market update november 2013

Market Update November 2013

Relate Empower Deliver

Disclaimer

Relate Empower Deliver, Australian Financial Services Licence No. 306552, Level 4, 111 Coventry Street, South Melbourne VIC 3205.

This contents of this presentation has been prepared solely and entirely for educational purposes and debate. They represent the personal views of the presenter. They may or may not align with what you hold to be true. No part of this can be in any way construed as advice, specific or general.

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Key points

Market disconnect Prices and momentum remain positive While the underlying economics remain less

convincing Result of unprecedented Central Bank stimulus Withdrawal of which will have implications for

markets

Momentum is positive for most equity markets

Emerging Markets

Western Developed Markets

Asian Markets

Australian All Ordinaries

Australian All Ordinaries

Australian All Ordinaries

Despite the generally lacklustre economic data from the G7 economies

Investment - global trend

Aus Private Investments

Mining vs Non Mining

Non Mining Laggards

Lending rates

Business Confidence

GDP

What are the likely risk triggers?

Q.E. and Tapering

The incoming Chair of the US Federal Reserve has bought markets a few months it would seem

Before we see a slowdown in the asset purchase programme

Bond market Funds are already showing losses on their books

As they suffer net outflows for 5th straight months E.M. bonds fare the worst

U.S. Mutual Fund - Flows

10/16/2013

10/23/2013

10/30/2013 11/6/2013 11/13/201

3 Total Equity 2,805 13,582 7,947 9,072 7,254 Domestic 701 9,209 4,301 5,432 3,973 World 2,104 4,373 3,646 3,640 3,281 Hybrid 618 2,391 2,084 1,394 1,475 Total Bond -5,453 -2,386 -4,301 -4,260 -7,568 Taxable -3,604 -1,363 -3,514 -3,428 -6,434 Municipal -1,849 -1,023 -787 -833 -1,134 Total -2,030 13,588 5,730 6,206 1,161

Credit risk default

The risk of credit default looms large With a spike in cost of capital very probable When long term fixed income investors demand a

higher return to lend to sovereigns, states, municipals and corporations.

Short term rates

Long term rates

Normal return model

Data tells a different tale

H.S Dent Jr

Premium and froth conditions in technology and to a lesser extent in real estate

Profits not required

Pininterest Square Box Evernote Instagram Snapchat Twitter

Tech bubble?

Maxim of “build it and they will come” Not about profits – not yet anyway “Value per user” metrics preferred Assumption that the metrics can be monetise

sometime in future For some, perhaps Though many will fail A paradigm shift? I think not.

Eight months ago, Snapchat was valued at $70 million. Today, it is valued at $4 billion, even though it has zero revenue.

Six months ago, Pinterest was valued at $2.5 billion. Today, it is valued at $3.8 billion — and no revenue there, either.

And last week news broke that Dropbox was said to be seeking a new round of funding that would value the company at $8 billion, up from $4 billion a year ago.

New Tech

Old Tech

Property

Artificial boost from concessional tax regimes can change

Credit squeeze from fallout in equities and bonds pose some risk

Less transparent compared to regulated markets

In closing

We follow the broad positive lead from stocks until a discernible change in the present momentum

Look for cracks approaching the Feb 2014 earnings season

Continue to favour a short term view on markets by maintaining a dynamic tilt to strategic asset allocation

Prudent for borrowers to fix the rate on a portion of loans

Thank you

Relate Empower Deliver