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As Good as Gold 27/04/2020
What a world we live in right now - a virus causing havoc, interest rates near zero, a global recession on the cards, oil prices sinking below zero, trade war, lockdowns and an endless amount of debt!
What’s next? Your guess is as good as mine and with all the uncertainty floating around the world, it seems like cash is gold. But what if gold is gold?
I bet some of you have wondered why would anyone want to invest in a yellow block that you can’t eat and doesn’t generate any income for you?
Gold is a precious metal that investors resort to during uncertain times, dating back to the ancient times. Have you seen the type of treasures recovered from various ancient eras? Gold!
Recently, we have seen a lot of buying interest in gold with the price rallying 23% this financial year alone.
What is driving gold prices now? There are 3 reasons why.
- Money printing
- More money printing
- Did I say money printing?
And this is not just the US but rather across the globe. The total bill is still unknown but it will be well over $3 trillion.
If you remember, on the 23rd of March, the US Federal Reserve announced an unlimited amount of stimulus for the economy and this is done by printing endless amount of net money and buying assets with it. Let’s put this into context, the Federal Reserve has never announced anything close to this scale, not even during the Global Financial Crisis (2008).
Why is this significant to gold? Well, when the Federal Reserve decides to print unlimited amounts of money, ultimately the country’s currency will become worthless. With a worthless currency, some people will shift their cash into precious metals such as gold as a last resort, thus pushing up the price of gold.
During the financial crisis in 2008, the US printed a lot of money over many years to support the economy in what was touted as the worst crisis since the Great Depression. With all the new money floating around in the world, gold prices decided to go from $700 USD to as high as $1,900 USD in late 2011. The chart above looks eerily similar.
As you can see from the chart above, gold prices fell during the Great Financial Crisis from $900 USD to $650 and again during the COVID crisis, this time from $1,700 USD to $1,450. After each sell off the Federal Reserve stepped in to support the markets, flooding them with a deluge of new money. If history is anything to go by then, we can expect that gold prices will begin trade higher similarly to 2011 (as per the above).
With the endless amount of money printing continuing to drive the price, the opportunity cost of owning gold is now lower than ever. Since gold doesn’t generate any income, you can only generate a return if gold prices go up. As you can see, back in the day when interest rate was around 5-6% a lot of investors/retirees would laugh at investing in gold considering they could get 5-6% interest in the bank with no risk at all unless their bank went under. These days, investors/retirees are now considering gold as part of their portfolio due to the fact that whilst both essentially generate no income, gold still has the capacity to increase in value.
Now looking from a technical chart perspective, gold prices look primed to retest the 2011 high of $1912 USD.
As you can see from the chart below, the price of gold hit a selling point of around $1,700 just before COVID but after the world decided to press the print button on their currency, the price of gold burst through this stubborn level.
With the low opportunity cost in buying gold, interest rates staying extremely low for the foreseeable future and the crazy amount of money printing, we can see gold rallying up $2,000 USD in the short and medium term with an overall upward trend in the longer term. With this in mind, gaining some gold miner and gold ETF exposure makes sense - call us to find out our favourite few.
Gen Y and Millennials, and the power of Social Media, don’t underestimate their spending habits. 23/
“Stop buying Avocado Toast!” The now infamous phrase by a millionaire property mogul.
We cannot and should not underestimate the spending habits of Generation Y and Millennials. With house prices now at levels some would call overpriced, WE are saving more and more these days but we aren’t saving for a house… we are spending on discretionary items. Clothes, gadgets, phones and increasingly, experiences.
A lot has come down to the power of social media. What does the above image shows us about social media?
The kids on the right are wearing clothes that were bought from Kmart or the Op shop… they might have even been passed down from siblings compared to the young girl on the left who is probably wearing over $100 worth of clothing from the latest kids fashion brands.
Luckily enough back then, you only had a hand held camera with actual film and the photos stayed inside your house. The only people saw these embarrassing pictures were you family and friends! In this day and age we have iPhones and social media. Your house is open to the world and you cannot embarrass yourself or your family, peers and strangers will judge you!
This has opened the door for investments. The best example of this type of investment is make up! Back in the day, make up was predominantly used by girls aged 16 or over and only but today, we have kids as young as 2 or3 using make up and it isn’t just limited to the girls. So in this new world, a small market has grown to a massive market, all thanks to Instagram and Facebook. Since the world is watching, we all believe that we are all judging and being judged and as a result, we must look our best 24/7. In reality and online.
