BHP Billiton Together, with CVRD (the South American "BHP"), these companies control about 75% of the world's iron-ore trade. The outlook may be particularly good for Rio and BHP, whose mines are closer to China and can deliver ore to Chinese steelmakers at a discount. That may give the two companies leverage to demand higher prices from buyers in 2008 compared to competitors in other parts of the world.

Analysts estimate that iron ore accounts for about 41% of Rio Tinto's earnings (EBIT) and 22% for BHP. HSBC recently increased its 12-month target price for Rio Tinto shares to $A110 from A$94, and for BHP Billiton to A$44 from A$39, though it maintained a "neutral" rating on the stocks and noted long-term potential risks including higher operating costs. Some analysts have suggested that investment banks may have to revise their target prices even higher given the continuing rising iron-ore price expectations. Citigroup rates both stocks a "buy" with twelve-month target prices of A$106 for Rio Tinto and A$42 for BHP Billiton. Merrill Lynch has a "buy" rating on Rio Tinto with a 12-month price target of A$120 and a "neutral" rating on BHP Billiton with no price target.

From my perspective, I have invested in BHP and RIO through mutual funds, but for now I will wait for a pull-back before buying individual stocks. Of the two, I prefer BHP due to its petroleum division which provides additional exposure to increasing oil prices. See my detailed review on this stock at www.ozfinance.blogspot.com

This blog was referenced in the Wall Street Journal!

My blog was referenced in arguably the worlds premeir newspaper - the wall street journal. The post referenced was about china and the implications of its booming sharemarket. This is a nice little accomplishment that validates the work I have been putting into this blog.

On another note, I was talking to a colleague of mine who was buying a house. It is interesting here in the USA how much the finacial freedom in terms of borrowing or getting a mortgage of an indivivual is tied to their credit score and not what job they have, how much they make or have saved etc - as is done in Australia. A bad credit report/history is very damaging and affected the interest rate he was getting (higher than the standard rate he should have qualified for). He had to hire a credit report repair company to help him repair his credit so he would qualify for the better rate. Ovation Law (www.ovationlaw.com) was the company he hired. Their site has a various stories like this and some the process to sort out credit problems – worth a read. His credit was damaged a few years ago due to a car loan that he had trouble paying off and then got into some legal issues with the Car Company and subsequent debt collection agency. This resulted in a permanent record in this credit. So fast-forward 5 years, and to avoid being classified as having a bad credit history (and hence adversely affect the interest rate he gets on his loan) he worked with ovation to get through the legal and finanical hurdles. They have helped him repair credit so he should quailify for the better rate now. The morale of the story is to avoid getting into bad credit problems or else hire a good credit report repair company.

A 2,000%+ share price jump in one day!

I recently bought a speculative stock - DIO - based on a tip from a family member, who heard it from someone else, etc. Normally I wouldn't buy a stock like this, but I had a quick look at the company's prospects and it had some potential. The reason it went up 2,000%+ in one day is that it did a reverse 14:1 split. So what was a .17c stock when I bought the day before, was 2.40 at the end of the day - hence the large price jump when I logged on and saw my stock list. As it was a speculative play I only put $2000 in the stock, but still for a second I thought I had made $20,000 in one day! I should have read the fine print....

So after taking a few deep breaths, I went back to my stock research and saw the details relating to a capital reorganisation they were undertaking and found mention of a 14:1 split - so there goes my dreams of a nice windfall! The actual stock - DIO, which showed the phenomenal gain was actually not trading and a proxy DIODA was the one that reflected the split adjusted price. The DIODA stock ended down 1/2c, so I actually lost money and the cruel reality of trading hit me. No such thing as free money!

China's Stock Market Boom - The implications and the profits

Chinese stocks have nearly tripled  in value in the past year and set yet another record yesterday, when the benchmark Shanghai Composite Index catapulted above 6000 for the first time. As a result, China suddenly has a stock market that is as powerful as its economy, now the world's third-largest. Though, some of the underlying companies stretched valuations makes the entire boom looks increasingly unsustainable.

