The U.S. currency now classified as a "low-yielding asset"

It pains me to write about the continuing fall in the US dollar as I am working here in the states and with the continuing decline in the US dollar my effective savings in Australian dollars is rapidly declining - make it even more expensive to move back home. Also it doesn't look like the US dollar is going to reverse the current trend anytime soon - so more gloom ahead.

I have written a number of times on the Australian/US dollar relationship, and this topic seems to be one of the most popular links into my site, so I guess I need to keep writing about it as that's what my audience likes. A recent reader poll I conducted resulted in an estimated range of $0.80c to $0.90c for the Aussie/US dollar exchange rate by mid year. However with recent moves and news, it looks like Aussie and US dollar parity is inevitable by mid-year. "Global investors are looking at the strong Australian economy, looking at that wonderfully high interest rate that they're picking up relative to the US and they're buying Aussie dollars - Parity's not out of the question", TD Securities global strategist Stephen Koukoulas said.

The US dollar was battered across the board, falling to a new record low of $1.51 against the euro after downbeat durable-goods data and hints from U.S. Federal Reserve Chairman Ben Bernanke that more interest rate cuts are on the way. Lower interest rates weigh on the dollar because they erode the return on dollar-denominated assets. "Today's record lows in the U.S. dollar, record highs in gold and record highs on oil mark a key tipping point in currency markets, as traders further downgrade the U.S. currency to a low-yielding asset," said Ashraf Laidi, chief foreign-exchange strategist at CMC Markets US, in a note.

The other big move is in gold prices, which are quoted in US dollars and provide a hedge against the US dollar decline. Gold futures rose sharply Wednesday, touching a record $970 an ounce.

"It seems investors are more concerned with the threat that inflation/recession poses, and with two of gold's key driving forces -- euro/dollar and oil -- now in uncharted territory themselves, it seems inevitable that gold will challenge new highs closer to $1,000 an ounce," said James Moore, an analyst at TheBullionDesk.com, in a research note.

So we are going to have the following very soon. $1:$1 Aussie/US dollar, $100+ oil & $1000 gold p/ounce. An unfortunate (for me anyway) symmetry in numbers!

A Great way to Teach your Kids about Shares and Investing

One of the things that confront many adults today is a lack of experience with how stock markets work or which stocks to invest in. In a number of cases this can be attributed to not being exposed to the stock market and investing at an early age. Think about computers and our senior citizens. Those under 30 feel at ease using a PC, browsing sites, social networking and using the web as a daily part of their life. A lot people over the age of 60 are terrified of using a computer and wouldn't know where to start. It's all about exposure. Those under 30 have grown up with computers through most of their life, whereas the 60+ yr probably didn't have exposure to personal computers until their late 40's to 50's, and the older you get the harder it is to learn new things.

The same lesson can be applied to ones comfort in investing in the stock market. I look at it as an opportunity, others look at it as a mass of numbers that are in the "too difficult to understand basket". I was always interested in stocks from an early age and felt comfortable investing in the stocks. One of the main reasons for this is that I started at a relatively early age. When I was in high school, I used to have an "imaginary cash" portfolio which was worth about $20,000 (a lot of money in those days) - I would then make trades, which were carefully documented, and every day eagerly check the newspaper (no internet then) my father bought home to see if the stocks I had went up or down. I was allowed to change/re-balance my portfolio once a week where I could buy or sell shares in line with my portfolio value. Through this process I learnt a lot about investing and as importantly the emotions around investing - the joys when the portfolio went up and the despair when I was loosing money (it hurt even though it was not real money). Having weekly rebalancing meant that I took measured rather than reactive decisions. My parents encouraged this "share game" through my teenage years and even thought I stopped doing it for a few years when I was in high school and university, it provided my with an excellent foundation, understanding and comfort around investing when I started to use real money.

Parents should always encourage their kids to learn, and when it comes to the stock market and investing the earlier the better. Here's a three point plan to play this stock market game with your kids.

1. Start slowly and see if your kids are interested in money, shares and investing. If you show interest they will too. Make sure you play this imaginary stock market game with them - not only can you learn new things, but having some competition is a great motivator for kids. Start with an imaginary portfolio of about $50,000 - allow them to change (re-balance) their portfolio every week. Make sure you keep a record of your portfolio and how it changes weekly. Microsoft Excel or Google Spreadsheets are the best tool to use for this. If you are new to investing, I suggest you go to your local Stock Exchange (eg asx.com) website to learn about the basics of investing.

