Smart Investment & Financial

Strategies for the new financial

year
By

Joel Hewish

B.Bus (Bank & Fin), GDipAppFin, GCertFinPlan, SA Fin

 General Advice
The advice contained in this Seminar is general advice only. It has
been prepared without taking into account your objectives, financial
situation and needs. You should consider the appropriateness of the
advice by taking into consideration your objectives, financial
situations and needs before acting on the advice. Fortrend does not
offer any information in this Seminar as a substitute for financial
advice and recommends you obtain your own independent financial
advice prior to making any decision based on any information
contained in this Seminar.

Joel Hewish is an Investment/Financial Adviser at Fortrend

Securities. The opinions expressed are his own.
 Wealth Management
Investment Themes for 2010 and Beyond

• 26 April 2010 marked the end of a 13 month cyclical counter trend rally which forms
part of a larger degree secular bear market and the commencement of Part 2 of the
Global Financial Crisis.

• Very High probability of another wave of debt deleveraging most likely on a scale
larger than GFC Part 1.

• Very High probability that global share markets will continue to fall significantly over
the next 3 months.

• Very High probability that global share markers will decline below the lows of March
2009 before the end of 2012, but quite possibly much sooner than that.

• Expect most commodities to decline inline with global financial markets including
GOLD during this same period.

• Expect the USD to APPRECIATE significantly against major currencies during much
of this same period.
 Wealth Management
BOTTOM LINE…………………

THE FUNDAMENTALS AND TECHNICALS ARE

SIGNIFICANTLY SKEWED TO THE DOWNSIDE FOR
THE COMING 24 MONTHS…..

BUT………….

You can still make money and

LOTS OF IT!!!!!!!!!!!!
The Macro Economic
Environment

The Great Debt problem

Debt to GDP before the GFC

Approximate level of US
Total Debt which
contributed to the 1930’s
Great Depression

(Source: McKinsey Global Institute, ABS, Morgan Stanley research)

Total US Debt to GDP Ratio Now!
Approximately $56 TRILLION
US Debt to GDP Ratios
450
Household
400 Total Private
Government
350
Total

300
Percent of GDP

250

200

150

100

50

0
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

(University of Western Sydney Associate Professor Steven Keen,

www.debtdeflation.com/blogs/)
 Australian Debt to GDP Ratios
Debt to GDP Ratios
100 200
Mortgage
Per cent of GDP (components)

90 180

Per cent of GDP (aggregate)

80
Personal 160
Business
70 140
Government
60 120
Total Private (RHS)
50 100

40 80

30 60

20 40

10 20

0 0
1975 1980 1985 1990 1995 2000 2005 2010

(University of Western Sydney Associate Professor Steven Keen,

www.debtdeflation.com/blogs/)
Australian Private Debt to GDP
Australia's Private Debt to GDP Ratio
175

But Australia’s
different right?
150
1890’s Depression

125
1930’s Depression
Percent of GDP

100

75

50

25

0
1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
(University of Western Sydney Associate Professor Steven Keen,
www.debtdeflation.com/blogs/)
Debt Contribution to Demand &
Unemployment
Debt Contribution to Demand & Unemployment (Australia)
20 0
Debt levels begin to influence
demand in the economy

15 2

Unemployment Rate (Inverted)

Percent of Aggregate Demand

10 4

5 6

0 8

5 10
Debt-driven Demand
Unemployment (RHS)
 10
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
(University of Western Sydney Associate Professor Steven Keen,
www.debtdeflation.com/blogs/)
Household Debt Relative to Gross
Income

Accumulation of US
housing debt increases

Accumulation of
Australian housing debt
increases

(Source: ABS, Federal Reserve, Morgan Stanley Smith Barney)

US/Australian Real House Price
Index

Australian and US housing

prices commence multi-
decade uptrend

(Source: ABS, OFHEO, BLS, Morgan Stanley Smith Barney)

Re-capping what occurred during
the GFC
US response was to keep the bubble
alive.
US Fiscal and Monetary Stimulus (% of GDP)

