Economics | Slack Investor

Global Wealth Report 2022

In a week where I have received a polite letter from my electricity provider that the daily rate and cost per Kilowatt-hour will be increasing by 27% from August 1, 2023 – it is always good to take a step back and realise that a bloke should count his blessings.

Every year the economic wonks at Credit Suisse produce the Global Wealth Report. It takes a bit of time to gather the figures worldwide, and the latest report available is from 2022, and gives an insight into the Covid-19 times using economic data from 2021. There is some good news, in that the global wealth per adult seems to be on an increasing trend.

The global median wealth per adult was just USD 1,613 ($2358 AUD) in the year 2000. By 2021, it had risen to USD 8,296 ($12 130 AUD), a five-fold increase equivalent to average annual growth of 8.1%.
Credit Suisse Global Wealth Databook 2022

There seems to be an expansion of the “middle class” in the developing world, but, sadly, the key indicator of wealth inequality is on the rise. In the prophetic words of Midnight Oil “Read About it (1982)”.

The rich get richer, the poor get the picture
The bombs never hit you when you’re down so low
Some got pollution, some revolution
There must be some solution but I just don’t know

Credit Suisse Global Wealth Databook 2022

2021 was a bumper year for New Zealand, the US and Australia, probably due to the rapidly increasing house prices during COVID-19, and the relative strength of local currencies against the US dollar in 2021. The wealth losses recorded by a few countries were relatively low and reflect currency depreciation against the USD.

World Distribution of Wealth

In 2021, Australia tops the table with a USD median wealth (median Net Worth) of $273 900 ($400 497 AUD) – again probably due to the ridiculously high real estate prices in this country. A reminder of the unequal distribution of worldwide wealth is that the global median wealth per adult was just $8296 USD ($12 130 AUD) in 2021.

The median wealth is used below as it reflects how the normal person is doing. The mean or “average” can be misleading in countries with a large wealth inequality. For example, in the US, due to some very rich individuals, the mean wealth per adult in 2021 was $579 050 USD. but the median wealth was $93 270 USD.

The 1%

Our calculations suggest, for example, that a person needed net assets of just USD 8,360 ($12 224 AUD) to be among the wealthiest half of world citizens at end-2021. However, USD 138,346 ($202 289 AUD) was required to be a member of the top 10% of global wealth holders, and USD 1,146,685 ($1 676 685 AUD) to belong to the top 1%.
Credit Suisse Global Wealth Databook 2022

A net worth of $8360 USD ($12 224 AUD) would put you in the top half of the world wealthy, and a nudge over a million USD ($1 676 685 AUD) would put you in the top 1%.

Perhaps I will just have to take this latest utilities price rise on the chin … and reflect on my good fortune by the geographical accident of birth in a western country.

Is your democracy sausage a little warm?

Australia election: Fines, donkey votes and democracy sausages - BBC News

For those in far off lands, a “democracy sausage” is the exquisite mixture of sausage, onions and sauce wrapped in a slice of bread that you purchase from a charitable organizations as a “reward to self” after voting at an election booth in Australia. Australia is coming up to a national voting day on 21 May, 2022. This is a day I have always enjoyed as I exercise my democratic rights and vote. Although over half the world countries are designated as democracies, due to recent changes by national governments that curtail press freedoms and suppress dissent, there is the evaluation that less than 20 percent of the world’s people now live in a Free country!

But lets not get too depressed about things I have no control over. For now, Slack Investor does have a vote.

Fossil Fuels and Climate Change

For the progress of civilization, it seemed to be an excellent idea to use fossil fuels (Coal, oil and natural gas) to provide relatively cheap energy. These fuels took hundreds of millions of years to form as vast amounts of plant matter was converted into stored carbon.

Fossil fuels are non-renewable and currently supply around 80% of the world’s energy
Client Earth – February 2022

When we use these fuels for energy, the carbon combines with oxygen – and carbon dioxide is released. Carbon dioxide, is one of the “greenhouse gases”, that trap heat in our atmosphere, causing global warming.

The problem is, that we have managed to release huge amounts of the stored carbon dioxide in the relatively short time since the industrial revolution.