2. Stay consistent. Make sure you make a point of sitting down with your kids every other day and talk about how the market went up and how your portfolios are doing. See where they think the market is headed and why. Ask them what they have learnt? By engaging them, showing them the possibilities, their interest will grow. You will be surprised at how soon they start giving you advice! The internet also provides a endless source of information on stocks and the like - I have a few links on this site (right hand pane) for good investing/news sites you can start with.

3. Reward them. Nothing like greed for a motivator. Tell them that for ever $100 of imaginary money they make you will give them $1 of real money (up to $100 of real money). Don't penalize them for losses - its part of the learning experience.

The stock market is dynamic and always changing - so it shouldn't be boring once their interest is piqued. Who knows one day your kid could grow up to be a hedge fund manager worth billions!

Bluescope Steel (BSL) - one to watch

I wrote a while back about Bluescope Steel (BSL), Australia's largest steel producer, and why I thought it was posed to rise further amid a strong export environment and rising domestic prices. It was trading around $9.80 at that time and despite recent turmoil in the share markets it is trading at $11.40. One of the few stocks to actually go up. I still think that steel prices will continue to rise, driven by demand from China/India and from the run up in coal prices (the key ingredient for making steel) which are being passed on to end consumers.

Bluescope (BSL) is expected to deliver an interim profit of up to $328 million on Monday. The consensus among analysts is that Bluescope will deliver a first half profit of about $300 million. "Bluescope should benefit from its exposure to sharply rising export prices, while domestic sheet prices have also gained," UBS analyst Chris Drew said in a February 15 client note.

While there are some adverse factors affecting profits (higher currency costs, Asian operation write-offs), overall the year ahead should be good for BSL. US and European steel companies have been reporting strong profits and seen significant share price appreciation. This also puts BSL, a relatively small global steel producer, in play as a takeover target.

If you are willing to take some risk, believe in the ongoing commodities/steel growth trends then BSL is a good buy. A strong result is priced into the share price so any unexpected surprises could cause a big drop in the share price - which could potentially present a good buying opportunity. If the company significantly beats expectations it price will get close to $12.

Either way I am holding on to this stock as it is one of the few growth stories out there.

Photo courtesy robotbrainz

World's Largest Stock Markets

I received an interesting reader question asking what were the world's biggest stock markets and where does Australia rank. So I did some research and based on the latest data I could find (as of Mar 2007), the Australian stock market has a total market capitalization of A$1.39 trillion (US$1.098 trillion). This puts it at around No 15 on the list of largest stock exchanges....not bad for a country of 20 million people.

Here is the list of the Top 10 Stock Exchanges by market capitalization:
(figures in trillions of U.S. dollars)

1. NYSE - $21.79
2. Nasdaq Stock Market - $11.81
3. London Stock Exchange - $7.57
4. Tokyo Stock Exchange - $5.82
5. Euronext - $3.85
6. Deutsche Boerse (Germany) - $2.74
7. BME Spanish Exchanges - $1.93
8. Borsa Italiana - $1.59
9. Swiss Exchange - $1.40
10. Korea Stock Exchange $1.34

Source: Reuters and World Federation of Exchanges Web site

Interestingly India and China are not on the Top 10. However, recent stock exchange mergers and the growth of the Indian and Chinese stock markets will mean that the Top 10 will be very different in a few years. Australia's relative position will probably remain the same though.

IPL Frenzy - Money and Celebrity

The Indian Premier League (IPL), a 20/20 local-global cricket competition, is real and rich. The recent bidding wars for various international cricket players has produced a frenzy of bidding. It has shown just how much money there is in Indian cricket with about $A44 million spent buying up the rights to 77 players from around the world. What has made this more interesting and glamorous to the public has been the direct involvement of India's richest businessmen and big-name Bollywood stars like Shah Rukh Khan and Preity Zinta (pictured)

The top prices were cornered by Indian and Australian players - ranging from Indian skipper MS Dhoni's $A1.63 million, $A1.47 million to Australian all rounder Andrew Symonds and $A1.03 million to Indian bowler Ishant Sharma and $A979,500 to Australia's Brett Lee. Yet top players like Ricky Pointing could only fetch $A435,350 - reflecting how important media perception is. Mind you all these figures are for about 18 weeks of cricket (6 weeks per year for 3 years) - not a bad payout and hence the strong participation of players from all over the world.

