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Asset Allocation Review

thebigpicture asset allocation model suggests maintaining a relatively modest exposure to domestic equities at the beginning of 2003 with cash levels remaining relatively high.

Executive Rewards: Choosing Peers

Looking for alternatives to executive share schemes is taking some companies further away from an alignment with shareholder interests.

Under Siege: A New World For Directors

Apparently directors of listed companies are no longer enjoying the experience as much as they once did.  They need to alter the way in which they present themselves to shareholders if investors are to make their lives easier.

The Rising Australian Dollar

The Australian dollar has been rising. In the short term, interest rates and a global readjustment by the US dollar are having an influence. But the change is also an evolution of economic events which began 25 years ago.

A Takeover: Then Comes The Real Decision

Investors should have mixed feelings about a takeover bid for any of their shares.  Takeovers might induce higher share prices but, once completed, the investor must choose alternative investments.

Parking Funds: The Risk With Bonds

Investors using the bond market as a safe harbour while awaiting a return to equities might be incurring some additional risks.  Cash might be the place to stay if short-term equity risks are perceived to be too high.

thebigpicture Themes Still Relevant

thebigpicture top ten themes reflect the views of the author about some of the longer-term trends which are affecting investment market outcomes.  The themes, originally published last year, have been reviewed with no changes.

Gold Prices: Irrelevant But Fascinating

There is probably no financial market indicator so widely reported and as irrelevant as the gold price.  Even so, it continues to fascinate.

Why Abandon Employee Options

Decisions by directors to terminate employee share option schemes in favour of other forms of executive rewards do not necessarily represent progress in reforming executive remuneration standards.

Restructuring: Another Company Falters

There was yet another example in the past week of a company unable to cope with the aftermath of its own bold strategy.  This time it was Southcorp.  There is a bigger picture behind the demise of its chief executive.

Have You Heard? No More Rumours

The continuous disclosure regime under which Australian listed companies must operate has been toughened since 1 January.  Now companies must respond, under certain circumstances, to market rumours about their activities.  This helps private shareholders but also opens up new avenues for abuse.

High Growth Stocks: The Risk Revealed

The beginning of the half-year reporting season has immediately highlighted the riskiness attaching to companies whose share prices imply high growth rates.

When Will The Shooting Start?

The sooner shooting starts in the Middle east, the quicker markets will lose their excuse for inaction and governments will be able to avert a looming policy paralysis.

What’s The Point of Analysts?

Is there any point in looking to analysts any longer for earnings forecasts? Recent experience is indicating that, when it counts, they offer little value for investors.

Share Repurchases: The Safest Investments

With lower share prices extending across the market, companies will begin to consider more actively the possibility of buying back their own shares.

Dividends: The New Emphasis on Income

The fall in Australian share prices (and apparent absence of prospective capital gains) has placed more emphasis on dividend yield as a guidepost for stock choice. 

The Cuffe Kerfuffle: Another Lesson

The Cuffe kerfuffle at the Commonwealth Bank contains many examples of how a company should not communicate with its shareholders.

Whither Internet Retailing?

Use of the internet for retail transactions is growing but, having started from nothing, it is still far from making a meaningful contribution to commercial activity.

Accounting: More Changes, Less Clarity

Prospective changes to accounting standards are an upcoming challenge for investors.  Parallel sets of accounts for investment decision-making purposes will likely emerge, defeating some of the reasons for making the changes.

No More Debt?

The debate about the closure of the Australian bond market might have been a flight of fancy after all.

Corporate Reform: Making It Harder To Vote

Moves to reduce the notice period for meetings of shareholders from 28 days to 21 days do little to improve the prospects of shareholder participation.

Housing: The Price Cycle Continues

The Australian housing cycle is an unintended beneficiary of Iraq failing to disarm.

Equities: The Value Gap Closes

Relatively resilient corporate profits and a weaker equity market are achieving the adjustment which was necessary to realign equity values.

At Last, The Shooting Starts

The conventional wisdom is that the attack on Iraq will be swift and, with a clear-cut result, the government can give more attention to economic matters.  But will events be that straightforward?

Corporate Philanthropy: Who Gives A Toss

Buying favours for the benefit of a company or, contrary to shareholder interests, fulfilling personal whims with company funds: these are two extreme views of corporate philanthropy. 

