Monthly Updates | Slack Investor

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.

Is it safe to come out now … and May 2020 End of Month Update

Viktor Bulla’s photograph of the “Pioneers of Leningrad” in a defense drill, 1937, showing the well equipped youth ready for anything … taken 4 years before the horrific Siege of Leningrad– From rarehistoricalphotos.com

This striking image of Leningrad children in their gasmasks has left a haunting impression on Slack Investor. The 900-day siege of the Russian city during WW2 claimed the lives of 800000 civilians – Many of the photographed children would have been involved.

Not trying to draw any parallels, but it is true to say that we are all a bit apprehensive about how to deal with this new post-lockdown world in Australia.

The number of fatalities for COVID-19 is still shocking and it is causing great hardship in many lives. In perspective though, the “big Daddy” virus is the 1918 Influenza where nearly a 1/3 of the world’s population was infected and global deaths amounted to almost 50 million people.

Given sufficient leadership (are you listening Donald and Boris!) the world will eventually see this COVID-19 off – like it has with all previous past viral outbreaks.

Slack Investor does have a furrowed brow about the whole world economy thing. Even bevore COVID-19, China’s economy was shrinking – and has now tanked.

Although China is expected to recover later this year, things don’t seem so good for the moment. The International Monetary Fund (IMF) are describing it as the worst economic downturn since the Great Depression. It is tough to provide forecasts for this event and, as a retired meteorologist, I feel for my economy forecasting brothers and sisters. They predict both advanced and developing economies are expected to show signs of life in 2021.

World economic growth projections by the International Monetary Fund (IMF) World Economic Outlook April 2020

No country is spared in this global crisis, in particular, nations with weak health systems, and more limited funds to provide support will struggle.

Slack Investor will leave the big world predictions to others and continue tinkering in a small way with his portfolio. What is obvious is that companies reliant on tourism, travel, hospitality, and entertainment for their growth are in big trouble. Emerging market and developing economies face additional challenges as they will find it harder to find investors to fund their projects in this climate.

This is not advice, but I will sell off my shares in emerging market ETF VGE and the Malaysian property trust UOS and buy some ETF’s such as NDQ or QLTY. I have had second thoughts about selling down my overweight position on CSL . This company continues to grow – and I just love owning it. – I would have topped up my holding this week as it is currently slipping in price to below $280 – but it is already a big chunk of my Portfolio.

May 2020 – End of Month Update

Governments around the world have been mostly doing their job responsibly and adding stimulus to the world economies in these troubled times. In response to this, the Federal Reserve bank of Cleveland have stabilized the probability of a US recession within the next year at 19.4% (below Slack Investors threshold of 20% – so stop losses on index stocks are in hibernation). There has been some real optimism in the markets with further big monthly rises in all followed markets ASX200 +4.2%, FTSE100 +5.4% and S&P500 +7.6%.

The rise in the ASX200 has Slack Investor back into the market with a weekly change in momentum of the weekly charts signaling a BUY. It’s all a little bit crazy … but I am back to all IN! The 11-Period Directional Movement Index (ADX) change of greater than 0.6 is used as the momentum indicator for entry with the complexities of this process explained on the Resources page.

Weekly chart of the ASX200 Index showing the weekly price ranges and the three lines of the directional movement system for momentum trades below – incrediblecharts.com

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

April 2020 – End of Month Update … The Real Cost of Early Super withdrawl

In relaxed lock down through the courtesy of COVID-19. But the stockmarkets never sleep.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 20.0% but there has been some optimism in the markets that there might be an eventual end to this wicked virus crisis. Rises in all followed markets ASX200 +8.8%, FTSE100 +4.0% and S&P500 +12.7%.

The rises in the UK and US have got Slack Investor back into the market with a change in momentum on the weekly charts signaling a re-entry. But it is with much trepidation – the rapid recovery seems to have been priced in a bit early!

Slack Investor has outlined in many posts about how to get out of trades with stop losses. But has been a bit lacking in detail on when to get back IN. When trend trading, my main tool for finding a buy signal is a trend following (or momentum) system called the Directional Movement Index. There are many ways of setting up this system. Slack Investor likes the “smoothing” that is enabled by a system that looks back over the previous 11 periods – but the complexities are best left for the Resources page.

