+ About Simon Bond
About Simon Bond
Simon is 48 years of age and has been in the investment world almost all his life.
His father Bruce Bond was a pioneer in the world of personal financial advice and appeared as a regular in a large number of publications and the electronic media over a number of decades. His success and following gave rise to many of the financial journalists that are now heard around the nation on so many different programs and various formats.
Bruce was a trusted and respected member of the investment community and Simon has followed in his father’s footsteps.
Simon is a Partner at the Newport Office of Morgans Australia, after having spent almost two decades learning his trade in the heart of stockbroking in Melbourne's Collins Street at various firms.
He relocated his family back to Sydney for family reasons around five years ago, coming almost full circle, having begun his career in the 70s as a “chalkie” at the Sydney Stock Exchange
Simon is fanatical about the way that technology and the internet is altering the investment landscape around the globe and focuses much of his outlook on how these profound changes will affect the outcomes and futures of investors everywhere.
Monday, January 16, 2017
By Simon Bond
I hope you all enjoyed the Christmas and New Year break and had sufficient time to consider your investment options and outlook for the upcoming year. Over the break I used the time to read some relevant books in order to prepare myself as much as possible for the coming year’s surprises.
Four of the books were related to the US Presidential scenario; “The Making of Donald Trump”, by David Cay Johnston, “Great Again: How to Fix our Crippled America" by Donald Trump, “Electing Donald Trump”, by Newt Gingrich and Claire Christensen, “How Donald Trump won the 2016 Election” by Alexander Davis, and for self education purposes, the biography of Ian Fleming by Andrew Lycett.
All very illuminating and interesting publications. What is crystal clear is that the 2017 investment year will be full of surprises. The consensus view will, more often than not, be turned completely on its head. The usual geopolitical worries will be amplified as Donald Trump continues to negotiate new deals and renegotiate old ones with countries and companies.
It is important to bear in mind that Trump is a “pluses and minuses” thinker. Wall Street and Washington, by contrast, think in terms of multiples and percentages. Trump is, above all, a dealmaker. This is what he loves most and what he excels at. He is not concerned with macro-economics. He wants to negotiate the best deal he can.
Right now, Trump is playing the “new CEO move.” That involves moving fast and decisively on day one to set the mood for the rest of the Presidential term. So far, Donald Trump has set the mood as an aggressive negotiator on behalf of the country, clawing and fighting for every American job. So far so good and consumer confidence has soared since the election.
In the past, U.S. trade agreements were made by Washington lawyers. The other side employed their best and brightest to negotiate trade deals. In the Trump Administration, America’s most capable negotiators will be the ones renegotiating old trade agreements and any new ones.
The Trump government will likely be run by some seven or eight individuals, namely the Secretary of State (Rex Tillerson), the Secretary of the Treasury (Steve Mnuchin), the Attorney General (Jeff Sessions), head of the newly-formed National Trade Council (Peter Navarro), National Security Advisor (Lt. General Michael T. Flynn), Secretary of Defense (General James Mattis), the Secretary of Commerce (Wilbur Ross) and Vice-President-elect, Mike Pence. (Clearly, Steve Bannon, White House Chief Strategist and Jared Kushner, Trump’s son-in-law, will be major powers behind the throne.)
However, Trump will be less radical than people think. Every decision or action by the new Administration will be focused on getting re-elected. Trump will only pick battles that are winnable and he will only implement as much change as he thinks the American population can handle and adjust to before the next election. (Assuming he wins re-election, his second term will be the time for radical change.)
Donald Trump. Source: AAP
Trump is a master of symbolism, turning a small action, such as jobs at Ford and Carrier, and cost overruns for Air Force One, into the appearance of a major victory. Trump knows how to make his actions as visible as possible, even if they are more symbolic than real. He wants to avoid major “amputation” — to use the words of one astute observer — because he doesn’t want the U.S. economy to be weak before the next election.
Suppose inflation surprises on the upside, and long interest rates head sharply higher.