The Iraqi War: When Too Much Information Is Not Enough

It is probably still too early for investors to come out of their economic bomb shelters.  The implicit assumption in many financial markets that the Iraqi war would be a straightforward use of technology and military power created a danger for investors. 

e-Commerce: Dominated by B2B

e-commerce has been adopted far more widely for transactions between businesses than by consumers seeking to purchase goods or services.  The extent of the difference has again been highlighted by some recent statistics from the US Census Bureau.

thebigpicture’s Accounting Standards

Accounting standards should give investors what they need: information to enable considered decisions about the value of companies to which they subscribe their savings.  Much of the upcoming legislation, the plethora of governance standards and revamped accounting practices will simply ensure that companies wasting shareholder funds will conceal the evidence in a prescribed fashion.

You Can’t Legislate Competence

The focus on audit committee composition and the forms of company accounts as matters of public policy will not necessarily afford greater protection for investors.

Iraq: Some International Political Consequences

Several of the international institutions which were once regarded as crucial to the well being of the international community – NATO, the United Nations and the European Union – are revisiting their futures.

The Very Big Picture

The events in the middle East might have obscured how long term trends underlie many of the economic and political developments which affect investment markets.

US Economy: Where To?

The US economy has been flashing mixed signals.  More positive outcomes will be critical to how US equity markets perform and how much confidence can be relayed to international markets.

HIH: Competence v Dishonesty

The $40 million Royal Commission into the causes of the collapse of HIH may not have much general applicability.  Even the deterrence value of subsequent prosecutions might be limited since the evidence suggests that the collapse was more a consequence of incompetence than premeditation.

Population Growth Updated

Demographic trends are a critical element of the big picture.  Just as rapid population growth in the second half of the twentieth century determined economic outcomes so too will the aging and declining population in the developed countries affect outcomes in the current and coming decades.

thebigpicture Investment Decision Model

Now that the Iraqi war is all but over, investors might be tempted back to equity markets.  To avoid the risks of irrational exuberance they will need some valuation guideposts.

The Asian Growth Outlook

The Asian region is set to become an increasingly important source of global growth.  The latest forecasts show that the Asian region economies have largely recovered from the shocks of the late 1990s and have emerged onto what appears to be a more sustainable, even if slightly slower, growth path.

The Shrinking Australian Market

Pan Pharmaceuticals, MIM Holdings, OPSM, AMP and Neverfail: more companies which have either fallen from grace or which seem destined to be put out of the reach of Australian investors.

The Australian Market Shrinks….Again

The destruction of value at AMP, throws up further questions about the Australian continuous disclosure regime and is yet another example of Australia’s golden rule of corporate behaviour: when in doubt, restructure!

Japan: A Model Economy Again!

Japan’s economic situation is again becoming something of an international model … of what you don’t want to have happen elsewhere.  It is the model for the fear now being expressed by the US Federal Reserve.

The Budget: If It Looks Like A Duck…

Much of the budget is noise…and, therefore, to be ignored for investment decision-making.  As the economy has matured and the Reserve Bank has assumed greater control over economic policy the influence of a single annual budget has also diminished greatly.  

Should We Take The Government Seriously?

Does the government really want its policy changes? Or is it simply playing a political game to wrong-foot its opponents?

Using Debt: It May Be Too Late

Recourse to debt funded education significantly changes the balance of individual finances.  A higher debt tolerance might reflect the peculiar experience of those currently making policy.  It might be inappropriate for a subsequent generation.

Getting Used To A Higher Dollar

Economic conditions justify a more buoyant Australian dollar making Australia a less risky destination for offshore capital.

The Profit Risk

Recognition that profit sensitivity to exchange rate movements will be affected by how a company organizes its production and sales activities is necessary for effective risk management.

The Dollar: Economic Drivers

Is there a fair value for the currency? An array of economic variables may be relevant but relative inflation is one of the more important in the longer term.

Free Trade: Efficiency v Access

The Australian government is talking about a free trade pact with the USA as though it was an easy exit from a deteriorating national export performance. 

St George: How To Slay A Dragon

 St George Bank is proving that the best form of takeover defence is the rarely seen determination to make the company too expensive for a predator through sound management.

