MARKETS, REAL ESTATE AND SME

Hello dear readers! I trust you have had a good weekend so far and that this week has been another successful step forward in your investment journey... Remember, it's not with how much you start, but when you start that is important!

Later in the week we will be providing you some insight into what Venture Capitalists are looking for, especially with regards to Start-up Technology Companies, with special thanks to +Benjamin Chong, one of the partners of the new venture capital fund, Sydney Seed Fund.

But for now, lets get back to what's important and why you are here!

MARKETS

You all should by now realise that I love Gold... Some more great insight from +Dan Denning via the +Daily Reckoning Australia 

The Rocking Boat of Stocks (View original article here)
 By Dan Denning • April 19th, 2013

When you're an addict there are only two extremes. You're either flying high or you're coming down. And as Tom Petty wrote, coming down is the hardest thing. It doesn't happen slowly. It happens fast.
Stocks, bonds, and commodities all flew high in the first quarter of the year. Hedge funds, traders and the public abandoned caution, levered up, and dove into anything they thought would benefit from easy money. And it worked. But now we're coming down.
This is one of those unintended consequences of living in a low interest rate world. All the world's money printers have lowered their prices. With the returns on cash sufficiently trashed, and the cost of borrowing low, the barriers to entry for becoming a Fed-funded speculator were gone. Whether they liked it or not, investors became speculators and all the bets were one way: long. 

Now, all the bets seem to have moved the other way at the same time: short. Maybe this is simple profit taking and de-leveraging. Maybe it's panic. But it's definitely an example of market moves becoming more volatile. Everyone is on the same side of a trade, and then switches to the other side. First port, then starboard. The boat gets rocked.
Naturally, when you're on a boat that's rocking, you start to wonder if this sucker's going down. Probably not today, although it wasn't a big reversal day on Wall Street. The focus has turned to earnings. 

Investors discovered that ignoring them in favour of Fed policy doesn't change what's going on. Business in America is okay, but not radically improving enough to justify higher multiples on stocks.
The gold price is limping back to the US$1400 range. Is it a temporary reprieve? In our weekly update to readers of The Denning Report, we're taking up the idea there is a behind the scenes battle within the global financial system for physical ownership of the world's best collateral (gold). But on the front lines, there's the relationship between gold and stocks, shown in the chart below. 

To recap, the ratio between the gold price and shares in Berkshire crashed through the 14 level we had our eye on and kept right on going. It overshot. But what is that on the right side of the chart? Could it be one of those dramatic 'V' shaped reversals that mark a bottom in a market?
It could. But the ratio has been oversold based on the relative strength index (RSI) for most of 2013. This reflects the drugged-up trading mentality referred to above. Stocks had a great first quarter relative to gold. The early signs are that the second quarter won't' be as great. 

But let's not forget the drug dealers in all of this. 'Three Fed presidents say disinflation may prompt easing,' reports Bloomberg this morning. 'If inflation looked like it was going to sag further on a persistent basis, I would certainly consider stimulus for the purpose of bringing inflation up to target,' says the Richmond Fed's Jeffrey Lacker. 

Other Fed Presidents agree. 'We should defend the inflation target from the low side,' said St Louis Fed president James Bullard. That is such a bizarre way of putting things that it's hard to know what he means. But we think he means the Fed should keep pumping money into the bond market as long as consumer price inflation remains low.
Investors have rejected this strategy in the last ten days. One way of reading gold's fall is that speculators don't think QE will lead to asset inflation. Thus, the stock sell off. Yet the Fed persists with a strategy that doesn't produce real economic growth and leads to huge volatile swings in financial markets. Go figure. 

In the meantime, even the Chinese are starting to get the idea of pumping up markets by expanding the money supply. 'Monetary easing might be helpful but the role is very much limited,' said Jin Liqun, the chairman of the board of the China's sovereign wealth fund. 'It is a necessary but not sufficient condition.'
It's not exactly an unqualified endorsement of QE. In fact Jin also said, 'If printing money could solve the problem, it would be so easy. Every country can print money...Some people believe quantitative easing is a panacea. It's not a panacea. If you don't do something else to support this policy, it's a recipe for disaster.' 

Plan for disaster. But how we get there should be interesting. As for Australia, there may be some relief coming for mining companies in the form of a lower Australian dollar. It won't help with the sell-off in commodities as QE speculators take their bets off the table. But it will help with lowering the cost of doing business in Australia, which is incredibly high. 

