Tuesday, 4 July 2023 — Gold Coast

By Vern Gowdie Editor, The Daily Reckoning Australia

[6 min read]

Dear Reader,

One of the best pieces of advice I received early in my financial advisory career came from a seasoned investment professional.

His words still ring in my ears…

‘Vern, whenever you hear this five-word preface “you can’t go wrong buying…”, that’s the moment when everything can go wrong.’

Why?

Because once every man and his dog thinks something is a sure bet, can’t fail, one-way trip to assured wealth, it means that all risk has been discounted out of the investment equation…and that’s when an investment contains its most risk.

The only thing that’s guaranteed in this business is there are no guarantees.

There are two components to an investment…income and capital gain.

Neither is assured.

For example, in April 2020, during the COVID meltdown, APRA Chairman, Wayne Byres, penned a letter to the banks, stating:

‘APRA expects ADIs [Authorised Deposit-taking Institutions] and insurers to limit discretionary capital distributions in the months ahead, to ensure that they instead use buffers and maintain capacity to continue to lend and underwrite insurance…’

As reported by IG Capital at the time…

‘In response to APRA’s letter; Macquarie analysts today said that the big four banks may be forced to either reduce or suspend their next wave of dividends completely.

Looking at a stressed scenario; Macquarie posits that bank losses could run as high as $25–27 billion — per bank. In this possible world, the banks’ ability “to pay dividends (without raising equity) materially diminishes,” it was noted.’

Recent history has taught us that other sources of income are not set in stone either.

In 2010, with the RBA cash rate around 5%, who would ever have thought a decade later, money in the bank would earn next-to-nothing?

Who could have anticipated how work-from-home would upset the commercial property applecart?

With higher vacancy levels, per-square-metre rent rates have come under pressure.
Landlords have suffered a double whammy…falling rental income and lower property values.

Nothing is ever absolutely guaranteed

Things happen that can change market dynamics.

And what was once placed in the category of ‘you can’t go wrong buying,’ suddenly shifts to ‘how did we get this so wrong?’

Of the two types of investment returns, income is perceived as the ‘bird in the hand’, while growth is the ‘two in the bush’.

So, how do you increase the odds of holding onto that bird in your hand?

With the guidance of someone who has been there and done that.

This is an unashamed plug for my good mate, Greg Canavan

I’ve been in this business for 37 years and have seen a lot of investment professionals.
Greg is up there with the very best.

And, if you’re thinking, ‘Gowdie would say that, wouldn’t he?’, then you do not know me and how much I value my independence…as evidenced by my strident criticism of cryptos.

Greg’s been in the investment business for 25 years.

His time in the stock selection and (just as important) rejection business has helped him fine-tune a process that combines fundamental factors (like financial statements, valuation ratios, etc) AND charting analysis.

However, in my opinion, his humility sets Greg apart from the majority.

He is constantly questioning, thinking, challenging and advancing concepts and ideas.

Because nothing is guaranteed, and Greg takes nothing for granted.

This brings me to Greg’s latest endeavour…the ‘Royal Dividend Portfolio’.

The research for the ‘Royal Dividend Portfolio’ includes this observation from Greg…

‘Take a look at the top 10 holdings of the Betashares Australian Top 20 Equity Yield Maximiser Fund (Managed Fund) as of 28 April:

‘On the face of it, that’s a rock-solid portfolio.

‘But it’s not one that’s going to give you outperformance. At least, there’s a low probability of it.

‘And…as we’ve mentioned…there are many hidden traps on some of the best dividends on offer right now.

‘BHP Group [ASX:BHP], for instance, has also thrown off big dividends over the past few years…thanks to a robust iron ore price.

‘But prices have come under pressure lately, and this will have a flow-through effect on BHP. In other words, the dividend forecasts are risky.

‘The banks are similar. Their earnings cycle has peaked in my view. And earnings will be under pressure going forward. While the dividends look okay at this stage, you’re seeing pressure on share prices.’

The stocks in the BetaShares Australian Top 20 Equity Yield Maximiser Fund are ones the vast majority would consider ‘you can’t go wrong buying’.

However, according to Greg’s extensive research, some of these stocks look to be beyond their earnings peak.

Greg’s thorough approach to stock selection (and, rejection) has whittled down the universe of ‘birds in the hand you can hold onto’, to a handful (no pun intended) of quality companies…with the added potential to possibly give investors ‘two more birds in the bush’.

If you’re seeking genuine, independent, well-researched advice on how to generate a quality dividend stream for your portfolio from one of the smartest and nicest guys in the business, then do yourself a favour and take a look at Greg’s ‘Royal Dividend Portfolio’ right here.

Until next week.

Regards,

Vern Gowdie,
Editor, The Daily Reckoning Australia

By Bill Bonner Editor, The Daily Reckoning Australia

Dear Reader,

‘The police in New York City chased a boy right through the park In case of mistaken identity, they put a bullet through his heart.’