Insider Trading: There Must Be More

The prosecution of Rene Rivkin for insider trading provides a welcome signal that authorities are trying to level the investment playing field but there are many weak spots along the corporate information chain.

Conspirators or Markets?

Are copper miners conspiring or simply doing what the market requires?

The ASX: Improving US$ Returns

The stronger Australian dollar should provide a fillip to the Australian equity market. Overseas investors will see that some of the risk from investing in Australian equities has been taken away.

Hypothecation: The Next Economic Debate?

Hypothecation might be the way to break the impasse between the need for more public sector funding of necessary services and the reluctance of government to increase general levels of taxes.

e-Commerce: The Christmas Effect

The latest report by the US Department of Commerce on the uptake by consumers of e-commerce has shown that there has been little progress.

Interest Rates: More Groping In The Dark

Interest rates are being cut in the USA and possibly in Australia. Should this make us more confident or is it a sign of policy failure and a warning signal for investors?

Housing: Too Protected?

In Australia, the housing market exerts a strong influence on monetary policy. It might be time for housing to lose its privileged position and stop disadvantaging other parts of the economy.

Dual Listings: Where Are The Benefits?

Australian dual listed companies have failed to provide shareholders with many of their advertised benefits. A recently published study by economists at the Reserve Bank of Australia reviewing all the examples of dual listed companies has confirmed that they have failed to deliver on key promises.

No, To Negative Gearing?

We told you so. Negative gearing made a political appearance last week and could well return.

Are Three Bottom Lines Better Than One?

A triple bottom line is an oxymoron. Adoption of the idea for corporate reporting might signal a company being pulled in too many different directions.

Making Money And Doing Good

Ethical investing is a close cousin to the triple bottom line and sustainability reporting. Investors can place funds with managers who restrict their investments to companies selected using ethical or moral guidelines.

Losing The Competitive Edge

Is there such a thing as national competitiveness? In arguing that there was not in its recent annual outlook, the Asian Development Bank (ADB) has signaled a growing sophistication in the region’s approach to economic development and a challenge for Australian companies.

US Economy: Where To?

The world needs a driver for its growth and is watching the USA as the only available alternative. That makes Alan Greenspan the chief policymaker for the planet. Meanwhile, there are more red flags against some of the key indicators.

Thirty Years On: The Industry Policy Agenda

Thirty years ago this month, the Australian government announced that it would cut all tariffs by 25%. The scars would remain for many years but it proved a seminal step in giving Australia a more open economy.

Asset Markets: Let Them Run?

Should the Reserve Bank (or any other central bank) be concerned with asset prices or should it allow individual markets to run their course?

Should Directors Hold Shares?

Holding shares is supposed to help directors feel more like the shareholders they are elected to represent. But it might be better for directors to feel differently about their company’s performance.

Inflation For Investors

Four times a year we are told what Australia’s inflation rate has been in the prior quarter. What should investors be looking for when they pore over these numbers?

Housing Affordability: Be Serious!

The decision by the commonwealth government to hold an enquiry into the affordability of housing smacks of political maneuvering. Getting lower housing prices is easy. Reduce the attractiveness of housing as an investment. But who dares do it?

The Environment: It’s In The Bag

Governments and retailers have agreed that plastic shopping bags should be phased out of use. They have set a target 50% reduction in usage rates by the end of 2005.

Setting Standards: Accounting v  Value

Australia’s accounting standards do not measure up according to an international accounting expert.  But do accountants really know what constitutes value? That is the key issue for an investor trying to judge the debate.

Fund Managers: Keeping In Style

Fund managers are being asked for greater accountability on fees and performance. Behind these demands is an ongoing attempt to rebalance market power in favour of individual investors.

The Dilemma: Grow Or Give Up

Australian companies need to be more disciplined in their quest for growth. Past failures, however egregious, should not cause us to throw in the towel.

Executive Pay: The Spin Stops Here

More detailed reporting of CEO remuneration is beginning to occur but directors seem reluctant to embrace the most important aspect of public disclosure.

Biotechs: Boom Or Malaise?

With around 80 companies listed on the Australian stock market making a bid for medical history, investor excitement should be running high. However, the experience of Australian biotech companies is a sobering mixture of failure, disappointed promise and, at best, modest accomplishment.