From an IPCC Report showing the rapid observed increase in global temperature since the industrial revolution – especially since the 1950’s – Climate Change 2021: The Physical Science Basis

Firstly, we must recognise that global warming is a real problem for our Earth. There is ample evidence of climate change leading to rising temperatures, rising sea levels, decreased cool season rainfall for southern and western Australia and increased weather-related disasters. Our current amount of warming due to the rapid release of these greenhouse gases is 1.1°C. Urgent action is required if we are to keep the warming below 1.5°C- We can all do our little bit to reduce our fossil fuel consumption – But real change must be led by our governments.

Emissions of greenhouse gases from human activities are responsible for approximately 1.1°C of warming since 1850-1900, and finds that averaged over the next 20 years, global temperature is expected to reach or exceed 1.5°C of warming
IPCC Report, August 2021 – Climate change widespread, rapid, and intensifying

With the Australian election looming, I am grateful to a timely Ross Gittins article and to Climate Analytics for doing the hard work of actually assessing the impact of the politician promises to help reduce greenhouse gases in order to reduce global warming. They assess Liberal party policies as leading to a warming of 3.0°C by 2030: Labour party policies consistent with a 2.0°C of warming; Teal Independents and Green party policies are consistent with a 1.5°C of warming.

Emission reductions for 2030 are very important if the
world is to have a reasonable chance of limiting warming
to 1.5°C, the long-term temperature goal of the Paris
agreement.
Climate Analytics

Climate Analytics analysis of the likely effect of of the major Australian political parties climate policies on Greenhouse gas levels and global warming.

If you think that climate change is an important issue. Think about your vote.

Slack Investor usually writes about financial matters – but a recent survey of Australian economists found that 74% of them rated “climate and the environment” as the most important issue for this up-coming election.

Also, what is the use of having a blog – if you cant have the occasional rant!

Here comes the Sun … It’s alright

The Beatles at Tittenhurst Park, 1969 – From Rolling Stone

It has been 53 years since the Beatles) recorded “Here Comes the Sun” from their landmark Abbey Road Album. It has been 18 months since Slack Investor installed Solar Panels on his roof and is in complete agreement with George Harrison … This Sun, “It’s alright”.

Here comes the sun
Here comes the sun,
And I say, It’s all right
From “Here Comes the Sun” – Songwriter: George Harrison

Always looking for distractions during the declining months of the stock market … and I can always rely on my solar panels for good news. Solar Choice evaluate solar panels in Melbourne (where I live) to have a 22% – 36% internal rate of return on your investment (that’s good!) – and then there is the mantra of “doing the least harm” by minimising fossil fuel use.

The road to Solar Panels

Firstly, great apologies to planet Earth that it has taken me 6 decades to harness some of the sun’s energy for my personal power use. But what is done is done .. and I am moving forward with the zeal of a reformer.

Like all big financial decisions, Slack Investor was not immune to procrastination. There is always an excuse not to act … ” I’ll wait till I pay off my mortgage”, ” I’ll wait till I get to my dream home”, etc. What I wished that I knew during these periods of hesitation was that solar panels on your roof does not only make environmental sense … but it makes great financial sense.

What is sadly missing in energy debates is an analysis of the “total environmental cost” of each way of producing energy. A 2021 report on production and environmental costs of various means of electricity generation in Europe revealed a compelling case to move to wind farms and solar panels to make electricity. This report does not seem to include the vital battery storage costs in its analysis, but another study found the use of solar panels with utility-scale battery storage will have at least 10 times less emissions and air quality impact compared with natural gas or coal for power generation.

A graphic comparing the cost of various energy sources, along with environmental and health costs

Slack Investor tries to do his homework before dipping into his wallet and, during his solar research, I came across a very informative website solarquotes.com.au. Not only can you find great information on solar energy, but they can arrange quotes from 3 local installers. The system is free to the homeowner – I have no affiliation except for the great satisfaction of using their service. Where I live in Victoria, Australia, the governments are encouraging of Solar Panels and offer incentives to install a solar panel system.

Solar Panels now on Roof

The hard part is always deciding on the detail and, after 3 quotes, only one installer actually climbed on our roof and assessed the shading of surrounding obstructions. I decided to reward this initiative and ended up with a

7.7 kW system
6 kW Inverter
22 x 350W panels
Solar Analytics Smart Monitor and lifetime subscription (Well worth it!)

