goodbye 2010 hello 2011

The year 2010 has come to an end, and after a rather festive than thoughtful weekend, I have finally got to sit down and write again. I might say that writing is not my strong suit but I am surely enjoying it.

I’d like to thank  all the readers for the support and emails I have received. I will reply to all the questions, no matter how simple or complex they are. Thank you!

This blog was born in November 2009 and since then it has been a pleasure to share with you my standpoint.  I have been consistently researching and writing enough throughout 2010, but 2011 will deserve more attention, and a particular focus on the international scenario.

Also, 2011 has finally begun and everyone is talking about the Aussie dollar hike, the European recovery debacle, et cetera. Questions, questions, questions. We all have questions and it’s certain that no one has the answers. At least no one that will do us the favour of telling us :)

In 2010 we have come to quite a few good stock picks, and they have thrilled great results so far.

One stock that I posted on Twitter last year is the NVIDIA Corporation (NVDA @ NASDAQ). I did not write about this stock here in the blog but the company, who manufactures visual computing technologies, has closed a deal with Apple to supply the graphics board to the new MacBook Air.

NVIDIA Corporation has been one of the pioneers creating graphic boards for computerized gadgets, which always have been in great appeal due to the advances in the visual media and products, such as games, animations for television, movies, online videos, advertising, mobile phones and so forth. (read the full article via my post on 25th October 2010, NVDA price closed at the time at $11.91, current price $15.40 USD)

Here on The Oyster Project blog, considering the post date’s price versus today’s price, the stocks I have mentioned are all currently giving returns above the expected (except for one, QBE Insurance Group which we will discuss further ahead), as follows:

• BRK-B @ NYSE – Berkshire Hathaway class B (post on 13th November 2009, price close after the split $71.90 -up 3% on the first day, the 21st January 2010, current price $80.14 USD);
• MQG @ ASX – Macquarie Group (post on 8th September 2010, price closed at the time at $34.44, current price $37.01 AUD);
• FMG @ ASX – Fortescue Metals (post on 14th October 2010, price closed at the time at $3.98, current price $6.79 AUD);
• WDC @ ASX – Westfield Group, and its newborn sibling – WRT @ ASX – Westfield Retail Trust (post on 22nd November 2011, WDC price closed at the time at $12.07, current price $9.58, however if you had bought the stock you would have received an equal number of WRT stocks, currently trading at $2.57. Therefore, the total amount of holdings in the group would equalise an estimate of $12.15 AUD per share, after adding both units);
• MYR @ ASX – Myer Holdings - I  suggested that this stock will not be a good option to invest in, and thereafter it should be avoided. If you have not followed my idea, you will be probably losing around $0.20c per share at this point in time. The stock has had a poor performance, as expected.  (post on 11th November 2009, float price offer at $3.75, current price $3.55 AUD).

One stock that is underperforming since my post is the QBE Insurance Group. I still believe that this stock will rebalance its price to levels above $23 dollars a share, as I am considering not only the price action and technical aspects of the trade, but also value-investing. This is a top-notch stock undergoing  a dark period. The insurance sector have been beaten up lately by a number of unexpected events and they have been the backbone of a number of enterprises and administrations and I would only start scratching my head if there was a decline below $14 a share.

I still believe that QBE Insurance will recoup their lost ground as it is widely spread by analysts that 2011 will be the year of recovery for some economies such as the US.

QBE has most of its capital and assets exposed to the Greenback. The timeframe I proposed for returns is of a least (minimum)  of 2-5 years (long-term buy) to minimise volatility.

Now what can be expected to happen in the global economy in 2011? How about the Australian economy? Assumptions are evil, but we have to make them.  As I wrote previously (see the post here) I understand that the Aussie dollar will have a quite stable year, defining a new standard for the currency as a reflection of a strong economy and consecutive gains in the mining, energy and resources sectors. The country has no outstanding debt and certainly a bright future. There are some worries about a housing price bubble but I think this is a psychological problem that we have been undergoing for decades. I simply cannot picture the house prices walking backwards (read Ascent of Money, Niall Ferguson), although it is fairly possible to have a ‘cyclical’ devaluation. This will depend on cash rates and other factors but most analysts point out that there will be an average of  5% gain this year.

The currency correlation matrix for the second half of 2010 have shown that the Aussie dollar has significantly disconnected from the other currencies and it is currently tracing a path of its own, padded by the strong resources sector. The gold has shown an above-the-average correlation to the Aussie on the same period, however the volatility of the former always had substantial impact on the latter.

The currency have reached 1,0198 USD. A smidgen just above parity. That is the new record high in decades. I don’t know whether or not if the Australian dollar has enough fundamental reasons to sustain this price but the market is pushing it forward. I will take the risk to say it doesn’t.

CommSec Chief Economist Craig James said to Money Magazine:

We expect the A$ to ease to $0.99 cents around midyear and ease further to end 2011 at around $0.92 cents USD.

2010 will be remembered as the year of recovery for the Australian economy and 2011 will possibly be the year of recovery for the US and Europe and seemingly the year of stabilization for the Australian economy. The All Ordinaries is expected to reach 5,400 basis points and our terms of trade near a 110-year highs. Chris Caton (Chief Economist from BT Financial) and John Sevior (Head of Equities of Perpetual Investments) see a bright future for the Aussie dollar and they believe it will remain between $0.87c USD and $0.95c USD.

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Despite the illustrative information of performance, no accuracy is guaranteed and I obviously do not know your financial situation, or if these stocks are appropriate for you. These days the market does trade in a very fast pace and there are HFTs (high-frequency trading) electronic trading robots who will very likely be always ahead of the average investor. Around 5 years ago a trade order was placed in nearly 10 seconds. Today a trade is placed in around 0.7 seconds. The markets have changed drastically (and still changing) so you need to find an expert qualified to advise you.

I highly recommend you to seek a Certified Financial Planner near you, to assist and to define your investment risk profile. It is fundamental to know your risk tolerance and which asset classes and investments are suited to you.

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We are entering a new economical era where consumables are more and more disposable and the access to ‘buy’ is an urging need. Like in the pre-second World War period, we are being pushed through mass consumption.

Not long ago, we used to upgrade our electronic devices or laptops every few years and now, for example, Apple is launching a new gadget every season!

The developing countries and their growing population are demanding more. There are more providers of capital and more users of capital interacting with the market. The production of goods have spiralled to a giant scale, infinitely higher than we would ever expect a few decades ago.

People are buying the idea of living like there is no tomorrow and the picture is getting narrower for the ‘average Joe’, who seldom get to save after paying for his mortgage or credit card. These are called ‘the new dynamics’.

With rising prices in commodities such as oil and food, I expect China (and the other nations from the BRICs) to have a substantial impact on the global competitiveness this year, but I will save this matter for another post.

Happy New Year folks!

 

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Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.

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