Technical Analysis | Slack Investor

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.

August 2019 – End of Month Update … and “I’ll Give you a Yield Curve!”

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 taken a bit of a savage beating this month ( ASX 200 -3.1%; FTSE100 -5.0%; S&P500 -1.8%). Thanks Boris and Mr Trump!

As well as this turmoil (kind of normal), my monthly looking at the charts this month has revealed that I have forgotten to adjust the stop loss upwards – I should have done this last month. My rule is that when the monthly index chart forms a new “minimum” and the monthly range drops below the black 10-month average line, a new minimum is formed and I should adjust upwards the stop loss. I have done this for the UK index (shown above in the green circle) and also the US Index (see the index pages for details).

I still remain nervous about the current situation. However, checking out the US Yield Curve indicator at GuruFocus , this indicator has oscillated to negative again. Because of its fluctuations, I have decided to switch to a “Probability of Recession” Indicator (see below). My monthly stop losses for Index funds are now “switched ON”(see below).

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

Inverted Yield Curve … Probability of Recession … Yeah Baby!

Tributes to the great Mike Myers for creating the most excellent character Austin Powers … I could see Austin becoming obsessed with the yield curve… Maybe not … Credit to Austin Powers: International Man of Mystery (1997)

The Inverted Yield Curve has been all over the financial and even mainstream press lately – as a possible predictor of recessions. There is some contrary evidence of an imminent recession due to continued good employment in the US, but most economists have some faith in the predictive power of the yield curve. Slack Investor will admit to not knowing much about this till recently … and is still learning. I wanted to develop a way for me to know when a slip of my index funds below a stop loss was Really Serious! – and not just a temporary downturn that would shake me out of a position … and then recover. This is the battle that a trend trading investor often has.

Trend-following systems either suffer from a large number of shake-outs or are slow to exit when the trend reverses; and often both. You can’t have your cake and eat it.
Colin Twiggs, founder of the excellent Incredible Charts and The Patient Investor

Slack Investor typically wants his cake and to eat it! – and is always on the lookout for a way for this impossible thing to happen.

Slack Investor has often made a virtue of using other peoples work in areas that require a lot of effort and research. I am happy to outsource my Inverted Yield Curve study to the boffins at the Federal Reserve Bank of Cleveland who supply a monthly prediction of the likelihood of a recession using the slope of the yield curve and GDP growth to provide predictions of future GDP growth. Like all good researchers, they caution not to take their predictions too literally but a glance at the chart below show that when the Reserve Bank of Cleveland Fed predicts a probability above say 20%, a recession (the grey columns) usually (not always) follows. As I am feeling my way on this one … I will use the predictions above 20% barrier to make my stop losses live! They currently have the likelihood of recession within one year at 44.1% … so all my stop losses are “live” at the moment.

The Fed Reserve Bank of Cleveland are predicting a 44.1% chance of recession within one year based upon end of August data. The Grey columns are the recessions, the blue line are the Cleveland Fed’s past predictions and the red line “gazes” into the future.

Financial Year 2019 Slack Results

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
Warren Buffet

The art of getting things mostly right is all that Slack Investor wants to do – this is a theme that echoes throughout this blog. Slack Investor does not aim for perfection – good enough is good enough. Along the way will be fantastic opportunities that I missed out on … but that’s OK too.

Though not in Mr Buffet’s league, stock pick failures are something that we both accept – providing that they are not too common! Mr Buffet probably has regrets about his $US14 billion stake in Kraft Heinz … but unlikely to be losing any sleep about it. The Slack stinkers were outlined last post – again, no sleep lost. There will be times when the entire Slack portfolio goes negative – A good example is the first half of last financial year, From July 01 till December 31 2018, things were grim with the Australian Market down 9% and the Slack Portfolio down over 10% and the journey so far this financial year has been “wild and woolly”.