There is an enormous number of investors who purchased long-term assets with short-term financing which personifies the classic characteristics of a financial squeeze. These investments were made on the premise interest rates would stay “lower for longer”. As interest rates rise, these investors will find that they are paying more in interest than they are receiving in cash flow.
Monday, January 09, 2017
By Simon Bond
We have recently been keeping you abreast of growth in the cruise markets, which caught our eye due to the significant increases in internet capacity growth in the marine industry generally. Specifically, capacity in this sector of the market continues to ramp up and see hockey stick like growth.
Interestingly, the Cruise Lines International Association (CLIA) recently released its annual 2017 State of the Cruise Industry Outlook and Cruise Travel Trends Forecast.
It finds cruising continues to boom, despite relative economic uncertainty in 2017, not to mention the untested waters of President-elect Donald Trump's policies.
From 2017 to 2026, the industry will produce 97 new cruise ships at an investment spend of $US53 billion. CLIA finds another key cruising trend is the continued rise of river cruising, with 13 new river cruise ships on order for 2017 – an increase of about seven per cent to the existing inventory.
"Global cruising – especially luxury cruising – is on the rise," Senior Vice-President and Managing Director Asia Pacific at Norwegian Cruise Line Holdings and Chairman CLIA Australasia, Mr Steve Odell, told The Australian Financial Review.
"Over one million Australians took a cruise in 2015, up 15 per cent on the previous year and making Australia the fourth largest source market in the world."
The Caribbean and the Mediterranean remain the two most popular regions for ship deployments.
However, Australasia is increasing its share year on year, Mr Odell said. In 2016, 9.1 per cent of all ships deployed worldwide visited Asia and Australia, New Zealand and the Pacific.
The most favoured destinations for Australian cruisers remain within the region, topped by the South Pacific, followed by Australia. The number of Australians cruising to New Zealand rose by 13.5 per cent recently to break through the 100,000 mark for the first time, while the number of Australians taking an ocean cruise in Asia jumped 71.5 per cent.
The amount of spending on domestic travel is also soaring to record highs.
Aussies splashed out just under $60 billion on domestic overnight travel in the year to the end of September, up five per cent on the previous 12 months, a Tourism Research Australia report says. Caravan parks and camping grounds are also very popular, particularly among families and adult couples.
The number of nights spent in caravan parks jumped by a fifth, with a near-50 per cent increase reported for those who went off the beaten track for a spot of free camping.
Interstate holiday spots were hot locations for those on staycations, with a record 11.1 million trips made and spending up 14 per cent to $16 billion.
The number of Australians holidaying overseas rose seven per cent to 5.9 million in the year.
- Spending on domestic overnight trips up 5% to $59.8 billion.
- Domestic daytrips up 7% to $19.3 billion.
- Total annual tourism spend up 6% to $117.9 billion.
- NSW had 29.1 million visitors, with $16.5 billion spent.
- Victoria attracted 21.7 million visitors, with $12 billion spent.
- Qld had 20.1 million visitors, with $14.7 billion spent.
(Source: Tourism Research Australia) AAP Belinda Tasker
Monday, December 19, 2016
By Simon Bond
Over 3 Trillion reasons.
While Twitter may have not been in attendance, President-elect Donald Trump held a meeting with other top technology executives including Tim Cook, Larry Page, and Elon Musk last Wednesday at Trump Tower. The meeting, according to The New York Times, covered a variety of topics, mainly centering around immigration, jobs, and China …
Not including the “politicians” in the room, the list of attendees represented in excess of 3 TRILLION dollars of market capitalisation.
According to a pool report, Trump opened the meeting by praising the technology executives in attendance, saying “there’s nobody like the people in this room.” Trump then offered up an invitation for the various executives to come to him at any time if they need something: “Anything we can do to help this go along, we’ll be there for you. You’ll call my people, you’ll call me. It doesn’t make any difference,” Trump continued. “We have no formal chain of command around here.”
It’s without a doubt that Trump has clashed with most of the executives that were in attendance at some point, and he acknowledged that during his remarks.
The President-elect explained that everyone in the room is “doing well right now” and that he’s “honored by the bounce.”
