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The top of this cycle for ASX200, cash is king ?


kahuna1

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Yeah sure they are fat but there are advantages...such as getting to the front of the line at Disneyland.

 

I am hiring a mobility scooter with the mandatory Big gulp and fatty salty snacks next time I go so I can enjoy my new disability which ironically gives me the ability to cut to the front.

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K - great post as usual but if I might take exception with just one little aspect of your examples. It is bad form to quote the total future obligation (I think it was 100T) as a % of a single years GDP (500%). It's like me saying my future life expense is going to be $5m but I only earn $500k this year - how will I ever pay for it? Either talk about the annual expense v annual GDP and then maybe tax revenue as a % of that) or talk about the 100T total future exposure agains the total future GDP which would be in the quadrillions I imagine.

 

Anyway - the point is that the situation is bad enough without needing to make etreme comparisions . . .

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As we are in the US earnings season again I thought I'd post a summary of Monsanto's latest report. In a nutshell they are shedding jobs, cutting R and D and buying up shares to prop up their share price. One might have thought lower oil prices would have delivered a profit windfall for a company which spends quite a bit on fossil fuels to distribute their seeds and manufacture chemicals. Nope.

 

 

 

 

 

 

Monsanto Co. said it will eliminate 2,600 jobs as part of a cost-savings plan, joining a growing list of major corporations struggling to contain the damage from the decline in world commodities prices.

 

The St. Louis-based agricultural giant announced the reductions -- the equivalent of 12 percent of its workforce -- as it reported a loss of 19 cents a share in the fiscal fourth quarter and warned profit would remain weak through 2016.

 

Like DuPont Co. and Glencore Plc, Monsanto, the world's largest seed maker, is taking steps to combat the effects of a commodity slump that reduced farmer incomes for two straight years. Moves to trim expenses include re-prioritizing some research and development efforts and exiting the sugar-cane business to save as much as $300 million a year. Still, the company said it plans to meet its goal of doubling per-share earnings in five years from 2014.

 

"It seems surprising that they are still confident of reaching the 2019 goal given the environment they are facing for 2016," Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co. who rates the shares neutral, said in a telephone interview.

 

 

Shares Drop

Monsanto fell 2 cents to $88.06 in New York. The shares have dropped 26 percent this year.

 

Profit will fall to $5.10 to $5.60 a share in the 12 months that began Sept. 1, excluding restructuring costs, from $5.73 a year earlier, Monsanto said Wednesday in a statement. That compares with $6.22, the average of 23 estimates compiled by Bloomberg. The last time that profit dropped was in 2010.

 

On Monday, DuPont, Monsanto's largest competitor, cut its forecast for 2015 earnings, citing weak agriculture markets in Brazil and the dollar's strength against the real. DuPont Chairman and Chief Executive Officer Ellen Kullman abruptly stepped down. Also on Wednesday, Platform Specialty Products Corp., another U.S. rival, cut its earnings forecast.

 

Monsanto said it will accelerate $3 billion of share repurchases under a program that was suspended during its failed $46 billion bid for Syngenta AG.

 

The cost savings, buybacks and improved agriculture and currency markets as well as sales of a new genetically modified soybean called Intacta Pro should allow a return to per-share earnings growth exceeding 20 percent a year by fiscal 2017, the company said. Additional restructuring plans being developed could reduce expenses by an additional $100 million, Monsanto said.

 

Fourth-quarter profit also missed expectations. The loss in the three months ended Aug. 31, a seasonally weak period dependent on sales in South America, compared with the 3-cent loss estimated on average by 19 analysts.

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Have a look at this chart..Note when Lehman hit the sales to inventory ratio was better than it is right now. The reason why this can be a harbinger of doom for an economy is because it may indicate that orders from wholesalers/distributors to producers/manufacturers are set to dry up - as happened in 2007/8. If products are sitting on the shelves for too long then the supply chain backs up.

 

Small wonder the fed kicked the interest rate can into next year.

 

https://research.stlouisfed.org/fred2/series/ISRATIO

 

 

Anyone looking at the chart might point out that inventories were a lot higher prior to 2003 however this was before the new age of virtual on demand warehousing. Any deviation from the business as usual at about 1.25 on the ratio is a sign that something is not quite right.

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Howdy,

 

talk about instant gratification. The USA overnight had a shocker and then the magic rally !!

