Over at the Daily Reckoning Dan Denning has been asking readers about the idea of Robinson Crusoe Stocks. Crusoe, having spent 28 years stranded on an island, returned to find that his investments had grown in value leaving him a rich man. Sorry to give the ending away if you haven’t read it already.
So what are the type of Crusoe stocks on the Australian markets? Stocks that you can buy today and tuck them away for the next 10 or 28 years. One of them could be anything that involves beer.
According to the Westpac Consumer Confidence survey, beer sales have been recession beaters during the last thirty years. Perfect if you happen to have bought beer stocks 30 years ago just before getting marooned.
There are a few beer companies on the ASX. Fosters [ASX:FGL] and Lion Nathan [ASX:LNN] are the two biggest. But at the small end of town you’ve also Little World Beverages [ASX:LWB] and Empire Beer Group [ASX:EEE].
That isn’t a recommendation to buy any of them of course. Although we did take a look at LWB for inclusion in our small cap report the Australian Small Cap Investigator. Unfortunately the liquidity in its beer doesn’t translate to liquidity in the volume traded on the ASX.
The Bulls Are Back
The Dow Jones Industrial Average was up by 10.88% overnight. What are we to make of that? Is it the end of the bear market or is it just a bear market rally?
Of course it isn’t the first time we’ve seen a massive 10% gain on the Dow. And we don’t have to turn the clock back that far either. Only two weeks ago on the 13th October the Dow picked up 936 points for its biggest ever one-day points gain.
Last night’s 889 point gain was not surprisingly the second ever biggest one-day points gain.
The bad news is that last night’s move still puts the Dow over 200 points behind where it closed on the 13th. So there is still a big question mark over how solid these big points rallies are.
This morning there was another late rally. A pattern we have seen during several sessions recently. The index gained by 700 points during the last two hours of trading.
It is arguable whether long term investors are going to storm into the market with two hours of trading remaining and then drive the market up by a record amount. Long term investing is, well, a bit more boring than that.
But still, the market has to – hopefully – go up from somewhere. Maybe this is it.
What the Government Should Do But Won’t
It is clear that the government has only one option with the banking guarantee. It should forget about it. It is obvious that it should never have been introduced in the first place.
And now, like that rubber ball we spoke about last week, policy makers are prodding at it from all angles as new problems arise. Did the government really think that the banks would put their own interests second? Are the banks really going to go out of their way to help if it means less money flowing into savings accounts?
Not likely.
We have been told that all these new policy initiatives are designed to strengthen the banking system and restore confidence. Guess what. It’s doing the opposite.
Because now we have the next round of the circus. Uncle Tom Cobbly & All are being invited to become banks. Almost. Authorised deposit taking institutions (ADIs) anyway. This will involve Perpetual, AXA, AMP and Australian Unity falling under the regulatory eye of the Australian Prudential Regulation Authority (APRA).
That can only be good news surely. Only it isn’t, is it? There are at least three – dare I say it – potentially unintended consequences of this action.
The first is that there will be big pressure on APRA to ensure that institutions such as AXA and AMP are approved. Imagine the scenes if AXA is rejected because it doesn’t quite fit the bill. Don’t worry, it won’t be, because if necessary the bill will be made to fit. Whatever it takes.
Second and third are connected. The reason that the government is proposing this measure is because some ‘cash like’ investments are not guaranteed while others are. Obviously not every fund manager in Australia is going to get APRA approval. We’re thinking of the small and medium sized firms.
So, as investors in those small funds start to wise up to that fact they will start to pull their money out. And hey presto! It all starts again as the smaller funds freeze withdrawals.
In consequence it could destroy competition as smaller funds either go out of business or become absorbed by the larger fund managers.
It is a dangerous precedent gives investors entirely the wrong message. Where investors should be hearing “investing can be risky, look after yourselves” they are instead being told, “don’t worry the government is here to help.”
Cheers.
Kris.
