Economic Rigor

Good luck to those taking the CFA Exams tomorrow!! . I'll be one of the masses at Darling Harbour myself. Having taken the test once already (and not quite making the grade), I have a few exam tips based on hard won experience. 1. READ THE QUESTION!!!!! 2. READ THE QUESTION!!!!! 3. Watch your time 4. READ THE QUESTION!!!!! At least the exam will be in the city this time, as opposed to the wasteland of Homebush Bay (on a Sunday!!!) where it was impossible to get a coffee.

Forgive me a non-economic post. Going to be talking about the cricket. Ricky Ponting, one of the greats of the game in Australia and around the world has declared that today's test match in Perth will be his last. Sad days. The question I ask is if his form is bad enough to warrant the retirement (though at age 37, he probably just wants a rest). Lets go to the graph. Using Michael Clarke as the control as he is the "in form" batsman in Australia at the moment (and also the player that replaced him as Australian captain.) While there was a bit of an uptick in the final year, it was pretty clear that Punters best days were in the rear vision mirror. Time to go.

Looks like Australia's Sovereign risk is back to it's long term average after a few years of surging. Hopefully this bodes well for future investment. The formula I am using is Sovereign risk = (Spread between 10 year Australia government bond and US 10 year Government bond)* STDEV(ASX200 returns)/STDEV(Australia 10 year bond yields). Get the following graph for the last 10 years

Don't really have a lot of time for Technical trading, but one thing it is good for is picking up indicators of bad news. Someone always knows. My favourite indicator is the 12 day ROC. When it goes under 1 (consistantly), it is a sign that all is not well and some bad news is heading down the pipe. Just look at Melburne IT. Things were sounding great, but as early as late October, the ROC fell below 1 (indicating some sell pressure) Would have been a good time to sell on the 26/10/2011 (at $1.80) instead of now (at $1.53)

An update to my previous post. I have found Australian dollar values and also added some more floats to the list. Here are the biggest IPO's by real value since 1993 (in 2012 dollars) 1. Telstra 1 - $25,350 million 2. Telstra 3 - $8,745 million 3. Telstra 2 - $5,909 million 4. AMP - $4,368 million 5. Optus - $2,182 million 6. Boart - $1,333 million 7. QR National - $1,324 million 8. Woolworths - $975 million 9. Promina - $821 million 10. Myer - $791 million

I was reading in the AFR today about the top 10 IPO's in Australia. They published a table from DEALOGIC that listed them in order (in US dollars) 1. Telstra - 9997 million 2. QR National - 3997 million 3. Westfield Retail Holdings - 2038 million 4. Myer Holdings - 1862 million 5. Boart Longyear - 1857 million 6. Goodman Fielder - 1594 million 7. AMP - 1465 million 8. Optus - 1273 million 9. Promina - 1210 million 10. Spark Infrastructure - 1197 million Problem is is that IPO's all occurred on different years making it difficult to compare unless you use real terms rather than nominal. So as an exercise, I put them all into 2012 dollars. Now we have the best sellers list of 1. Telstra - 17690 million 2. AMP - 2590 million 3. Optus - 1395 million 4. QR National - 1306 million 5. Boart Longyear - 1054 million 6. Myer - 718 million 7. Westfield Retail 666 million 8. Promina - 529 million 9. Goodman Fielder - 472 million 10. Spark Infrastructure - 354 millio...

Should we be worried? Yield curve 2012 looks similar in shape to Yield curve 2001 and Yield Curve 2008. And we know what happened to the Australian economy in htose times. Not Great!

Been running the ruler over the Corum Group. This is a company that develops Ehealth Software and Point of Sale software. Has experienced a huge surge in it's share price this year and I'm curious as to why. Firstly the positives. Huge cost savings (and reduction in debts) have increased the Net Profit ratio from 12% to 23% in the last year. The company reports Net Income to be around $6 million, however $1.1 of that income appears to be a reversal of a provision regarding a court case. So not sustainable earnings in my opinion. Call it $4.8 million sustainable profits. Then we have ROE of 45% (which is also the Sustainable Growth Ratio as there is no DPO) and a ROA of 32% (up from 17% in 2011) Now to the negatives 1. While average sales growth is around 3% pa over the last 5 years, revenue has decreased for the last three years (at -3% and - 0.8%). While cost cutting can help you in the short to medium term, it is sales growth that gets you long term value. ...

Forget the budgets, just how much is being spent on defence by Australia since the 60's? (Stats from the ABS National Accounts as always) Lets not get too excited by claims the US is unhappy with our defence spend. We are spending at tail end Vietnam War levels! (which is about right since we have troops deployed in the Middle East)

Time for another Goatweter update regarding the 2PP The 4 poll running averages are as follows Newspoll           48.75/51.25       Coalition Essential            47.00/53.00       Coalition Roy Morgan      48.25/51.75       Coalition Leads to the inevitable Average of the three polls. Goatmeter           48.00/52.00       Coalition So definitely some more movement towards Labor (an increase of 0.2%)

I read with amazement that the American Virginia-class nuclear submarine is being considered as an option for Australia's submarine force. We have such delusions of grandeur don't we? While there is no doubt the Virginia class sub is a quality piece of kit (and cheap for a sub), for Australia, it's not just about range and refuelling options. It's also complement. Australia has had a lot of trouble crewing it's existing Collins Class subs. The Collin's class sub has a complement of 58. The Virginia class needs 120 (plus 14 officers). When we can't even crew our smaller subs, why try and purchase (or lease) boats that we we will never be able to put to sea (we want 12 of the bloody things). The best sub for Australia is one that is heavily armed and heavily automated. It doesn't need heavy water.