The total cost was $10 906, but with the Australian government $3750 solar credits and the Victorian state government rebate of $1850, out of pocket costs were reduced to $5306

After 18 months, the first revelation to me was the daily variability of solar output of my system due to cloud and rain. The next revelation was the seasonal variability of the output. During winter, the sun is low and relatively weak – Summer is the time of peak production. The third revelation is the economies of using your own power rather than exporting to the grid due to a lower feed in tariff – but that analysis is worthy of a future blog.

The raw daily production of my solar panels in kWh during 2021, showing large daily and seasonal variation – The red line is the daily expected average of solar energy generated by my system – 27 kWh

The projections from my installer suggested a return on my investment after 4 years. The first hurdle is to recover the environmental cost of producing the raw metal, silicon and glass of these panels. With the increasing efficiency of solar panels, the environmental pay back period is between 1-2 years. The next hurdle is the financial costs including installer’s fees. My installer projected a break even point after 4 years.

Pleased to report that, after 18 months, everything is going according to expectations. Go Solar … good for planet … good for pocket … Slack Investor happy!

I am 18 months in to this grand solar experiment, and 39% paid off. The savings come from power sent back to the grid and the use of my own electricity during the day. On current projections the financial cost of the system will be fully recovered in 47 months – Just 4 years!

Get a job, mate … and February 2022 – End of Month Update

LETTERS TO THE EDITOR: Climate action, jobs go hand in hand | The Courier Mail — For admirers of Australian art – this clever cartoon by Harry Bruce, The Courier Mail

The February 2022 Australian Labour Market report indicates that now might be a pretty good time to look for a job. Due to closed borders and huge government stimulus, Australia’s unemployment rate is at a rock bottom 4.2% – a 13-year low!

Skills and labour shortages increasing
Employers report increasing hiring difficulty

It might seem a little strange that Slack investor, a retired bloke, would be thinking about jobs … but I’m in need of distractions – as the stock market is tanking due to all sorts of uncertainties. I have set my portfolio mostly into stocks that I would like to keep. Although I missed the boat on a couple of my more speculative recent purchases. I have “trimmed the boat” a little, and will now will just wait for better times.

I found an intriguing graphic, amongst many other excellent visualisations, at Four Pillar Freedom. By combining data on occupational stress levels (100 = maximum stress) with median US salaries for 623 occupations, this interactive data plot was produced. The searchable raw data with much more detailed information can be found for occupational occupational stress levels and US job salary estimates.

By hovering your mouse around the data points below, occupations, salaries and stress levels are revealed. Ideally, you would not want a high stress, low-paid job (top left) e.g. Police, Fire, and Ambulance Dispatchers. Even a high stress, highly-paid job would not be that marvellous (top right) e.g. Nurse Anesthetist. The sweet spot for Slack Investor is the relatively low stress and a relatively high salary occupations lower right. As it happened, my working life moved from Secondary Teacher ($54K, Stress: 73) to Atmospheric Scientist ($94K, Stress: 85). I could play with this interactive plot for hours.

Jobs and automation

When thinking about what job you would like to do – it is good to think about the prospects of this job for many years to come. One of the threats to certain occupations is that technology and artificial intelligence will replace your finely honed skills. About 35% of current jobs in the UK are at high risk of automation over the next 20 years.

The top 8 occupations at risk from automation in the UK – Will a Robot take your job? – BBC

A more dense read on the same subject, How susceptible are jobs to computerisation? Over the next two decades, the authors estimate that 47 percent of total US employment is in the high risk category. The sectors featured on the right hand side of the chart below have the biggest probability of computerisation. Jobs in Sales, and Office and Administrative support will be affected the most. A lot of the service jobs will be impacted – but some areas (left of chart) will remain needed.

A US study of occupations that breaks each occupational sector into risk categories, the “Low”, “Medium” and “High” risk of automation – From How susceptible are jobs to computerisation?

In these times of turmoil … tune out a bit on the stock market … and keep working if you can. Slack Investor is heartened to find out (from research for this blog) that, for the next few decades, the likelihood of job automation for a manager of licenced premises … is only 0.4%.

February 2022 – End of Month Update

Slack Investor remains IN for Australian index shares and the FTSE 100 but OUT for the US Index S&P 500 due to a sell in January 2022.

A volatile month, but the FTSE 100 ended up flat +0.3%. The Australian market drifted upwards +1.1% and the S&P 500 down -3.1%.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

2021 Lets talk about the planet – ESG Sustainable investing

Oooh … this planet is hot!

