A lawyer at the helm of the FED

Overnight Donald Trump announced the appointment of Jerome Powell as the next chairman of the US Federal Reserve, replacing Janet Yellen, and swapping an economist for a lawyer in the process. That's not meant to cast aspersions on either of them, or on their professions generally, it is just a point to note, as is the fact that there are four other vacancies around the Fed's board table over the coming months which will further shape future policy.

Hedge Clipping's take is that Powell is measured, experienced and unlikely to make any sudden changes, with a gradual approach to encouraging the economy to grow, and adjusting interest rates and the Fed's balance sheet over time in line with growth/inflation. In other words, steady as she goes - which is what markets like. Growth is gradually picking up, inflation is low, as is unemployment. All looks to be set for a continuation of what's now the third longest US economic and market upswing, even though there are some forecasts of three or four rates rises ahead in 2018.

As has been pointed out frequently both here and elsewhere, markets have been driven by central banks' intervention, which some considered to be a dangerous precedent. In due course it may prove to be so, but in the meantime one would have to take the view that the US Fed has successfully managed the recovery from the GFC. Everything seems to be reasonably in balance, even if those on the wrong end of low wages growth (both here and in the US) might not appreciate the benefits.

However, as noted previously economic expansion doesn't die of old age, but of sudden shocks and asset bubbles. While there are those that believe the US market is overpriced (which it may be on a historical basis) this doesn't seem to be caused by the irrational exuberance and lack of caution which preceded shock events such as the market crash of 1987 or the GFC in 2008, but more by the exceptionally low interest rate and low inflationary environment.

The danger lies in the event that in the event that either shock or bubble do occur there's little in the Fed's arsenal with which to counteract the unknown.  Steady as she goes is what's required, provided the economy, markets and politics don't upsets the apple cart.

Locally the week saw weak retail sales figures, presumably as a result of low consumer confidence. And why not? Wages growth is low, household costs from over indebtedness and increasing utility prices are increasing, resulting in reduced or limited discretionary spending.

At least we have the Melbourne Cup next week to take our minds away from the ongoing uncertainty coming out of Canberra - which also can't be helping consumer or business confidence.

INSYNC GLOBAL TITANS FUND

Attached is our most recently updated Fund Review on the Insync Global Titans Fund.

We would like to highlight the following:

• The Global Titans Fund invests in a concentrated portfolio of 15-30 stocks, targeting exceptional, large cap global companies with a strong focus on dividend growth and downside protection.

• Portfolio selection is driven by a core strategy of investing in companies with sustainable growth in dividends, high returns on capital, positive free cash flows and strong balance sheets.

• Emphasis on limiting downside risk is through extensive company research, the ability to hold cash and long protective index put options.

For further details on the Fund, please do not hesitate to contact us.

Australian Fund Monitors

ATTACHED FILESAFM Fund Review - September 2017 (pdf format)

Depending on one's point of view, today's news that five federal politicians are ineligible to stand in parliament will result in cheers of joy or derision, with none other than the Deputy PM facing a by-election at the beginning of December.  Whichever side of the political fence one sits on the disappointing reality is that this will further hinder the course of stable government and policy.  As such it further erodes consumer and business confidence, and thus investment.

In particular it damages the perception, reputation and attractiveness of Australia as an investment destination from a global perspective, irrespective of the final electoral outcome.

On a more positive note, although it has taken a long time since Mark Johnson released his report "Australia as a Financial Centre: Building on our strengths" in 2009 (if you're historically minded you can find and download a copy here) it seems his recommendations for making Australia's funds management and financial services sector more competitive on the global stage are finally bearing fruit. It may have taken the passage of eight years and no less than five prime ministers, but in this year's budget the current government finally started the ball rolling.

As a result yesterday ASIC released Consultation Paper 296 regarding Corporate Collective Investment Vehicles (CCIVs) and the Asian Region Funds Passport, seeking feedback on the regulatory and compliance environment which will encompass the legislation once in place.

Without going into the details of the Consultation Paper, or the proposed changes, there are two things that are blatantly obvious: Firstly Australia needs to be part of the global financial services industry. Therefore to attract offshore investors, and to be able to market to them, there must be appropriate structures and legislation in place. As a result, provided the regulatory requirements are not excessive -and the opportunities therefore only applicable to the large end of town - the changes are both welcome and long overdue.

Secondly, there will be significant changes to compliance and regulations as a result. The risk is that this will certainly make it difficult or onerous for boutique Australian managers whose main focus is on performance and attracting Australian investors.