“I’m here to help you folks do well. And you’re doing well right now and I’m very honored by the bounce. They’re all talking about the bounce. So right now everybody in this room has to like me — at least a little bit — but we’re going to try and have that bounce continue.”
Moving into policy discussion, Trump explained that his plan to slash the corporate tax rate will make it significantly easier to repatriate money kept overseas, according to USA Today.
“We’re going to make it a lot easier for you to trade across borders,” the President-elect said. “They’re going to do fair trade deals,” Trump said. “They’re going to make it easier for you to trade across borders, because there are a lot of restrictions, a lot of problems. If you have any ideas on that, that would be great.”
Incoming White House Chief of Staff Reince Priebus said that the meeting, which ran for over two hours, included “productive discussions about job creation and economic growth.”
The fences continue to be mended which no doubt will be welcomed by markets.
Monday, December 12, 2016
Scott Adams, who created the Dilbert comic strip, writes a regular (and thoughtful) blog covering current happenings. He maintained all the way through the Presidential campaign that Donald Trump would win, and continually mapped out his reasoning.
This week he commented on the recent happenings and his post is excellent reading:
One of the things I will enjoy about the Trump presidency is watching non-business writers try to explain his methods. Case in point, the recent stories about Ford and Carrier keeping some parts of their manufacturing in the US because Trump negotiated/bullied them into staying. If you tell that story through a political filter – which is all I have seen so far – you focus on the facts. In this case, the political story is that both the Ford and Carrier situations are exaggerated claims of success. The political filter misses the story completely. As usual.
Here’s the real story. You need a business filter to see it clearly. In my corporate life I watched lots of new leaders replace old leaders. And there is one trick the good leaders do that bad leaders don’t: they make some IMMEDIATE improvement that everyone can see. It has to be visible, relatively simple, and fast. Why? Because humans are not rational.
Our first impressions rule our emotions forever. Trump has a second chance to make a first impression because his performance as President is fresh ground. Trump is attacking the job like a seasoned CEO, not like a politician. He knows that his entire four-year term will be judged by what happens before it even starts. What he does today will determine how much support and political capital he has for his entire term.
So what does a Master Persuader do when he needs to create a good first impression to last for years? He looks around for any opportunity that is visible, memorable, newsworthy, true to his brand, and easy to change. Enter Ford. Enter Carrier. Trump and Pence recognised these openings and took them. Political writers will interpret this situation as routine credit-grabbing and exaggerated claims.
But business writers will recognise Trump’s strategy as what I will call the ‘new CEO move’. Smart CEOs try to create visible victories within days of taking the job, to set the tone. It’s all about the psychology.
If you are looking at Trump’s claims of success with Ford and Carrier in terms of technical accuracy and impact on the economy, you will be underwhelmed. But if you view it through a business filter and understand that psychology is the point of the exercise, you’re seeing one of the best new CEO moves you will ever see.
I’ll say this again because it’s important. We’re all watching closely to see if President Elect Trump has the skill to be president. And while you watch, Trump and Pence are pulling off one of the most skillfully executed new CEO plays you will ever see.
Remember what I taught you in the past year: facts don’t matter. What matters is how you feel. And when you watch Trump and Pence fight and scratch to keep jobs in this country, it changes how you will feel about them for their entire term. This is a big win for Trump/Pence disguised as a small win.
The political press will dismiss Ford and Carrier with fact-checking. But the stock market will be smarter. Experienced business people recognise the ‘new CEO’ move and they know how powerful and important it is.
If you are worried about Trump’s talent for leadership, this should help set your mind at ease. He hasn’t even started the job and he’s already performing better than any past president in the same phase.
Trump knows and understands the anger in middle America and the chart below illustrates perfectly why the rhetoric and threats to American businesses will continue until they hear the siren call.
Monday, December 05, 2016
By Simon Bond
Fake news has been hitting the genuine headlines since the US election and, as the infographic below shows, it's a real problem. As research by Buzzfeed using Buzzsumo shows, from August until election day, fake news stories had more engagement on Facebook than mainstream stories did. The most 'popular' story falsely stated that Pope Francis had endorsed Donald Trump for the presidency - receiving almost one million engagements (shares, reactions and comments). In a time of 'post-truth' though, these revelations are unlikely to sway the opinions of those that cast their vote for the now president elect.
