A Debt Of Thanks by Bryan DukeHogan and Partners Stockbrokers (08) 9327 9344
A quick scan of any newspaper at the moment will reveal a preaching invective against the use of debt in the market. Now that the world is engulfed in this {hopefully} once in a lifetime chaos, the editorial advice is uniform, angry and scared. Oh the terror. The wallet numbing terror!
The use of debt and indebted instruments has clearly been abused for far too long and there were plenty of people arguing against these strategies before the markets one collective leveraged penny dropped. Now every journalist has taken hold of his courageous hindsight and spouted the sort of sanguine financial advice I can get from any nursing home activities room.
Every day we are reminded of our foolishness in accepting debt as strategy. Never mind that we used to think a lowly geared company had a lazy book, full of slovenly immoral cash. Never mind that our margined money provided spectacular, tax efficient returns both in the market and in property when it went our way. Never mind that all of our managed super funds profited from loaning stock to those evil risk takers either. No, those heady days and fine ambitions were nothing but greed my friends and we should all hang our head in shame for ever contemplating something beyond warm porridge and Scrabble in our golden years. I don't know what a man who poops a party pooper is but I'm declaring myself him. I love having the choice of taking one dollar, assess the risk, and accept the return or otherwise from an extra nine on top. That is an empowering option for someone who finds the “miracle” of compound interest over forty years a little less than life affirming.
Australia has fully embraced the idea of placing a higher risk on cash in low risk stocks via margin lending so it was inevitable the idea would expand to high risk cash playing high risk stocks, but that still does not make it wrong. It’s a very good idea to use this life to “know thyself” as some Greek scribe so succinctly etched, and so it falls that every investors should Know Thy Product. This has been dutifully formulated and handed up to us by our regulators in the form of Product Disclosure Statements. These are not as baffling as many have stated following the Opes [sub}Prime tragedy. Use them!
In the clamor to finger point villains, irrational thought has entered some newspapers and slandered the product along with the promoters. No doubt there have been shenanigans, but ultimately these clients accepted a benefit in lieu of risk and that risk was, according to the PDS and the courts, their entire collateral! The last fifteen years have seen the slow development and regulation of a raft of products designed for every class of investor. We all fall into one of several personality types, and therefore investment needs, so this is merely the evolution of efficiency.
Before these choices became available, the only way a layman could take higher risk over his cash was to either start a business or gamble. Eventually though, all of us who were in between were noticed by that large invisible sentient being we call the market and like another large invisible sentient being once said; “Ask and you shall receive”. Well we did, and we have much to give thanks for. Warrants, options, CFDs, futures, swaps, instalments....the list goes on, and after watching banks make money hand over fist by loaning nine dollars over every one deposited and then charging interest over that “ether”, I am more than happy to have the choice to take my chances.
Feedback welcome at http://www.markettalk.com.au/
News Headlines:
Thu, 02 Jul 2009 17:47:56 -0400
NEW YORK (Reuters) - Stocks tumbled on Thursday, driving the S&P 500 down to its third-straight weekly loss, as a steeper-than-expected slide in June non-farm payrolls revived caution about economic recovery prospects.
Thu, 02 Jul 2009 17:33:13 -0400
WASHINGTON (Reuters) - U.S. employers cut far more jobs than expected last month and the unemployment rate hit 9.5 percent, the highest in nearly 26 years, underscoring the likelihood of a long, slow recovery from recession.
Thu, 02 Jul 2009 16:40:02 -0400
BOSTON (Reuters) - Johnson & Johnson has agreed to pay $1 billion for an 18.4 percent stake in Irish drugmaker Elan Corp, and will acquire a major stake in Elan's portfolio of experimental drugs to treat Alzheimer's disease.
Thu, 02 Jul 2009 17:57:14 -0400
NEW YORK (Reuters) - A federal bankruptcy judge will decide the immediate fate of General Motors Corp's effort to quickly sell its best assets to a group funded by the U.S. government, after a three-day court hearing concluded on Thursday.
Thu, 02 Jul 2009 15:54:48 -0400
FRANKFURT (Reuters) - Magna's board of directors is scheduled to approve on Tuesday a business plan for the acquisition of German carmaker Opel, two sources familiar with the matter said on Thursday.
Regular Columnists:
A Debt of Thanks
Friday, May 09, 2008:
A quick scan of any newspaper at the moment will reveal a preaching invective against the use of debt in the market. Now that the world is engulfed in this {hopefully} once in a lifetime chaos, the editorial advice is uniform, angry and scared.
Technical vs Fundamentals
Thursday, April 17, 2008:
Technical analysts and fundamental analysts are often defensive of their own analyst style and it is often difficult to find people who are proponents of both styles of analysis.
RIO Tinto worth $210 Billion? It would seem so…
Thursday, April 17, 2008:
Mining Giant Rio Tinto’s shares are soaring once again off renewed speculation regarding it’s much publicized BHP Billiton takeover.