The difference in mean (average) temperature for the year 2020 and the 30-year average temperature between 1981 and2010 – Sourced from the World Meteorological Organization (WMO)

This is just last year … and the red colours show where planet Earth has been hotter than the long term average temperature. Clearly, for most of the world, 2020 was between 1°C and 5°C warmer than would be expected from the long term average. The reason this is happening is almost certainly due to increases in greenhouse gases since the industrial revolution.

… there’s a more than 95 percent probability that human activities over the past 50 years have warmed our planet.
From climate.nasa.gov based upon the Fifth Assessment Report Intergovernmental Panel on Climate Change (IPCC)

Another way to visualize the warming is to have a look at the past 110 years in Australia. The last decade was the hottest on record with temperatures almost 1 °C above average and one third of a degree warmer than the previous decade.

110 years of Australian Temperatures with warmer tempearatures represented by the yellow, orange and reds. These maps show the anomaly of mean temperature for each calendar year, compared to the average over the standard reference period of 1961–1990. From the Bureau of Meteorology. The full beauty of this chart can be found in the pdf form of the image.

This is not a political view – but is just science. The world is getting warmer and more and more people and governments think we should do something about it.

The world’s leading climate scientists have warned there is only 10 years for us to act if global warming to be kept to a maximum of 1.5°C. If temperatures go beyond this by even even half a degree, this will significantly worsen the risks of drought, floods, extreme heat and poverty for hundreds of millions of people.

Slack Investor has tried to do his little bit in reducing his CO2 emission- but admittedly, I could do more. In addition to his puny personal efforts, by marshalling the the power of his investments, this might have greater consequences. He is not alone in this thinking.

Environmental, Social and Governance (ESG) principles

ESG has become a bit of a buzz acronym in corporate and investing circles and is linked with a set of factors associated with “responsible” or “sustainable” company behaviour. Global Warming (or Climate Change) is just one of these ESG issues – but Climate Change is the highest priority ESG issue facing investors.

Examples of ESG Issues – From Principles for Responsible Investment

To invest according to ESG principles is to undertake to exclude companies in their portfolios considered to be doing harm to the world, and often positively skew their portfolio weightings in favour of companies deemed to be doing good.
From the Sydney Morning Herald

A recent investment development has been the collection of environmental, social, and governance data. There are agencies such as Ethisphere and MCSI that rate publicly listed companies on their resilience to long-term ESG risks. But, most people just select a “Sustainable” or “Ethical” or ESG fund and let the fund manager do the company selecting.

Ethical Investing … its a murky world … but worth it!

While getting into an ethical investing fund or ETF is straightforward. Behind the door of each fund, picking which company gets into the fund sets up all kinds of dilemmas. The company selection process seems to be a bit of a “dark” art and can be done by positive screening (e.g, High ESG scores); or, negative screening with the exclusion of industries such as armaments, tobacco, gambling or thermal coal production. Screening might also be done at the company level, for instance, to exclude a mining company might have a dodgy environmental history. Each fund seems to have a different methodology. We hope that the fund managers get it mostly right. The sustainable/ESG funds that I looked at seemed to be dominated by Technology, Financial and Healthcare companies – these are the type of companies that Slack Investor invests in already. But mining companies should not be dismissed in this sustainable search as they will help enable the transition to the low carbon economy – but they too must rethink many of their practices and decarbonize production and reduce water usage.

… renewables power sources are built from non-renewable materials produced by businesses that tend to have larger carbon footprints and low ESG ratings. Mining firms produce many of the critical materials necessary to transition to a low carbon economy.
From Massif Capital – Failure to Impact (PDF):

For example, Massif Capital cite that to build a 400 kg lithium-Ion battery that might be found in most electric vehicles requires roughly 10 kg of lithium, 12 kg of cobalt, 24 kg of nickel, 36 kg of copper, 44 kg of graphite, and 160 kg of steel, aluminium, and various plastic components.

Sustainable Funds are Taking Off

It is not just the recent extreme weather related events such as the 2019 heat wave in Europe, or the recent fire events in Australia and California. There seems to be a surge in the amount of money coming into sustainable funds as investors are starting to think about climate change and sustainability and how this affects their investments.

sustainable funds estimated quarterly inflows — *Quarterly fund inflows into sustainable funds*. There has been a fourfold increase in assets that flowed into sustainable funds in the US last year – From Morningstar … A Tipping Point

A move towards sustainable investing can be done through your super fund. Each super fund will have some sort of sustainable option for your superannuation money. Or, you could invest directly through a managed fund or an Exchange Traded Fund (ETF).