UK Index weekly chart showing the weekly price ranges at the top and Average Directional Movement Index (ADX) patterns below – From Incredible Charts

I am quite comfortable with the re-entry into the UK Index shown above, but the rapid swings for the US charts have the Slack method back IN, but so far, performing worse than the “buy and hold” method. I will continue this index market timing experiment for another 4 years (to make it a 20-year trial).

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

Super Withdrawal … should you?

“A Run On the bank” an etching from the 1930’s – from sutori.com

The Australian Government has gone into real governing mode and set up some measures to help people get through this COVID -19 crisis. They have established “JobKeeper” payments ($1500 per fortnight), doubled “JobSeeker” payments (up to $1100 per fortnight), and allowed the unemployed and people whose hours have been cut by 20 per cent to access up to $20000 of their super early. There are some rules.

Slack Investor understands that times are tough for the many who have lost their jobs, but is disturbed that 881,600 people had registered with the government for early superannuation access – and this could blow out to 1.5 million people. Unfortunately (particularly if you have credit card debt), this will be a necessary step for some. Slack investor implores those affected to exhaust all other options first – an early superannuation withdrawal does have repercussions further down the track.

Comparing potential withdrawal impacts at different ages

Investor’s current age	Years to retirement	Value of $10,000 at retirement	Value of $20,000 at retirement
67	0	$10,000	$20,000
57	10	$17,908	$35,817
47	20	$32,071	$64,143
37	30	$57,435	$114,870
27	40	$102,857	$205,714

Source: Vanguard calculations – These calculations show a significant projected eventual cost of super withdrawal. However, these raw figures do not allow for inflation. A projection allowing for inflation (2%) using the smartasset inflation calculator shows that the $10 000 withdrawal after 40 years will grow to a still significant $46578 in 2020 dollars ($102857 in 2060 dollars).

Slack Investor knows that accessing cash like this has consequences and that people should make an informed choice between their short term financial need and their long term financial position.

There is also the effect on your insurance with the withdrawal of super … if you go to a zero balance, your super-related death and disability insurance will cease. Even if you return to work, it will not automatically reinstated until your account balance reaches $6000.

A real-life example from the Slack Investor chronicles. A long long time ago in 1982, a 25-year old Slack Investor wanted to travel overseas for the first time. Funds were a bit short and he had saved some money … but not enough for a whole year travelling. I had a superannuation balance of $3500 (This would be worth almost $10000 in 2020 dollars using the smartasset inflation calculator).

Back in those days, prior to compulsory super, you were allowed to cash your super in – and I stupidly did. To save up this kind on money would have taken another 3 months of saving and working – I chose the instant gratification.

Slack Investor is a great believer in the “tried and true” problem solving method of

Research – Weigh up the pros and cons …
Make a decision
Move On … No Regrets – you have made the decision with the available facts.

However, the pulling out of my super when I was in my twenties is one of the few things that brings me just a tinge of regret.

The Hesta Retirement Balance Projection Calculator shows that my $3500 would have grown to nearly $31000 at my 62-year old retirement date (Assumptions: at 8% growth and 2% inflation). Slack Investor likes this calculator as it allows you to set assumptions that help account for inflation as well as growth.

Perhaps if I had just delayed my trip by a few months and worked a bit longer, I might have been able to retire just a little bit earlier. Ah well … we make our decisions and … such is life.

Be safe, be kind … and make an informed decision about releasing your super early.

March 2020 – End of Month Update … Keep Calm – and stay in the Bunker

Ooooh … COVID-19, that is some virus! Well, the world seems a changed place now as we stay in our homes and contemplate obscure recipes for hand sanitizer. Slack Investor reaches out (from a safe distance!) to all who have lost their job or know someone who is badly affected by this pandemic. Investing seems like a peripheral activity in these times.

In the bubble world of share markets, an official Bear market (Fall of over 20% from a peak) has been established in a remarkable two weeks! There have been wild swings in both directions. This crash, in value and volatility, is unlike previous share crashes

” Rates of transacting (velocity) across global markets has been high and a good deal higher than in previous crises. Electronic systems provide a catalyst to embed the panic (uncertainly) into the pricing. We’ve seen huge swings in prices, at increased transaction rates.”
Kylie-Anne Richards from The Conversation

In these crazy times, I am not sure if this number means much, but the Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 20.6% on their latest figures – but next months update should account more for Coronovirus effects. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”.