The figures took some administrators by surprise. "The market is determining the players' prices - it's nothing else but that. That's how a free market economy flows," said IS Bindra, IPL governing member and a former president of the Board of Control for Cricket in India.

For more information on the IPL Schedule check out the Road Less Travelling blog which has a good post on this topic. CricInfo also has detailed coverage on the IPL and related topics.

Photos courtesy of ibnlive

Video killed the radio-star....

Remember that song? Well Toshiba's HD-DVD format player was officially killed today by the Sony-Blu ray format. For me this is personal as I had bought a Toshiba A3 HD-DVD last year around Christmas, now an obsolete piece of technology. I got a good deal for it at the time - $169, but it is now selling for close to $120 as stores try to get rid of stock. It'll get cheaper over the weeks until it becomes a collectable.

The DVD format battle had been fought during the past several years. Sony has led a group backing its Blu-ray technology. Toshiba has promoted its HD DVD format, which it touted as the affordable choice for consumers. Persuading major film studios and US retailers (like Walmart and Best Buy) to issue movies in the Blu-ray format was crucial in Sony winning the battle. They lost the home video war - Sony Betamax versus VHS, but they won this time around. Toshiba is planning to stop production of all HD-DVD players by March 1st 2008 and to completely phase out the HD-DVD players by mid-year. No refunds or compensation will be provided to consumers who bought HD-DVD players.

There will be no more movies released in the HD-DVD format, so what's out there will be what's left. I can still play regular DVD's on the player so it will still have some use for me. I did buy it for the HD format, so it'll be disappointing not to have movies in that crystal clear format going forward. What's most annoying is that for the price I paid, I could have bought a top of the line regular DVD player instead of a mid-range HD-DVD player. Ah well, that's life in the technology fast lane. Overall for consumers this is a good thing as there is now only one choice for high definition DVD players.

Ouch! - Crude closes above $100 for first time ever

It has finally happened - Crude-oil futures surged nearly 5% Tuesday to close above the $US 100 a barrel mark for the first time ever, as concerns that the Organization of Petroleum Exporting Countries may cut production and a Texan refinery shut down boosted prices. Despite a potential US recession and global slowdown - normally bad for crude oil prices, oil prices keep rising. Economists are struggling to explain this, even after accounting for US dollar weakness (the currency in which crude oil is priced). Most say speculation is one of the big drivers for the $10 rise this week alone.

Most "experts" think that the factors driving up oil prices are temporary and prices should fall back to around the $90 mark by month end. However, you will soon be seeing higher prices the next time you fill up the car. Higher transportation costs will also drive up grocery prices and eventually lead to inflation. Higher inflation will mean higher interest rates. So you see, oil going up has much more impact than just sky-high prices at your local fuel station.

What other factors do you see driving oil prices up or down in the year ahead? Some say China and India are adding so many cars to their roads everyday that fuel demand from these countries will push crude oil prices to $US150 by 2010.

Aussie Banks Taking a Hit

Looks like the Australian banks - normally considered a safe investment in these volatile markets - are taking some major hits to their stock prices. If you are a long term investor the next few months could present a golden opportunity to get into Aussie banks at relatively cheap prices. However, there is no need to rush in. Wait till they have all reported earnings and unexpected surprises before making the buy decision. I still think they could fall another 10-15% as their write-offs increase and earnings/dividends are impacted.

From some of the articles around the web, here are what banking heads and analysts are saying about the outlook for the banking stocks. A relatively pessimistic picture.

- ``People are facing up to the fact that they've got to adjust their figures on the banks,'' said Angus Gluskie, who helps manage the equivalent of $500 million, at White Funds Management in Sydney. ``Bad debts are going to be higher and the banks are going to wear them for the rest of the year.''

- Australian banks have an estimated A$5.5 billion of investments linked to companies troubled by the global debt crisis, the Sydney Morning Herald reported on Feb. 15, citing brokerages including UBS AG.

- What this tells you is, if there are cockroaches in the kitchen, there could be more under the refrigerator," Paul Biddle, a fund manager with Souls Funds Management. "The banks are saying their core underlying business is good. But their earnings are getting bitten up and chewed by the provision increase," Biddle added.

- Analysts' reports have identified ANZ as the major bank with the greatest credit derivative activity (read potential risk) over the past year, ahead of NAB, Westpac and the Commonwealth.

