Post on 08-May-2015
description
Invast Insights
Week Commencing December 2, 2013
www.invast.com.au | 1800 468 278
This week we look at the following topics:
1.0 Oil & comments from Stratfor
2.0 Gold price outlook
3.0 Market outlook via our CNBC interview
4.0 Nasdaq 4000 winners & losers
5.0 Weekly economic calendar
www.invast.com.au | 1800 468 278
www.invast.com.au | 1800 468 278
1.0 Oil & comments from Stratfor
Last week’s publication focused on the geopolitical landscape, where we
touched on the Australia-Indonesia relationship, while exploring talks
between the USA and Iran. We received a fair bit of feedback from clients
expressing their interest in this topic. Thank you for your comments and
feedback, we encourage you to continue sending us your thoughts on a
weekly basis.
We don’t intend on repeating what we wrote, but one area which might need
elaboration is our views on the oil price. Despite widespread newspaper
headlines saying the Brent crude price is due to fall, oil prices have held up
relatively well, in fact rallied, in line with our technical analysis and
fundamental view that Saudi Arabia needs to be watched. Newspapers got
the headline right, but we believe they got the price direction wrong.
www.invast.com.au | 1800 468 278
www.invast.com.au | 1800 468 278
One of the most respected and most highly regarded geopolitical
publications is Stratfor. Many serious traders and fund managers read it for a
glimpse into the real story behind the headlines. Stratfor is so influential that
its business was subject to a massive hacking scandal which saw internal
documents released to the media – some of which were the trigger events for
the Arab Spring uprising across the Middle East. When Stratfor publishes its
views, thousands of key decision makers take note globally. Therefore it is
with great interest that Stratfor’s analysis of the US and Iran fits well within
our thesis published last week. Stratfor published its views on November 27th,
almost two full days after our Invast Insights report was released to our
clients.
Click here to read the Stratfor report. Usually Stratfor’s research is locked and
users need to subscribe for a modest annual fee. This report is unlocked
though and free to read for all. It is basically a longer explanation of recent
events – it doesn’t completely verify our view on oil markets but it does
reiterate the view that Saudi Arabia’s stronghold and standing in the region is
subject to a substantial change.
www.invast.com.au | 1800 468 278
Stratfor writes “While the United States is prepared to support the Saudis in
that context, it will not simply support them absolutely. The Saudis and
Israelis will have to live with things that they have not had to live with before
-- namely, an American concern for a reasonably strong and stable Iran
regardless of its ideology”.
At Invast our main focus is not the political or social impact, it is purely on the
impact this has on oil markets. As we write, the Brent crude price is sitting at
US$111 per barrel which is slightly shy of our upper limit of about US$112. We
called for a rally two weeks ago when the Brent price was holding just above
US$103 per barrel.
Clients of this report who acted on our technical analysis and entered on
November 12 would be sitting on a gain of about 5-6%. It’s probably a good
time to consider taking some profit as the Brent price is currently just shy of
our US$112 upper limit level. We would be inclined to start buying back on
www.invast.com.au | 1800 468 278
any potential dip back towards the US$103 level in the coming weeks.
Watch the video here: https://www.youtube.com/watch?v=H2GVBrAyG-4
www.invast.com.au | 1800 468 278
2.0 Gold price outlook
One of the things we haven’t called too well this year is the gold price fall. It’s
all very well to pat ourselves on the back when we make good calls – like the
oil price above - but we equally admit our errors. The first step in becoming a
successful trader is to admit your mistakes. Usually the earlier you admit your
mistakes, the better. We published views over the past few months, basically
saying that around US$1250-1280 an ounce, we believe the gold price should
find support. In late September, we went through and looked at key global
miners like Newcrest Mining (NCM) and pulled out what their marginal cost of
producing an ounce of gold actually is.
Most of the analysis we read is that gold is becoming harder and more
expensive to mine. Newcrest, one of the largest gold miners in the world, has
seen its share price collapse this year and its all in cost of producing gold
rising to above US$1150-1200 an ounce. Our fundamental view was that if
www.invast.com.au | 1800 468 278
this is the cost of production then the gold price should find at a floor near
this level. This view is not incorrect, as we write the gold price is actually
sitting at around US$1250 an ounce. But it has slipped below the US$1275
support level.
Most analysts and investment advisors or technical analysts find it very
difficult to admit their mistakes. Rather than trying to justify why our analysis
is still correct, we think our call in September was lousy. It’s not that it was
incorrect, but it just didn’t really add any value to you, our client. Our purpose
though is to add value to our clients trading – not necessarily dwell on what a
fundamental value SHOULD be. We have held a long position in gold via our
Wealth Creation portfolio which will be reviewed next week, as part of our
monthly update. Luckily the fall in the Australian dollar has helped contain
some of the losses in our long US dollar gold position.
With all that in mind, we sat back this week and rethought our view on gold.
Here is our revised technical analysis. This is a thorough analysis. We hope this
www.invast.com.au | 1800 468 278
this provides you with greater value in terms of your trading. Our
fundamental view has not changed, it will change if the marginal cost of
production falls drastically, but for the time being we still think the
fundamentals support.
A daily close below US$1225 could see a retest of the June low of US$1180.