‘Heartbreaker’, The Rolling Stones

‘What was it like?’

‘What?’

‘Paris…during the riots.’

‘Were there riots?’

Every country has its railroad tracks. And some people are inevitably on the other side of them. In Paris, poor people tend to live in the suburbs. One of them got killed by police last week. Those of us in the centre of town barely noticed.  

Nationwide, the French seem to be having their own George Floyd moment.

Here’s CNN:

‘Chaos, destruction and confrontations have led to curfews in some towns around the capital. Bus and tram services faced disruptions with a nationwide shutdown ordered for 9:00pm on Friday to try to stem another night of violence.

‘Areas within some of France’s major cities have erupted in violence for several successive nights after a teenager named Nahel Merzouk, reportedly of Algerian descent, was fatally shot by police — an incident caught on video.

‘More than 800 people were arrested the night of 29 June, as outrage continued to intensify. Merzouk’s death appears to have become a flashpoint for anger about racial inequality in France and claims of police discrimination.’

Culture warriors

Meanwhile, ‘racism’ is a big deal in the US too. There is a whole brigade of culture warriors ready to call it out…stamp it out…and duke it out. They see racism everywhere. 

The Daily Beast: ‘White Professor Disgusts Women Historians’ Conference’:

‘A conference for female historians this weekend was plunged into turmoil when a prominent white academic speaking at the main event said her professional life would have been easier if she were black.

‘She was immediately called out for her blatantly racist remarks, and refused to apologise, let alone listen, to the reason why her remarks were horrifyingly wrong…’ 

And here’s another click-baiting headline from something called BuzzLoving:

‘“White men are a danger to society,” says a member of San Francisco’s reparations committee.

‘This past weekend, the US press reeled and railed over the Supreme Court’s latest decision on universities’ race-based admissions programs. In brief, the court recognised that you can’t discriminate in favour of one group (blacks, for example) without discriminating against another (Asians, for instance).’     

This anti-racist decision was immediately attacked as…yes…racism! 

Fox News:

‘Jemele Hill accuses Asians of “carrying the water for white supremacy” for backing affirmative action decision.

‘Harvard pledged to go forth and sin no more…at least not openly. It said, however, that it would continue to take other circumstances, beyond test scores and academic achievements, into account.’

Inherent bias

This is, of course, what we all do. We consider our own prejudices, predilections and preferences. When we want a good Chinese restaurant, for example, we don’t go to ‘Lil’ Italy’. We go to Chinatown. We guess that we’ll get better wontons there. Are we discriminating against the Italians? Of course, we are. And if we want to demonstrate our commitment to social justice, we can put on a rainbow t-shirt…and adopt a kid from Ouagadougou.

But private acts of preference, kindness and vanity are not enough for some people. They want the smell of burning tires in their nostrils…and someone else’s money in their pockets.

We bring up ‘money,’ not because it is the most important part of the story, but only because it is measurable. In France, as in the US, blacks complain that they are mistreated by the police. Of course, the police take their own bugaboos into account, too. Whether they handle blacks fairly, or not, is hard to know. But at least ‘money’ can be counted…and black people tend to earn less of it than whites. On the surface, this appears ‘unfair.’ And it seems to offer an easy arithmetic solution: take money from the latter group and give it to the former one.  

Alas, often, if not always, imposed solutions make the problem worse, not better. So, let’s at least take a glance at what the real problem may be. There are three major hypotheses. First, it is the Africans’ fault that they get the short end of the stick — they are lazy, stupid, criminal, etc. The second hypothesis is that it is whites’ fault — they enslave, discriminate and suppress people of African origin. The third explanation is that it’s nobody's fault — different groups have different habits and customs…which result in different outcomes and genuine diversity.

Quiet desperation

This last hypothesis is probably the most likely and least attractive. It is least attractive precisely because it is most likely…it sees no problem and suggests no solution. It is ‘racist,’ in the sense that it recognises that not everyone has to live the same way; blackness is not a disease. And it can’t be cured by whiteness. Nor vice versa.   

Our granddaughter recently competed in a musical talent show at Carnegie Hall. She was one of the hundreds of contestants…but almost all the other violinists were Asian. And if the people of Nanterre (the suburb where most of the residents are of African descent) acted like Asians, they wouldn’t be setting cars on fire. Young men would not be out on the streets at night. They’d be practising the violin…or studying for their exams…with their mothers and fathers on their backs, urging them to work harder and do better. Then, as they grew older, they’d take their places in bourgeois society. They’d earn about the same amount as others similarly situated…and they could live the lives of quiet desperation that Western civilisation depends on.

Better? We don’t know. But it would give police fewer opportunities to shoot them.

Regards,

Bill Bonner,
For The Daily Reckoning Australia