- "While the Australian economy is expected to remain strong, the ongoing instability in global credit markets adds a higher than normal level of uncertainty," ANZ Chief Executive Officer Mike Smith said.``This is a financial services bloodbath,'' Smith said of the subprime fallout in credit markets. He said the Australian banking system was in ``remarkably good shape'' given global conditions. (ANZ had just announced a $200 million dollar write-down and its share price had fallen 6% in a session)

Australian banks have enjoyed strong demand for loans on the back of 16 straight years of economic growth while a jobless rate at three-decade lows has kept a lid on loan losses. It looks like times are a changing as the worldwide debt fallout affects local companies like Centro, RAMS and Allco, which in turn affects Australian banks who have direct lending exposure to these companies. I still think with their solid balance sheets, Australian banks will weather the financial market turmoil better than most, but they will be impacted. As their share prices drop, keep them on your watch list - I like NAB and CBA, due to their size and multiple-business models - and will look to buy them at the opportune time.

Global and Australian economic outlook - What should Investors do?

I recently read a copy of Shane Oliver's Global and Australian economic outlook report. Given he is the head of Investment Strategy & Chief Economist at AMP, he probably knows what he is talking about. Here are some of the more interesting points from his article that I think you should consider before making your next investment:

- A US recession is now a 50/50 call. [The report is about 2 weeks old - From recent media reports, I think it is a 70/30 call now. Ie, 70% chance we will have a US recession]

- There is increasing evidence that the US downturn is spreading from the housing sector.The Institute of Supply Management (ISM) survey of manufacturers has fallen to its lowest level since 2003; The US labour market is starting to slow and durable good order are getting weaker

- How vulnerable is Australia to a US recession? It used to be said that "whenever the US got a cold, Australia got the flu." This is reflected in the close relationship between US and
Australian gross domestic product (GDP) into the 1990s. Of late though, several factors have made the Australian economy less sensitive to the US economic cycle. These include: a reduction in the importance of the US as an export destination in favour of strong growth in Asia; the floating Australian dollar (A$); better economic management; and less reliance on technology. However, Australia is not immune to the US downturn. A recession in the US could push growth in Australia down to around 2% (from the current 4% rate)

- Recessions are normally bad for shares, as profits slump undermining valuations. Every US recession since 1960 has been associated with a sharp fall in US shares. The average decline has been 30%, spread over an average 15 months. Australian shares have had a bad run through past US recessions, with an average decline of 33.8%

- We have not seen the conditions that normally precede share bear markets. Shares have not become overvalued, monetary tightening has not been excessive and share market investors have not become overly exuberant. In terms of valuations, both US and Australian shares offer an earnings yield above the bond yield.

- What should investors do? Given the uncertainty hanging over the US economy, the risk of further sharp declines in shares is high. As such, it's wise for investors to be more cautious than normal over the next six months.

- Investors should try and have a more defensive portfolio – with sectors such as telecommunications and consumer staples worth looking at. Resources and banks should provide good value on dips.

- For long-term investors it's best to just ride it through as we don't see this as the start of a major bear market. Betting against the US consumer continuing to consume for an extended length of time is a dangerous bet.

- For those looking for another reason to be optimistic about 2008 beyond all the short-term uncertainty, the number eight is considered lucky by Chinese. In Australia, years ending in eight have been up 10 times out of 12 since 1880 (excluding 1938 and 1948).

The above information does provide a good macro-economic perspective and highlights various things I like to consider when making investment decisions.

Photo courtesy MotherPie

Is Indian Outsourcing getting too expensive?

A recent business week/yahoo article talked about the rapid rise in Indian salaries due to a labor shortage in many industries.  Indian companies are finding they need to significantly boost salaries in order to attract or retain employees. Could this mean that they are losing their pricing edge, that makes Indian outsourcing for western countries so cost effective?
 
According to a recent report from London human resources firm ECA International, average wages at multinationals in India are likely to jump 14% this year, putting India at the top of a ranking of 47 countries worldwide for the second year in a row. "Salaries in India are catching up to developed nations at a faster rate (than in many other Asian countries)", says Lee Quane, Hong Kong-based Asia general manager for ECA. "Companies have had to provide higher salaries."

