As the world’s first global financial crisis deepens, spare a thought for the financial journalists, economists, fund managers and analysts feeding the media machine.
Many of them are publicly trying to explain the unprecedented chaos whilst counting their own enormous financial losses and pondering whether their employer will survive and their jobs will be saved.
The one certainly from this whole crisis is that millions of jobs in the financial services industry will disappear after the destruction of trillions of dollars in value.
Fairfax business journalists are busily writing the first version of history whilst pondering today’s redundancy acceptance notices, as Nick Tabakoff explained in The Australian this morning.
I’m no different from everyone else. Can The Mayne Report’s losses be sustained and what now with the $160,000 share portfolio of 750 stocks almost $100,000 underwater? (Hopefully the missus won’t read this!)
However, with only a modest margin loan and no mortgage, I’m soldiering on and have been buying every day this week. All the trading for 2008 is revealed here.
So, what should ordinary investors do with their money in this market?
Firstly, it is important to stress that no-one outside of Iceland has yet lost any money on deposit as government guarantees rain down upon the global banking system. People shifting cash from ING to the Commonwealth Bank are needlessly reducing their income, although prudent management would always dictate that you don’t leave all your cash with a single institution.
With global official interest rates tumbling and the All Ords now down 38% from the record 6873 on November 1 last year to 4260 in morning trade, there are numerous investment opportunities better than 6% from a bank deposit.
For instance, I bought seven unsecured notes in Myer (code MYFG) at $76 a pop on Monday. These debt securities are paying a fixed $10.19 return until 2013 when they will be redeemed at par of $100.
The private equity owners of Myer pocketed $600 million from the sale of its Melbourne building last year and have just declared a $95 million net profit for 2007-08.
I’m confident they won’t go broke which means the $532 investment will be redeemed for $700 in 2013, plus there will be $570 in interest payments — an annual return of more than 15%!
Ordinary equity investments are far more risky because profits are going to tumble. Sure, BHP Billiton at $30 looks cheap, but I’d wait for $25.
And don’t go buying either residential property or bank stocks. If house prices fall by 20%, bank profits will plunge and the regulatory environment for banks is about to get very ugly.
The best short term value probably comes with companies that will benefit from the plunging Australia dollar. Gunns at $1.22 looks cheap given that institutions have just stumped up $330 million at $1.50 and that was before the dollar went into freefall.
Similarly, the world biggest fine paper merchant Paperlinx enjoys an EBIT lift of $4 million for each US1c fall in the dollar but it has been beaten up for raising equity in this market.
*Check out this video on plans for an EGM to remove Stan Wallis from the board of our biggest listed investment company.
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