Above you'll find a ten-year chart of the world's latest greatest 'reserve currency'. We put that in quote marks because no reserve currency worthy of the name would be quite so volatile. People using that designation prefer to focus on the last two years, with the Aussie at parity or better against the US dollar. They ignore the huge 37% drop in 2009 - the last time the world deleveraged in a hurry and commodities lost their lustre with speculators. 

Is a big fall in the Australian dollar possible? Of course. Is it imminent? That's harder to say. The Aussie dollar is overvalued by about ten per cent, according to IMF deputy director Min Zhu. That's a pretty generous assessment, given the fall in the terms of trade and bulk commodity prices. 

For Aussie investors, a fall in the dollar is a mixed blessing. It's probably bullish for industrial stocks and exporters. But to the extent it's driven by falling commodity prices and lower capital flows, it's bearish for resource stocks. There's probably a pair trade in there. But we'll leave that to Murray over at Slipstream Trader. 

In the meantime, life goes on. And with all due respect to Tom Petty, coming down may not even be the hardest part. The hardest part is when instead of a little consumer price inflation, you get a lot. When funny money no longer boosts asset prices, but leads to exploding consumer prices, we go beyond a monetary experiment and into a sociological one. Stay tuned.
Regards,
Dan Denning
for The Daily Reckoning Australia

REAL ESTATE

Real estate agents' confidence soars

Australian businesses may be doing it tough, but at least real estate agents are feeling pretty good.

A survey of property industry sentiment shows confidence has risen to its highest level in 18 months.

That goes against the wider trend in business sentiment, which remains stuck at below-average levels.

And there's good reason for real estate agents feeling positive: house prices are increasing and investors and owner-occupiers are starting to borrow more.

Property Council of Australia chief operating officer Ken Morrison says there is a ...continue reading

Fixed interest rates fall to all-time low in Australia

Fixed interest rates have fallen to an all-time low - but most home loan customers are failing to take advantage.

Some financial institutions are offering three-year fixed rates below five per cent and experts believe they will not fall any lower.

By comparison, major lenders' standard variable rates are still averaging more than 5.7 per cent, even after the typical 0.7 per cent discount.

Yet the latest data from the Australian Bureau of Statistics shows only 12 per cent of customers who took out mortgages this year have fixed their loans, compared to more than ...continue reading

ASIC issues warning on property advisors dabbling in SMSFs

Australia’s corporate regulator has issued several warnings over the self-managed superannuation fund industry, in a report which targets the property market as a particular source of trouble.

The warning comes after remarks made by Australian Securities and Investments Commission head Peter Kell, who said last week the regulator is concerned about advice being given about SMSFs which is inadequate or misleading.

In the latest report, published yesterday, ASIC says ...continue reading

Purchasing investment properties in SMSFs is something you really should investigate if you have a reasonable amount built up over time! Make sure you get advice from accredited professionals when considering this as an option.

SME

Accountants – embrace the cloud or lose SME clients

A majority of Australian SMEs will consider replacing their accountant if they fail to make the transition to cloud-based computing software, according to new research by CCH.

The research of over 1000 SMEs and over 200 accountants revealed that the shift to cloud software is approaching critical mass, with 52 percent of SMEs saying they would replace their accountant if they fail to move to a cloud-based system. The proportion reached 72 percent among younger SME owners (aged 18-35).

Only 23 percent of ...continue reading

Google targets Australian SMEs, but Asia-Pac boss says too many still don’t understand online

Small businesses in Australia and the wider Asia-Pacific are becoming crucial to revenue for companies like Google, but many SMEs still don’t understand the benefits of doing business online, says Google Asia-Pacific president Karim Temsamani.

Google is aggressively chasing small and medium businesses, which Temsamani says is a growing part of Google’s overall revenue and its Australian operations.

“About 2.5 billion people have access to ...continue reading

University of New England’s Future Campus to foster student start-ups

Student entrepreneurship is expected to be a key focus of Future Campus, a new high-tech student support centre launched today by the University of New England in Parramatta, NSW.

Future Campus is designed to support the nearly 2,000 UNE students living and studying in western Sydney, who aren’t always able to travel to the university’s main campus in Armidale.

The centre, which is partly funded by the Federal Government through its Structural Adjustment Fund, has been described as a ...continue reading

Always good to see universities embracing entrepreneurs. I believe there is a serious shortage of quality entrepreneurship programs in Australian universities. If you are considering such a program, make sure you do your research on the various options available, especially considering the fantastic programs which are being offered by Incubators and other providers, focusing specifically on starting a business etc.

Short and sweet this Saturday... We hope you found this helpful, please don't be shy to let us know if there are other topics you wish to hear about on Generation Y Investor. Until the next time dear readers...