In this week's Weekly Insights:

- The Market's Changing Narrative
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV 

The Market's Changing Narrative

By Rudi Filapek-Vandyck, Editor FNArena

And those who were seen dancing were thought to be insane by those who could not hear the music
[Friedrich Nietzsche]

Israeli historian Yuval Noah Harari has attracted worldwide attention since the publication of his book "Sapiens: A Brief History of Humankind".

Initially published in Hebrew only in 2011, there are now translations available in more than 30 languages. The least we can conclude is that Hahari's unique and controversial ideas have found a global audience.
 
Why is it that the homo sapiens has succeeded when others failed? To find the answer the author travels through history, starting in Stone Age times.

The answer is not exactly what readers had come to expect. There is no theory about complicated social structures, or a relatively large brain size. There are no extra-terrestrials involved either.

The homo sapiens managed to climb on top of the global food chain, says Harari, because of its ability to invent stories, and to unite behind them.

The answer thus lies within our imagination. We make things up, create a narrative, repeat it, stick with it and believe in it. It becomes a uniting force as these narratives bind and distinguish. This is how religions came to life, as well as kingdoms and empires, economic and political systems, cities and armies, allegiances and feuds.

It is why, says Harari, there is no difference between Gods, nations, money and human rights. They all exist in our imagination. They're a narrative that bonds and binds, makes us believe and accept, and build the concept of cooperation, of identifying as a group, which is ultimately what allowed us to succeed and to survive, develop into modern day society, and keep the narrative(s) alive.

It's all fiction. Imagination. In the head. But it works.

Different Narrative, Different Dynamics

Investors like a good story too. It's what builds confidence in the future.

Behind every investment decision, every corporate success, every financial gain lays a narrative in which we believe and put our trust. On many occasions, it's the narrative that unites us. On other occasions, it's what divides us.

At the start of 2016, we had all succumbed to the fact the world was caught in a slow moving, negative loop and there simply was no quick fix available. Interest rates were lower for longer, and so was price inflation, and thus bond yields.

Now that we are approaching the end of the calendar year, that narrative is quickly being replaced with one of growth, inflation, central bank tightening and rising bond yields. The end of an era, if we ever witnessed one, is happening right here, in front of our eyes.

Not a day goes by without economists lifting expectations for the years ahead, while commodities analysts are busy revising their price projections upwards.

Looking back at the broad narratives that have guided investors in years past, from Commodities Super Cycle, to lower for longer bond yields, to China 2.0, to gold as the ultimate safe haven, etc, these narratives all seem to have one characteristic in common; eventually they come unstuck, triggering heavy share price falls and serious investment losses.

It's an odd forum, the share market, where investors seek safety and comfort in each other's company, but there's no warning when the neighbours decide to leave and one's left with shrapnel and debris, and no more buyers to help out.

Talk to any funds manager who tried to venture outside of the ruling narrative in 2015 or earlier in calendar year 2016 and you can still see the frustration pouring out of their body language. It was h-o-r-r-i-b-l-e. For a few weeks now the boot is on the other foot. If there's one over-ruling characteristic of the Australian share market it is that the ruling narrative pretty much overwhelms everything else.

In simple terms: you're either "in" with the crowd/trend/narrative, or you're "not". If you are, life can be fun, though there are no guarantees. If you are not, you are guaranteed not going to have any fun.

Last week I visited a stockbroker who felt so bad, he had started calling his customers to apologise for the unsatisfactory performance over the past few months. The response from his clients? We have money under management elsewhere, plus we manage our own portfolio still. No need to apologise, you're not at all out of synch.

Have You Been Trumped?

Trump isn't even President yet, but he has already single-handedly upset global financial markets. Sure, there's a valid argument to be made financial markets had started to anticipate a change in dynamics after the Bank of Japan indicated in July monetary policy couldn't possibly stretch much further, but since Trump's victory there's no more gradual adjusting, no more doubt and discussion, there's now one narrative, and one only, with no room left for anything else.

Whatever happened to the old adage that rising bond yields, inflation and a stronger US dollar act as a headwind for equities?

The ruling narrative is those negatives will be compensated for through fiscal incentives and corporate tax cuts, hence the net effect will still be positive for corporate America and thus for US equities.

Here in Australia, the Big Switcheroo has ignited a rally in "value" stocks (cheaply priced cyclicals) and triggered a come-back for Large Caps over Small Caps. These two moves have thus far dominated just about anything else. Shareholders in Aristocrat Leisure ((ALL)), to name but one example, are still waiting for the stronger USD to be priced in the share price, which is what usually happens.

Not this time.

If you're holding shares in Aristocrat you are currently not "in" with the trend, regardless of the fact the company just reported a strong FY16 report that triggered upgrades to future forecasts.

We can all but guess how long it will take before shares in companies like Aristocrat refind their former mojo, but my guess is most investors do not care. They will simply move on to where the grass is greener; commodities and other cyclicals.

Speculation Running Hot

Last week, Peter Warnes, Head of Equities Research Morningstar Australia, warned readers of the old Huntley's newsletter, nowadays retitled "Your Money Weekly", daily iron ore contract volumes in China are up over 400% from 2015 levels.

Warnes joins a long list of others who are worried about excessive speculation behind the recent burst in prices for bulk commodities, and base metals and agricultural futures too. He is correct, of course, and investors participating in the trend du jour should prepare for more volatility, at the least.

But I think what we are witnessing is likely only the early stage of what is colloquially referred to as the reflation trade. It means investors start piling larger chunks of their funds into resources in anticipation of higher interest rates and higher inflation, and in doing so, they are creating the dominant trend in markets, which then attracts more and more trend followers, with the ultimate outcome likely a self-perpetuating process whereby higher inflation becomes the result of higher commodities prices.

Early indications are this is happening right now, and despite serious gains for share prices in BHP Billiton ((BHP)) and Rio Tinto ((RIO)), not to mention Fortescue Metals ((FMG)) or Whitehaven Coal ((WHC)), this process still is in its infancy.

Hence why people ask me when do you think the run in commodities might come to a halt?, my answer is: don't just focus on the potential downside, this is likely to stretch a lot further than you are prepared for.

The Big Revival

Investors who need a little more convincing can draw extra confidence from the latest update on the outlook for commodities by Citi's global team of experts. Under the title "Reflation, Risks and the Rocky Road to Recovery", Citi analysts paint a picture whereby enough elements are falling into place to sustain an uptrend in the price of most commodities throughout 2017 and 2018.

Citi sees most markets re-balancing on the back of higher global demand, supported by higher growth assisted by ongoing stimulus in China and now also the USA under President-elect Trump. Part of the additional supply story is likely to be distorted by rising cost inflation, which is one factor that hasn't featured on many investors' mind lately.

It means that frackers in the USA today can re-start production from US$50/bbl onwards, but when operational costs rise, they are likely to require a higher minimum price level. The same dynamics are in place for iron ore, nickel, et cetera.

To illustrate Citi's bullishness on the commodities space, the report only identifies a few lone commodities for which the analysts stick to a bearish outlook: the bulks iron ore and coal (both thermal and coking) because too much speculation has pushed up prices too far, too fast; soybeans because of exceptional weather and exceptional crops, particularly in the US and Brazil; and gold, because a stronger USD and rising US bond yields are bullion's worst enemies.

In line with Peter Warnes' warning earlier, Citi analysts do note there is a lot of money flowing into commodities in China, if not through government inspired stimulus, or to stock inventories, then from financial speculators.

If Rip Van Winkle had fallen asleep in 2002 and only woken up now to read Citi's latest assessment, he'd think we are about to experience a Big Revival for natural resources, I kid you not. I lost count how many times Citi analysts signal the risks remain to the upside.

Banks And Targets

Looking back over the year past, the price chart for the ASX200 suggests we have gone through five clearly distinguishable peak and trough cycles. The current movement might be number six.

To say the year has been volatile doesn't do it at all justice, in my opinion. But we are on track to put in a better performance than in either one of the past two years; at least if you are a follower of the index or your portfolio is very much in synch with the ruling narrative.

Given commodities and cyclicals are more volatile in their own right, and they are now a core element in the ruling narrative across global financial markets, and given a Trump Presidency is adding to global uncertainties and sensitivies, it might be foolish to expect 2017 is going to offer something completely different than what we've experienced in 2016.