So how much did Facebook help get Donald Trump elected? The answer is, much more than you may think. One of the few ways the election of Donald Trump was similar to that of Barack Obama was his use of a new medium that will forever change politics. For Obama, that medium was the internet 2.0. For Trump, it was Facebook.
This reality, coupled with the fact that Facebook’s U.S. ad revenue is now, for the first time ever, larger than the biggest traditional media companies, has cemented the platform’s role as the new gatekeeper of democratic life. Since Trump is unlikely to curb the machine that brought him to power unless it is politically advantageous to do so, to stamp out the opposition, or future political rivals the burden of oversight, at least for the moment, rests with Mark Zuckerberg, the year’s most reluctant politician.
Image: Mark Zuckerberg, AAP
In the final months of the campaign, the Trump team fearing it was headed for a loss, unleashed a direct marketing effort that they insisted would “shock the world” come election day. The foundation of this operation, according to an October feature story by Bloomberg, was the “sprawling digital fundraising database and social media campaign” that Jared Kushner began building for his father-in-law in November 2015, and which became the nerve center of the campaign. Although the polls were not in Trump’s favour, something else was: an audience of die-hard supporters, numbering in the millions, his son-in-law built on Facebook.
“I called some of my friends from Silicon Valley, some of the best digital marketers in the world, and asked how you scale this stuff,” Kushner said recently in an exclusive interview with Forbes. “They gave me their subcontractors.” By August, “Project Alamo,” as the database came to be called, would become the driving force behind much of Trump’s political and travel strategy. As would data supplied by the RNC and Cambridge Analytica, the data firm that worked on the “Leave” side of the Brexit campaign. For several years now, Cambridge Analytica has been using Facebook quizzes to create personality profiles that represent 230 million Americans, according to how they rate on the “big five” psychological traits: Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism, also known as your Ocean score. The firm is also an occasional defense contractor known for its counter-terrorism “psy ops” work in Afghanistan.
Using this digital firepower, which cost the Trump team around $70 million a month, the campaign was able to capture somewhere between 12 to 14 million email addresses, contact details, and credit card numbers for 2.5 million small donors, who collectively gave around $275 million. For fundraising they utilised machine learning, pitting digital marketing companies against each other on a trading floor to make them compete for business. As Kushner explained to Forbes, “Ineffective ads were killed in minutes, while successful ones scaled.
The campaign was also able to identify 13.5 million voters in 16 battleground states whom it considered persuadable. The magnitude of this operation, according to Bloomberg, is what ultimately lured Steve Bannon, one of Cambridge Analytica’s key board members, to join Trump’s team: "I wouldn’t have come aboard, even for Trump if I hadn’t known they were building this massive Facebook and data engine. Facebook is what propelled Breitbart to a massive audience."
We know its power. Direct-marketing has been around since at least the 1960s, but the degree to which individual digital ads can be tailored and targeted at people, based on their personalities, is something new.
One Facebook advertising tool that was broadly utilised by Trump’s campaign is known as the “dark post”—a newsfeed message seen by no one other than users being targeted. Under the guidance of Cambridge Analytica, Trump’s digital team used dark posts to deliver different ads to different potential voters, aiming to provoke certain reactions from the exact right people at the exact right times. The New York Times opined on a future scenario: Imagine the full capability of this kind of “psychographic” advertising. In future Republican campaigns, a pro-gun voter whose Ocean score ranks him high on neuroticism could see storm clouds and a threat: The Democrat wants to take his guns away. A separate pro-gun voter deemed agreeable and introverted might see an ad emphasising tradition and community values, a father and son hunting together.
While many of the dark posts were designed to get out the Trump vote, others were designed to depress support for Clinton. “We have three major voter suppression operations underway,” a campaign official told Bloomberg, revealing that Trump’s team had targeted white liberals, young women, and black voters with negative ads focused on the Clinton’s politics. According to Bloomberg, Trump’s digital team sent dark posts reminding certain selected black voters of Hillary Clinton’s infamous “super predator” line. It also targeted Miami’s Little Haiti neighborhood with messages about the Clinton Foundation’s troubles in Haiti after the 2010 earthquake.