Length Decline in Combined %

Peak to Trough (Months) GDP Monetary Fiscal of GDP
Aug '29 - Mar '33 43 27.0% 3.4% 4.9% 8.3%
May '37 - June '38 13 3.4% 0.0% 2.2% 2.2%
Nov'48 - Oct ' 49 11 1.7% -2.2% 5.5% 3.3%
Nov'73 - Mar '75 16 3.1% 0.9% 3.1% 4.0%
July '81 - Nov '82 16 2.6% 0.3% 3.5% 2.8%
July '90 - Mar '91 8 1.3% 1.0% 1.8% 2.8%
Mar '01 - Nov '01 8 2.0% 1.3% 5.9% 7.2%
Dec '07 - ? 3.8% 18.0%* 11.9%* 29.9%*

Keeping the bubble alive appears an unlikely options next time. At some stage deleveraging will
be needed, orderly or not.
Decline in GDP would be much worse if it wasn't for the extraordinary level of stimulus

(Source: Federal Reserve, US Department of Commerce – Bureau of Economic Analysis, Congressional Budget Office; as cited in Grant’s
Interest Rate Observer)
* As estimated by James Grant in Grant’s Interest Rate Observer
 Graphing the stimulus
Concerns of a debt induced deleveraging deflationary crash between 2000 - 2003 after the dotcom bubble lead to fiscal and
monetary stimulus which appears out of proportion to other past crises. It now appears that given the size of the past stimulus
and the current levels of debt in the US economy that debt saturation appears as though its likely here.

US Fiscal and Monetary Stimulus (% of GDP)

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%
Aug '29 - Mar May '37 - June Nov'48 - Oct ' Nov'73 - Mar July '81 - Nov July '90 - Mar Mar '01 - Nov Dec '07 -
'33 '33 49 '75 '82 '91 '01

(Source: Federal Reserve, US Department of Commerce – Bureau of Economic Analysis, Congressional Budget Office; as cited in
Grant’s Interest Rate Observer)
 US Government Exposure

Total Financial Exposure of US Government ($bln)

Asset Hard Implicit Soft

Purchases Guarantees Guarantees Guarantees

Total $2,269 12,890 7,286 $6,624

Cumulative $2,269 $15,159 $22,445 $29,069

(Source: Federal Reserve, Congressional Budget Office; as cited in Grant’s Interest Rate Observer)

All this from a government that is collecting just over $2.0 trillion dollars in revenue a year, is spending
approximately $3.5 trillion and has ran 4 budget surpluses since 1970.
 0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000

-2,000,000
-1,000,000
1970
1971
1972
1973
1974
1975
1976
TQ
1977
1978
1979
1980
1981
Outlays
Receipts

1982
1983
1984
1985
Surplus or Deficit(−)

1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
(Congressional Budget Office)

2010 estimate
Just 4 budget surpluses in the past 40 years!!!

2011 estimate
2012 estimate
2013 estimate
2014 estimate
2015 estimate
US Government Fiscal Position
 US Government Debt Position
Gross Federal Debt (‘000,000)
$25,000,000.00

$20,000,000.00

$15,000,000.00

$10,000,000.00

$5,000,000.00

$0.00

(Congressional Budget Office)

US Federal Reserve Expanding its
Balance Sheet
 But Australia’s different right?
Or are we just lagging by one cycle
US Financial cycle US Characteristics Aust’ Financial Aust’ Characteristics
Time cycle Time
period period
Technology Boom 1995 – • Internet lead technology revolution. Resource Boom 2003 – • China urbanisation lead resource
2000 • Initially lead by quality companies and 2008 revolution.
market leaders. • Initially lead by quality companies and
• Followed in the later stages by market leaders.
speculative companies with no or low • Followed in later stages by speculative
cash flows. explorers with no or low cash flows.

Technology Bust 2000 – • Interest rates lowered to record lows. Resource Bust 2008 – • Interest rates lowered to record lows.
2003 • Record fiscal deficits 2009 • Record fiscal deficits
• Shallow recession • Shallow recession (3rd qrt 2008 and 1st
qrt 2009)
Stimulus Induced 2003 – • Low interest rate fuelled housing and Stimulus Induced 2009 – ? • Low interest rate fuelled housing and
Housing Boom & 2007 consumer lead recovery Housing Boom & consumer lead recovery
Economic Economic
Recovery Recovery

Sub-Prime Lead 2007 – • Record defaults by borrowers who First Home ? • Risk of default by highly indebted late
Housing Bust 2009 were suspect from the start Buyer Lead Gen X’s early Gen Y’s.
Housing Bust?

Extraordinary 2009 – • Non-conventional stimulus approach ? ? ?

stimulus lead 2010
stabilisation
 With all that liquidity and the
recent stock market recovery, we
are surely looking at a V shaped
recovery.............