I also note Australian bank shares have, post the January-February sell-off, tried to break above consensus price targets four times. This neatly coincides with the share market temporarily peaking before the next move downwards.

The Big Four Banks are currently again trying to push boundaries. Assuming they fail, this could well mean we should not expect this market to move much higher from here. Instead, we might see some weakness instead before 2017 truly announces itself.

This, however, won't change the core narrative for the year ahead. Though admittedly, if you'd asked me one year ago, I would have told you the same thing, based upon a completely different narrative.

***

This is my final Weekly Insights for the year. I wish you all a wonderful festive season, a healthy break and lots of luck in the share market.

FNArena will be taking a break between Christmas and January 16, 2017. We'll be making final amendments and adjustments to our new website in the meantime.

Here's me hoping you have enjoyed, and will continue to enjoy, my Weekly Insights. See you all in the New Year.

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

- At the ASA Conference 2017, Grand Hyatt Melbourne, 15-17 May 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: https://goo.gl/XVMzmP

See also further below.

Rudi On TV

- On Tuesday, around 11.15am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
- On Thursday, I shall appear on Sky Business, 12.30-2.30pm
- On Thursday, I shall make an appearance on Switzer TV, Sky Business, between 7-8pm
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 5th December 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until November 30th. Paying subscribers can request a copy at info@fnarena.com

In this week's Weekly Insights:

- The Return Of Growth
- Fool's Gold? Know Thy Enemy!
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV 

The Return Of Growth

By Rudi Filapek-Vandyck, Editor FNArena

You are in a minefield. Tread carefully
[equity strategy update, Shaw and Partners]

Investors globally have started to anticipate an acceleration in growth, which should fuel inflation, pushing up bond yields and thus real interest rates.

I don't think there's any controversy surrounding that opening sentence. Yet the multiple ramifications and machinations behind ongoing adjustments in financial markets are probably best served up in bite-size, easy digestible slices, as is the purpose of today's preview on the near future.

The (Limited) Return Of Growth

For six long years the world has remained stuck in a gradual but persistent, decelerating growth environment and it wasn't like things were hunky dory in the years preceding 2011.

Now the world has decided 2017 and possibly beyond should look a lot better. This view is partially centred around tax cuts and infrastructure stimulus in the USA by the as yet to be installed Trump administration, assisted by the Republicans commanding full control of both chambers of Congress.

Two points of contention are generally dividing global forecasters: is GDP growth really going to jump to 4% as The Don has claimed and are Republicans going to facilitate mass increase in government debt to facilitate grand scale economic stimulus?

The answer to question number one appears to be a resounding "negative". The lack of government spending hasn't been the sole factor holding back global growth and the Trump administration cannot fix demographics, globalisation, the modern tech revolution, et cetera. These are all important negative impacts on today's GDP growth in the USA and elsewhere.

Others argue US labour markets already are approaching tightness, while the output gap has been shrinking. Too much government stimulus on top will simply create a lot of inflation, which forces the Federal Reserve into tightening mode and bond markets in an accelerated upswing. This is not positive for investment, real growth or job creation in the country.

Does Donald Trump want an equities bear market in the first or second year of his Presidency?

Probably not. Which is why there remains a lot of uncertainty about what exactly can and will be executed once the President-elect moves into the White House. Meanwhile, it might be easiest to start a man hunt for unregistered, illegal immigrants and to put up a fence along the border with Mexico.

Such initiatives may not be warmly welcomed by investors and other stakeholders across the world.

Note also: US government debt is already projected to rise significantly without the proposed tax cuts and infrastructure spending stimulus.

The Return Of Growth In Australia

Investors should note improving prospects for global growth are at this point predominantly carried by the USA post-Trump and by certain Emerging Economies that have gone through hell in recent years, such as Brazil and Russia. India is one notable exception.

Otherwise, all of the UK, Europe and China are still believed to be in a down trend, and to remain in that down trend. Opinions about Japan remain sharply divided (not that it makes such a big difference).

Australia, like other commodity producers (see Brazil, Russia), will be enjoying the benefits from higher-than-expected commodity prices and this should bode well for government revenues, consumer spending and business investment. This is why economists are revising their forecasts into no more rate cuts from the RBA.

The domestic labour market is only strong at face value; actual jobs creation is weak and a general preference for part-time explains the low increase in real income enjoyed by most Australians. This is the key reason as to why some economists are not as yet giving up on more RBA rate cuts next year.

A similar observation applies to the sudden, sharp improvement for corporate profits in Australia; it's almost without exception resources based, more mining than energy, more bulks than base metals. Underneath the generalised averages and percentages, corporate Australia ex-mining remains very much in struggle street.

Investors do not need to look any further than the AGM updates and out-of-season profit reports this month. In most cases analysts' forecasts are being reduced. In a number of cases, share prices get slaughtered.

Portfolio Rotation

Valuations in general are not cheap, with exception of the laggards who've been de-rated in years past (banks, mining contractors) and mining companies whose profit and cash estimates continue to enjoy strong upward momentum.

Current market projections for BHP Billiton, to name one example, imply 260% improvement in earnings per share (in USD) and a 60% rise in shareholder dividends. These estimates remain subjected to further increases, assuming commodity prices do not collapse in the months ahead, so don't be surprised if by next year August the actual gain achieved will be 300%+.

For Whitehaven Coal, projected increase in earnings per share for the current financial year is in excess of 1200% (not a typo).

Hence it is not that difficult to see why portfolio rotation is dominating the Australian share market since reporting season in August. It's probably more of a surprise to observe it has taken most investors this long to finally jump on the band wagon.

A second important factor stems from the bond market. Rising yields for US Treasuries have instantaneously pushed bond proxies and yield stocks out of favour in equity markets. This has made Australian banks attractive again, as they offer relatively cheap valuations, high yields plus franking and a relatively stable low growth outlook.

Good enough to withstand the downward pressure that is currently weighing on infrastructure stocks, REITs and other high yielding stocks, such as Telstra.

Fear for higher bond yields, as well as for a potential rapid return of inflation, is guiding investment flows into cheaper valued stocks. In simple terms: all that didn't work until earlier this year is now becoming popular while all that has been popular since 2011 is relentlessly out of favour. This includes many high growth, medium cap industrial stocks that had been good for shareholders until about seven weeks ago.

Given many a professional investor had been positioned heavily overweight popular defensive and industrial growth stocks prior to August, it is anyone's guess as to how long portfolio re-allocation will dominate the Australian share market. This week's price action suggests it is far from over as yet.




Fear Of Higher Bond Yields

UBS strategists summed it up best last week. If all of the above falls into place and doesn't cause too many ructions and mis-alignments, the ASX200 should be on its way to 5700 by year-end 2017 (base case) or even revisit 6000 under a more bullish outcome. But given the many risks in the months ahead, one cannot dismiss the possibility that somewhere in between now and then a rapid and major sell-down might occur.

The largest sell-down risk comes from rising bond yields. In particular if yields continue to rise at rapid pace, or threaten to become chaotic. This would not reflect positively on other assets, including equities and precious metals. I note many analysts and commentators have been surprised by the sudden demise of gold in recent weeks. They shouldn't be. Sharp spikes in Treasury yields affect the direction of gold bullion just as it does for equities.

Those who've been singing "it's the end of the bond bull market, and we love it" might be careful in what they wish for, because it is in everyone's interest, no matter the financial asset involved, that rising bond yields remain an orderly and gradual process. Given rising yields in the US are likely to push up the greenback, this process automatically doubles its impact on financial assets.

One more reason to be mindful of what can go wrong and which helps to understand why many investors are not that comfortable with the current set-up. Risk appetite is not as high as price action would suggest. I'd be surprised if financial markets do not continue cycling relatively high cash levels on the sideline.

Yet another reason as to why portfolio rotation is having such a marked and oft devastating impact on share prices of former market darlings. There is no natural buyer around when all that is happening is money flowing out of previous popular stocks into new popular stocks.

The change in central bank policy in the US also means quantitative stimulus in the UK, in the eurozone and in Japan can relax a little, meaning less central bank buying, thus rising bond yields. China remains a wild card.

History Unlikely The Best Guide

Rising bond yields need not be a negative for other asset classes. Assuming this process of normalisation goes hand-in-hand with better economic conditions and improving growth, history shows both bond yields and equities can lift at the same time.