The pay hikes are also pronounced in other fast-growing sectors such as retail, infrastructure and engineering, aviation, health care, technology, and real estate, where the demand-supply gap is huge. In the IT services industry -- where companies such as Tata Consultancy Services, Infosys Technology, and Wipro hire thousands of workers every year -- companies have to accommodate growing demands from impatient employees for salary increases and career development.

The paucity of people isn't the only factor affecting salaries. "It's also to do with the expanding ambitions of existing companies, and new entrants to the sectors, says Harminder Sahni, managing director of KSA Technopak, a New Delhi retail and health-care consulting firm.

For instance, there are just four listed health-care companies in India today, but over 50 more are keen to enter the sector. And some of those already in the health-care business have major expansion plans that call for hiring of many more workers. Fortis Healthcare, the operator of a dozen Indian hospitals and a subsidiary of India's leading pharmaceutical company, Ranbaxy Laboratories, began with one hospital three years ago. Now it hopes to operate 100 more in three to five years.

Such ambitions are evident across sectors. Almost every big Indian conglomerate is entering retail, infrastructure, and real estate. At India's leading engineering and construction company Larsen & Toubro, the wage bill is up 50%, from $202 million in 2006 to $304 million in fiscal 2008. With an order book of $12.6 billion, L&T needs engineers and project managers. India needs over 150,000 engineers in infrastructure alone, and L&T hires 2,500 engineers and diploma-holders every year. It wants to double that. Now employing 500 project managers with annual salaries ranging from $64,000 to $177,000, L&T needs over 500 managers in the next two years.

How will the company manage? M.S. Krishnamurthy, senior vice-president for human resources, says the plan is to lure people with employee stock options and pay a 20% salary premium to poach workers from rivals. "With senior management, the volume of value goes up," he says.

The airline industry also has to pay out more to attract workers. India is one of the world's fastest growing aviation markets. The country's airlines have only 400 planes in operation, but they are likely to double that number by the end of the decade. With almost every Indian airline in serious expansion mode, India must increase the number of people employed as cabin-crew members by more than 300% -- from 6,000 to 20,000 -- in the next two years. Even though a lot of cabin-crew training schools are sprouting in India, people still need to be trained, claims Ajay Singh, a director at low-cost airline SpiceJet. With salaries up around 20%, "recruitment is still an area of concern."

There's intense competition for workers—among both graduates right out of college, called "freshers," as well as the more senior managers. Companies pilfer employees, and now U.S. companies such as IBM, EDS, and Accenture have established operations in India so there's a lot of competition to hire experienced workers to manage the freshers.

On top of internal wage pressures, the rupee over 20% in the last 2 years, going from Rs50 to Rs40.

Despite all the above pressures, the cost of educated labor in India is still much cheaper than western countries, where employee overheads can run at 30-40% of the base salary. As the Indian economy grows and wages rise, other developing countries (like Thailand, Malaysia, Brazil) are getting more opportunities to compete for western outsourcing deals. It these rivals that India will need to watch for.

Is your Salary above Average?

I like to keep my eyes on what the average Australian salaries are and how they are trending. Firstly, I use the averages as a comparison to what I am making in the US and secondly to have an idea of what I could earn when I return to Australia. I found a good guide for this at the My Career website.

For people already in a job, I think it is always good to know how you compare to the average and how much upside/downside you have at your next pay review or for future jobs. It is also a good starting point for people looking to work in Australia and to get an idea of what they could earn across the various sector and job roles. I have included a graph form the My Career website which shows the Australian salary trend over the last few years. $77,800 is the current average which is an increase of about 7.5 per cent over last year, according to their figures. The averages across all sectors were much higher than I thought, but I guess this reflects Australia's strong economy and low unemployment position.

The website also has a breakdown of salary ranges and the average by sector - here are some of the more common ones. You can go to the website to see detailed breakdowns by job roles within each sector as well - Mining and IT&T clearly pay well.


The jobs data should not be taken to be 100% accurate as the sample size is relatively small and people tend to exaggerate their salaries/packages when participating in a survey. Still, it is worth using as a guide and it you are 20% less than the average, time to look for a new job or to ask for a big raise at your next review. I like this quote from the career's page at the SMH from a job seeker who recently moved to a new job after seeeing salaries in his industry: "The jobs I was being offered were about 50 per cent more than what I was being paid, so I waited for the right job and added a hundred grand to my salary overnight." Nice.