ASX 2oo Weekly chart for FY 2019 (01 July 2018 – 30 June 2019) – Incredible Charts

Slack Performance Results FY 2019

Performance results are before tax and, despite being over 10% down at the end of December, the Slack Portfolio grew a creditable 19.7% for the year. Full yearly results with benchmarks are shown in the table below. I have changed the residential property benchmarks.I am now using Corelogic Total Returns. This benchmark accounts for yearly asset price change as well as the gross rental yield. This provides a better benchmark for me as it reflects total return and answers the question – Would Slack funds be better deployed in Australian real estate?

In a 6 out of 10 years, the median balanced fund has done considerably better than asset growth plus the gross rental return from median Melbourne residential property. In 8 out of 10 years, the Slack fund has done better than Melbourne Property returns.

YEAR	SLACK FUND	MEDIAN BAL	VGARD GROWTH	ASX200Acc	RES BRIS	RES MELB	CASH	CPI
2010	6.6	9.8	12.3	13.1	10.8	26.9	4.2	3.1
2011	2.5	8.7	9.1	11.7	-2.4	0.9	4.4	3.7
2012	8.3	0.4	1.3	-6.7	1.3	-0.9	4.3	1.2
2013	26.5	14.7	18.6	22.8	7.7	8.3	3.2	2.4
2014	23.6	12.7	14.5	17.4	11.5	12.8	2.6	3.0
2015	2.4	9.6	11.8	5.7	7.7	15.6	2.5	1.5
2016	14.2	2.8	4.2	0.6	8.4	9.5	2.2	1.3
2017	19.5	10.4	8.8	14.1	6.5	17.7	1.9	1.9
2018	37.6	9.2	10.0	13.0	1.1	5.2	3.9	2.1
2019	19.7	7.2	9.8	11.2	1.7	-6.0	2.0	1.3

The Slack Fund yearly progress vs BENCHMARKS. The Median Balanced Fund, Vanguard Growth Fund, ASX 200 Accumulation Index, Corelogic Residential Property total return in both Brisbane and Melbourne, and Cash (Online bank Interest) and Consumer Price Index (CPI)

The Five-year compound annual performance gives me a much better idea about how things are going and will smooth out any dud (or remarkable!) results.

The compounding nature of a succession of good performance results can be seen in this growth of an initial investment of $10000 chart.

Thanks to Vlad Kolarov for a good image that might sum up Slack Investors situation.

Well, so far so good … but trade wars, Trump, China and the constant press about the next recession are starting to make Slack Investor worry whether he has got any concrete shoes on. A momentary lie on the couch and a modest celebration for the good results this year and it might then be time for a review of the portfolio. A clean out of some of the companies that I am a bit doubtful about … and a think about what companies, or ETF’s, might do OK if a recession was to occur in the next 6 months to two years. Slack Investor has poor form in trying to predict the future … so wholesale changes are unlikely, but a tinkering around the edges of the portfolio might just be the right thing. In the wise words of Peter Lynch …

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.”
Peter Lynch, One Up On Wall Street:

July 2019 – End of Month Update … and FY2019 Nuggets and Stinkers

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 all in positive territory this month ( ASX 200 +2.9%; FTSE100 +2.2%; S&P500 +1.3%). All markets are still “exuberent”. However, checking out the US Yield Curve indicator at GuruFocus , the indicator again shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

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

Slack Investor Stinkers – FY 2019

Stinkers are part of investing in growth stocks. Growth stocks usually have a high Return on Equity (ROE>15%). By their nature, they have a relatively high PE ratio and are usually punished in the markets during reporting season if there is any bad news – and I am not too worried when this occurs – It is the total performance of the portfolio that counts. If they breach their monthly stop loss – I will review the stocks and ask myself the question – Factoring in what I know now about this company, would I still buy this stock at its current price? – If not, out it goes!

The percentage yearly returns quoted in this post include costs (brokerage) but are before tax. This raw figure can then be compared with other investment returns.