Rising bond yields are on par with a stronger US dollar, or a rising oil price. At some point, it does become a negative. History suggests the relationship reverses from the moment bond yields surpass the 5% mark. But these are not normal times.

Most economists remain convinced the natural growth pace for developed economies has substantially decreased post-GFC. For the USA, irrespective of Trumpeconomics, maximum sustainable growth probably begins with a '2' in front.

This means the level at which rising bond yields start turning into a negative should be lower than in the past.

For the RBA in Australia, the outlook has all of a sudden become a lot more complex. Most economists are now anticipating higher growth domestically in 2017, but not necessarily in 2018, while inflation should remain weak, predominantly because the labour market remains weak.

There remains the prospect of a downturn in apartments and an open question mark what it means for consumer sentiment and spending. Maybe this is why coalition governments in Sydney and in Canberra are looking at boosting and extending the local housing construction cycle?

Where Is The US Equities Correction?

Last week, I wrote about FNArena's Buy versus Hold market indicator. When total Buy recommendations are higher than total Hold/Neutral recommendations for the eight stockbrokers we monitor daily, this usually signals a tougher environment for local equities. As this is a coincident indicator at best, with no predictive powers, there is no telling how long the proverbial bear claws will keep equities from rising too far.

The gap is widening. This week total Buy recommendations represent 43.35% of all stock ratings against 41.77% of Neutral/Holds. A less negative interpretation could be that this gap is largely the result of portfolio rotation, and with large cap stocks such as BHP Billiton, Rio Tinto, the big four banks, Woodside Petroleum and QBE Insurance back in favour, the overall news for the ASX200 market need not be extremely negative.

A lot will depend on whether US equities might have a correction ahead of or post Trump ascendancy. One reason I am cautious is because of the chart below (thanks to AxiTrader's Greg McKenna on Twitter).





US equities are rising against the bottom of an upward sloping trend line. While positive, this is nevertheless the vulnerable side of the trend line.

Because everybody always gets it wrong on gold, I've included my analysis from September 2014 below. It's still as relevant today as it will be in 2017.

For what it's worth: UBS's favourite Australian stocks for 2017 are Aristocrat Leisure ((ALL)), Brambles ((BXB)), Harvey Norman ((HVN)), James Hardie ((JHX)), Lend Lease ((LLC)), Orora ((ORA)), Qantas ((QAN)) and ResMed ((RMD)).

Fool's Gold? Know Thy Enemy!

By Rudi Filapek-Vandyck, Editor FNArena

An oft repeated mantra is that gold is the natural protector against value erosion through inflation. However, one quick glance at historical price movements instantaneously shows this is not always the case.

Gold can experience prolonged periods of price weakness and when it does, not only is there no protection against inflation, there's no safe-guarding of your capital either.

So is gold the ultimate safe-haven, or not? It depends. Under the right circumstances, gold can be whatever its owners want it to be: protector against price inflation, safe-haven guardian against capital loss, an insurance policy for whatever black swan is hiding around the next bend in the road. But if circumstances are not right: none of this applies.

Since the price of gold peaked near US$1900/oz in 2011 circumstances haven't been right. That's a pretty easy observation to make. How come, I hear many investors ask? Printing of money by central bankers is still ongoing. War is breaking out in Syria/Iraq. Central banks in Russia and China are believed to be increasing their reserves. How can it be that gold has lost 35% over the past three years?

The answer lies in the fact that gold has many different and often conflicting influences, illustrated by the fact some people consider it part of the commodities sector, a precious metal, while others talk about it as a currency. Not all factors influencing gold are equal in strength and history shows there's a clear order of importance for the masters that influence the direction of the price of gold.

Contrary to popular belief, price inflation is not one of the important factors. This only applies when the circumstances are right and modern history shows a rather chequered and inconsistent track record, at best.

Consider the following conundrum for everyone who likes to think gold is (one of) the ultimate protector(s) against inflation: global inflation peaked in the early eighties, but it was still high throughout the decade and it definitely had not completely evaporated in the nineties. Yet, for those two decades, gold only declined, and declined further in price.

Clearly, the circumstances weren't right. Higher forces were in play. More important factors.

Historically, gold has had a close relationship with the US dollar, but in opposite direction. The eighties and nineties experienced a revival of the greenback. Clearly, a strong reserve currency can be a problem for gold.

The eighties and the nineties combined also represent the longest and strongest bull market for global equities. We might draw the conclusion from this that when everybody is having a good time because of accumulating gains in the share market, nobody is genuinely interested in gold and so it languishes and disappears out of sight, until circumstances turn right again.

Enter: meltdown of TMT mania in March 2000 or global GFC-sell off in late 2007 until early March 2009.

While it cannot be denied there has been an overwhelmingly negative correlation between gold and the USD as well as with equity bull markets, there are times when gold can rise alongside a stronger USD and we have seen between 2004-2007 and between 2009-2011 how both gold and equities can both have a good time at the same time.

There is, however, one iron clad relationship that has not seen one single exception, not ever, and that is between negative US real interest rates and gold. Both always move in opposite direction of each other. No exception to the rule. Never.

As a matter of fact, I suspect this relationship is today responsible for the widespread myth that gold is the ultimate safe-haven against inflation. Gold proved an excellent inflation guard in the seventies, when inflation soared out of control, but maybe that was only the case because higher inflation pushed high bond yields in the negative on inflation-adjusted basis ("real" yield)?

The chart below shows the relationship between gold and negative real bond yields in the US, until 1980-1981. When subsequently US bond yields moved back into the positive, inflation-adjusted, there was nothing else around to stop the gold price from sliding lower and lower, and lower.

Add a resurgent US dollar plus an awakening equities bull and gold simply stood little chance. The circumstances, clearly, were no longer right. Two decades long.





Take a look at the title above the chart: "strong correlation". Now have a look at where US real interest rates were back in 2011. That's when gold soared, one more time, towards US$1900/oz.

(I don't want to even add more to conspiracy speculation, in particular because there's no shortage of it when the subject is gold, but charts like the above have become rare since 2012).

What happened since? US bond yields normalised to a level whereby their yield now exceeds annual CPI inflation in the US. Ouch.

When US bond yields change direction from sharply negative back to positive, gold follows in the opposite direction. No questions asked.

The irony is that even on this, what seems a pretty straightforward relationship, the gold community remains divided about how exactly to determine "real US interest rates". Until recently there was no problem simply using the US 10-year bonds as benchmark, but they have now moved back in positive territory. Some argue US real interest rates are still in negative territory and certainly this holds true for shorter dated bonds, say 2-3 year US government debt. Since the Federal Reserve hasn't raised the Fed Funds rate as yet, it also still applies on that measure.

However, and this is the important point I am trying to make, if you believe the US economy is strong enough to allow Janet Yellen and Co at the FOMC to start raising interest rates from next year onwards, and to continue lifting rates for subsequent years to follow, then it'll be only a matter of time before all measures for US real interest rates/bond yields will move into positive territory on inflation adjusted measures. (Not having a discussion about "real" inflation versus "official" inflation).

If the above unfolds, no matter at what speed or pace, this will provide a constant head wind for gold, at the very least. If a normalisation in US interest rates were to go hand-in-hand with a stronger US dollar plus an ongoing bull market for equities, I think gold investors should prepare for the worst. History might not necessarily repeat itself, but it does often rhyme. The last time all three major influences occurred, sustainably, at the same time was between 1981 and 2000. Just saying...

Of course, there is an alternative and this should be the only "real" reason as to why investors should consider owning gold: it ain't gonna happen.

If it turns out Yellen and Co find themselves in a situation whereby they cannot lift interest rates, for whatever reason, but a weaker than expected US economy and/or labour market come to mind as potential impediments, then gold remains poised to make a come-back with a vengeance. Any delay to current market expectations will have the same effect, temporarily.

The above is my personal view, based upon data analysis from the past and on market observations over the past fourteen years or so. Regardless, I wouldn't consider myself the uber-analyst for all things that concern gold and its future outlook. That title is more suitable to someone like Martin Murenbeeld (Dundee Capital Markets) who dedicates most of his time to analysing gold and its many features, and has been doing exactly that for a long while. When Martin speaks, many listen.