There is an increasing sense that the stock market is heading for trouble. The Shanghai Composite Index closed up 2.2% Monday at 6030.09. A year ago, it was below 2000 and has more than doubled this year. Yet, like the dot-com boom, investors don't want to miss out and keep pushing the market up. With the growing discretionary income of the ever expanding middle class, there is plenty of liquidity being pumped into the market. Not too mention the foreign investors who are chasing higher returns which cannot be found in the "developed" world for now.

Some interesting personal anecdotes from the news media reports out there :

"It's like a bubble, but no one knows when it will pop," says Stephen Guo, a 27-year-old Shanghai computer programmer who last year started making more money trading stocks than in his day job. Now, just two years after he entered the market, Mr. Guo is also managing the investments of his friends, a risky strategy that promises to spread the pain if the market tanks.Trading on the Internet nearly every day before work, Mr. Guo studies corporate reports and watches technical trends before buying. His main plays have been blue-chip stocks. When the Shanghai Composite Index dropped 8.8% in February, Mr. Guo pumped $4,000 into the market -- only to see the index double since then. The more Mr. Guo has profited, he admits, the more comfortable he has become with taking bigger risks. His decision this year to take on co-investors could get him into trouble if share prices reverse. Some of them used money borrowed from their credit cards to purchase stocks. "The friends trust me," he says. Mr. Guo, says his buy-on-dips strategy should continue to pay dividends at least into next year's Olympic Games. Although he thinks prices are already high, he says millions more investors will discover the market before the rally winds down.  If the market reverses, he will share the pain with his friends, he says. "According to our agreement, I have to bear some of the losses," he says. "But so far, I haven't lost."

Should you buy? No - stocks are way overvalued

Chinese shares are expensive by almost any measure, including a price-to-earnings ratio of 69 times last year's earnings on the Shanghai market, compared with 18 for the Standard & Poor's 500-stock benchmark index today. The comparable ratio on the S&P was 28 when U.S. markets crashed in 1929 and just 18 at the time of the 1987 plunge, according to Ativo Research LLC. Still, the Chicago-based advisory firm says price-to-earnings ratios peaked at 71 in Japan, 100 in Taiwan and 123 on the Nasdaq before those markets crashed, suggesting China is getting closer to the precrash peaks seen elsewhere.

The rush of investors into stocks is sowing fears about the kind of epic crash that followed historic bubbles in places such as the U.S., Japan and Taiwan. A big question is whether a steep drop in stocks would wipe out the burgeoning investor class and what impact that would have on China's economic transformation. Stock markets in China are dominated by as many as 50 million individual investors, who are responsible for about 70% of the trading. That is the reverse of Western nations, where big firms set the tone. In the 1980s, Japan and Taiwan had two of the hottest economies and markets anywhere. In 1986, Japan's market even overtook America's for a time to become the world's biggest, according to Thomson Financial. A potent brew of conditions combined to supercharge the stock market in Japan and Taiwan: rising land values, strong corporate profits and currencies, low interest rates, high savings rates and limited investment alternatives -- factors all seen in China today. However both dropped over 60% in one year and are still recovering.

Content was sources from the WSJ.com, forbes.com and cnn.com

Top Australian stocks by PEG ratio - Which ones to buy.

One of the criteria I use to select stocks is the PEG ratio. Once I have looked at the stocks related macro and economic factors, I like to look at some the fundamentals of the the stock and the PEG ratio is one of the best fundamental valuation indicators. While the PEG is an important ratio, it is only as good as the underlying forecasts for earnings growth so do not use it in isolation, but more as a tool to help your overall analysis.

So what is a PEG ratio? Simply put, the PEG ratio compares a stock's price/earnings ("P/E") ratio to its expected EPS growth rate. That is, are the company's earnings growing faster or slower than the markets perception (consensus analyst forecasts).

- If the PEG ratio is equal to one, it means that the market is pricing the stock to fully reflect the stock's EPS growth.
- If the PEG ratio is greater than one, it indicates that the stock is possibly overvalued or that the market expects future EPS growth to be greater than what is currently in the analysts consensus number. Growth stocks typically have a PEG ratio greater than one because investors are willing to pay more for a stock that is expected to grow rapidly (otherwise known as "growth at any price"). It could also be that the earnings forecasts have been lowered while the stock price remains relatively stable for other reasons.
- If the PEG ratio is less than one, it is a sign of a possibly undervalued stock or that the market does not expect the company to achieve the earnings growth that is reflected in the analyst estimates. Value stocks usually have a PEG ratio less than one because the stock's earnings expectations have risen and the market has not yet recognized the growth potential.