Louis Vuitton (MC:EN) and Loreal’s (OR:EN) share price growth have been one of the best growth stories outside of technology, jumping over 175% since 2012 (since Facebook floated). Another great example of social media influence is Nike (NKE: NYSE). Nike was predominantly an active wear company and worn mainly for sporting events but now it is a fashion label and wearing their clothes is a statement and. Social media influencers, such as the Kardashians can be attributed to changing the social media landscape and the fashion scene. What they wear is what ‘the cool people’ wear and if everyone else is wearing it, you don’t want to be left out.
Now going back to Gen Y and Millennials, since they can’t afford to enter the housing market, they are staying at home longer and using whatever disposable income they have to travel overseas and spend on items that will keep their status up on social media. There has even been a study that shows since Instagram was launched, particular scenic tourist areas have seen huge increases in attendance, purely for their ‘grammable,’ idyllic surroundings. This trend will continue to grow because these teenager spenders will grow up to be adults and end up doing the same thing their parents did for them. The market won’t truly capture this for another 10 or 20 years!
Look at Afterpay - the share price has jumped from $4 to over $24 in a relatively short time and if they capture the US Markets, the sky is the limit. The important thing to note here is that their product has helped Gen Y and Millennials budget their disposable income. The question now is; who is making the dynamic shift from targeting an audience to capturing the world? And; what is the next big investment? Maybe ask your kids or grandchildren and report back to us.
Besides Afterpay, if you look around to see what you are wearing, what your children or grandkids are playing, they are more likely not ASX listed or not Australian companies.
Most of our expenditure is spent on US/international companies or and if you want direct exposure to the international space, please contact us. We can help clients enter this space to help diversify your portfolio and build growth.
We have a BUY rating for companies in this space.
Afterpay ready to rock and roll in the US 19/06/2019
What a raising and what a time to do it!
On the 12th June, Afterpay raised $317 million dollars at $23 dollars a share. Just remember the shares were trading at $12.00 back in December 2018. Literally 6 months ago. A 92% return to the raising price.
This raising occurred after a very good business update on the 6thJune where they announced that their US operations were able to generate $780 million dollars worth of sales in the first 11 months. This is an extraordinary result considering that this represents 16.59% of the total sales.
Remember Afterpay raised $117 million dollars back in August 2018 at $17.05 a share. Wouldn't you think that with $117 million dollars in the bank will be enough to last them until June this year. You would think so. So I wouldn't be surprised after the 6th June business update and how promising that announcement was, that the most recent raising was initiated by many interested parties. One of those interested party was Tiger Management who were early investors in Glassdoor, Spotify, Eventbrite and SurveyMonkey and now Afterpay!
It gives me great confidence that a US Fund Manager who could easily put money in a US based company (Best Tech country in the world) instead decides to invest money in an Australian company they are backing to succeed in the US. Makes me wonder if the Afterpay product is the first in the world; it certainly looks like it.
I know you are wondering about the recent announcement from AUSTRAC to request Afterpay appoints an external auditor to audit potential AML/CTF issues,and whether that would be a major problem to the share price. I dont think AUSTRAC decided to slap them with this problem just like that, these things have to go through a process and I’m sure that major investors who participated in the capital raising would have done their due dillgience. Let’s look at this from the investors perspective: If I’m committing $50 million - $100 million dollars, I would definitely spend the required money to cover those issues first before committing. Also, let’s go back to the whole privacy issues from Facebook, it has dented the share price but in a nut shell, its not a bad thing for Facebook. Since they are no real competition for them to face, it gives Facebook a lot of time to iron out any issues to give them strength. This is no different to Afterpay. It is far better to deal with the issue now, rather than 5 years down the line.
As you can see from the chart above, it looks eerily similar to the Point of Sale System provider Square. The arrows shows the exact same phases both share price is taking and if it follows the Square path, we are looking at a major leg upwards. It also helps that the raising was done at $23.00. The market is paying a massive premium to the high set back in 2018 and considering how volatile the stock is. The market is extremely confident that we will see a strong upside gain.
We have recommended to Accumulate/BUY at <$23.00 with a TARGET of $50.00 (if the new US investors able to connect Afterpay with their conections and drive this stock to new levels)