I recently received the slides of Murenbeeld's presentation at the Denver Gold Conference and it is but fair to say that -bottom line- Murenbeeld does not disagree with any of the above. He does question whether US real interest rates can turn positive again before 2016 (but I am sure he'll agree the direction is what ultimately counts) and he even adds one more clear negative: there's still plenty of gold in ETFs that is ready to be sold. On the positive side are rising consumer demand in Asia and central banks adding more gold to their reserves.

Ultimately, governments in developed economies still have a debt crisis to deal with as populations grow older and entitlements are simply too costly, in particular if economic growth is to remain benign. I don't disagree, but I doubt whether investors, short-sighted and one-dimensional as ever, will be taking any future problems on board before it actually features in daily news headlines.

On this basis I remain of the view that gold risks more downside if current expectations for higher interest rates in the US from next year onwards prove correct.

One interesting theory in Murenbeeld's presentation is that, maybe, gold's fall from US$1900/oz has already accounted for the change in US interest rates?

That theory will certainly be put to the test in the years ahead, assuming a first hike by the FOMC next year, in a series of many more to follow.

The chart below shows one more comparison to close off this assessment. Gold bulls are hoping the pendulum swinging back in favour of US equities since 2012 is about to reverse, just like it did in the late 1930s and in the 1970s. Observe how gold has had the upper hand, relative to US equities, from 1999 until 2011. Back in the 1970s the Arabs would create turmoil, and nasty oil price inflation, by turning off the petroleum tab in response to Western support for Israel. Just saying...

FYI: Murenbeeld's price scenarios for gold in the years ahead suggest a mostly sideways pattern, on balance.

Fool's Gold? Know Thy Enemy! was first published on 29th September 2014.

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

- At the ASA Conference 2017, Grand Hyatt Melbourne, 15-17 May 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: https://goo.gl/XVMzmP

See also further below.

Rudi On TV

- On Tuesday, around 11.15am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
- I might appear on Wednesday, 12.20-2.30pm but this has not been confirmed as yet
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 21st November 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until October 31st. Paying subscribers can request a copy at info@fnarena.com

Opportunity Comes With Patience

In this week's Weekly Insights:

- IPO Monitor
- Opportunity Comes With Patience
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV

By Rudi Filapek-Vandyck, Editor FNArena

IPO Monitor

FNArena has joined forces with OnMarket Bookbuilds to keep a close watch on fresh listings (IPOs) on the ASX.

From this month onwards, members and readers at FNArena can look forward to a quarterly update, the first of which was released last week. Here's the direct link to the news story that allows for downloading the quarterly report in PDF: https://goo.gl/tT1I1P

Investors who'd like to participate in IPOs can sign up via the following link:

http://get-on.bid/au/j/3MS9TV5D

Opportunity Comes With Patience

"Beauty is in the eye of the beholder"
[first quoted by author Margaret Wolfe Hungerford]

The share market is a hotbed of seemingly sage declarations that have withstood multiple decades of wild upswings and savage downturns, only to be proven wrong by those who remain wide-eyed, or simply because circumstances change.

People always need to eat, is one such example. It worked well during the GFC when stocks like Woolworths and Metcash proved relatively resilient, but investors who remained loyal to the statement, and to shares for both companies, have been left mourning heavy losses since 2014, even taking into account this year's recoveries.

What about: in the long run, share prices always rise. One has to feel for shareholders in Slater & Gordon who still haven't given up hope. But just as easily our mind tends to forget it wasn't that long ago BHP Billiton shares peaked at $49, while Woodside Petroleum shares almost touched $67. Rio Tinto shares, would you believe, were once trading well above $120. Shares in Blackmores, too, are currently a long way off from the $217.98 registered in December last year.

A more sneaky one is the oft mentioned: for every buyer there is a seller on the other side of the transaction. While obvious, the underlying implication is one of "Buyer Beware". You might think you are purchasing at good value, but whoever is selling to you is of the opposite opinion.

Of course, it never is bad advice to think twice before you start buying, I do think there's too much commonly accepted market "wisdom" embedded in that statement. Not all selling in the share market is an expression of the seller's perceived (lack of) value in a stock. I even dare to say there are times when selling is less a reflection of "no more value" than it is being dominated by other factors.

This might be one such time.

Selling Does Not Equal Rejection

Let's pause for a brief moment and reflect on what factors might lay behind the selling of shares in the stock market. In no particular order:

- you inherit a portfolio and note there's too much overlap with your own investments;
- you need to raise cash for a large purchase, such as a car, property, etc;
- a change in strategy requires a restructure of the portfolio;
- you retire and want less exposure to volatile equities;
- you made good profits. Now you want to secure at least some of the gains made;
- you got sick and tired of waiting. No more patience left. Got to be better opportunities elsewhere;
- you were just looking for a short term punt;
- your marriage ends in divorce. She demands half;
(I am sure we can all come up with many more reasons).

In more recent times, much of the selling would have occurred because investors are preparing for tougher times ahead, possibly a pullback in the share market or even a correction. According to some stats, professional funds managers globally are sitting on more cash than during the GFC.

One reason they have all been selling is to get more money out of the share market, irrespective of "value" or future upside. It's human nature to sell out of investments that have generated good returns. It leaves a positive story for whoever might be asking questions later.

One of my observations post the reporting season in August is that selling in Australia is hitting medium and smaller sized stocks, in particular the ones having generated big returns earlier. Bond proxies, high PE multiple stocks and healthcare are all temporarily out of favour as investors seek out yesterdays underperformers -the banks and resources stocks- partially as a hedge against inflation and higher bond yields, partially because of relative valuation and a return to growth for the more cyclical parts of the share market, partially because they are looking for safety against potential mayhem and further downside; it is safer to hide in cheaply priced large caps.

They are not selling because of a negative view on future prospects and/or overvaluation. Well, not necessarily. There's always a bit of that involved as well.

ASX200 Not Representative

Over the past four weeks, major indices in Australia have largely been moving sideways. This gives commentators and financial media plenty of ammunition to declare investors are "in limbo", "hesitant to make decisions","waiting for things to come", et cetera while factually the Australian share market has been correcting to the downside. Many stocks are now down -10%, -15%, -20%, or more from this year's peak while banks and resources have held up the indices, artificially feeding the impression all is quiet, serene and largely frozen and indecisive in Australia, while it is not.

Money has been flowing to the sidelines, if it wasn't flowing into banks or resources stocks. Prominent among the casualties are smaller cap stocks, many former champions and market darlings.

The weekly updated SharesRace contest in the Sun Herald last Sunday only had one contestant showing a gain. Well done, Richard Hemming! On closer inspection, the outperformance is due to two stocks only; GR Engineering ((GNG)) and SomnoMed ((SOM)). Two other contestants managed to eke out negligible gains, again largely thanks to two stocks in each portfolio of ten stocks in total. Five out of eight contestants sit deeply in the red.

Two weeks into the six weeks "fantasy shares" contest, fifty out of the total of eighty stocks chosen by the eight contestants are in the red. Things aren't exactly looking bright for next Sunday's update with the ASX200 on Monday closing down more than one half of a percent to just above technical support at 5400, but with many smaller caps suffering a larger loss.

Note: I am by no means signalling we should all start taking the Sun Herald's fancy stock tip competition serious. We definitely should not. I am merely showing off the wide variety of market indicators on my radar, as well as the fact that even the most useless bellwether can provide us with a valuable insight under the right circumstances - even if only once.

(By the way: the dartboard sits second in the competition. The clairvoyant was dropped a while ago).

Adversity = Opportunity

Adversity often translates into opportunity and nowhere else is this principle as tangible as in the share market. This, of course, on the premise that one has access to cash available, while possessing the ability to stomach short term volatility and uncertainty, while keeping both eyes wide open for longer term opportunities.

Funds managers selling out of smaller cap stocks means high quality growth (and dividends) can become available at much lower share prices.

I am quite excited to report the FNArena/Vested All-Weather Model Portfolio has used recent weakness to add Link Administration Services ((LNK)) which, in my view, is a true future All-Weather Performer offering predictable growth from loyal and sticky customers on top of prospects for increased margins. I know WAM Capital very much likes the stock as well. In my view, share price weakness this month is offering investors (finally) a golden opportunity to jump on board. Make sure you do your own research, starting with the annual report that is available on the company's website. The stock is covered by four brokers on the FNArena website, see Stock Analysis.