Momentum continues on the downside. A failure to maintain US$1180 could
see further downside to US$1155 and then potentially just below the
psychological US$1000 level – somewhere near US$996 per ounce. The impact
of the last trading month for gold has historically been very important.
www.invast.com.au | 1800 468 278
Watch the video here: https://www.youtube.com/watch?v=9fh2UAcdOxU
www.invast.com.au | 1800 468 278
3.0 Market outlook via our CNBC interview
Discipline is one of the hardest habits to master as a trader. The financial
services industry has some of the best salesmen in the world, when the
market is booming it becomes very difficult to exercise caution and maintain
discipline. In hindsight everything becomes clear, but by then there is no
point – the damage is usually done when buying too high and holding out as
markets fall, in the hope that everything will be alright because everybody
out there – analysts, central bankers, your next door neighbour – says so.
In recent weeks we have been writing about the need to focus on the big
picture themes – the types of businesses that are likely to grow and add value
regardless of what global markets do. We have also expressed our thoughts
around some IPO names like Dick Smith for example. Our report published
two weeks ago caught the attention of CNBC and we were invited to discuss
our thoughts and ideas on the importance of cashflow generation to a
business on 21 November.
www.invast.com.au | 1800 468 278
We hope you find this interview useful in mapping out your thoughts for the
2014 calendar year.
Image: Invast speaking with CNBC’s Oriel Morrison on 21 November 2013
Watch the video here: video.cnbc.com/gallery/?video=3000220549&play=1
www.invast.com.au | 1800 468 278
Our preference remains for niche businesses that can continue to grow their revenue and earnings without too much capital. We would be inclined to continue staying away from mining services stocks. As we write this section, a previously loved small cap mining services stock called Forge Group (FGE) has just released a trading update and its shares have fallen by around 90% in response to the bad news. Discipline is important to avoid mistakes like Forge Group which have the potential to wipe out a significant proportion of your wealth. Stocks like Empired (EPD), Ellex Medical (ELX) and others contained in our portfolios have the ability to grow with minimal downside risk over the next few years. Stick to these types of opportunities.
4.0 NASDAQ 4000 winners & losers
The Wall Street Journal published a very interesting graphic on November 27 which we had to share with you this week. It shows the composition of the NASDAQ today compared with 31 December 1999 where the index last touched 4000 points – close to its current level. The figure shows just how much has changed over the period, no doubt impacted by the bursting of the tech bubble and many other factors since then.
www.invast.com.au | 1800 468 278
Image: NASDAQ weightings, published in the Wall Street Journal 27 November 2013
www.invast.com.au | 1800 468 278
The most striking change to us is the growth in Apple – from just 0.31% of the
index to 7.92% and now the most valuable company in the world. The lesson
here is that companies have the ability to turnaround if the culture and
management team are of high pedigree. Microsoft has fallen into second
place but still remains at a commendable 5.22% of the index. When you are at
the top it is very easy to lose your way and fall behind but good management
at both Microsoft and Apple have been able to deliver shareholders adequate
returns over the turbulent 1999-2013 years.
Investing can be very difficult, at times major news flow can alter your
willingness to hang on and ride out the bad times. Likewise, many investors
are tempted to take early profits in fear that their investment might fall back
towards breakeven. There is no single trick in investing, a golden secret that
will make you millions. There are many ways you can describe the image
above, for us though the most important element is the ability of prudent and
exceptional managers to grow a business from 0.31% of the NASDAQ into the
most valuable brand in the world in less than 15 years. We spend a lot
www.invast.com.au | 1800 468 278
of time throughout the year talking about technical indicators, earnings
numbers, valuations and other financial metrics. We often forget to study the
personalities who run these businesses to find the exceptions like the late
Steve Jobs.
There aren’t too many Steve Jobs in the world but there are many good
managers running businesses with impressive track records. The mediocre
managers can take large businesses and run them into the ground. We plan to
write more on this topic in 2014 and look to release a report which highlights
the best company managers in the Australian market – where they are and
what businesses they are currently running.
www.invast.com.au | 1800 468 278
5.0 Weekly economic calendar
www.invast.com.au | 1800 468 278
Drop by our site to get more updates on the markets and major commodities.
www.invast.com.au | 1800 468 278
7.0 Disclaimer
Please note that you are receiving this report complimentary from Invast Financial Services Pty Ltd (AFSL 438 283). Invast staff members may from time to time purchase securities which are included in this or future reports. The authors of this report may or may not be holding a position in the securities mentioned. Please note that the information contained in this report and Invast's website is of a general nature only, and does not take into account your personal circumstances, financial situation or needs. You are strongly recommended to seek professional advice before opening an account with us.
General Disclaimer: This newsletter contains confidential information and is intended only for the person who downloaded it. You should not disseminate, distribute or copy this newsletter. Invast does not accept liability for any errors or omissions in the contents of this newsletter which arise as a result of downloading this newsletter. This newsletter is provided for informational purposes and should not be construed as a solicitation or offer to buy or sell any financial product. Invast Financial Services Pty Ltd is regulated by ASIC (AFSL 438 283 | ABN 48 162 400 035).
www.invast.com.au | 1800 468 278
Risk Warning: It's important for you to read and consider the relevant Product
Disclosure Statement, and any other relevant Invast Financial Services Pty Ltd
documents before you decide whether or not to acquire any financial
products listed in this email. Our Financial Services Guide contains details of
our fees and charges. All these documents are available here on our website,
or you can call us on +612 8036 7555. CFDs and Foreign Exchange are
leveraged products and carry a high level of risk and you can lose more than
your initial deposit so you should ensure CFD and Foreign Exchange trading
meets your personal circumstances.
General Advice Warning: Being general advice, this newsletter does not take
account of your objectives, financial situation or needs. Before acting on this
general advice you should therefore consider the appropriateness of the
advice having regard to your situation. We recommend you obtain financial,
legal and taxation advice before making any financial investment decision.
*Distributed with the permission of Invast.com.au