AREN’T WE???
So why is the Money Supply
Contracting?
Significance of M3 Contracting

"It’s frightening,“ said Professor Tim Congdon

from International Monetary Research. "The
plunge in M3 has no precedent since the Great
Depression.

By Ambrose Evans-Pritchard
Published: 9:40PM BST 26 May 2010
Telegraph.co.uk
Why is the Money Multiplier
falling off a cliff?
Because US Banks are hoarding
cash!!!
Maybe because no one can afford
to borrow!!!
Number of new mortgages
declining rapidly
And the second wave of mortgage
resets has just started
WE ARE HERE
Economic Cycles Research
Institute
Since 1968 a reading of -8.3% has
ALWAYS been associated with a
recession!!
Baltic Dry Index

Break of uptrend and sharp decline.

Down 61.4% since Nov ‘09
But aren’t valuations attractive??
NO.... THEY STINK!!!
Major Bottom

S&P 500 12 month

Trailing Dividend
Yield Does this look like a yield that signifies a major bottom?

Major Bottom

Major Top
Major Top

Major Top

(Source: Standard & Poors, Robert Shiller)

Mutual Funds Fully Invested
All this and I haven’t touched on
The Debt & Deficit problems of…..
• Greece
• Spain
• Portugal
• Italy
• Ireland
• Japan
• United Kingdom
• Dubai
• Eastern Europe

OR

• China’s property bubble or its over exposure to US Federal Debt

Why the focus on just the US?
2008 Gross Domestic Product - Published by the World Bank 7
October 2009
$16,000

$14,000

$12,000

$10,000

$8,000

$6,000

$4,000

$2,000

$0
Global Gross Domestic Product
2008 Gross Domestic Product - Published by the World Bank 7
October 2009

United State
Japan
25.1% 23.4%
China
Germany
France

1.5% United Kingdom

8.1%
Italy
Brazil

1.7% Russian Federation

2.6% 7.1%
Spain
1.8% 2.7%
2.7% Canada
2.0% 6.0%
3.8% India
2.3% 4.4% 4.7%
Mexico
Australia
Korean Republic
Other
The Technical Outlook
&

The Secular Bear Market & Market Tops

Elliott Wave Theory
End of Dotcom Bubble We are here – GFC Part 2
Start of GFC

End of GFC Part 1

End of Dotcom Crash

(elliottwave.com)
Basic Theory
Elliott Wave Theory
• Markets are patterned
• Those patterns subdivide into fractals (self-similar patterns appearing at every
degree of trend) or degrees of patterns and are reflective of changes in social
mood (investor sentiment).
• Markets are the best indicator for a change in social mood
• Social mood can be measured in waves, 3 waves up with 2 counter trend
waves between.
• Social mood and changes in social mood dictate economic conditions NOT the
other way around.
• Extremes in optimism indicate a change in social mood to pessimism is likely
and vice versa.
3 Basic Rules
• Wave 2 never retraces more than 100% of wave 1.
• Wave 3 is never the shortest wave.
• Wave 4 never enters the price territory of wave 1.
(elliottwave.com)
 Elliott Wave Theory
3 Guidelines

• The three-wave correction following an impulse usually terminates within the

price territory of the previous fourth wave.
• If wave 2 is sharp and steep, wave 4 is usually a sideways correction, and vice
versa.
• The wave most likely to extend is wave 3; the next most likely is wave 5.

Key wave characteristics

• Wave 3 is always the strongest impulse wave.
• Wave C is usually the strongest corrective wave.
• Impulse waves always sub-divide into 5 waves.
• Corrective waves sub-divide into 3 waves, or a combination of 3 waves that
move in the opposite direction of the larger trend.
(elliottwave.com)
US - S&P 500
Dow Jones Industrial Average
Australian - S&P ASX 200
United Kingdom - FTSE 100
Germany - DAX
Japan - Nikkie
AUD/USD Since 1983 Float
AUD/USD Cross Rate
Spot USD Gold Price
Spot USD Gold Price
Recommended Portfolio Strategy
Conservative Investors

• Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills.
• Long - Short Term USD Cash, Short Term Government Debt.
• Refinance property to enable extraction of equity for potential opportunistic purchases.
Take advantage of high property prices.