Costa Group (CGC) -34%

This should be a lesson to Slack Investor … try to avoid growth companies that do not set the price of its products i.e. are “price takers”. This agricultural company had some earnings revisions during January and May due to weather and some difficulties in their Morocco operations. I have hung in and still own the company as it looks cheap on projected price earnings … but another downgrade would test my good humour.

Costa Group (CGC) Daily Chart with some bad news in January and May 2019

Challenger (CGF) -30%

I have been listening to the story of this company for ages. Its income products (annuities) should really appeal to the retiring baby boomers. However, there has been a long slide in price of its shares. In a bit of “hands on” research, I had a look at their CarePlus product for a relative moving into Aged Care – Their package was difficult to sign up to, and the web examples used were underwhelming. Perhaps they market more to financial advisors than for retail investors. The good thing about reviewing the chart of a stock every week is that eventually you “wake up”. I sold the shares in March.

Dishonourable mentions to Corporate Travel (CTD), Platinum Capital (PMC) and Worley Parsons (WOR), which all lost more than 10% this financial year.

Slack Investor Gold Nuggets – FY 2019

By investing in companies with high return on Equity with a track record of increasing earnings, you can expose yourself to some pleasant surprises. The Return on Equity (ROE) and forward Price Earnings (PE) ratio values for each stock are found on the excellent Market Screener site.

ProMedicus (PME) +148%

Pro Medicus is an Australian company that produces medical imaging software for hospitals and medical specialists. Their products are used worldwide and there are e projected increasing sales. Their ROE 2020 is an excellent 41%,however, their projected PE ratio for 2020 is over 100. This is dangerous over value territory – and I am watching this stock closely for any price declines. But until then, I am riding this horse home.

Appen (APX) +101%

Appen supplies data services to global tech companies and their language division provides machine-learning technologies for devices. Perhaps because I don’t really understand what they do and because of their high estimated 2020 PE ratio of 61. I said thanks very much and then I got out of this stock last month. However, the price of this stock is still climbing! Ouch!

Rhipe (RHP) +79%

Rhipe is another tech company that I had a speculative interest in. It provides software licences that help their clients transition into a “cloud” environment. Rhipe has a working relationship with Microsoft in Australia but their high 2020 projected PE of 39 makes it another stock that may be overvalued and I am watching it closely.

Altium (ALU) +53%

Another fantastic year for ALU The designing of integrated circuit boards for technology products is proving to be a lucrative business. A high 2020 projected PE of 39 is a concern -but I really am smitten with this company – as they have been great growers of their business.

Service Stream (SSM) +52%

Service stream provides network services to Utility companies. This is the sort of company that Slack Investor loves. A high ROE of 20% and a reasonable 2020 projected PE of 19 with anticipated earnings growth.

Honourable mentions for Slack Investor portfolio stocks AMC and RHC that increased more than 20% in this financial year.

Slack Investor Total SMSF performance – FY 2019

In another good year for shares where Chant West reports median growth super funds made 7%, the FY 19 Slack Investor preliminary Total SMSF performance looks like coming in around 20%. Anyone can fluke one good year so 5-yr performance is a more useful benchmark to me and the Slack Portfolio now has a compounding annual 5-yr return of over 18%.

Not bad Slack Investor … now get back on the couch … with full FY 2019 results and benchmarks next post.

June 2019 – End of Month Update … and “nudging” to good financial habits

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. If last month was a “Risk Off” then for the month of June they have slapped on the crazy pants and become definitely “Risk On”. The Slack Investor followed overseas markets have bounced back from a shocker last month (FTSE100 +3.7%; S&P500 +6.9%) and the ASX 200 powered on with +3.5%. All markets are above the monthly stop losses – but feeling a bit “frothy”. However, checking out the US Yield Curve indicator at GuruFocus shows a weak positive result (Near zero, Just … +0.09%) so my monthly stop losses for Index funds are temporarily “switched off”.

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 Financial year and quarter, the Slack Portfolio has been updated with some stock exits and a gradual build up of cash. Now over 8% – A slack record!