If you don’t want to buy individual companies and research how sustainable/ethical each company is, I like the ETF approach and would look at ETF’s like Vanguard Ethically Conscious International Shares Index ETF (VESG) for International ethical exposure. It has a spankingly good low management fee of 0.18%. For local products, I couldn’t go past the SPDR S&P/ASX 200 ESG Fund ETF (E200). This ETF has only been going 5 months and has been doing well. It also has a low management fee of 0.13%

Move towards sustainable – and feel good about yourself – and we might just save this planet.

Tales from the Bizarrro World and September 2020 – End of Month Update

Bizarro World

Back in the last century when I was a big fan of Superman, DC Comics released a specialty series called “Tales from the Bizarro World”. Bizarro World was a square planet inhabited by imperfect copies of earth dwellers and they do the opposite of all earthly things. Little did I know that I would be living in Bizarro World in 2020.

As of last month, every advanced economy and all emerging economies are in a recession. Unemployment rates have increased rapidly and, due to COVID-19, over a third of the world has been in lockdown. Yet, in the worlds largest economy, on the day the US fell into recession in February, the S&P 500 overcame the COVID crash and rose above where it began the year!

Some governments are going through heroic efforts to inject cash into these flailing economies with some unforeseen results.

In this Bizarro Universe, with empty CBD’s and flourishing suburban strips, Australian retailer Harvey Norman reports its sales for July to September were up 30.6% on the previous year.

“People can’t spend their money on other things anymore, so they are spending time upgrading their home,” he said. “And that’s happening right across the world.”
“There’s also been so much money thrown into these economies, and because they can’t spend it [elsewhere], we’re getting the advantage of that. We’re in a very fortunate position.”
Gerry Harvey, founder of Harvey Norman – from the Sydney Morning Herald

It is not only furniture, but food expenditure has also increased in the 12 months to June 2020. Naturally, there has been reduced spending in lockdown crushed areas like health, transport, restaurants and accommodation.

Quarterly changes in Household Spending for the 12 months to June 2020 – From Auscap Asset Management – Click to Enlarge

It is probably due to fear about the future, but these troubled times have also modified the savings behaviour of Australians. In June 2020, credit card debt has been reduced by 20% (still $22.4bn though!). Savings as a percentage of income have increased from the paltry long term average of 5% to 20%.

Australian quarterly savings have rocketed up *From* Auscap Asset Management – Click to Enlarge

But there is also evidence of increased spending. Australians were recently given the chance to access up to $20000 of their retirement savings. In an illion survey of 10000 people, almost two-thirds (64%) of this additional spending was on discretionary items such as clothing, furniture, restaurants and alcohol.

In July 2020, the 2nd tranche of government stimulus and early access super caused big changes in household weekly expenditure. Although the actual dollar amounts were not reported, looking at bank data from 250 000 Australian consumers, the biggest spending changes were found in the allocation to Online Gambling (+95%) and Food Delivery (+342%)!

“Financial comfort levels are up for now, but many households
are on the cliff’s edge. They’ve lost income, their jobs and entire
livelihoods, … and government support is the main action stopping them from falling over.”
ME Bank Household financial comfort report 2020

Slack Investor feels that things are precarious in Bizarro World – government spending is just holding things together. As of July 2020, according to the AFR, the Australian government has spent 10.6% of GDP on COVID-19 stimulus (+1.6% Loans). In the UK it is 3.1% (+15.7% Loans) and the US 6.9% (+4.2% Loans). This spending will not go on for ever and the Bizarro World party may end badly for households that, through the lottery of occupation, are stressed.

September 2020 – End of Month Update

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. All Slack Investor followed overseas markets this month slumped (ASX 200 -4.0%; FTSE 100 -1.6%; S&P 500 -3.9%).

I am very nervous about the US market with its high valuations, forthcoming election and, what pushed me over the edge, was the beautifully described “S*%tshow” of a debate. Slack Investor has had to act and adjust his Stop loss for the S&P 500.

When pushing up stop loss levels, it is always about finding a sensible place to leave the level at a “higher low”. I couldn’t really find one on the monthly or weekly chart. The Daily chart below revealed a higher low of 3200 in July 2020 that wasn’t breached in late September. So this is my new stop loss.