Federal Election Commission rules are unclear when it comes to Facebook posts, but even if they do apply, the power of public censure vanishes when no one else sees the ad you see. What is also unclear is if dark posts and other targeted ads actually affect how and when people vote. Facebook ran a study in 2010 that found social messages shared on the network could boost voter turnout. The Trump team’s predictive voter behaviour models showed that running negative ads, targeted at selected people, would dramatically affect Clinton’s ability to turn people out. And yet it is difficult to gauge how people will react. Trump’s ads could just have easily backfired, inspiring people to go to the polls for Clinton.
Until those facts are sorted out, future campaigns on both sides of the aisle will find it difficult to resist the allure of psychographic advertising, given the stunning upsets of Brexit and Trump. What better endorsements could Cambridge Analytica have hoped for? As one senior staffer from Trump’s digital team told Bloomberg in the weeks before the election, “Growing the digital footprint has really allowed us to take his message directly to the people,” adding that even if Trump were to lose, “We own the future of the Republican Party.”
Monday, November 28, 2016
By Simon Bond
As each new Trump adviser gets appointed I trawl through the news, historical information and interviews in order to study the last 12 months of their utterances for clues as to what may lie ahead. And it is very revealing, when we in markets continually ask ourselves, "Where will growth come from?" Any clues about the future by reading about the past can be very rewarding.
I personally think that if investors closely study the appointees, their history and their ideals more so than the appointer (whom we already know a great deal about) a very clear picture will emerge about the future of The United States and policy thoughts.
Consider that Trump’s senior adviser, Steven Bannon, is likely to play a significant role in selling the new administration's infrastructure message to the public. He recently told The Hollywood Reporter that he is an “economic nationalist,” and as someone with middle class roots, he has been uniquely well-positioned to craft the president-elect’s winning theme: “Like Andrew Jackson's populism, we're going to build an entirely new political movement. It's everything related to jobs. The conservatives are going to go crazy. I'm the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it's the greatest opportunity to rebuild everything. Shipyards, iron works, get them all jacked up. We're just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
And Senator Jeff Sessions — a long-time proponent of tighter trade and immigration rules — has emerged as the most influential adviser to Mr. Trump on the economy. As widely reported, Sessions has been nominated for Attorney General, and his influential former aide, Stephen Miller, as National Policy Director of the transition team. Consider the following, as Steve Bannon, recently appointed chief strategist and senior counsellor to President-elect Trump, said:
“Whether the issue was trade or immigration or radical Islam, for many years before Donald Trump came on the scene, Senator Sessions was the leader of the movement and Stephen was his right-hand man.”
On October 13, 2016, Jeff Sessions told Breitbart News Daily: "The leadership in this country has drifted globalist. They’ve lost sight of the interests of and struggles of American working people. Working people’s pleas to their government are right and just. They’re not mean and stupid. They believe in a lawful system of immigration, and that’s right and just. They believe in a system of immigration that protects their jobs and wages first, that when we have a job vacancy here, the first thing we do is give a chance to an American worker here, not bringing in someone from abroad. My goodness, who do we owe our loyalty to? So they’re right about that. They’re right to be concerned about trade. I’ve done a study on it. I’ve supported trade deals in the past, but we’ve done research: The results of these agreements are hurting the American people just like they thought when it passed. The American people never believed in these things yet the experts said we should do it and it was done by their leaders and the results are in".
Sessions said that to make America great again, the country needs “better tougher trade deals” that “protect American manufacturing, American jobs, and higher-paying jobs.”
“And without a manufacturing base, this country can’t be healthy and strong,” Sessions said. “We are being cheated by our trading partners. This is not a free market. This is a manipulated market by our competitors who want to seek an advantage for their countries and as Donald Trump says ‘who’s negotiating for us? Who’s defending our interests?’ Nobody. And as a result we have had a decline steadily in wages for middle America since 2000. Wages for median family income are down by $100 a month. We want wages going up not down.”