Give us a Nudge

The classic Monty Python “Nudge Nudge” sketch – the full delights of this 3-minute romp can be found on youtube

We frail human beings do not behave rationally. It is easy to project a path to a well funded retirement on paper – yet so few really achieve it. A couple of clever cognitive psychologists , Danny Kahneman and Amos Tversky put some effort into studying human behaviour.

Mr Kahneman, an Israeli-American psychologist and Nobel economics laureate, has delivered a full catalogue of the biases, shortcuts and cognitive illusions to which our species regularly succumbs. In doing so he makes it plain that Homo economicus—the rational model of human behaviour beloved of economists—is as fantastical as a unicorn.
From The Economist – Not So Smart Now

To account for our lack of rational behaviour -it is sometimes necessary to give ourselves a nudge in the right direction by tricking our feeble brains into good habits.

Compulsory Saving

The best way to save money is to convince yourself that you didn’t really have it in the first place – and, as the new financial year starts, this is the time … seize the day and quarantine some of your hard earned cash.

There are lots of ways to do this

Direct debit funds to your Savings account from your transaction account – After every payday, set up a regular direct debit instruction with your bank to divert funds to your online savings account
Add to your Super – Set up with your paymaster to add to your superannuation through salary sacrifice – the first $25000 is taxed at only 15%. Or, you can make a contribution straight from your bank account directly to your super fund but there is a bit of ATO paperwork to claim its tax-free status.
Use a bit of robo technology to set up periodic payments and rounding up of your daily transactions – Use Raiz to set up a savings account that invests your savings in shares and bonds or Longevity to add to your super account – More on these robo bits next post.

May 2019 – End of Month Update … and, that recession vibe

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. In what the cool investor analyst types call a “Risk Off” month there were big falls in Slack Investor followed overseas markets (FTSE100 -3.5%; S&P500 -6.6%) – but for the moment, still above the monthly stop losses. Checking out the US Yield Curve indicator at GuruFocus shows a negative result (Just … -0.05% though!) so my monthly stop losses for Index funds are definitely “live”.

The Australian ASX200 had a positive month (+1.1%) – but this was due mainly to the election of a “business-friendly” government on May 18. General nervousness prevails though.

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

That Recession Vibe

Trump and Xi are shaping up for a trade war and I don’t like the smell of it … especially with news reports such as “If you want to talk, the door is open; if you want to fight, we’ll fight to the end,” said a Chinese TV anchor, capturing the mood in Beijing. – Image from Business Insider

Slack Investor is no great predictor of trends – But, whenever things are going well in the stock market, experienced investors naturally get skittish – Particularly when two belligerent world leaders are at loggerheads. There is a chance that all of this will get solved at the next G-20 in June. But Bloomberg analysts think it is more likely that the trade war will be long, messy—and expensive. Thanks Donald!

(The US economy is going OK) but … other countries remain sluggish or are slowing. Diminishing global growth could drag down the U.S. also. … although the Federal Reserve is now signaling a halt in its rate hiking, it has raised interest rates nine times since December 2015. At some point, those higher rates become the gravitational force that pulls down stock prices.
From Ray Martin at CBS News

All of this uncertainty is talked about constantly in the media and with trade war stuff thrown in as well, as all fans of The Castle know … ” It’s the Vibe!”, When all of this negative stuff gets too much. for a quick recession-busting refresher, try this Youtube highlights clip from the film.

Slack Investor has mentioned one of the pre-indicators of a recession, the US Bond Yield Curve, which has just gone into the “Red Zone”. The economist boffins have been very diligent at Citibank and have tracked a range of 18 economic statistics up to the end of April. The US Yield curve is just one of these and is #6 on the list. They compare current statistics with those from previous “proper” recessions.

