News

2024, THE OUTLOOK FOR THE YEAR AHEAD 

Inflation remains the main concern. Most economists are predicting no more rate rises. Even a reduction towards the end of 2024. 

The US economy has been remarkedly resilient during 2023. Will it continue? 

Recession is still the key risk in 2024. Why? Because interest may have already been increased too much. History tells us that when interest rates rise as rapidly as they have, a recession follows. As one commentator put it, “A Day of reckoning follows”. 

We now have positive interest rates. That is, interest rates are giving a positive return after an adjustment is made for inflation. This is generally good for the economy. 

Hopefully I am wrong, but it would not surprise me if interest rates rose at least one more time. If they do a “hard landing” or recession is more likely.  Not so much in Australia but in the US.  

Where to invest in 2024? 

• Continue to increase exposure to Fixed Interest and cash. 
• For direct shares consider Westpac, ResMed, Ramsay and A2 Milk company. Also consider a small cap fund manager. Smaller companies are likely to do well during 2024. 
• International Shares and property keep steady with small increases. 
• Invest in property for yield only. 

Last year I said to increase exposure to Lithium stocks. This has proved to be wrong. The price of Lithium is back to where it was in late 2021. Gold stocks though have been good for portfolios. 

I look forward to our next review meeting. 

Yours Faithfully, 

Steve Burge 

2023, THE OUTLOOK FOR THE YEAR AHEAD 

The 2022 concerns of inflation, the war, and the hangover from COVID will affect 2023. 

World banks are on a mission to control inflation. They will succeed by raising interest rates. 

Interest rates have increased rapidly; the increases are not over yet. A fear now is that interest rates will be increased by too much. The current rate in Australia is 3.1% the consensus is that the RBA will increase rates to maximum 3.85%.  

If inflation begins to ease, stock markets are likely to increase rapidly. 

Recession seems much more likely especially in the US, Europe, and parts of Asia. Here in Australia? My view is that we will again be the lucky country. We have resources that are in demand!  

Where to invest in 2023? 

• Increase exposure to Fixed Interest. 
• For direct shares consider Lithium stocks, Health stocks, some banks and gold stocks. 

• International Shares and property keep steady with small increases. 
• Dollar cost averaging is likely to be a good strategy. This is the process of regular saving as asset values decline giving you more of the assets at a cheaper price to make a profit on when prices increase.  
• Invest in property for yield only. 

Last year fixed interest underperformed. It was the first year for many years that Australian Shares, International Shares, Property and Fixed Interest all reduced in value at the same time. 

I believe that 2023 will see a rebound of value for Fixed Interest. That said, high volatility is likely to persist. 

As always have faith in your strategy over the medium to long term (4-7years) and feel free to call me with any concerns about your wealth creation. 

I look forward to our next review meeting. 

Yours Faithfully, 

Steve Burge 

This time last year I wrote, “the word for 2020 was COVID”.  2021 has again been dominated by the pandemic and its COVID variants. 2022 may well be the year that we all accept that COVID is here to stay and learn to live with it.

Last year I wrote, “If the COVID vaccines prove to be the answer to the COVID pandemic, 2021 may well be a good year for financial markets. Cautious optimism is the outlook from most fund managers”.  2021 was a good year for well diversified portfolios.

The economic concern for 2022 is inflation caused by supply shortages and high demand caused by COVID. Initially inflation was thought to be a transitional effect of COVID. However, inflation has stayed more persistent than expected and higher than expected.

Commodity stock or stocks related to commodities tend to do best in a high inflation environment. Commodity stocks include Newcrest Mining (Gold), Rio (Iron ore), BHP (diversified mining), Woodside (Oil) and others.

Financial stimulus from Governments round the world is likely to be reduced during 2022, known as quantitative easing. This could lead to less money being lent by banks or making it harder to get a loan. Hopefully, quantitative easing will not be eased too quickly which may lead to a rapid retreat of equity prices. Not good for portfolios

Oil prices are predicted to rise during 2022 and 2023.

My theme for suggested investment during 2022 is Newcrest mining, Woodside and an increased exposure to fixed interest and Bonds.

Volatility is again likely to continue in 2022 so again remain confident in your portfolio and its long-term strategy.

My view is that 2022 will be an interesting year. A year that is even more difficult to predict. Not many voices are suggesting a recession, but it cannot be completely ruled out. Be cautious this year is my advice.