Another opportunity, I suspect, now lies with the beaten down share price of Vocus Communications ((VOC)). Of course, nobody likes boardroom upheaval, and the NBN is going to shake up the industry but Vocus is much more about wholesale internet traffic than it is about retail broadband offerings, and putting four companies together means the near term future is all about reducing costs and extracting synergies.

Also, I have been a vocal supporter of Bapcor ((BAP)), formerly known as Burson Group, for the past two years or so. I am not going to change my mind now the shares are off one full dollar (-15%) since mid-August. Yes, there is short term uncertainty regarding its ambition to acquire Hellaby Holdings ((HBY.NZ)) across the Tasman. Bapcor updated its shareholders at Friday's AGM, stating all business segments are either achieving or outperforming on expectations at the end of Q1 for this financial year. Guidance for FY17 is growth in profit between 25-30%, excluding any further acquisitions. UBS was the sole broker who issued a research update on Monday. Its share price target remains $6.30, or some 17% above today's share price. Just saying.

Other stocks that are happily held in the All-Weather Portfolio, or on my radar, include Aconex ((ACX)), Altium ((ALU)), Hansen Technologies ((HSN)), iSentia ((ISD)), Mayne Pharma ((MYX)), NextDC ((NXT)), and many more.

Don't let these opportunities go to waste. At the same time, be prepared for the present environment to last longer than you currently expect.

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: https://goo.gl/XVMzmP

See also further below.

Rudi On TV

- On Tuesday, around 11.15am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
- On Wednesday, I shall host Your Money, Your Call Equities on Sky Business, 8-9.30pm
- On Thursday, I will appear as guest on Sky Business, 12.30-2.30pm
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 24th October 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until September 30th. Paying subscribers can request a copy at info@fnarena.com

 In this week's Weekly Insights:

- Cautious Seems Best
- Crude Oil, The New Fool's Gold?
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV

By Rudi Filapek-Vandyck, Editor FNArena

Prologue: Cautious Seems Best

There are times when index movements in Australia don't provide investors with a full and accurate reflection of what exactly is going on in the share market. This is one of such times.

At face value, it appears the broader index is slowly shedding some of the gains achieved since mid-September, still largely standing firm despite many suggesting a "correction" surely must now be on the cards.

This picture is heavily distorted by frantic portfolio swapping into banks and resources stocks, which are holding up major indices despite money flowing out of the market elsewhere.

With many a chartist calling for short to medium term weakness, it's probably best investors adopt a more cautious approach, if they haven't already.

Crude Oil, The New Fool's Gold?

"The race ain't always to the swiftest nor the fight to the strongest, but that is the way to bet!"
[1920s American sports writer, Grantland Rice]

Even when crude oil prices sank below US$30/bbl earlier in 2016, and the likes of Goldman Sachs suggested it wouldn't require much more in terms of additional bad news to push the price of a barrel of liquid gold as low as US$20/bbl, the share market never really believed it would happen.

If it would, it'd be nothing more than a temporary blip, a flash crash if you like, but nothing that can possibly stay in place for more than a few hours, maybe a few days, max.

This seems like a strange conclusion to put forward in light of the at times extreme volatility that has characterised the oil & gas sector globally since June 2014, which is when oil prices abandoned the three year long pricing regime above US$100/bbl, and then rapidly descended to US$40/bbl.

At the time, by which I mean mid-2014, Woodside Petroleum ((WPL)) shares were seen comfortably trading above $40, Oil Search ((OSH)) shares topped out at $9.80, Santos ((STO)) was north of $13 and Origin Energy ((ORG)) was reaching for $14. Considering those share prices have since bottomed around $25, $6, $2.84 and $3.64 respectively, most investors in the sector would probably find it hard to fathom share prices should, all else being equal, have sunk much lower were they to reflect the deflation in oil prices.

After all, this is exactly what happened to mining companies, but not for oil.

Note the relative underperformance for Santos and Origin Energy in comparison with Woodside and Oil Search was due to the need for balance sheet repair which subsequently led to cheap and discounted equity placements by the first two.

Optimism Sticks With Energy Sector

In simple terms: share market valuations for large cap oil & gas producers never reflected the bottom of the cycle, beaten down price of oil, instead investors always assumed there would be a recovery, albeit with exact timing unknown. In 2016, for example, most share prices in Australia, both for producers large and small, have been implying crude oil will return to US$60/bbl and beyond in the future.

We know this because energy sector analysts at UBS and Credit Suisse kept publishing regular updates on this specific observation.

One might be inclined to think this is going to weigh upon the sector's performance at some stage, even with a higher oil price. This is probably correct, though not necessarily in the short term. In the short term rallies higher in oil prices are likely to also push up share prices for the relevant exposures, even if this implies share prices starting to reflect crude oil prices above US$70/bbl.

Which, if you take note of Credit Suisse's latest update on the sector, is about where we are... now.

This is starting to make a lot less sense, unless, of course, OPEC will get its way and crude oil prices beat current analysts' expectations which, on average, are for Brent to average mid-US$50/bbl next year and around US$60/bbl in 2018. Some analysts are still projecting a longer term price of US$70/bbl, but Credit Suisse, for example, last week reduced its long term price assumption to US$65/bbl.

Now everyone understands why energy analysts at Credit Suisse think Australian oil & gas companies are too richly priced, both in comparison with global peers and with the likely price of oil in the years ahead. It has triggered the extraordinary admission the energy team is close to the point whereby clientele shall receive the advice to fully abandon all exposure.

"Such is the overvaluation in the sector that we are almost at the stage where we can argue having no exposure to the sector."

The Forgotten FX-Translation

Of course, analysts expectations are just that, I hear you all think. The team at Credit Suisse might be forced to eat humble pie if not next year, then maybe the following year, or it could be next month.

But things are actually even worse, apart from the fact that Credit Suisse's estimates and observations are not that different from most fellow energy experts elsewhere.

It appears investors in Australian oil & gas stocks have forgotten all about the currency. When analysing what exactly is priced in at today's share prices, most analysts use AUD/USD conversion that is below today's 0.76 so in actual terms, taking into account the Australian dollar already is much stronger than projected by most, listed energy producers in Australia could already be reflecting a longer term oil price that is unlikely to materialise.

On Credit Suisse's most recent calculations, share prices for Woodside, Oil Search, Santos and Origin Energy are implying, at spot AUD/USD, crude oil priced at US$72bbl, US$70bbl, US$62bbl and US$64bbl respectively. Assuming a stronger oil price also coincides with a stronger Aussie, at US80c the implied numbers rise to US$77bbl, US$72bbl, US$63bbl and US$68bbl.

For good measure: globally (outside Australia) oil and gas producers' share prices are incorporating market expectations for a return to US$60/bbl, not to US$70/bbl which is what appears to be the case in Australia.

Note: Credit Suisse's numbers are not materially different from estimates published by others, like UBS, Citi and Macquarie.

It's About Gas Too

If you thought surely things cannot get even more complicated, with possibly even more negative implications for future share prices of oil and gas producers in Australia, well, you are about to be proven wrong.

Most oil and gas producers in Australia, at least among large caps, are more gas than crude oil. This may not matter much when prices for natural gas ("LNG") are moving in lock step with West Texas Intermediate (WTI) or Brent, but it matters when this is not the case.

The elephant in the energy market, one that is not receiving the equivalent coverage in Australia, is that Asian LNG markets will be oversupplied in years to come. Indeed, a recent sector update by energy analysts at Citi stated "We see a risk over the coming 12 months that the market becomes more positive on oil but more bearish on LNG".

It won't be a decisive factor in the short term. LNG producers in Australia (which are all of Woodside, Oil Search, Santos and Origin Energy) are protected through long term delivery contracts that are, at their core, oil price derivatives. In most cases, contract prices are based upon Japanese Custom Cleared (JCC) prices, with a three month lag. In other words, in the short term these producers should enjoy the catch up in LNG prices to the recent move higher in crude oil (in double digit percentage, mind you).

Longer term, a disconnect between crude oil and LNG raises the possibility of "price re-opener discussions", and if low prices are sustained, of contract renegotiation. The market firmly believes in contract sanctity as long as the price gap isn't too large, or short-term only, and for as long as customers are not making too many unhappy noises.