No More Earnings Surprises ?

Companies, not analysts, are now responsible for profit forecasts. This is one of the significant changes to occur as the reporting and disclosure regime has evolved in recent years.

Another Fad: Lose The Property

An emerging fad among companies is to separate property assets from operating businesses. Does this make sense for shareholders? What are the guideposts which investors should apply in deciding whether restructuring in this way adds to the value of the company?

Europe: Still Weak

Growth prospects within the European region economies are continuing to disappoint.

The ACCC: Is It Restraining Growth?

Aggressive application of competition policy might constrain how big an Australian company can become. Ultimately, this has an impact on the type of investments available to Australian investors.

Caught By Surprise, Again!

The Treasury Secretary made the news because of his comments that the extent of the housing boom has surprised officials. Economists, regrettably, are always being surprised.

China: Still Heading Up

China remains on track to achieve its long anticipated potential. It is set to overtake the USA as the world’s largest economy in little more than a decade. However, some anxieties are emerging: are gains coming at the expense of others?

IMF Forecasts Signal Lower Returns

The forecasts of the International Monetary Fund (IMF) are a telling backdrop to company performance. Companies will be unable to outperform the business environment in which they find themselves.

Metal Prices: Some Things Don’t Change

Higher metal prices are a respite for mining companies but no escape from the long-term pressures dogging the industry. For some, rising prices are also a sign that the international economy is about to turn for the better. This interpretation of what is happening might be too optimistic.

Housing: Moving To The Country

The solutions to rapidly rising metropolitan housing prices and diminishing populations in regional centres seem to be converging.

Corporate Governance Or A Clash Of Egos?

Shareholder activists are preparing for another AGM season. Directors are bracing their defences. As politicians sense a demand for their services, more regulations are being prepared. And, amidst the posturing, the real needs of genuine investors are largely forgotten. But there is a way forward.

Guideposts For The AGMs

It's AGM season. Should you bother? thebigpicture suggests you take the time to attend because AGMs can say a lot about a company - even when it is unintentional.

Monetary Policy Changes: What Impact?

Despite continual speculation about movements in official interest rates, surprisingly little is known about the effect interest rate changes have on equity market values. New analysis emphasizes the difficulty as much as it offers answers.

Older And Less Profitable

An aging population and slowing economic growth could halve the rate of company profit growth.

China And The USA: Australia’s Future

Australia had a glimpse of its future in the past week with the visits of the Presidents of China and the USA coinciding.

If The Reserve Bank Is Right….

History says some stocks should decline in value more significantly than others as the Reserve Bank pushes up interest rates. But moving interest rates this early in the inflation cycle is unusual. If the Bank is right, the future could be an attractive one for share investors.

Info-Tech Companies: Signs Of Life

Prices of information technology stocks have been rising. Demand for their products and their services has been strengthening. thebigpicture highlights a way of measuring the improvement in conditions.

Corporate Returns: Working Assets Harder

Improved financial returns from Australian listed companies have come from working existing assets harder. Business expansion has not been important. And, despite some improvement in returns, larger industrial companies are barely adding value for shareholders.

The Private School Fee Bubble

The Productivity Commission should be asked to enquire into private school education in Australia. Why not! After all, it is asked to report on other business sectors where there are examples of pricing irrationality, questionable equity outcomes, use of anti-competitive tactics and concerns about resource deployment.

Company Growth Expectation Lowered

The stock market has been downgrading the growth prospects of Australia’s larger companies. That is probably good: the overall outlook is now more realistic when viewed against potential business conditions.

Politics v Economics: Irrelevant Leaders

Political leadership does not matter. The Reserve Bank is the primary economic policymaker. Politicians have detached themselves from the macroeconomic outcomes.

The Property Bubble: de ja vu Again

The demise of a major property investment promoter in the past few weeks highlights how little cycles change. What is surprising is that so many people are so surprised when history repeats. Will the critical next stages which usually broaden the hardship also be replayed?

Company Growth Expectations

Measured against the growth prospects of the Australian economy, overall growth rates expected for larger Australian companies are now more sustainable but the disparity among companies’ growth prospects remains high.

The US Economy: How Strong?

There is a more positive tone to the US economy but care should be taken to avoid overstatement.