The Citibank Global Bear Market Checklist

Citi’s Bear Market Checklist (BMC) shows only 4 out of 18 red flags, and suggests that it is too early to call the end of this ten year bull market. In previous cycles, the BMC red flags have accumulated gradually before rising exponentially in the last year of the bull market. Citi analysts would be more concerned when 7-8 factors are flagging caution.
From Citi Insights

So Slack Investor does what he does best … and leaves the economics research to those who can do it well … business as usual. There are a couple of my individual stocks (CTD, CGC, PMC) that are on the slide and may need attention. I will look at their numbers and outlooks (and charts) again this week on Market Screener . But other than that, I will ease, ever so slowly, into the couch.

April 2019 – End of Month Update … and, Lets Get Concessional

Slack Investor remains IN for Australian index shares, the US Index S&P 500 and the FTSE 100. Bumper times this month.

There were rises in all Slack Investor followed markets (ASX200 +2.9%; FTSE100 +1.3%; S&P500 +3.9%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Concessional Contributions – Lets Get Concessional!

Thanks Jane … You are inspirational to our financial independence – From deskgram.net

If you are just starting your savings program or getting your house deposit together, then this is another higher order issue to leave alone. If you have got the basics organized and have a good chunk of equity in your house, and looking to boost your super in a tax-effective way – then tune in to this super boost before the end of tax year.

Concessional contributions include your employer’s compulsory super guarantee contribution of 9.5% and any salary sacrifice contributions that you make. They are called “concessional” contributions because they go into your super account from your before-tax income and are taxed at the “concessional” rate of 15% rather than your “marginal” rate. You are not allowed to exceed the $25,000 cap on concessional contributions, so it is important to get your sums right.

For a gross salary of $90,000, your employer pays the 9.5% super guarantee of $8,550 to your nominated super fund. That means you have up to $16,450 ($25,000 -$8,550) left on your cap to concessionally contribute to super before June 30 – to save on tax and boost super.

Salaried workers can concessionally contribute by using salary sacrifice, but this involves prior employer agreement and using a salary packaging company to do the administration. Some of the contribution rules have relaxed since July 2017 and you can now contribute by Personal Contribution. There are pros and cons of each contribution method, but as personal contributions don’t need the agreement of a third-party, I find this much easier to do.

You will have to let your super fund know that you are claiming a tax deduction for this contribution. Use a standard ATO personal contribution form or, it is simpler with some super funds where an online application is all that is needed. You must get your contribution to land in your super fund before the June 30 deadline.

Benefits of salary sacrifice and additional concessional contributions

If your marginal tax rate is higher than 15%, making extra super contributions can reduce your tax. For the $90,000 a year example, your marginal tax rate is 32.5% + Medicare levy. Concessional super is taxed at just 15%. If your marginal tax is higher, you can save more. Industry super has a calculator where you can enter your own figures. For the case above, a 45-year-old will have a tax saving of $3222 this year and an extra $405,000 at retirement by maximizing concessional contribution.

From the Industry Super Funds Calculator for a 45-year-old on $90,000 who maximizes their concessional contributions and save $3222 this year – and ends up with an extra $405,000 at retirement with these assumptions.

Let’s get concessional, concessional,
I want to get concessional,
Let’s get into concessional,
Let me hear your body talk, your body talk …
Many apologies to Olivia Newton John … for real inspiration, check out the Olivia on youtube

March 2019 – End of Month Update … and Revised Slack Index Method

Slack Investor remains IN for Australian index shares and IN for the US Index S&P 500. The dogs’s breakfast of Brexit still weighs heavily in my mind but I am buying back IN for UK Index shares – as the FTSE 100 has shown remarkable resilience to the fraught politics of Brexit and displayed a monthly uptrend. I will buy back IN to the FTSE at near the end of March value of 7279 (See UK Index Page).

There were rises in all Slack Investor followed markets (ASX200 +0.2%; FTSE100 +2.9%; S&P500 +1.8%). All Index pages and charts have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

The Slack Monthly Index Trading Method – Revised

Last month I mused about the diminishing returns of the Slack Monthly Index Trading Method. I am still outperforming the “Buy and Hold” investor in all followed markets – but the advantage is slim. Per annum outperformance is 2.9%, 1.2% and 1.1% for the ASX, UK and US markets respectively. Not really fantastic results when you consider that I am missing out on the “buy and hold” dividends for the times when I am out of the markets.