Citi analysts, for one, subjected the sector in Australia to additional scrutiny about leverage to/impact from lower-for-longer LNG prices (which is what we are staring at on current market projections). The analysts came to the conclusion that LNG exposure in itself should not be a prime motivation to not invest in the sector. Crude oil prices have a larger impact for all.

This may be so in theory, but it doesn't account for market sentiment were LNG prices to stay lower for longer or for the fact that share prices already are assuming higher crude oil prices than the world has seen since April 2015.

Fracking In The US Of A

Higher oil prices are what most stakeholders in the global economy are welcoming right now. Central bankers, desperate to see inflation perk up, are all for it. OPEC and major producers elsewhere are enjoying immediate benefits. And investors, given the close correlation in direction for crude oil futures and risk assets in 2016, are equally cheering from the sidelines.

In the US, the energy sector has been one of few consistent pillars supporting economic growth, until early this year when prices fell too low and investments stopped. Imagine what a resumption in sector capex can do to the USA's economic outlook.

But rising oil prices are not a one-way street. There is an automatic offset through higher costs for consumers and firmer expectations for additional tightening by the Federal Reserve. It is also likely a stronger for longer oil price can push AUD/USD towards, and possibly beyond, 80c. Above anything else, stronger oil creates the ability for dormant production to join in. Already, the number of operating rigs is rising again in the USA where the fracking industry has become the global swing producer du moment.

With oil futures in contango, meaning deliveries further out in time are higher priced than short term contracts, it doesn't take much more upside to allow US frackers to hedge their output at, say, US$55/bbl, and restart operations again. This is one key factor that has the potential to quell current market optimism, in particular were crude oil futures to rise further.

Thus far, many a sector analyst is assuming US fracking won't be able to return to prior output levels while growing demand, and OPEC discipline, should create a global deficit. The exact timing of this is dependent on a number of unknowns, like how much production is likely to restart in the USA?

Miners Versus Energy

The key difference between mining stocks, like BHP Billiton ((BHP)) and Rio Tinto ((RIO)), and large cap oil & gas producers in Australia is the first group is still catching up to higher commodity prices. Flat prices from here onwards will continue to feed into higher profit and cash flow estimates.

Whereas share prices in the energy sector already are assuming a higher price for oil in the future. This means short term rallies in line with oil market optimism can push implied valuations into never-never land. Credit Suisse analysts put it as follows: "at some stage the 'if oil goes to US$70/bbl the stocks will price in US$90/bbl' will not work".

It is anyone's guess as to how exactly this disconnect between share prices and crude oil prices will correct, or when, but it won't continue into eternity. In the short term, of course, none of such considerations need necessarily to apply. Longer term investors might want to take notice, however.

Despite market's renewed enthusiasm in recent weeks, on my observation most share prices are still below levels from 2015 and they have essentially moved sideways throughout 2016, albeit through plenty of troughs and peaks. I think premature optimism is one key factor in this development. In contrast, Whitehaven Coal ((WHC)) is up 169.5% from twelve months ago, while South32 ((S32) has gained 68%. Can anyone spot the difference?

Those investors who bought in after sector pull backs have fared much better, which might be a more rewarding strategy to play the energy sector.

Another more suitable strategy might be to seek out companies that have the ability to surprise to the upside, irrespective of oil price movement or investor exuberance. A well-timed, attractive acquisition from Woodside Petroleum could be just one such catalyst, but investors have been speculating on exactly such an announcement for at least two years now.

Outside the top echelon, Karoon Gas ((KAR)) surprised friend and foe recently by negotiating a potentially company transformative deal with Petrobas to buy into the Bauna and Tartaruga Verde fields offshore Brazil. Any deal might require more equity than Karoon is able to raise and thus far financial details are not available.

Above anything else, investors are probably doing themselves one big favour by not getting blinded by supposed potential upside. Watch out for the downside, in particular after the recent rally, and even more so were oil prices to rally further and longer.

Higher prices too soon will eat away upside potential next year. That's pretty much a given.

(P.S. I know BHP Billiton is now a major oil producer too, but its downside from too frothy oil enthusiasm should be insulated, to a certain extent, by double-digit upside to cash flows and profits from better prices in bulk commodities).

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: https://goo.gl/XVMzmP

See also further below.

Rudi On TV

- On Thursday, I will appear as guest on Sky Business, 12.30-2.30pm
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 17th October 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until September 30th. Paying subscribers can request a copy at info@fnarena.com

In this week's Weekly Insights:

- Recurring Themes
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV

Recurring Themes

By Rudi Filapek-Vandyck, Editor FNArena

"Asset prices seem fully priced for a very benign outcome and thus vulnerable to even small negative surprises".
[from Pimco, Cyclical Outlook, September 2016]

The Federal Reserve is ready for a 25bp rate hike in December.

History suggests the Fed likes to see US Treasuries price in at least a 70% chance of a rate hike, before actually hiking, and with about two months left until the December FOMC meeting, US Treasuries are pricing in a circa 66% chance for a hike. Almost there.

Assuming December will bring the next US rate hike, it will have been twelve months since the last rate hike, which was the first hike since June 2006. Against a background of historically low rates, negative bond yields, central bankers still overly stimulative in the UK, Europe and Japan, and with asset prices elevated and global growth subpar, a raise by 25bp is a big deal.

Yet, on my observation, experts from fixed income markets seem more relaxed about it than their peers in equity markets circles.

This is probably because bonds, at their core, remain a reflection of lower-for-longer global growth and very few believe Janet Yellen & Co are going to repeat their prediction for four more hikes next year, like they foolishly did in December last. We can all speculate at will about the reasons behind that momentary lapse of central bank sanity.

Fact remains, virtually nobody believes there's an acceleration in growth, or in inflation, around the corner. So markets should -all else being equal- adjust relatively smoothly.

This view, however, doesn't take into account the fact this is not even remotely a "normal" interest rate cycle. Things are very different in comparison with all previous cycles. Debt levels globally are at unprecedented numbers (see recent update by International Monetary Fund, IMF). Global growth is expected to pick up, ever so slightly, next year but predominantly in Emerging Markets. And growth in US corporate profits will be challenged by a tightening labour market and potentially a stronger greenback.

One common theme in many outlook reviews published these days is to be "underweight" US equities in 2017, although, of course, not everybody agrees.

Outside the US, accommodative policy is to remain the standard setting. Central banks in Europe and in Japan are nowhere near ending their monetary experiments with extreme stimulus measures. But it has now become clear to all and sundry these experiments have morphed into "pushing on a string" activities with the likes of Bill Gross complaining about financial markets being transformed into casinos. There will be consequences, Gross predicts, exact timing unknown.

Bogeyman Is Called '1994'

Even during the best of times, there are always threats and risks that can potentially derail the uptrend for equity markets. Right now most attention goes out to political risks stemming from the US presidential election and the Constitutional vote in Italy, expected by late November-early December. The FOMC hike (meeting) is scheduled for mid-December.

Next year brings the actual invocation of Article 50 by the UK government, marking the beginning of the process for the exit from EU-Europe, alongside parliamentary elections in the Netherlands and presidential elections in France in the first half, followed later in the year by general elections in Germany and the 19th National Party Congress in China.

But the real worry among equity strategists can be summarised as "1994". That was the year when the Federal Reserve did not wait until Treasuries had baked in 70% odds for rate hikes and what followed was, simply, mayhem. It is a stark reminder for all investors today that if/when things go awry in global bond markets, there is no hiding in equities, or in gold for that matter. Precious bullion displayed a lot of volatility that year, but ultimately gold ended the year lower than at the start.

The underlying message here is that if something upsets the bond markets, the consequences shall be felt across all markets worldwide.

Ironically, that "something" might be stronger than expected growth, or higher than anticipated inflation, or a more hawkish Federal Reserve. Anything that is currently not expected, thus not priced in.

No wonder, many funds are carrying more cash than usual, and many a strategy report is advocating a more defensive stance. A number of experts feels the downside potential is larger than further upside. Russell Investments admits to adopting a "Buy the dips, Sell the rallies" strategy for equities.

Rotation Is Fashionable

The broader indices might not have gone anywhere over the past month or so, in Australia share market activity has all been about "rotation, rotation, rotation". After five years of persistent underperformance, and after a final brutal sell-down in 2015 and in January-February this year, miners and, to a lesser extent, energy companies have made a noticeable come-back this year, also dragging along services providers and contractors.