Daily chart for the S&P 500 – From Incrediblecharts.com

In the real world, the US economy entered a recession in February 2020 and Slack Investor has his stop losses live for all Index funds.

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). The quarterly updates to the Slack Portfolio have also been attended to.

My House … and June 2020 End of Month Update

… Welcome to my house, Baby take control now, We can’t even slow down, We don’t like to go out, Welcome to my house …
Flo Rida “My House”

Slack Investor’s taste may not be quite as “gangsta” as Flo Rida – check out his full video to get a flavour of what I mean – But, both Flo Rida and I share a genuine passion for the joys of household ownership.

In my last post, I had a bit of a rant about the exorbitant transaction costs of buying a house. Despite the costs, I hope that I didn’t mislead about the absolute joy that Slack Investor feels about house ownership. A Slack Investor pillar for financial independence is to own your own place before you retire – as the cost of housing keeps rising for retired renters. The typical homeowner aged over 65 spends just 5% of their income on housing, this compares to nearly 30% for renters.

Flo Rida and I are enamoured with owning our surroundings:

The Serenity – Ownership gives stability and control – You can do what you like in your own house and are immune from sudden evictions.
Access to aged pension and taxation benefits – the home is treated differently than other assets. However, Slack Investor thinks that these concessions are too generous and will probably be capped in the future – Currently in Australia, $6 billion in pension payments go to people with homes worth more than $1 million.
Flexibility – No need to ask the landlord to make changes – If you go on an extended adventure, then why not rent your house out for the dates that you are away – to help pay for the holiday – Or, House swap to an exotic location!

Slack Investor understands that owning a home may seem an impossible dream to some – and, sadly, ownership rates are decreasing . But do not give up hope – Many real estate pundits are expecting prices to fall from their current eye-watering levels. This fall should be accelerated by COVID-19 factors.

Home Ownership rates are on the decline for all age groups. – Grattan Institute

A home does not have to be large and, it could be out of a capital city. There seems to be a trend already for millennials (and older folk 60-69) to be moving from cities to the regions according to the Regional Australia Institute. They suggest that equitable access to housing is one of the pull factors for this move to the regions. Slack Investor has spent most of his working career outside of big cities and can highly recommend the simplicity of life away from the capitals.

More than 400,000 Australians moved from capital cities to regional destinations between 2011 and 2016
Regional Australia Institute report – February 2019

June 2020 – End of Month Update

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Slack Investor admits to being only an amateur economist and finds the current situation in the US confusing – Stock market up, economy down! These are wild times … but I am back to all IN for my Index funds!

US Data keepers, the National Bureau of Economic Research (NBER) have now determined that the US economy entered a recession in February 2020 “with different characteristics and dynamics than prior recessions”. The Federal Reserve bank of Cleveland strangely have their forecast of a recession in the next year at 19.2% (below Slack Investors threshold of 20%). However, reality always beats forecasts and Slack Investor has his stop losses live again for all Index funds.

Monthly rises in all followed markets ASX200 +2.5%, FTSE100 +1.5% and S&P500 +1.8%.

COVID-19 problems go up … stock markets go up? I know stock markets are usually forward thinking and obviously see an end to COVID problems soon. Slack Investor is not so sure … but the charts have him invested in all markets. My portfolio is trimmed to industries that should be OK( I Hope?)

All Index pages and charts have been updated to reflect the monthly changes – ASX Index, UK Index, US Index. The quarterly updates to the Slack Portfolio have also been recalculated.

Coronovirus Panic

A 3d rendered illustration of a *Coronavirus –* from hopkinsmedicine.org

COVID-19 (SARS-CoV-2) was first first recorded in China in December 2019. In a few short months, the world is in turmoil. There is panic in the streets and this coronavirus epidemic is likely to be an exceptionally serious global problem with many fatalities. Slack Investor couldn’t buy toilet paper last week. That’s when this problem got the attention of my small brain!

It is a good thing that governments are acting decisevely to try and stem the spread of this virus. No one really knows how this pandemic will play out. It is a fact that the world GDP will suffer – but the extent will depend on whether the pandemic is mild, moderate or severe. A good snapshot of how things are going can be found at the World Health Organisation (WHO) Dashboard which keeps a world wide tally of confirmed COVID-19 cases and tracks the drift of concern towards Europe.