Last month, Slack Investor bailed on the UK FTSE and now is pulling the cord on Australian index shares (ASX200 down 21.2% this month) and the US Index S&P 500 (down 12.5%). So I’m now OUT for all my index funds.

*Monthly chart of the ASX200. The latest cycle is showing a buy at 5252 and a sell at 5076 – a loss of 3.4% – From Incredible Charts*

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.

Keep Calm and stay in the Bunker

Nuclear Bunker at Broadway Tower, The Cotswalds

Slack Investor has been told to stay in his home to avoid becoming a vector for virus COVID-19 (a shortened form of “coronavirus disease of 2019″). Hurrah for Big Picture government – All well and good. The governments are at last acting like “Grown Ups” and governing. Similar advice should apply to managing your exposure to shares – Just stay in your Bunker!

In the last post, Slack investor outlined he has two systems going with his shares. For the past 16 years I have been running an experiment in trying to time the market with index funds with decisions made on a monthly basis. The results so far indicate that there is an advantage in “timing the market” – but that advantage is relatively slim. The yearly gain for the Slack Monthly method over the ASX Index, UK Index, and the US Index, respectively is 2.7%, 2.3% and 0.3%. These relatively low outperformance figures might have been outweighed by share dividends if I had held the shares instead of trading out to cash.

The main part of Slack Investor’s portfolio is in growing companies with good management that have had a good track record of increasing dividends. These companies are still held in the Slack fund and should recover when the world resumes a more normal footing.

My experimental index funds portfolio is only 3% of my total investment funds. 96% of my portfolio is still in shares. The time to muck around with your long term investments is not now!

For most people, Superannuation is a long term investment that involves (for good reason) share exposure. There has been some panic moving of superannuation funds to cash. According to Industry Super Australia, members who moved their money from an average balanced industry fund into cash after the global financial crisis were $4000 worse off after three months and $34,800 worse off after five years. To echo Mr Buffet from the last post,

“People avoid selling their house during a property market slump because they are worried about making a loss [and] the same principle should be applied to changing your super fund or investment option immediately after a market drop,”
ISA chief executive Bernie Dean, from The Financial Review

In another move, The Australian government has allowed access up to $20000 of your super. This should be an absolute last resort as the effect of COVID-19 will be around for a few months – and superannuation, for your retirement phase, should hopefully last for decades.

“… before you cash out part of your retirement savings, make sure you have exhausted every last option available to you (including eating baked beans for a few months).
Scott Pape from The Barefoot Investor

As terrible as this current crisis is – some modelling suggests it may not reach its world peak till August. Like previous epidemics and pandemics, it will eventually be over. Until then, Slack Investor will get onto the couch and wait this one out.

February 2020 – End of Month Update … and wisdom of “the Buff” in times of trouble

A wild month in all stock markets with increasing concerns of the punters about virus COVID-19 and its effect on the world population and economy. There is a selling fever at the moment. Slack Investor is no predictor of the future, but he reminds himself that stock prices are set by the market and there are often times when prices exceed the “value” of each individual company – and times when prices fall due to panic selling. Stock markets are volatile and while we frail humans (and a few robots!) are in charge of setting the price – this will always be the case. Some markets have had an official correction (10% fall from their peak). This is quite normal and usually happens after a period of strong rises. Marcus Padley points out that

“Normal” risk is the stock market having a 20 per cent correction every three years and bouncing rapidly afterwards.
Marcus Padley in article from The Age

Slack investor has two systems going with his shares. With his funds that track whole Indexes, he attempts to time the market a little with the use of stop losses. However, for individual companies, I deal with them on a “case by case” basis and think about how this current Coronavirus crisis will affect them. If I owned companies in tourism, international education, airlines, or those who source most of their goods in China – I would be cutting my losses and getting out. If the crisis worsens, and COVID-19 is declared Pandemic, then I would have to have a closer look at my share holdings as health epidemics are a risk to all businesses.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 32.9%. This probability is starting to creep up again. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are “switched ON”

Slack Investor remains IN for Australian index shares (ASX200 down 8.2% this month) and the US Index S&P 500 (down 8.4%). I have not had much luck with the fluctuating FTSE100 and it has breached its monthly stop loss (down 9.7%). So I’m OUT. The latest trading cycle showed a loss of 9.6%. But since 2004, the Slack Investor timing method for indexes has beaten the FTSE “buy and hold” strategy by 17%.