In my mind, future policy plans spell out as follows. Inflation will be back and higher interest rates will follow, just as night follows day. And since the election, you have seen the Bond market agree.
As we say, it's only just begun.
Monday, November 21, 2016
By Simon Bond
By now everyone has read, seen and heard enough about the US election so I won't waste this precious space with just another view, other than to cast your minds back to June where we wrote the following: "So now we come to today and people’s astonishment regarding the rise and rise of Donald Trump, Ted Cruz, Bernie Sanders and Co. Well get this, the people who lost their jobs and their Millennial kids are still angry, in fact they are seething with pent up rage and they are looking for someone to stick with a pitchfork. And they have found them, the current group in Washington".
Remember the old Japanese proverb "study the congregation before preaching your sermon".
I am just back from another visit to Asia where I met with companies that are basing their strategies on, and growing their businesses with technology, specifically cloud computing, thanks to the increases in connectivity.
One business that started in 2010 with seven people now employs 1,500. The founder told me that this time next year, he expects this number will be closer to 5,000 people. And even more impressive is the statistic that he told me about staff turnover, it averages less than 1%.
Another of the fellows I was meeting with, at one stage, cast his eye across the room and simply said, all this you see - it's simply the tip of the iceberg, and you have no idea what's underneath - but I do.
The changes that are underway right now will continue to accelerate. Three of the people who were at a dinner for 20 that I attended are currently undertaking a PHD in an internet related field, and speaking with each of them gave me cause to just simply stand there and shake my head in amazement at what is coming down the line. It's only just begun.
I continually warn people about "giving away" their data and personal details, as the more advanced technology becomes, the more pervasive it becomes. Consider the following.
According to IDC, worldwide revenues from big data and business analytics will reach $187 billion by 2019, up from $122 billion in 2015. Yet, that number only accounts for a fraction of big data’s actual value, neglecting its “digital dark matter” impact on productivity. It’s a problem so substantial many believe global GDP growth is skewed as a result. As the Obama Administration wrote in its 2016 Economic Report of the President: “Taken together, missing GDP from digital dark matter could be substantial.”
In August, WhatsApp updated its terms of service, making “Share my WhatsApp account information with Facebook” a default setting for all of its 1-billion-plus users. This data including photos, phone numbers, online statuses, profile names and more — and will be used to improve the quality of targeted advertising across Facebook’s portfolio of mobile and web products, the exact situation the European Union feared when reviewing the acquisition. And in October, the European Union's consumer protection authority sent a letter to WhatsApp expressing “serious concerns” and requesting the messaging app halt the data collection in Europe until the advisory group completes a “preliminary investigation.”
Looking at 2016 digital ad revenues, it’s clear why the European Union is concerned. Over the first half of the year, the U.S. digital advertising market grew from $27.5 billion to $32.8 billion. Combined, Google and Facebook accounted for 103% of that growth. Spending on all other websites and apps declined by 3%. And data is central to that ever-increasing dominance — Google and Facebook are able to promise the most value to advertisers because they possess the richest information about the most consumers. WhatsApp data promises to increase Facebook’s already monopolistic power over the digital ad market.
The rise of conversational commerce will, for the first time, allow Facebook to turn WhatsApp into a lucrative e-commerce and advertising platform. AI enabled chatbots are being rapidly deployed, allowing brands to converse with consumers around purchase decisions and incentivising Facebook to offer brands the sponsored placements and direct response opportunities necessary to maximise reach.
Only recently, Facebook announced it will deploy “sponsored messages” on its other dominant messaging app, Messenger. There is little doubt WhatsApp will soon follow. And mining WhatsApp data is the key to successfully executing this transformation as without rich user data, advertising cannot be effectively targeted to meet user preferences.
In the emerging and frontier economies, the rise and rise of connectivity via social media makes us look positively pedestrian. We continually ask ourselves "where will growth come from?"
Thanks to the Internet and social media the answers are more and more likely to be found in places like Vietnam and emerging Asia.