Discolsure : This post contains affiliate links

BHP-RIO Takeover & Other Metal Plays

The announcement of the formal BHP/RIO takeover yesterday made me consider other metal stocks which could be potential targets for a takeover given that a number of these stocks have taken big hits lately and are trading on very cheap valuations. Here is a list of metal stocks from ABN AMRO that shows their recommendation and potential upside from stocks prices as of February 1st 2008

From the list Zinifex (ZFX), BHP, ERA, Perilya and Kagara Zinc (KZL) are all rated buys. The stock that I do like on this list is KZL. The reasons I like this stock are that it is relatively cheap (fundamentally and from a share price perspective) and that it has a strong development pipeline. Kagara's shares have lost about 48 per cent of their market value since mid-December due to overall market falls and from news that profits were down from the previous corresponding period. I think there has been an over-reaction and that the stock price has gone down too far.

Kagara chief executive Kim Robinson said the company's profitability remained high. The company also said it had refinanced its banking facilities with National Australia Bank - so credit risk to future development/expansion is low. In summary, near-term macro uncertainties are outweighing KZL's strong long-term operating and development upside. This is a stock that should go back up in the longer term and is a potential target for some the larger local and global resource companies.

Per some of my previous posts, I am still not buying stocks in this volatile market, but will be watching KZL closely to see when a good buying opportunity presents itself. I think a number of the metal plays in the above list will bounce back once the cloud of uncertainty that is the US recession (which is real now) passes.

Ten Tips for Using Your Tax Refund

I filed my Australian tax returns in January when I was back home on holidays and will soon be doing my US taxes. I cannot explain to you the sheer joy of doing 2 tax returns (note the sarcastic tone)! Having to collate paperwork, get employer/investment documentation, health expenses across two countries is not something I look forward to. All I can recommend is to get a good accountant like I did. Anyway the good news from doing the tax returns is that I should be getting tax refunds from both my filings. This got me thinking about what I will do with the tax refunds. So based on personal experience and searching the web, here are ten ideas

1. Retire your debts. Put your refund towards the balance on high-interest credit cards or other outstanding loans
2. Start an emergency savings account. Financial experts recommend keeping a savings account with 3 to 6 months pay to cover emergencies
3. Save for a down payment on a home or new vehicle. If home or vehicle ownership is one of your long-term plans, a larger deposit will lower your monthly payments and interest costs
4. Save for education. Take a course that improves your professional career prospects or save the money for your kids future education expenses
5. Make an extra car or house payment. Just be sure there are no prepayment penalties and tell your lender to apply the extra funds to the principal balance, not the interest
6. Put the money in your superannuation (or 401K in the US). Make a post-tax contribution to your retirement account
7. Donate to charity. You'll help someone in need, and the donation can be deducted on your future tax return
8. Consult with a financial planner. Make an appointment with an expert and do some long-range planning
9. Take a mini-break. Be careful not to spend all your refund on the holiday, but it is always nice to reward yourself and get away from your everyday routine
10. Invest the refund. Maybe not such a good idea in the current market, but keep the money in a high interest account for use when good investment opportunities come up

One word of warning. It is good to plan ahead, but wait for your refund to arrive before spending it. Don't spend what you don't have yet.

Do you have any other suggestions? I will soon be publishing a post comparing Australian and US tax rates with some interesting findings.

A Time to Sell

The market finally had a good run last week and was up again today. However there is still a long way to go in recovering December and January's losses. In fact I am still sceptical as to whether the current positive market trend will continue; Is the recent 3-4% market rise the start of an up trend or just a temporary bounce before the market resumes its decline? The big reason that the markets went down over the past few months was the potential impact from a weakening American economy (which some experts say is already in a recession) and tightening of global credit markets resulting from the sub-prime contamination.

So what has changed? Nothing really. In fact it looks like things have gotten worse in the US with job creation numbers falling for the first time in 5 years and there was much more government intervention to keep the economy propped up. Inflation is rising as the US dollar weakens and many housing experts predict that we are just entering the eye of the storm when it comes to the sub-prime housing mess.

If you buy into this pessimistic scenario then the recent market bounce presents a good opportunity to take some profits (or minimize losses) of some of the more risky or volatile stocks in your portfolio. Last month was characterized by a lot of panic selling, so rather than wait for the next 10% downward correction, sell now. You can always buy back the stocks you like later on at cheaper prices. Of course this post represents my views at the time of writing and you should do your own due diligence before any trades.

Do you think I am being overly pessimistic? Click here to comment on this post.