Monthly chart of the FTSE100. The latest cycle is showing a buy at 7279 and a sell at 6580. From Incredible Charts.

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

When “the Buff” talks … Slack Investor Listens

It is not unusual for Warren Buffet to expand on his thoughts on investing. Every year his investment company Berkshire Hathaway reviews the last 12 months and gives a fair chunk of investment thinking according to Warren Buffet and his distinguished offsider Charlie Munger. The full 2019 year letter is here.

Year after year the advice is remarkably constant.

“What we can say is that if something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments.”
Warren Buffet from the Berkshire Hathaway annual letter for 2019

In other words, despite the world-wide Corona virus inspired rout on stock prices, “the Buff” feels quite comfortable with his exposure to shares “over time” and feels confident that his portfolio will outperform bonds and cash.

Warren Buffet tries to tune out the daily fluctuations in share price and he has always said that investors should see themselves as long-term part owners of corporations. “The Buff” looks for companies with low debt, good management and a high return on equity. Mr Buffet does not anticipate selling any of his top 15 stock holdings.

Corrections aren’t much fun, and Slack Investor has as much investing prowess as Mr Buffet’s toenail, but, Like “the Buff”, I would rather have the bulk of my investments in good companies than anywhere else.

January 2020 – End of Month Update … and Super Australia

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The ASX probably had a bit of catching up to do and put in a big month (+5.0%) – These type of rises make Slack Investor nervous! There was also an opportunity to revise upward the stop loss for the ASX 200. When the share price gets to be 20-25% above a stop loss on the monthly charts, I usually look for a sensible place to put a new stop loss at a higher value. The ASX 200 is still in an uptrend – and a “Higher Low” had been established at 6396 on the monthly chart. The Stop Loss was moved upward to 6396.

The FTSE100 (-3.4%) lost last month gains and the S&P500 was flat at (-0.2%). Both are still well above monthly stop loss levels.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 25.9%. There has been not much change in the past 3 months. There was a peak at 41% five months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are still “switched ON”

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

The introduction and growth of Australian Super

Former Australian Prime Minister and Treasurer, Paul Keating introduced compulsory Australian Superannuation and often used “cut through” language. In this case, to reporter Richard Carleton. Background on what constitutes a “pissant” can be found at grammarist.com

Not really a fan of insulting language but sometimes it is necessary to cut through, and Paul Keating was a master of this art. Imagine what it was like back in 1991 – where Keating, with the help of Trade Union Leader Bill Kelty, was able to convince Australian unions and workers that an overdue 3% pay rise should go into compulsory savings. Instead of going into worker’s pockets, he argued that the payrise should go into a retirement scheme called “superannuation”. ABC economist Peter Martin describes this incredible feat of persuasion as a means to avoid inflation at a critical time in Australia’s economy.

The most excellent compulsory Australian super has been going since 1992, accounts for 9.5% of workers income, and now stands at 2.9 trillion AUD . According to ASFA, Australia is the 4th largest holder of pension fund assets in the world. But the Productivity commission says that super fees are still to high and that some super funds are duds. For most of your working life, you should be in a “growth” fund that is not a dud!. The Chant West compiled funds below have an excellent track record over 10 years – a good place to start.

From Morningstar, using *Chant West growth funds data, (61 – 80 per cent allocation to growth assets).* *Performance is shown net of investment fees and tax.*

New Australia Day please

In contrast to many current day politicians, Paul Keating was a real leader, prepared to argue the case for a proposal – even if it wasn’t initially popular.

Australia Day is currently celebrated on January 26th – The anniversary of when Captain Arthur Phillip took formal possession of the colony of New South Wales in 1788. This date does not sit well with many indigenous people who understandably see this as a commemoration of “invasion day”. It is time for a new date! – the anniversary of the opening of the first Federal Parliament in Melbourne, 9 May 1901 has been suggested.

May might be a bit cold though. Noel Pearson suggests the more inclusive celebration of both the 25th and 26th of January. The first day a recognition of the 65 000 years that indigenous Australians occupied the land – and a putting to bed the false idea of “Terra Nullius”. The second day, a celebration of modern Australia.