So, all else being equal, to find good value stocks (i.e.better return/lower risk over the long term), look at the PEG ratio which has a value of LESS THAN ONE. As of September 30 2007, here are the Australian stocks with the lowest PEG ratios. Some of these have been star performers already, but look like they could run further. This list should provide a good starting point to further investigate these stocks.

Using other factors and the above list, these are the stocks I would recommend buying. Please do your own research first.

AWE - It is a growing (undervalued) oil exploration and production company. Is also a good takeover target

BBW - See my post on this here.

UGL - Good pipeline of projects. I will be reviewing this company shortly in an upcoming post.

JBH - Exposure to the electronic retail market, which should benefit from consumer spending in a buoyant economy.

SEK - Seek Ltd. All those jobs to fill.


Disclosure - The author does not own any of the above stocks when this post was published. Though this is most likely to change soon.

Lifestyles of the Rich and Famous

Check out the richest americans and how they live at billionaire homes

Hard to imagine some people are so rich and also why the American (materialistic) dream is such a big carrot for those who live in the U.S.A.

Some new links added

I have added some new RSS feeds and links to my site recently and hopefully you will find them interesting and useful.

RSS Feeds - Added 3 feeds from some decent financial news sources (AIR, ABC news and Share Cafe). You can find these on the right pane if you scroll to the bottom. They display the latest 5 articles from these sources in one place

Personal Finance - Found 2 new sites which have some good information on Australian personal finance products : Money Manager and ASIC financial tips

Superannuation information : Some links to good Superannuation reference sites. There are many people better qualified than me to talk about super, so I am just pointing you in the direction of the sites that I think have the most relevant information.

You can subscribe to this blog by clicking the links on top of the right hand pane or here.

Video News Links

Sometimes it is nice to actually see a video, rather than read an article. When it comes to daily market updates, it can feel you are reading share symbols and long numbers with decimal points - becomes very dry reading very fast. One way to still get your daily update, and a growing trend with the increase in broadband usage, is via Video streaming.

For the Aussie market, there are not too many good video feeds available. However I found a couple of decent ones. Here they are:

ABC Business News Videos

ABN Newswires Business News Videos

I am creating a Video news link list on the right pane and will add to the list as I find other sites. If you find any others let me know...

Common sense investing - An investor reminder

A timely smart money article covering common sense investing principles as observed from the market action over the last 3 months. Remember it the next time the markets get volatile.

NOW IT CAN BE said with certainty: With stocks above their July 19 peaks last week, the August market correction was indeed a buying opportunity. Too often investors are so preoccupied with the future — what's going to happen next — that they miss some obvious lessons from the recent past. To quote philosopher George Santayana, "those who cannot remember the past are condemned to repeat it." Here are some of conclusions and points to consider:

There's something to be said for the old-fashioned buy and hold approach. While adroit traders had plenty of profit opportunities amidst the wrenching volatility, there were plenty of pitfalls, too — witness the closing of several prominent hedge funds amidst massive losses. You could have slept through the entire credit crisis, done nothing, and still come out ahead, without paying any trading commissions.

Never sell into panic. I find you can't repeat this too often. On Aug. 16, when markets hit their low for this period, trading volume was massive, and the panic selling was palpable. For every buyer there was a seller. No one has stepped forward to admit selling at the bottom, but there must have been millions of people doing it. Some may have been forced to do so by margin calls. But everyone else should look at themselves in the mirror and vow never to do it again. Panic selling should only be assessed as an opportunity to buy — never to sell.

Leverage is dangerous. Many readers have asked me why, if stocks have always risen over the long term, I don't use leverage to boost returns. The answer is the short term, as we saw this summer. Another group of geniuses got wiped out. I don't pretend to be a genius, and I want to sleep peacefully at night. I never want to be forced to sell by margin calls. The higher returns just aren't worth the higher risk. The ASX 200 index is up over 20% this year. Even if your results are only average, what's so bad about that?