Microsoft + Yahoo > Google ?

Google missed analyst earnings estimates yesterday, but the company still posted a strong increase in earnings and revenue figures. Even though earnings may have missed analyst expectations and the shares getting hit hard (down 7% in Friday pre-market trade), the dominance of Google was demonstrated today by possibly the biggest takeover this year - Microsoft's $US44.6 billion bid for Yahoo. This is a candid admission that the game has changed -- and that neither Microsoft or Yahoo can battle the Google juggernaut alone in the online advertising market. "The online advertising market is growing at a very fast pace," the world's biggest software company [Microsoft] said in its press release. "Today this market is increasingly dominated by one player [Google]."

There is still a way to go before a possible Microsoft and Yahoo tie-up, but should they merge, Goggle may finally have a serious competitor in the search and advertising space. Stay tuned.

See more at the WSJ or view the video clip below. For bloggers out there, do you think this will be a positive or negative in terms of online revenue sources? Google Adsense, the biggest online advertising broker, may find that it will now have a serious competitor.

[Sponsored Link]

It’s always interesting to see the wide variety of novelty gifts that come out in the US every year. Most of the time these are cheap “made in china” knock-offs that last about as long as the time it takes to get the gift to the recipient. However, occasionally you do come across a cool concept and a gift that keeps giving. The company I am talking about is called ShareInAFrame.com and as the name says they provide genuine share certificates in a frame. I think this is a thoughtful and unique gift for a young nephew or niece. Rather than just give them candy or a boring toy, give them a Disney Stock and a related Disney character. If you want to have a more themed kind of gift – especially for boys, you can give them a Harley Davidson stock certificate along with a Harley motorcycle. The parents may not appreciate the noisy bike, but they will like the stock.

The company provides customized frames which contains the (1) stock certificate and you can get the recipient’s name engraved into the frame. So while the Disney toy will go out of fashion or wear out, the Disney share will hold its value and most likely appreciate over time – there’s a gift that keeps on giving. You can check out the range of stocks they sell on the website and the shares that are framed are genuine registered stock.

My Superannuation Fund Managers Outlook - Read between the lines

My superannuation fund in Australia - Colonial First State (CFS) - sent me my annual statement for the year. Suffice to say that with the market drops towards the end of 2007, my returns were not so great. I am sure others were in a similar boat. Here is what CFS said in their statement to assuage investors that things aren't so bad...

" Outlook for the Australian and global sharemarkets in 2008
The Australian economy is well-positioned to grow for the next few years. This economic growth is based on a number of factors, and these same factors should influence the
sharemarket:
• We are in a resources boom, fuelled by China liberalising and urbanising.
• Australia has an independent Reserve Bank that can help manage inflation and interest rates.
• Governments have accepted that their spending and taxing needs to be kept roughly in balance over time.

Market sentiment for the Australian economy is presently bright. On the global front, the International Monetary Fund recently upgraded its forecasts for
global economic growth in 2007, and expects growth to remain firm in 2008. This should influence sharemarkets. There are also a number of factors that may influence growth in
2008:

• The credit problems will be worked through in time with financial markets eventually reverting to normal operating conditions. The US, UK and Canada have cut official interest rates which should help.
• Developing economies such as China and India continue to report strong economic growth, which is supporting global economic growth.
• If global economic growth holds up, this should influence sharemarkets globally.

Putting it in perspective

This recent market volatility must be kept in perspective against the long term returns achieved by shares. Over the past 10 years to November 2007, the Australian sharemarket,
as measured by the S&P/ASX 100 - Accumulation Index returned 14.77% pa*. Shares have generally been regarded as long term investments and consequently have a minimum suggested timeframe of 5-7 years. There will be volatility from time to time, and although this can be upsetting it is a natural part of sharemarket investing. It's understandable that market volatility may cause you concern, but it's important that you keep in mind your long term plan "


I don't know about you, but I get nervous when large fund managers start quoting past returns and use words like "should help" and "presently bright". My views on the market have become more pessimistic in that I am leaning more towards getting out of stocks than looking to expand my holdings (apart from Superannuation). I agree things should be kept in perspective and not to panic. But it is better to be safe than sorry, so if your portfolio exposure keeps you up at night or you are checking stock prices every 5 minutes during the day, then you need to re-evaluate your equities position. A 7% cash return available in high yield saving accounts may be a better way to invest this year.