Here the general themes are: a resumption of growth after significant cost cutting and a rally in commodity prices, and relatively attractive valuations, even after the strong rallies already on record. Analysts, overwhelmingly sceptical at first, are now firmly in catch-up mode.

This revival serves equity investors on many accounts. One is because a major concern is global asset prices. They do not look cheap when measured against historical values and can only be justified by current exceptionally low bond yields. Resources stocks, cheaper priced than all the rest, have offered refuge, an alternative and a hedge against potentially higher growth and/or inflation next year, and beyond.

Plus in a global context of tepid, if not illusive/artificial, corporate growth, companies like BHP Billiton ((BHP)), Rio Tinto ((RIO)) and the likes are offering earnings per share growth of 100% and more this year. This comes after some dismal years in which many losses accumulated. It may not last beyond the next year or so, but investors are prepared to cross that bridge whenever it appears on the horizon, not sooner.

Here too there is plenty of room for concern. No matter the talk about supply response, infrastructure investments and (thus far) a weak US dollar, when the conversation touches upon iron ore, copper, manganese or titanium dioxide, what matters most is China and inside China the housing market remains the numero uno driver behind demand that over stems all others. Right now, Chinese housing is powering at a speed many find frightening. It's a bubble, according to many.

Always difficult to pinpoint exactly when such bubbles deflate but Deutsche Bank analysts recently looked quite confident when they predicted it'll last another six months. Their prediction made in a report published last week is "by 2Q17 we expect demand side concerns to come to the fore as a result of a significant slowdown in Chinese construction activity".

If Deutsche Bank's concerns are overdone, or mistimed, there could be significant further upside for the sector because of the simple fact that most commodity prices are well below what analysts have put through their models, even after recent mark-to-market updates.

Where Is Cheap?

Resources stocks share their relative cheap valuations with the local banks which still are priced as if there's a recession on the horizon (at least in a relative sense). Or maybe it's because banks won't cut their dividends and nobody sees any growth on the horizon, while regulatory authorities are breathing down their neck, so banks are back at being treated like a utility, offering defendable yield, but little else.

As could be expected, bank CEOs supposedly being grilled by senators earlier this month largely turned into a farce, but UBS released a report on Friday that should have every investor's attention in Australia (since we are all both shareholders and customers of the banks, one way or another).

A proprietary survey involving 1,228 Australians who have taken out a residential mortgage over the last 24 months revealed some 28% of mortgagors suggesting their application was not factual accurate. In most cases, it had been "gold plated" (my choice of words) on suggestion by the mortgage broker. Misrepresentation usually involves household income and/or financial liabilities and/or living costs.

UBS analysts call it "stretching the truth". It does indicate financial stress/duress is higher than official stats suggest. For now, this need not be a problem as the RBA is nowhere near hiking the cash rate and if anything momentum remains to the upside, but don't be surprised when the worm does turn for the Australian housing market, there is potential for some nasty surprises nobody saw coming when focusing on official stats and data.

Buy & Sell Ratings

During the August reporting season I pointed out the Australian share market was somewhat in a quandary with share prices in most cases too elevated to justify a Buy rating (or equivalent) from stockbroking analysts. At the time total Buy ratings for the eight stockbrokers daily monitored by FNArena had fallen to circa 38%+ with approximately 46% on Neutral and 15%+ on Sell. The gap between Buy ratings and the rest had seldom looked so stretched. As I looked it up, these numbers were similar to the situation in 2007, just before everything started to go pear shaped.

I did not forewarn of another share market collapse as I've learned the lesson to not 100% rely on just one indicator.

It turns out the share market rebalanced through rotation into prior unloved sectors of mining, energy and engineering firms and contractors, and various other cyclicals. There have been many more upgrades by stockbroking analysts than downgrades for individual stocks since. This week the numbers are 41%+ versus 43%+ and 15%+ respectively and this looks a lot more balanced. Three out of eight stockbrokers carry more Buy ratings than Neutral.

The situation is far from perfect, but hey, this still is an expensive market overall and it's not like there is a shortage of risks and potential threats.

As expected, the multitude in changes has had a significant impact on the Top Rated stocks in the FNArena universe. These are stocks that carry predominantly Buy ratings, and little else. As of today the Top Twelve consists of:

- Star Entertainment Group ((SGR))
- Qantas ((QAN)) - first two stocks have a perfect record of only Buy ratings
- NextDC ((NXT))
- Lend Lease ((LLC))
- Aristocrat Leisure ((ALL))
- Evolution Mining ((EVN))
- APN Outdoor ((APO))
- Cleanaway Waste Management ((CWY))
- AMP ((AMP))
- Senex Energy ((SXY))
- FlexiGroup ((FXL))
- Macquarie Atlas Group ((MQA))

Before anyone gets too excited about this list: it matters whether brokers rate a stock Buy because not all growth has been accurately priced in, or because the share price is too weak. Hence additional research is an absolute must. History suggests highly ranked stocks are worth pursuing, but there is the occasional dud included, mostly triggered by share price weakness preceding more bad news.

From a personal perspective, I'd rather back NextDC and Aristocrat Leisure than APN Outdoor, for example, even if experience tells me stocks tend to undershoot once out of favour and this may well be the case with APN Outdoor too. Only touch Qantas if you truly believe the world's got it wrong on the outlook for crude oil prices, while Macquarie Atlas Group has been selling off on prospects of higher interest rates.

Of course, for those with a contrarian streak, it can pay off handsomely to peek at those stocks loved by no one among stockbroking analysts. Currently the Bottom Six of Most Unloved Stocks in the FNArena universe comprises of:

- Charter Hall Retail ((CQR))
- Cromwell Property Group ((CMW))
- Shopping Centres Australasia ((SCP))
- Monadelphous ((MND))
- Woolworths ((WOW))
- Regis Resources ((RRL))

On occasion, investors might find a given stock rises like a Phoenix from a totally unloved, out-of-favour and ignored situation. Probably no coincidence the Bottom Three are all bond proxies and yield stocks, while both Monadelphous and Woolworths remain popular among shorters. The Regis Resources share price has been falling off a cliff in October. That's one guaranteed route to disappear from this list.

Special Note: paying subscribers can view these lists in real time via Sentiment Indicator on the FNArena website.

Dow Theory Buy Signal

Last week, the Dow Jones Transportation Average managed to rise and close above its April high. For followers of the Dow Theory, this is confirmation of ongoing bull market conditions for US equities. It was Charles Dow himself who advised investors the Dow Jones Industrials and Dow Jones Transportation need to confirm each other's movement in order to generate a genuine Buy signal. If it wasn't for the many concerns and distractions (Trump and Clinton come to mind) we'd probably heard a lot more about the new Dow Theory buy signal.

Extra Special Note: never rely on just one market indicator.

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Sydney chapter of Australian Shareholders' Association (ASA), December 15, noon-1pm, Sydney Mechanics School of Arts, 280 Pitt Street

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: http://www.amazon.com/Change-Investing-Low-Growth-World-ebook/dp/B0196NL3KW/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1454908593&sr=1-1&keywords=change.investing+in+a+low+growth+world

See also further below.

Rudi On TV

- On Tuesday, around 11.15am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
- On Thursday, I will appear as guest on Sky Business, 12.30-2.30pm
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes

(This story was written on Monday 10th October 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until August 31st. Paying subscribers can request a copy at info@fnarena.com

In this week's Weekly Analysis:

- The Future Has Arrived In Australia
- No Update Next Week
- Rudi On Tour
- Nothing Ever Changes, Or Does It?
- Rudi On TV

The Future Has Arrived In Australia

By Rudi Filapek-Vandyck, Editor FNArena

"Growth, Growth, Wherefore Art Thou Growth?"
[Title of Citi research report, published 20th September 2016]

There's a mind numbing multitude of changes taking place around the world today.

I am not even including climate change, refugees, social inequality, demographics or the many side-effects from ultra-low interest rates and bond yields. Focusing solely on new technologies is more than sufficient to back up that opening statement.

Viewed through an economic lens, most changes are still in early days of development. Their true impact will only be felt in 5-10 years' time. But societies have started to pay attention. It's why new buzzwords like "sharing economy", "fintech" and "disruptors" have entered the vocabulary of investors and economists - even of politicians.