 

The low I talked about holding, and one I prattled about being one of those barriers ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ invisible to most but still there at 1,810 on the S+P 500 ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦. the low for cash last night ? 1,811 and then it rallied 3% ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ low for futures around the 1,805 mark.

 

I made a typo on the TIN HAT day #3 about the top levels ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ sure most saw it ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ about 6 major ones ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ all of them are in the 2,111-2,139 ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ with 5 of the 6 in the 2,122-2,139 range ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ where the market stopped.

 

From here ? I feel you know my longer term views ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ short term if they are true to form a rally and all is well will occur as it does in the USA and back up not to the highs but the 2,040-50 range for the S+P 500. Risk is UP v Down until the 1,810 breaks which it tried and spat it back and rallied.

 

Was asked about debt, personal debt.

 

Well GFC saw USA loose massive amounts of home-owners who just walked away from their loans and as such home ownership there is at 30 year lows. Along with this the debt to for the consumer fell from near 100% of GDP to a mere 82%.

 

Australia HAS high debt to GDP on the personal side. It also has many other things. USA net wealth and Australia are about the same, depends on the currency level. But the difference and a massive one is that the average wealth lets say of close to $400,000- in Australia is closely followed by MEDIAN wealth being around $300,000-.

 

USA on the other hand, has a median Wealth of $100,000- , that is the MIDDLE person has 33% of the assets the middle person in Australia has.

 

I know the IMF and OECD have tried this pony on Australia, but again its a form of bloody terrorism !! Wealth in the USA is NOT spread, as such GFC hits and we have people with NO backing equity owning houses with NO income and in some cases no documentation.

 

If we look at MEDIAN net debt to GDP and that being more relevant than the crap these people push on us, we find the median person has assets NET assets of $300,000- and YES the debt may be $60,000- so overall assets are $360,000- MINUS $60,000- in debt the ratio is for a banker and anyone with a brain, which I assure you the IMF does not have is a ratio of 6/1. USA GFC time it was loans to people that were even below the median wealth and NET had no assets that caused so much pain. Asset values go up ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ they go down ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ but the issue is LEVERAGE.

 

 

In this we have someone owning Super say worth $200,000- a house worth $800,000- but a mortgage of $200,000-. Net assets in this case are $800,000-. Basically the size of the mortgage. Overall many don't have this type of debt and the Average ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ quite different from the median in most cases ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ I am using the MEDIAN as its harsher and the MEDIAN Australian has a loan for $60,000- assets Gross at $360,000- or 6 times that. USA even now, median at $100,000- so gross assets at $150,000- and a loan for $50,000-. So the ratio and safety net ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦. in the USA is 3 times for the median person. Not 6 ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦.. bloody 3 ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦..

 

Is there anything to worry about here ? Yes and no. Sydney prices and the debt levels are much MORE ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ but banks are not fools and APRA just tightened the screws AGAIN ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ on what banks can do and if you noted, our banks yet again raised MORE capital.

 

In the USA for instance, the banks capital at times I have big issues with. Super for their employee's is managed and held by the bank and the benevolent USA Fed, owned by said banks, said USA banks can take and use the SUPER of their employee's and count that as capital. In most cases it makes up 20% of the RESERVES as the USA Fed calls them of any bank.

 

Again, I come back to idiotic asset prices in the USA for commercial properties and I gave the example of NY Manhattan prices but much the same rise has been seen in all 5 boroughs of NY and that's massive. Any repayment pain inflicted by moving rates from all time artificial lows of 3% to 5% in any bank test is actually compared with a straight face to our banks being tested for 3% NOT 2% and the 3% started on home loans at 6% ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦. to see how banks would cope and borrowers at 9%.

 

Comparing an apple to a pineapple is why the IMF head when invited to functions here should be seated in daycare centre with the children. The stress tests conducted on EU banks were similar to our own and much more rigorous than the joke that happened at USA banks. Kind of expect it when the person conducting the tests is owned by said banks.

 

Anyhow, for me ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ personal ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ state debts ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ not an issue overall. Do feel we need to go to 12% super mind you ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦. but we are planning that anyhow.

 

 

Take care

 

 

Mark

 

 

PS ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ the Pub ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¦ the correct one in Walgett will be obvious when you arrive. Either way the guide picture is on page one of the PDF.

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