rob zdravevski's blog

Indian Equities

After years of staying away from Indian equities due to concerns that range from politics, neighbouring country tensions and immense bureaucratic red tape, I am once again showing interest in this emerging market. The next step, if my investigations warrant an investment is to determine an initial entry point.

Even though India’s Nifty has risen handsomely, it remains the poorer cousin to China in terms of investment dollar inflows. A rise in the value of Asian currencies could lead to China not being the only game in town.

When they build a new hotel – SELL

I live in the Margaret River region of Western Australia which I have learnt can be a barometer for Australia’s commodity cycle and currently it tells me that this industry is not in a “boom”.

If that’s the case, this is OK as I’d prefer to initiate an investment before an advance occurs and not in the midst of such a frenzy.

There are many houses for sale in my part of the world, which is a beneficiary of Perth’s mining centric prosperity, disposable incomes and financial windfalls.

In fact, Perth metro is also seeing an increasing supply of houses for sale, although I can’t comment on whether it’s a function of  listings due to the seasonal selling period, old stock that has been on the market for longer than normal or new listings due to financial stress.

Don’t get me wrong – My anecdotal experiences are telling me that Western Australia’s commodity economy is growing nicely.

Nicely is just fine. We should be pleased with “nicely”. Remember that all booms, end up going “BOOM”.

Commodity prices and their underlying equities will ebb and flow (prices don’t go up in a straight line) through a revival of this supply and demand story, although it would be nice(ly) if the media omitted the greedy and fearful emotions that the words booms and busts invoke.

Whether a boom, fever, mania, frenzy, stampede or bubble develops I’ll keep you posted on the property barometer that we have “down south”, however I think I may have found another indicator for investors to watch.

I recently stayed in a couple Perth CBD hotels. They both had quite a tired appearance, offered ordinary service and not much change was left from A$400 per night.

Soon after my visit, a friend had stayed in a Perth hotel and had made similar observations. That week, he asked folks the following question, “When was the last time that a major hotel was built or even renovated in Perth?”

A: 1987 (when Perth hosted the America’s Cup defence)

So, when you hear that a new hotel is being built in Perth (or even renovated), perhaps commodities may be establishing a peak in its current cycle.

America – the new low cost producer ?

Forget India & China – they are seeing rising wage inflation. Their goods don’t seem to be as cheap as they once were.

The United States could be “new” low cost, high quality producer of the world?

With 10 million unemployed people, 2.2 more million in overflowing prisons, a low minimum hourly wage, factory capacity isn’t strained and large public U.S. companies have plenty of cash on their balance sheets (they also offer health care coverage) and they can borrow cheap money by selling bonds quite easily as they are more creditworthy than the U.S. Treasury !

It seems that many investors have given up on America and their corporations (large and small). American companies know how to admit their mistakes, take write-downs, cut costs and start again. In other words, they allow the fire to pass through so the forest can rejuvenate.

America may be a fertile investing habitat.

US$89 Oil and not a peep !

Oil is hitting 26 month highs, touching US$89 per barrel. This affects the price of many things.

Most noticeable to everyday life are products collectively known as “fast-moving consumer goods” or FMCG’s.

The price of oil is felt in its chemical derivatives (benzene, ethylene), packaging and transportation to mention a few.

Normally, rising input prices will be passed on by manufacturers, but this time around, I don’t think consumers will accept this so easily.

So, if manufacturers swallow the rising costs associated with a rising oil price, look for a squeeze in their margins.

For the European giants, a strong Euro translates into cheaper USD denominated oil while a weak USD means the American brands are beneficiaries of a globally competitive product, but as ice hockey great, Wayne Gretsky once said “skate to where the puck is going to be, not where it has been”.

Embracing Australian banks ?

As public distaste grows against large Australian banks, it’s equally relevant to acknowledge their position and power.

Government and customers have built them into the goliath’s that they are today. I see them as giant planets in their own right, spinning above Australia dominating business and money flows.

It’s futile to resist their dominance.

The shame is that banks often cite the importance of shareholder value ahead of customer service and satisfaction. Shareholders buy and sell your shares while it’s usually customers that stay with you, until perhaps they too are disappointed or ignored.

When another crisis of confidence occurs, citizens will once again ask and worry about where their money is custodied and unfortunately, the small building societies will have a difficult time appeasing those concerns.

If you think the large Australian banks are making a lot of money now, just wait until their funding costs ease and they actually start lending again !

Business Idea – Horse Dentist

In Australia, there are 850 horse dentists (most double as veterinarians) compared to 700,000 registered horses.

That’s an average of 824 horses (clients) for each dentist.

I have understood that only 30% of Australia’s horses are receiving their annual checkups.

This seems like a good example of a positive demand story.