Cash flow is King

The dangers of low long-term wage inflation

The term cash flow is King is one used quite often in the investment world. To all intents and purposes a business with negative cash flow will eventually run out of funding no matter what the level of “paper profits”. Just recently it was announced that Tesla “should be” cash flow positive in each quarter from here on in. This is a massive about turn for the company after a very troubled period in its history.

Financing debts

Is all good and well buying assets today which could make you three or four times your investment in five years. The problem here is that your funds will be tied up for the next five years and you may have insufficient cash flow to cover your expenses/loan repayments. In essence, the potential future returns for your company may seem very attractive what happens when you run out of cash? Continue reading “Cash flow is King”

Stock market corrections, when reality hits home

Federal Reserve at loggerheads with Donald Trump

The recent volatility in worldwide stock markets seems to have “taken many by surprise” (one of many Stock market corrections over the years). Despite the fact there have been warnings from months it seems the reality of recent issues impacting the worldwide economy are only hitting home now. Human nature is in very predictable thing; we take markets to record highs on the back of overexuberance and then crash them to levels which are oversold on fear. So, what has been on the cards for many months now but been ignored by so many investors?

Base rates

Base rates around the world are still near record lows despite the fact that the worldwide recession which caused the collapse of base rates occurred more than a decade ago. Talk of an improvement in economic activity over the last decade has to a great extent been based upon cheap finance. This is the type of finance which cannot go on forever and will eventually need to be repaid. The latest concerns regarding economic growth in the US and around the world may delay any further short-term increases in base rates but they will still maintain their upward trajectory. Continue reading “Stock market corrections, when reality hits home”

Stock markets crashing, or a dose of reality?

Stock markets crashing, or a dose of reality?

It is fair to say the last few weeks have been difficult for worldwide stock markets for various reasons. It is also fair to suggest that some investors have been looking for a “reason” to bank some profit and retreat to the sidelines. So, why are markets struggling and what does the future hold?

US stock market

In reality the US economy is performing much better than many people had expected. Indeed the Federal Reserve is currently in the middle of a programme of controlled interest rate rises to rein in inflation and over-exuberance by consumers. However, we have also seen some relatively disappointing figures from leading US companies which had been on a very strong growth path. Continue reading “Stock markets crashing, or a dose of reality?”

Trading programs back under the microscope

Trading programs back under the microscope

After the S&P 500 Stock Index posted its largest one-day fall since February, much focus is back on computer trading programs. These computer generated programs react to market movements buying and selling stock, in large amounts, in a split second. In many ways they can exacerbate the situation on the upside and the downside as similar programs react at the same time.

A staggering $1.5 trillion under management

An academic paper back in 2017 highlighted the growing issue of risk parity funds, volatility targeting funds and trend followers. Amid suggestions that $1.5 trillion of investment funds is effectively under the control of “computer trading programs” it is not difficult to see the potential issues. If sale programs are undertaken at the same time then a partial sell-off can lead to more stock sales, falling share prices and the vicious circle begins. This is not the end of the story….. Continue reading “Trading programs back under the microscope”

3 Most Expensive Houses in the World

Villa Leopolda

A few decades back, a house worth a million wasn’t too many. Today, if you live in places like Vancouver, you are already worth a million. Most, if not all houses in Vancouver, are worth a million or two. However, when it comes to the most expensive houses in the world, they surely are worth a lot more than a few million.

What do the Most Expensive Houses in the World Cost?

House prices always climb steadily and never experience a downward fall. According to research by Grand View Research, the global real estate market will hit $4,263 billion by 2020.

That being said, some houses sell for prices that are as high as the sky! Continue reading “3 Most Expensive Houses in the World”

US homeownership down to levels not seen since the 1960s

US homeownership down to levels not seen since the 1960s

In the run up to the 2008 US mortgage crash, which ultimately led to a worldwide recession, we saw a significant shift from rental to homeownership in the US. Many expected this trend to continue but recent US homeownership figures suggest otherwise. Homeownership levels are now back down to levels last seen in the 1960s and many believe the move to rental accommodation will continue. However, the makeup of the market is changing and we know that millennials are the new driving force behind the US housing market. So, why are we seeing a switch back to rental accommodation?