The Slack Index method was devised with a lot of back-testing on 30 years of market performances and does really well when sustained bear markets occur as it gets out of the market at a hopefully early stage in the price downturn. Ideally, the Slack method should stay in the market for the smaller fluctuations (corrections <~10%) and get out of stocks before it becomes a full bear market. The problem with my current strategy is that I am getting “whipsawed” out of the market in these smaller downturns.

Connection between US Bear markets and Recessions

There is a link (not a perfect link!) between US bear markets (drops of more than 20%) and US recessions. In the chart below, the bear markets are shown in thick purple lines and they mostly coincide with US recessions (grey columns).

Modified chart 1920-2019 showing (in purple) the bear markets (where the red US stock prices fall >20%) and the US recessions shown as grey columns – From Gavyn Davies Financial Times – Original source Haver Analytics

All well and good so far, but we want to be out of the markets before a recession … how can we predict recession? Should we ask economists? A recent survey found that 3/4 of those surveyed thought there would be a recession before 2021. This is good to have in the mind … but not that useful in a practical sense. Economists have a poor record in predicting recessions. I don’t mean to be mean to economists … I also have had a career in prediction (weather!) and there are many similarities. Like the atmosphere, economics is complicated, not all factors are known, and not all processes are truly understood – But we do our best!

The “Inverted Yield Curve” as a predictor of US Recession

There might be an answer to predicting recessions by using the US Treasury Bond “Yield curve” . You may have heard about the yield curve (Probably not! but read here) – where short-term US treasury bill yields are compared to long-term yields. Normally, you would expect the yields on your money to be higher the longer that you lock it away – this corresponds to the periods above the red line on the graph below. Usually, the 10-year Treasury bill yield is greater than the 1-year bill yield. However, if there is a very a gloomy US outlook and the Feds are raising rates, you can earn more in the short term. This is when the yield difference [10-yr minus 1-yr (or 2-yr)] slips into negative territory, and you have an inverted yield curve – shown with the thick purple lines below. Note that these inverted yields usually occur one to two years before a recession (grey columns).

*Chart showing where the yeild curve becomes inverted (purple lines) with the US recessions shown as grey columns. Modified from* Morningstar report – original source Gurufocus.com

I love being the owner of companies and much prefer being in the share market than not. I will adopt the brand new exciting Slack Monthly method that should keep me in shares for the smaller downturns (corrections). I will ignore any monthly downturn signals UNLESS there is a sustained period of the US Inverted Yield Curve. I can check this at the end of the month at Gurufocus.com. This should maximise my chances of staying in shares until there is a threat of recession and the expectation of a larger downturn.

Jacinda Ardern shares a hug at a Wellington Mosque – From The Guardian

This has been a tough month for this part of the world – where, in Christchurch, a hate-filled idiot with a gun can a cause so much heartache for decent families. Great respect to the people of New Zealand and their exceptional leader Jacinda Ardern for bringing gun reform and such a strong message for humanity in the wake of this tragedy.

Power to love, tolerance and humanity.

Innovation Boom

Tim Berners-Lee (in the white shirt) demonstrating the world wide web to nerdy enthusiasts at a 1991 conference in Texas. – From theguardian.com

I have been lucky enough to live through one revolutionary innovative idea that has changed the world. The magnificent Internet – a global system of connected computer networks which has been developing since 1983 – but it was Tim Berners-Lee who introduced the publicly available World Wide Web in 1991 – This was a way of connecting the vast resources and documents on the internet through hypertext and URL’s.

It was 26 years ago, in 1993, when things really started to take-off with the first graphical web browser. Imagine how different the world was without the internet innovations such as Search Engines, Web Browsers, Real time streaming, emails, e-banking, online shopping, wi-fi and, my favourite, GPS linked to an internet map.

