Arminius

23 April 2021 Back when coins were originally made out of an alloy of silver and gold it was uncommon but not impossible to debase one’s currency. The death penalty as a consequence of currency debasement seemed to inhibit the practice. The Lydian Empire in 700 BC (before they fell to the Persians) lays claim to inventing “coinage”. Once the use of coins as a medium of exchange became commonplace, the Greeks were known to debase their currency from time to time... [read more]

28 February 2021 Twice a year we summarise the half-year and full-year results of the companies in the ALCE portfolio. Most of the companies in the portfolio reported strong earnings recoveries in the December half-year, and dividend payouts were higher than our forecasts... [read more]

25 February 2021 China’s top leaders have set out their top priorities for 2021 to 2025: achieving self-reliance in science and technology, and “dual circulation”. Self-reliance in science and technology means accelerating the development of vital high-tech industries such as semiconductors to ensure that China can develop regardless of US “threats”. Dual circulation means encouraging production for domestic markets as well as for export markets, and upgrading China’s internal logistics systems so as to build a unified national market. China is also committed to restructuring the energy sector and energy-intensive industries so as to meet the target of peak carbon [...]

4 February 2021 In November 2008 a panicked Chinese government launched a stimulus package equivalent to 12% of then GDP. The package propelled China out of the GFC, but it created more problems than it solved, e.g.: A tenfold increase in corruption Useless or non-economic projects: “bridges to nowhere” A surge in banks’ bad loans A sharp increase in the ratio of debt to GDP Unsafe buildings, and highways that collapsed

20 January 2021 Coronavirus vaccines will help us return to normal, but there will be risks, obstacles, and delays through 2021. 2021 will bring a W-shaped recovery in the economy and the share market: two steps forward, one step back. The Australian dollar is headed toward USD 90c much faster than we expected. After the grim events of 2020, the November news of three coronavirus vaccines set off a surge of investor optimism about the future... [read more]

18 December 2020 History indicates that the US share markets are kinder to Democratic Presidents than under Republican Presidents. The most important thing is to stay invested, because the share market rises under almost every President. Although the Biden Administration will probably have to deal with a hostile Senate, it can still accomplish many of its policy objectives by executive actions and some bipartisan cooperation. Presidential policies usually have more impact on individual sectors than on the market as a whole, so we think that the probable winning sectors are: Pollution control and environmental restoration Construction Building materials Railroads Battery [...]

13 November 2020 The ANZ, NAB and WBC results for the September half-year suggest that their bad loan problems will be smaller than expected, because loan deferrals are falling faster than feared. NAB had the best underlying result. Banking sector profits are likely to bottom in FY21, then recover at 10% to 15% pa for the next two years, taking dividends to about 4.5% fully franked. Risks to this scenario include more outbreaks in Australia and renewed economic downturns in the US and Europe. We continue to believe that, although the banks will recover over the next two years, they [...]

15 November 2020 The Bank of Japan’s regular Financial Stability Report helps Arminius update our investment view on Japan. Because the country has suffered very few coronavirus deaths, the Japanese economy will recover very quickly from the lockdowns in the first half of this year. Consensus forecasts are for GDP to fall by -5% in 2020, but to rebound with +3% growth in 2021. Most importantly, the average Japanese company carries very little debt – many have a net cash position. Corporate Japan’s leverage to the East Asian economies will cause a sharp improvement in profits. Therefore we recommend maintaining [...]

20 October 2020 The US share market is the biggest in the world, accounting for 60% of total market capitalization. (The Australian share market is only 2%.) Therefore, when investors in the US are getting scared, the rest of the world sits up and pays attention. The chart below shows how investors have become increasingly worried about the outcome of the next US Presidential election. The VIX (for “Volatility Index”) measures investor fear by measuring how much investors are willing to pay in order to buy option protection against downside risk in the US share market. Investors can buy or [...]

30 September 2020 China is a major factor in Australia’s economic recovery because China buys more than a third of our exports. This is why global investors like to use the Australian dollar as a proxy for the Chinese economy – if China does well, Australia will benefit, so our dollar will rise (provided that the Australian government does not provoke any more trade retaliation). August marked a sharp improvement in China’s economy. Exports leaped 9.5% year-on-year, after a 7.2% rise in July. The rapid resurgence is partly due to Western companies re-stocking their supply chains after the COVID-19 disruptions [...]