My eBook published last year, "Change. Investing in a Low Growth World", draws a comparison with the roaring and fabulous 1920s; the last time in which such whirlwind of innovations and technological breakthroughs re-shaped global society. If my comparison proves accurate, and I have no reasons to doubt it will, we haven't even seen the full tip of the iceberg of future transformations just yet.

ASX Transformation

Collectively, new technologies and "disruptors" are already making their presence felt. By opening up monopolies, breaking down market barriers, lifting transparency for consumers and commoditising popular goods and services there's already a good argument to be made all this partially explains today's lack of economic growth, lack of inflation, lack of growth in wages and lack of genuine, sustainable corporate profit growth across developed economies.

In Australia, where a relatively small population in a vast geographic space has facilitated duopolies dominating markets over many decades, the arrival of new business models and challengers has been an important co-contributor as to why the ASX20 has significantly underperformed the broader share market since late 2012.

So far not so good for Australian share market investors. It's easy to feel excluded with companies including Facebook, Alphabet, Tesla, Apple and Alibaba contributing to the feel-good factor in US equity markets. Unbeknownst to many, the Australian share market is going through major transformation, and modern day explosion in new innovations and capital-light business models sits at the coal face of it.

Raging Bull Market Downstairs

As the calendar is about to close off on the third quarter 2016, the ASX20 is still at the same level as where it was in February 2013. This means no net returns from holding a basket of shares with Wesfarmers, Telstra, BHP Billiton, the banks et cetera in it, other than dividend payouts and franking, over a period extending more than 3.5 years.

Over that same period, the All Ordinaries index, comprising of 500 mostly mid and small cap stocks in addition to the Top 20, appreciated by nearly 12%. Still not a fabulous result, given the S&P500 in the US added 43% since then, but nevertheless a world away from the moribund and sorry state at the top of the Australian stock market.

No double guessing as to why many a focus has descended outside the Top 20 in Australia, including from funds managers previously specialised in large cap blue chips. This looks like the ideal environment to introduce new ASX-listings. No coincidence thus, the numbers of new IPOs are rising rapidly in 2016, and so is investor appetite for new public market additions.

According to data provided by OnMarket Bookbuilds, not only are fresh IPO numbers on the rise, so is their average size and their popularity among investors. There's sufficient evidence for the latter in the observation the average first day-of-trading performance for all 21 IPOs on the ASX in Q2 this year is no less than +24.5%. Please note: this is the average gain at 4pm on the first day of trading on the ASX.

OnMarket Bookbuilds observes there's a trend to IPO more foreign companies on the ASX, as well as more new listings originating from private equiteers. Note to us all: private equity IPOs do not turn into mud by default, as long as the owners remain on board with a substantial stake in the equity.

Technology Rules Among IPOs

Most importantly, and under-reported to date, is the transformation of the ASX that is occurring through the current wave in new stock market listings. As shown in the 20-year overview below, new ASX-additions post 2010 have expanded the offering on the ASX with many new technology, healthcare and finance & professional services companies. In 2016 half of all IPOs consists of technology and finance companies with many of the latter carrying the label "fintech".

Gone are the days when the majority of new listings comprised of mining, energy and mining services providers. That is so 2005-2010!




For Australian investors, this means they do not only see the ugly side from today's technological transformation in the form of corporate heavy weights that are increasingly being challenged and "disrupted". They do not by default have to venture overseas to seek exposure to new challengers and innovators; they can stay here at home, at the ASX.

It goes without saying, irrespective of current popularity and average past performances, new ASX listings are not a risk-free, guaranteed money printing option. (Even though current exuberance might -temporarily- suggest otherwise). More than one IPO has caused many a shareholder severe headaches, if not significant capital losses. Once the initial euphoria post public listing ebbs away, there is no guarantee investors stay on board or join in. Most of these freshly minted ASX-additions are young, unknown and they still have a lot to prove.

Corporate profitability is not always included, not even after a few years.

Don't Ignore The Future

As a daily observer and analyst of financial markets and of global macro-economic developments, I do believe new IPOs over the past two years have enriched the local stock exchange overall, and investors should definitely pay attention because in between the many newbies of today might be the next REA, ResMed or Carsales.

Below are ten newbies from the 2014-2016 harvest who, on my assessment, have shown enough substance to suggest a future success story might be in the making. Investors should always conduct their own research and consider their risk appetite and positioning on the risk curve. If you do intend to look into some of the potential new stars of the future on the ASX, the list below could be a good starting point.




Brief intro:

iSentia: media intelligence offered as Software as a Service (SaaS), expanding into Asia

Speedcast International: network and satellite communications services worldwide, headquartered in Hong Kong

Catapult Group: wearable athlete tracking and analytics solutions

oOh!media: out-of-home advertising services, increasingly digital

Appen: speech technology and search services for international technology customers

Link Administration: back office administration services to companies and financial services providers in Australia

MYOB: desktop accountancy software, migrating into the cloud

Class: cloud-based services for SMSF trustees, their accountants and their advisors

WiseTech Global: cloud-based software solutions for the logistics industry, worldwide

A special thanks goes out to OnMarket Bookbuilds for sharing data and charts. "Change. Investing in a Low Growth World" is available via Amazon or any other online book sellers platform. Paying subscribers at FNArena receive a free copy.

No Update Next Week

Your Editor will be taking a few days off next week to reload the battery and refresh the mind. As a result, there will be no Weekly Analysis on the long weekend-Monday. I shall return with even more interesting notes and observations on Monday,10th October 2016.

Rudi On Tour

I will be presenting:

- Christmas Special for Chatswood members of Australian Investors' Association (AIA), December 14, 7pm

- To Perth chapters of Australian Investors' Association (AIA) and Australian Shareholders' Association (ASA) on 7 February 2017

Nothing Ever Changes, Or Does It?

Yes, of course, investing in the share market is never really different and best working strategies today are the same that worked pre-GFC. Seriously. I tell you, seriously.



Now that we had a good laugh about it, let's get straight to business. This is a low growth environment. Has been since 2010 (it was masked at the time because of the V-shaped recovery from the global recession) and it is not likely to change fundamentally in the near term. I wrote a book about this (see below). This means investment strategies must adapt. You'll be turning your portfolio into a wish list for dinosaurs otherwise (and your returns will be a reflection of it).

Those not afraid to contemplate "this time is different" can subscribe to FNArena and read all about it in our bonus eBooklets 'Make Risk Your Friend' (free with a paid 6 or 12 months subscription) plus the freshly published eBook 'Change. Investing in a low growth world' (equally free with subscription, or available through Amazon and other online distributors).

Here's the link to Amazon: http://www.amazon.com/Change-Investing-Low-Growth-World-ebook/dp/B0196NL3KW/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1454908593&sr=1-1&keywords=change.investing+in+a+low+growth+world

See also further below.

Rudi On TV

- On Thursday, I will appear as guest on Sky Business, 12.30-2.30pm
- On Friday, around 11.05am, on Sky Business, I shall make a brief appearance through Skype-link to discuss broker ratings for less than ten minutes
- Still on Friday, I will re-appear as guest on Your Money, Your Call Fixed Interest, Sky Business, 7-8pm

(This story was written on Monday 26th September 2016. It was published on the day in the form of an email to paying subscribers at FNArena).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: info@fnarena.com or via Editor Direct on the website).

****

BONUS PUBLICATIONS FOR FNARENA SUBSCRIBERS

Paid subscribers to FNArena receive several bonus publications, at no extra cost, including:

- The AUD and the Australian Share Market (which stocks benefit from a weaker AUD, and which ones don't?)
- Make Risk Your Friend. Finding All-Weather Performers, January 2013 (The rationale behind investing in stocks that perform irrespective of the overall investment climate)
- Make Risk Your Friend. Finding All-Weather Performers, December 2014 (The follow-up that accounts for an ever changing world and updated stock selection)
- Change. Investing in a Low Growth World. eBook that sells through Amazon and other channels. Tackles the main issues impacting on investment strategies today and the world of tomorrow. This book should transform your views and your investment strategies. Can you afford not to read it?

Subscriptions cost $380 for twelve months or $210 for six and can be purchased here (depending on your status, a subscription to FNArena might be tax deductible): https://www.fnarena.com/index2.cfm?type=dsp_signup 

FNArena has reformatted its monthly price tracker file for All-Weather Performers. Last updated until August 31st. Paying subscribers can request a copy at info@fnarena.com