Nice work Noel … I am sure Paul Keating would approve – and two holidays instead of one … very Australian.

*Some thoughts from Paul Keating (and his speechwriter Don Watson) in his landmark Redfern Speech in 1992* from NITV 25-year anniversary of this address.

December 2019 – End of Month Update … and the decade of asset appreciation

Apologies for the late post this month – just returned from holidays. 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 strong monthly rises. The FTSE100 (+2.7%) probably due to the resolution of the British Election; and the S&P500 (+2.9%) had good employment data and their economy is going OK. I add these comments as a bit of mindless speculation in hindsight. The ASX200 (-2.4%) did not do so well in December … not sure why … but (please insert your own reason here). Might be what the great leg-spinner Shane Warne calls “Natural Variation”.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 27.0%. This has been steadily reducing since a peak at 41% four months ago. The current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are still “switched ON”

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

The ‘Twenty Tens’s – You should have been here!

This was quite a decade with lots of stuff happening. Popular Mechanics has identified 10 bad trends that have developed since 2010. Number one of their list of things we want to leave behind is “Science Denial” A perplexing trend that is encouraged by the internet and the desire to find “news” sources that reflect your own opinions. Slack investor would hope the 2020’s see a return to rationality – but is not too optimistic.

On the investing scene, the 2010’s were a great time to own assets. After the GFC in 2008/9 there has been a substantial return on most asset classes. This has been led by the US Market which used to be known as the “nation of ideas”

The last 15 years by investment class from Vanguard Australia. After the 2008/9 world recession there has been a remarkable recovery in all asset classes – though cash has lagged behind. This positive trend for over 10 years is very unusual.

The US economy is still going OK, but they have been encouraged by the historical low interest rates and tax cuts. The US (and most other developed countries) has recently lapsed into political tribalism. There has also been Trump’s sanctions on world trade. In the background, there has been a change in the balance of world growth. In terms of global growth, China, India, Indonesia, Russia and Brazil will account for over half of all global growth through to 2024.

It has been a great investment decade but there are always economic cycles and shifts in world economic balance. The 2019 calendar year has also been a beauty – more on this next post. Slack Investor remains on board the investment train … but cautious.

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!

The Real October 2019 – End of Month Update … and Australia’s debt binge

Apologies to my faithful email subscribers, two days ago an unfinished version of this post was released into the ether. Slack Investor has rudimentary skills in the blogging arts and didn’t know how to recall the post. Anyway … this is what it was supposed to look like – with all information updated!

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets are a mixed bag with a flat ASX200 (-0.4%), and a dropping Brexit plagued FTSE100 (-2.2%). The good old US has shrugged off chants of “Lock him up” for their president and the S&P500 has had a monthly increase of 2.4%.

The Federal Reserve bank of Cleveland have the probability of a US recession within the next year at 31.0%, this has been gradually dropping since a peak at 41% two months ago. However, the current value exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

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

Household debt – the couch is getting a little uncomfortable

According to 55,000 respondents to the ABC’s Australia Talks National Survey, debt is a major problem for the nation.

On an individual level, 37 per cent are struggling to pay off their own debts, with almost half of millennials reporting that debt is a problem for them personally …
Australia Talks National Survey

Australia may not be in the top four countries for Rugby these days but we are one of the world leaders in terms of household debt. In fact, we are second only to Switzerland. I am ashamed to say Australia’s Household Debt is world class and edging towards 200% of income. With such a big chunk of our disposable income leaking to debt, it is no wonder that recent interest rate cuts are not having much effect on the economy as Australian consumers try to tighten the belts. According to the Reserve Bank, it seems that, with stagnant wages growth, most are coping with their debt by reducing their consumption.

Basically, the Australian economy is facing a long period of sluggish demand growth as our record high household debt becomes a giant millstone around the economy’s neck.
From macrobusiness.com.au

Debt can be multi-headed with mortgage, credit card, personal loans and education components. The ME Bank survey has found that there is stress in some parts of the community. If your employment income is steady, in these reducing interest rate times, the fortunate have been able to keep up existing monthly payments to reduce overall debt. This is a good strategy. Most Australian homeowners are ahead of their payments – so there is a bit of a buffer. RBA statistics show that the average borrower is almost 36 months ahead of their required payments. Though, there are worrying signs in some households.