My portfolio is filled with companies that have made growing businesses based upon this innovative technology. Altium (ALU), Appen (APX), RealEstate.com (REA), Rhipe (RPH), and Seek (SEK) are all companies that make extensive use of the Internet.

The science man in me (Nerdy part) doesn’t really trust a graph without a vertical scale but I came across this image below from an Ark Investment report that really made me think. It puts other great innovations into some historical context and points to a series of new innovations that are predicted to have a large effect on economic activity in the future – One thing I don’t agree with on the image is the author’s notion of tapering off the impact of internet as we go towards 2020. But I can see that at least some of the innovations mentioned on the right will have a big impact on our future.

*Impact of innovations on the economy – ARK Investment Management LLC, 2018 from Ark Invest*

Part of being Slack is not wanting to research all of these head-hurting new ideas myself (but they do sound interesting!) and I think I should outsource this to someone else. Luckily there are a few research boffins at BetaShares that have come up with the BetaShares Global Robotics and Artificial Intelligence ETF – (RBTZ).

The ETF covers two of the emerging innovative sectors, Robotics and AI. This fund invests in an index of companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Autonomous Vehicles and Drones. There is a cost – a management expense ratio of 0.57% ($57 per $10000 invested p.a.). Costs of investment are really important for the total returns on your investments. In this case, this is a cost that I am willing to pay and am looking for an opportunity to invest in the RBTZ ETF soon as I have finally unloaded my Challenger (CGF) shares and have a bit of cash to invest. I will wait till this chart shows some upward price momentum and breaks through the orange line “double top resistance” on the CGF daily chart at $9.15.

Daily RBTZ chart BetaShares Global Robotics and Artificial Intelligence ETF – from incrediblecharts.com

Oh … and in passing, thanks to Sir Timothy John Berners-Lee for that world wide web thing … it was a pretty good idea!

February 2019 – End of Month Update … and Challenger rethink … and Trump

Slack Investor remains IN for Australian index shares and OUT for UK Index shares. The US Index S&P500 has now shown enough sustained positive momentum on the monthly chart that I am buying back IN on the S&P500 today (1 Mar 2019).

Recovery continues with rises in all Slack Investor followed markets (ASX200 +5.2%; FTSE100 +1.5%; S&P500 +3.0%).

A Reprieve for Challenger

Last post I was looking to get out of Challenger … a stock that I have fallen out of love with … due to months of disappointing declining share price. On the day of intended disposal, I noticed that it had gone up 2%. Slack Investor doesn’t like to swim against the tide … and I delayed … it went up again the next day on increased volume – the sign that someone is buying the stock in some numbers. The daily chart started to look like an uptrend was being established. Higher Highs and Higher lows … so, I am still an owner of the stock until this uptrend pattern breaks. This takes a bit more vigilance than Slack Investor really likes as it takes a daily look at the chart pattern … The reasoning is that it is annoying when a stock bounces back immediately after I sell (this has happened a few times!) and I will ride this (could be temporary) upswing as long as it lasts.

Challenger (CGF) Daily chart -From Incrediblecharts.com

Trump

The Donald is never far away in the news. Never boring … frequently appalling. A question in #Quora asked “Why do some British people not like Donald Trump?” An English writer, Nate White, penned this magnificent response in full here – but you can get the jist from the opening paragraph .

Trump lacks certain qualities which the British traditionally esteem.
For instance, he has no class, no charm, no coolness, no credibility, no compassion, no wit, no warmth, no wisdom, no subtlety, no sensitivity, no self-awareness, no humility, no honour and no grace – all qualities, funnily enough, with which his predecessor Mr. Obama was generously blessed.
From an article by Nate White

Further education on the quality of Donald Trump’s character can be found on the Donald Trump sexism tracker. It is a great article that is almost impossible to finish without feeling a little ill – and an uneasy feeling about how we got to this point.

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