Based on current knowledge, the case fatality risk for COVID-19 is higher than observed for seasonal influenza virus, which has a fatality risk of about 0.1%. Annually, seasonal influenza virus is estimated to cause up to 290,000 deaths globally.
From Coronovirus: The Conversation

The latest WHO data on COVID-19 have the death rate (currently over 5000) from confirmed cases at 3.7% – but this is likely to decline as testing is rolled out and the number of confirmed cases more adequately reflect the actual number of those with the virus. This is a major health problem and will impact the world economies for the immediate future – but is unlikely to have a long-term effect.

The MSCI World Index since 1970 with various world epidemics marked – Original source Charles Schwab but found in marketwatch.com

The important thing from the chart above is that even though COVID-19 is a significant challenge for the world. The world MSCI Index always recovers from viral epidemics – It just takes a bit of time.

The way things are going, Slack Investor will probably sell his remaining Index funds (US S&P500 and ASX 200) at the end of this month if they are below their stop loss level – as this is system that I am running with my Index funds.

For the individual companies that make up over 95% of the Slack Portfolio, I am not selling into a panicked market. Again, I tap into the wisdom of Warren Buffet. Rapidly falling markets are a test for every investor. Buffett says that investors should treat their stocks like a house – what matters is the 10, 20 and 30-year outlook of each company, not the latest newspaper headlines. To paraphrase Mr Buffet, If you bought a house for $500 000 and a month after someone offers you $350 000, you probably wouldn’t take it – You would have your own idea of the house value and hopefully wait until you are offered a more suitable price. Slack Investor feels the same way about his carefully selected shares in a growing companies with good prospects – the sell-off is probably over done.

In the meantime, while lamenting that I have no spare cash for the inevitable upturn. Slack Investor will be washing his hands a lot and trying to avoid close contact with those with flu-like symptoms, and trying not to touch his well-worn face.

That’s not a Bull … This is a Bull!

The “Fearless Girl” statue in front of the “Charging Bull” sculpture in New York City on March 29, 2017 – **Photo by Volkan Furuncu/Anadolu Agency/Getty Images**

Slack Investor is a little bit saddened to discover that the great combination of the “fearless girl” and the “Charging Bull” in New York City was only a temporary thing. The girl was removed at the end of November 2018 due to an artistic dispute with the Bull creator Arturo Di Modica. The “Charging Bull” remains in Manhattan as a reminder of the inspiration that a bull market can bring after a market crash.

Bull Markets start when there is a 20% rise in the stock market from a previous low point. The current Bull Market has been a whopper – although there have been a few “corrections” along the way, it has now lasted over a decade and is setting new records (see chart below). The reasons behind this magnificent rise are obvious in hindsight – a mixture of the rise of technology stocks and a slow-but-steady economic growth, record corporate profits and record low interest rates.

From Schroders Australia. Chart showing the extent of the last 6 bull markets. The previous bull run, Sep 2002 to October 2009 (shown in light green) lasting 61 months *(6 1/2 years )* is eclipsed by the current bull run shown as the dark green line at 127 months (to 30 September). The use of the word “Correction” in this chart to indicate the extent of the bull market collapse is a bit confusing. Normally, a “correction” is defined as at least a 10% decline, it turns into a “Bear Market” when there is a 20 percent drop in a major U.S. index

A reminder of some of the spectacular bull markets in the past 60 years is in the table below prepared by Schroders.

The table above outlines the reasons for the end of each bull market and their is usually a trigger, prior to a market collapse.

a weakening economy, or an increase in the cost of money (higher interest rates)
“irrational exuberence” – where buyers are paying grossly inflated prices for assets
a cataclysmic world event

I can’t rule out the last one … but the US economy seems to be rolling along alright. Over the past week there have been a couple of events that bode well for the bull market to continue. In the UK, “buffoon in chief” Boris Johnson, has beaten the unelectable Labour candidate Jeremy Corbyn and now a quick Brexit looks on the cards. Stock markets generally love the removal of the uncertainty that elections present. The Trump/China trade deal seems to have also made some progress with a “phase one” deal announced. This should avert an escalation of the trade war. Low interest rates seem to around for quite some time. Stock valuations are high but not crazy high.

Slack Investor eases back onto the couch. There has to be really good reasons for Slack Investor to exit the world of high earning companies with products that the world wants.