Of households with debt, there was an increase in the
number expecting they ‘will not be able to meet their
required minimum payments on their debt’ and ‘can just
manage to make minimum payments on their debt’ in
the next 6–12 months – 43% combined compared to
38% in December 2017.
ME Bank survey

With the number of mature-age Australians carrying mortgage debt into retirement increasing rapidly, many are intending to use a portion of their super (which was supposed to fund retirement!) to try to extinguish their debts when they retire. The ME Bank Survey found that even with compulsory superannuation, only around 18% of households expect to ‘fund retirement with their own super’ (down four points in the past six months). The proportion of households expecting to ‘use both private savings and the government pension’ increased two points to 42%.

I hope that our politicians have a plan for all of this – although, as this involves a bit of thinking beyond the next election, I doubt it!

September 2019 – End of Month Update … and Portfolio Trim

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. The Slack Investor followed overseas markets have had a bit of a recovery this month ( ASX 200 +1.3%; FTSE100 +2.8%; S&P500 +1.7%).

The Federal Reserve bank of Cleveland have the probability of recession within the next year at 37.9%. This exceeds the Slack Investor threshold of 20% and my monthly stop losses for Index funds are definitely “switched ON”

All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index). As it is the end of the quarter, the Slack Portfolio has been updated with some readjustment of the portfolio and a solid whack of cash (5.1%).

Trim the Sails … things might get rough

Trimming the Sails by Anton Otto Fischer – from Artnet

The economists at the Cleveland Fed are rating the chances of recession as significant. This is enough for Slack Investor to do a little portfolio trimming and try to dampen the effect on my capital if a recession does happen. I am a long way from going “all the way” and converting my entire share portfolio to cash-like products – though some pundits already have. There are a few reasons for this Slack approach

I am not a very good predictor of exactly when things might go bad
The returns for the safety of cash are not good at the moment, under 2%
I have a buffer of cash income that will help me weather through any economic downturn without having to sell any stocks at downtrodden prices – Those without a cash buffer or subject to sequencing risk should take a more prudent approach than Slack Investor.
Most of my stocks are producing reasonable dividends

Sequencing risk peaks in the seven or so years before and after retirement. Investors at this stage have a higher retirement balance and typically more of it invested in shares, meaning they have more to lose if sharemarkets tumble …
From an AFR article by Tony Featherstone

Sequencing risk refers to the possibility that a retiree that depends on his savings for income may have his capital (and future income) greatly reduced by a sequence of poor returning years (such as a recession!). The retiree would be in danger of having to draw down on capital at depressed prices.

A solution for retirees to the problem of sequencing risk is to set aside 2-3 years of income in cash assets that can be used for income while the underlying assets are waiting to recover. This strategy avoids a “fire sale of assets” during a recession.

Those younger folk still in the accumulation stage can hope that any future economic downturn does not affect the employment market too much – Jobs and income are a key to survival in tough times. As far as investments are concerned, the effects of a recession are only temporary and things will recover (see chart below). Downturns are a good time to start buying if you have any spare funds.

I am happy with my minimal trim approach as I generally invest in solid money earning companies that may suffer in earnings during a recession … but wont go broke and disappear.

For stock owners, recessions and economic downturns are only bad if you have to sell your stock before the inevitable recovery. In these trying times I am often comforted by long term share charts. Please note that any downturn is always followed by a recovery- though in some cases, it may take a few years.

This Long-term S&P chart for US stocks over 120 years (On a log scale). Periodic recessions are shown as grey columns – and the ability of stock prices to recover after any major world crisis is illustrated by the general increase in stock prices as you go forward in time. -From Business Insider Australia

My Slack trimming strategy has several components

Sell some of my stocks that have increased in price and now have extremely high PE Ratios – Although some, like Altium, are hard to let go. They are “old friends” and I am very sentimental to consistent company performance over many years.
Increase the weighting of my portfolio towards cash or bonds or fixed interest.
Try to be invested in companies may not suffer too much during an economic downturn i.e. Healthcare, Essential products.
Re-focus on dividends – the dividends might reduce a little in a downturn but the income is important. Dividends have in the past been much less volatile than share prices.

I have not changed the core of my portfolio, just fiddled around with 20% of it. Some more detail on the portfolio trimming in the next post.