The major banks have already started to increase their fixed mortgage rates. This is a sure sign that they expect interest rates to increase.

The word for 2020 was COVID. COVID caused a steep drop in equity prices. In fact, a record drop in equity markets. The record drop in prices, was followed by another record, the best ever short term 50day rally. The COVID period gave us the worst economic crisis for 80 years.

If the COVID vaccines prove to be the answer to the COVID pandemic, 2021 may well be a good year for financial markets. Cautious optimism is the outlook from most fund managers. Much will be determined by the confidence of consumers. Will the vaccine help people to feel happy to travel again?

Governments round the world are committed to financial stimulus and have signalled that interest rates will remain low.

Low interest rates will be good for dividend paying stocks. 2020 saw dividends stocks, particularly banks, fall out of favour. Fully franked dividends tend to offer a better return than cash rates. Dividend paying stocks had a bad 2020 but are likely to come back in favour in 2021.

Iron ore prices have been very hot during 2020. However, predictions are suggesting that iron prices will moderate during 2021.

Volatility is very likely to continue in 2021 so be confident with your long-term strategy. The election of Joe Biden has reduced some of the volatility. I think the world has welcomed the prospect of some normality in US politics and its place in the world.

In general terms, I am looking forward to a good year for markets. Health care stocks should do well, so too technology and emerging markets, particularly Asia.

Australian Shares

• RIO has had a good year, up 23% and BHP up 18%
• Galaxy Resources up 49%
• Virgin Money (VUK) down 49%.

International Shares

• Hold steady but consider increasing exposure to Emerging Markets.

Property

• Domestic real estate is looking strong with a recent recovery. I will be interested to see if the current market strength continues.
• Commercial property should recover as the world gets back to work.

Interest Rates

• My view is, that we should still plan for increases especially when taking on more debt.

Generally, keep investing in quality good yielding shares. Consider increasing your portfolios allocation to Emerging Markets and property.

Consider reducing exposure to mining stocks and increasing exposure to dividend yielding stocks and health care.

Consider investing in post COVID stocks like Qantas, Sydney Airports and Transurban.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge

Last year I said, “There will not be many easy gains to be had in 2019”. Well, 2019 finished with markets having reached highs. The returns gained in 2019, in a well diversified portfolio, were quite spectacular.

2020, what might we expect? World tensions due to the trade war between China and the US, more recently tensions escalating in the Middle East, will probably slow the world economy.

Watching the UK general election, as I did, was staggering. A result nobody expected. The massive majority won by Boris Johnson and the Conservative Party, has eased the threat of a “hard Brexit”. Brexit though will happen. My view is that the UK getting out of Europe will present opportunities for Australia. The UK Pound is also likely to strengthen against the Australian Dollar. Companies with UK Pound exposure are likely to benefit as a result.

In general terms, expect lower than normal growth, low inflation and more volatility.

The risk of an outright recession in the US, the UK and Australia, is low but not out of the question. Bond markets have been predicting a recession within 18 months for the last six months!

The consequence of low interest rates has been to encourage borrowing and speculation rather than savings. Savers with portfolios have been forced to chase yields. This in turn could artificially inflate assets further. Long term, very low interest rates are not good for economies. We only have to look to Japan and Europe for evidence. So called “Zombie” companies can survive by paying much less for their debt. With normal interest rates Zombie companies do not survive allowing more efficient companies to make greater profits, create more jobs and invest more.

Low interest rates have also encouraged “buy-backs” rather than expansion. There were a lot of “buy-backs” in 2019.

As a strategy, Emerging Markets might do well in 2020, so I would encourage some investment in Emerging Markets.

I still favour the strategy of reducing the risk to your portfolio in favour of the steady gains that fixed interest offer. This strategy will be obtained by buying bonds and fixed interest, as the income from the growth assets (shares and property) that you currently hold, builds up your cash account. 

Australian Shares

• Ramsay has had a good year, up 26%.
• CYB now Virgin Money (VUK) also had a good year, up 7%.

International Shares

• Hold steady but consider increasing exposure to Emerging Markets.

Property

• Domestic real estate is likely to be patchy and, in my view, generally weak.
• Commercial property steady.

Interest Rates

• My view is that we should plan for increases.

Generally, keep investing in quality good yielding shares. Consider increasing your portfolios allocation to Emerging Markets and Fixed Interest.

I look forward to our next meeting and as always please feel free to contact me any time.

Yours Sincerely,

Steve Burge