Slack Investor is off on a bike riding adventure in Vietnam over Christmas and New Year. My usual End of Month Update will be delayed until about January 7, 2020. In the meantime, be fearless .. but also aware! The stock market moves in inevitable cycles. I am optimistic in the short term – and will enjoy my holiday. The good news is that even if the Slack view is wrong, there is always the subsequent “Higher Highs”as the market recovers. Good companies will survive any downturn and eventually return to a fair price.

The best of the fest … and a happy new year to all!

November 2019 – End of Month Update … and Mayfair Platinum

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets had rises all round this month. The ASX200 (+2.7%), a recovering FTSE100 (+1.4%), and a booming S&P500 (+3.1%).

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 29.1%. This has been steadily reducing since a peak at 41% three months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Mayfair Platinum – “Investing has changed” – No it hasn’t!

Full-paged ads spread across the Australian press in in the last few months. Mayfair 101 launches Mayfair Platinum. These ads were everywhere, paid plugs in the AFR, News Ltd, Finance sites, “influencers”, roadshow, and google ads.

There has been a barrage of advertisements in the press. Mayfair 101 says “We’ve been listening closely to investors who are frustrated by the sustained fall in interest rates. ” Their M+ Fixed Income product offers a juicy 5.45% for a 12-month term. Slack Investor is worried that this grand media campaign may fool some investors into thinking this vehicle is just as safe as bank deposits.

” M Core Fixed Income is a secured, asset-backed investment product that provides the benefit of the Group’s extensive diversification strategy coupled with our Australian real estate portfolio including our recent strategic investment in Mission Beach and Dunk Island. “
Mayfair 101 Managing Director James Mawhinney, commenting on one of their products – from the Mayfair Platinum site.

Hang on Mr Mahwinney … did you say “secured” … you definitely didn’t say safe! By a quick comparison of their products, it seems that you don’t even get security with a paltry $100K invest – you need $250K to get the “secured asset backing” of their M Core product.

Mayfair 101 launches Mayfair Platinum, it “provides customers the opportunity to earn return rates between 3.65 and 6.45% p.a.

Mayfair 101 has been aiming a recent massive ad blitz to cashed up investors who are frustrated with the low returns offered by bank term deposits. They have been very successful since they set up in 2017, rapidly growing their fund to $100m in April 2019 and aiming for $250m. Mayfair advertising is littered with lines like “Tired of term deposit rates?”, “A popular cash and term deposit alternative…”, “Do you qualify?” – this campaign has plenty of fizz.

Slack Investor knows a bit about North Queensland, and the beautiful Mission Beach and Dunk Island area. There have been a number of tourist booms in the past, but each time they have been defeated by either a tropical cyclone, distance to international airport, rising interest rates, or a domestic tourism downturn. Tourism investments are definitely risky!

As well as cyclone ravaged Dunk Island, the parent company Mayfair 101 has investments in technology and cryptocurrency companies, and according to the Guardian, another abandoned island, in Venice – an area suffering from heavy flooding this month.

“In the modern age of investing, we are mindful that profit-generation is no longer the sole benchmark for a company’s success”
James Mawhinney Mayfair 101, from The Guardian

Sorry Mr Mawhinney , I’m not sure where you live, but in the Slack Investor world, profit generation is definitely the most important benchmark! At best, the Mayfair products seem speculative investments that carry a good deal of risk – a long way from the safety of the government guarantee for bank term deposits (up to $250K).

One of the few advantages of getting older is that you get to see the cyclic nature of investment. A good reminder of 35 years of investor busts can be found in the Chanticleer Reviews. Mayfair … You’re “investor-facing division” is not getting any of Slack Investor’s money. Despite the slick presentations and corporate glitz – this, as my mother used to say, “has got a real smell about it! “

I cannot give financial advice, but Slack Investor would not invest in Mayfair Platinum, and, if I had invested, I would take out my money as soon as I could (while the Mayfair distribution and withdrawal record is still intact). I would try other types of investment such as higher yield industrial shares or industrial/office REIT’s if I wanted higher returns than bank deposits. These latter vehicles also have risk attached …. but, I’ll wager, much less risk than tourist property speculation, tech companies, and cryptocurrency plays.

It may take some years, but this Mayfair 101 thing … it’s not going to end well for the punters!