Millennials struggling to raise funds

A tightening of US mortgage regulations in light of the 2008 crash have made it more difficult for first-time buyers to raise sufficient funds to acquire their dream home. We have also seen suggestions that the “bank of mum and dad” is starting to dry up as the squeeze continues. As a consequence, already stretched affordability rates continue to move against first-time buyers. We also know that more millennials are now living with their parents for longer as they look to raise funds for a deposit. Continue reading “US homeownership down to levels not seen since the 1960s”

Why removing Elon Musk may actually help Tesla Motors

Why removing Elon Musk may actually help Tesla Motors

News that the Securities and Exchange Commission is seeking a court order to remove Elon Musk as CEO and chairman of Tesla Motors was no surprise. Amid accusations of “securities fraud” revolving around his proposed $420 bid for Tesla there have been some heated debates of late. Some investors are concerned that removing Elon Musk from the equation will be ultimately detrimental to Tesla moving forward. However, removing Elon Musk from the frontline may turn out to be a blessing in disguise?

Product development and Elon Musk

It would depend upon the terms of a successful prosecution by the SEC but it is unlikely that Elon Musk would exit the company completely. He may well be able to take on a more product focused role as opposed to being the leading light, the face and the voice of Tesla. Elon Musk has over the years discussed his eventual move into a less public role with Tesla and a successful prosecution by the SEC may fast pace this. Taking a more positive slant, this will allow him to focus purely and simply on products as opposed to all of the other roles he currently undertakes. Continue reading “Why removing Elon Musk may actually help Tesla Motors”

Stock markets and economic cycles

Stock markets and economic cycles

Over the last decade the S&P Composite Index has increased 3.3 fold since it hit rock bottom in March 2009. Over the same period we have seen a 3.8 fold increase in earnings per share from the S&P Composite Index companies. So, while there is continued scepticism about how high the US stock market can go in the short term, earnings per share growth over the last decade has been greater than the increase in stock market indices.

If we look over the last two years, in light of Donald Trump’s inauguration, stock prices have increased by 24% while earnings per share have risen by 20%. In reality the difference is minimal but where does this leave markets in the short, medium and longer term?

Benefiting from low costs

It is no surprise to learn that not only US companies, but companies around the world, have benefited from relatively low cost bases in light of the 2008 worldwide economic collapse. As economies struggled to recover, this placed extreme pressure on wage inflation with many people “happy to have a job”. Historically wage inflation has lagged business revenues, so as the economic recovery finally kicked in this allowed companies to report improved earnings. This strengthened sentiment which allowed companies to grow with the gap between cost rises and revenue increases maintained or even widened. Continue reading “Stock markets and economic cycles”

Should ground-breaking pharmaceutical companies be listed?

Should ground-breaking pharmaceutical companies be listed?

For everyone successful pharmaceutical company there is likely to be hundreds if not thousands which tread water and eventually fade away. Many start with ground-breaking technology and innovative medicines only to suffer the same fate as many entrepreneurial groups. Stock markets around the world have an unhealthy obsession with short-term profitability which is fine with many sectors. However, when you bear in mind that commercialisation of a ground-breaking medical treatment could take a decade or more to fulfil, are pharmaceutical companies suitable for stock market listings?

Short-term pressure

The vast majority of investors by definition are looking for short-term increases in the value of their assets. They are quite happy to jump onto a bandwagon when a company is doing well and then bank a profit when the company starts to run out of steam. This causes significant volatility in share prices, often impacting the ability to raise much-needed funds to finish innovative research. Continue reading “Should ground-breaking pharmaceutical companies be listed?”

How can you protect your assets against inflation?

Protect your assets against inflation

Unless the value of your assets and income increases in line with inflation each year then effectively your spending power is being reduced. Many investors look towards more speculative assets to beat inflation and increase their spending power in the longer term. In the good times this is relatively simple to do, as stock markets reflect underlying economic growth, but in the bad times this can have a seriously detrimental impact on your spending power. So, what are the easiest ways to protect your funds against inflation?

Real estate

The old saying “you will never go wrong with bricks and mortar” is often ridiculed but in the longer term housing assets have tended to retain their real value and more going forward. As the value of any investment asset is based upon the potential cash flow, inflation is very important. Landlords regularly insert conditions into their tenancy agreements which will see rents rising each year in line with inflation. The argument is that without this, the spending power of the landlord would be reduced which would eventually impact the services they can offer. Continue reading “How can you protect your assets against inflation?”