There will always be volatility in markets, and accompanying buying and selling opportunities. If you missed this short-lived correction, and are chastising yourself for failing to take advantage of it, rest assured: You will get another chance eventually. There will be another correction, with accompanying panic and dire forecasts. Earlier this summer, volatility was so low that people were wondering if global liquidity really had smoothed out the usual bumps of investing. Now we know: It hasn't. Risk remains a fact of life. Embrace it and be prepared next time.

The full article can be found at smartmoney.com

An interview with outgoing ANZ chief - John McFarlane

Saw an interesting article in the Wall Street journal over the weekend on retiring ANZ Chief John McFarlane. He will go down as one of Australia's leading CEO's and provides a glimpse into his management views and practices. He helped transform ANZ from a predominantly institutional bank with thin margins and high risks into one of the most successful retail banks in Australia and New Zealand. ANZ's share price almost tripled under Mr. McFarlane's tenure. I have included some excerpts from the article below.

WSJ: What was your first job and what did you learn from it?
Mr. McFarlane: My first job was in the production area of Ford Motor Co. in England where I was a graduate trainee in 1969. I don't think you'll find tougher circumstances, so everything after that was much easier. But I learned about manufacturing, operation, cost control, and purchasing. I learned that I didn't want to be in manufacturing, and I went and did my M.B.A.

WSJ: Do you think people should go to business school or skip the M.B.A.?
Mr. McFarlane: Going to a quality business school does matter. It teaches you the language of business and gives you an insight into all aspects of business, so that you aren't likely to come across any problem of which you don't have at least a basic awareness.

WSJ: Who gave you the best business advice?
Mr. McFarlane: I think it was me. I said to myself when I took this job: "Whatever you do, do it your way. Don't try and do it somebody else's way."

WSJ: How would you describe your management style?
Mr. McFarlane: Goals are the secret to superior performance. I have always believed in setting direction and creating an exciting adventure for people, and getting them committed to that.

WSJ: What principle of management do you wish you knew when you were starting out?
Mr. McFarlane: If you feel strongly about something, then do it, and don't wait.

WSJ: What would you tell someone starting out in your field?
Mr. McFarlane: In my conversations with graduates, one thing that often comes up is how to find a good balance between work and life. I simply say get a life. Work is important, but there are other things that are more important. The other question is how to succeed. Essentially this is ensuring you are passionate about what you are doing and that you are good at it.

WSJ: Do you have a favorite business book?
Mr. McFarlane: One I would recommend is "The 7 Habits of Highly Effective People" by Stephen R. Covey. You can be technically brilliant but unsuccessful, simply because you can't apply it and get others to apply it.

WSJ: How do you balance life and work?
Mr. McFarlane: I have a personal mission that describes what activities and roles I will undertake in my life at any point in time. I then make sure that I only spend time on that and nothing whatsoever on anything else. People find that quite unnerving. For example, I won't watch sport and that just saves hours and hours at a time.

WSJ: How do you organize your work diary?
Mr. McFarlane: A third of my agenda is prescribed, like board and management meetings, and a third is spent running the place. Generally I'll have the other third of the day free to deal with urgent matters that come up and working on the things that are important for me.

WSJ: Have you ever had a bad boss?
Mr. McFarlane: Yes. They gave you no freedom, were unsympathetic, uncaring. Let me tell you, it is the worst thing on earth having a bad boss. One way you get over it is to leave that boss and go find a nice one, which is what I tell the graduates. The second is to completely ignore them and pretend you are the boss.

WSJ: What do you plan to do after ANZ?
Mr. McFarlane: I have decided to take a break and work that out over time.

The full article can be found here

2007/08 Australian Tax Brackets and Capital Gains Tax

The 2007/8 Australian tax brackets are as follows:

The tax brackets do not include the 1.5% Medicare tax levy

Even though taxes have dropped in Australia, they are still relatively high from a worldwide basis. Therefore when investing it is particularly important to consider tax factors. The main one you will be impacted from while investing is Capital Gains Tax.

Capital gains tax (CGT) is the tax you pay on any capital gain you make and include on your