12 months ago the Reserve Bank Govenor Glenn Stevens was trying to talk the Aussie dollar down to US$0.85, and whilst it held stubbornly above that for some time, it looks like he's got his wish. Not content with that however he has now lowered his target to US $0.75 as he looks forward to 2015.
To be fair there has been a significant deterioration to commodity prices, particularly iron ore and coal, on the back of the outlook for Chinese growth, and is difficult to see any rapid rebound in these, certainly not back to the halcyon days of 24 months ago.
More recently of course the oil price has plunged, although driven by a different set of circumstances with the Saudis seemingly intent on spoiling the energy industry in the United States, while at the same time, intentionally or otherwise, putting even further pressure on Vladimir Putin.
It seems pretty obvious that the RBA would rather let commodities, along with some tough talking, push the Aussie dollar down to even more competitive levels rather than cut interest rates further and risk pushing property further upwards as a result. Having said that anecdotal evidence suggests that with Christmas just around the corner a fair amount of the exuberance in certain parts of the property market has already been taken care of.
None of this will necessarily help the Treasurer Joe Hockey as he wrestles with trying to get his May 2014 budget approved through the Senate before he needs to start drafting the next one. It's looking as if there are going to be some significant budget deficits for some time to come, with some forecasters thinking five years or more. Having lost a fair amount of political capital in the last 12 months, the available options, including taking a look at GST and negative gearing, would seem to be diminishing.
What will also be interesting to us next year will be the governments reaction, or at least their resolve, to do anything about David Murray's FSI released last Sunday. In our opinion we couldn't find much wrong with the 44 recommendations in the report, but as we have mentioned before recommendations are easy, implementation is another matter.
Meanwhile a reminder that next year on Thursday February 12th we are holding a lunchtime seminar for investors and advisers in conjunction with Deloitte entitled "Looking Forward, Looking Back" featuring the opinions and experience of some of Australia's best fund managers, including Simon Shields of Monash Investors, and George Colman from Optimal Australia. Save the date, and reserve your place here.
Next Friday will see the last edition of Hedge Clippings for 2014, and we will then be taking a short break over Christmas and the summer holidays for some welcome R&R. In case you're going away yourself before then, best wishes for a happy festive season, and we look forward to touching base again in 2015.
Specific results received this week include the following PERFORMANCE UPDATES:
November performance brings the Monash Absolute Investment Fund annual return to 4.08% with a volatility of 8.14%.
The Morphic Global Opportunities Fund returned 5.24%, bringing the annual return to 15.35% with a volatility of 8.85%.
Bennelong Kardinia Absolute Return Fund returned 1.31% during November and 5.33% over the previous 12 months with a volatility of 4.08%.
The Paragon Fund performance is in for November with annual returns at 16.72% (Index 4.30%) with a volatility 15.11% (Index 10.84%). .
18 February 2015 in Sydney - Efficiency in a Regulated World
25-27 March 2015 - Digital Marketing for Banking and Financial Services Summit.
For this week's "and now for something completely different", we aren't sure how much of this is live footage and how much is CGI but it's a great use of unbrellas and very clever.
Best wishes for a happy and healthy weekend,
Chris
CEO, AUSTRALIAN FUND MONITORS
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