Aggressive Investors

• Long - Short Term AUD Cash, Short Term Government Debt, Short Term Bank Bills.
• Long - Short Term USD Cash, Short Term Government Debt.
• Short – Australian shares – covered short sales where available, long put options.
• Over Weight Short – US shares – covered short sales where available, inverse etf’s, long
put options.
• Refinance property to enable extraction of equity for potential opportunistic purchases.
Take advantage of high property prices.
Investment Advisory & SMSF
Admin Services
Investment Advisory

• Personal Ongoing Investment Objectives & Risk Profile Assessment

• Personal Strategic Asset Allocation Advice
• Minimum 4 x Quarterly Tactical Asset Allocation Reviews
• Minimum 4 x Quarterly Investment Reviews
• Minimum 4 x Quarterly Liquidity Reviews
• Discounted brokerage on share transactions
• Notification of new issue of securities
• Automatic settlement account for share transactions
• Notification of change in investment recommendations
• Notification of new investment opportunities
• Portfolio administration and record keeping
• Internet access to your investment portfolio
• Pre-completed administrative documentation
 Investment Advisory & SMSF
Admin Services
SMSF Admin

• Establish new funds including establishing Trust Deeds together with Product Disclosure
Statements to be given to members of the new fund. ($1,237.50 - $1,775.00)

For existing funds, if required, we can:

• Arrange for a review of your fund’s Trust Deed and provide a Deed of Variation to ensure that the
Deed is up to date and your fund can be administered effectively and does not pose any
unnecessary restraints upon the trustees (Cost to transfer an existing fund is $1,375.00).
• We maintain records of all transactions of the fund;
• We maintain records of all transactions of the Fund;
• We assist clients with documentation requirements;
• We provide clients with online access & reporting on all transactions and investment performance
through the Investment Advisory & Administration Service.
• We prepare all the funds annual financial statements, tax returns and audit; and
• Where desirable register the fund for GST.
 Fees & Charges
Investment Advisory Service
Sliding Scale – Funds Under Management

FUM Value % on FUM incl GST

$0 - $1,000,000 1.10% pa
$1,000,001 to $2,000,000 0.88% pa
$2,000,001 and above 0.77% pa
Australian brokerage
Subject to a minimum = pa
$4,400 0.825%
incl GSTsubject to minimum $110 incl GST

Australian brokerage = 0.825% subject to minimum $110.00

International brokerage = 2.00% subject to minimum $100.00

Account Keeping Fee = $374.00 incl GST

SMSF Admin Service

$121.00 per hour. Fees generally range between $1,100 to $3,300 depending on number of
investments & complexity.
 How Our Costs Compare
Assumptions
$500,000 investment portfolio invested in a balanced investment portfolio
60% invested in Australian listed securities
20% invested in International listed securities
20% invested in Australian cash and term deposits
10% portfolio turnover i.e. 10% exiting sold and 10% newly purchased

VIC SUPER FEES FORTREND SECURITIES FEES

Admin Fees @ 0.5% capped at $1,500.00 pa Admin Fees @ $121 per hour $1,100.00 to $3,300.00 pa
$1,500 per annum
FUM @ b/w 0.53% - 0.55% $2,650.00 - $2,750.00 pa FUM @ 1.1% $5,500.00 pa

Financial Adviser Fee b/w $4,000.00 - $5,500.00 pa Account Keeping Fee $374.00 pa
0.80% – 1.10%
Australian listed securities $495.00 pa

($500,000 x 60% x 10% x 10%

x 0.825%)

International listed securities $400.00 pa

($500,000 x 20% x 10% x 10%

x 2.00%)
TOTAL FEE ESTIMATE $8,150.00 - $9,750.00 pa $7,869.00 - $10,069.00

The above fees have been provided as a guide only. Actual outcomes will vary depending on a range of factors including the alternative
advisory firm used, investment performance, investment conditions, investment risk tolerance, investment options chosen etc. We
recommend you speak to your adviser to gain a greater understanding of your likely fees and charges.
 Fortrend Securities – Wealth
Management
Please do not hesitate to contact us to arrange a time to meet with
one of our advisers for a free no obligation meeting to discuss your
needs and circumstances and find out how we can help you.

Contact details

Website www.fortrend.com.au,
Email info@fortrend.com.au,
Phone During business hours (03) 9650 8400,
Fax (03) 9650 8740,
Toll Free: 1300 362 684,
Postal address Level 41, 55 Collins Street Melbourne, Victoria 3000 Australia.

ABN: 95 055 702 693

AFSL: 247261