Monday, October 31, 2016
By Simon Bond
The main role of a good stockbroker in this day and age, in my view, can be summed up quite simply. When people ask us what we do and what the job entails my response is as follows: “essentially we try to save people from themselves”. That response is usually met with a blank stare.
Well, over 80% of our time is spent talking people out of doing something where they don’t understand the risk, or risks. Everyone gets a tip, or a whisper at some point in time, and this is usually the best time to let the feeling pass.
Let me explain.
Someone comes to see us with a view to investing in shares. One of the first questions I ask after they have told us what a great idea they have is this: What do you understand to be the meaning of the word risk? Many people, in fact well over 50%, will just sit and stare at you while they try to think of a response, not a clever response, just a response to the question.
My next question is this: Do you understand that an investment in shares means you may lose some, or all, of your money? Again, this question is met with incredulity as they ask: What do you mean I may lose some or all of my money?
The Oxford English Dictionary cites the earliest use of the word in English (in the spelling of risque from its from French original, 'risque' as of 1621, and the spelling as risk from 1655. It defines risk as: Exposure to the possibility of loss, injury, or other adverse or unwelcome circumstance; a chance or situation involving such a possibility.
Wikipedia notes market risk as; the risk of losses in positions arising from movements in market prices. There is no unique classification as each classification may refer to different aspects of market risk.
Nevertheless, the most commonly used types of market risk are:
- Equity risk - the risk that a stock or stock index (e.g. The Dow Jones Index or The ASX 200 or All Ordinaries Index) or individual stock prices or their implied volatility will change.
- Interest rate risk - the risk that interest rates (e.g. 10-year or 30-year Government Bonds) or their implied volatility will change.
- Currency risk - the risk that foreign exchange rates (e.g. EUR/USD, USD/AUD, etc.) or their implied volatility will change.
- Commodity risk - the risk that commodity prices (e.g. corn, crude oil, copper, gold) or their implied volatility will change.
- Margining risk -results from uncertain future cash outflows due to margin calls covering adverse value changes of a given position.
By way of illustration.
1. Securities trading risk: The probability of a loss or drop in value.
Trading risk is divided into two general categories:
(1). Systematic risk: This affects all securities in the same class and is linked to the overall capital-market system and therefore cannot be eliminated by diversification. Also called market risk.
(2). Non-systematic risk: Any risk that isn't market-related. Also called non-market risk, extra-market risk or diversifiable risk.
It’s all a lot to take in and as they say “free advice is worth what you pay for it”.
Monday, October 24, 2016
By Simon Bond
A fire has been lit under the baby boomers' relentless rise in healthcare spending. The basic reason is that healthcare spending per capita is a very strong function of chronological age — with the cost rising exponentially from age 20 on. The per-capita cost of a 60-year-old is about double that of 40-year-old. The cost of 80-year-old is roughly double that of a 60-year-old. And so on.
As the U.S. population (and other nations with a similar demographic profile) becomes top-heavy with seniors, the healthcare expenses associated with older age brackets will skyrocket.
This cost boom will be further multiplied by adverse health trends such as obesity and diabetes.
Baby boomers are also fuelling demand for New Age products and services in the 65-plus age bracket. They will augment traditional medicine with alternative remedies — including supplements, coaches, traditional Chinese medicine, and other “wellness” solutions.
Rock gardens, ministers, mindfulness sessions, and even psychotropic drugs are already becoming a staple of oncology units and hospices.
This trend extends to food. While previous generations of seniors were happy with their favourite brands, boomer seniors will go “all natural” by increasingly visiting organic and farmers-type food markets.
But, perhaps the largest healthcare expansion of all will occur outside the realm of medicine. With more seniors living alone at times or on the move, boomers (and their children) will increasingly hire professionals to handle everyday tasks like household chores and transportation.
One of the most promising growth areas is telehealth and related opportunities. Although just 15% of family physicians used telehealth services in their practices last year, that share is sure to expand rapidly in future years. The acceleration will begin in rural areas where access to specialists is limited.
As internet speeds increase and broadband connectivity permeates it's way through the community, this area will see ongoing growth and opportunities.
Healthcare, medicine, biotech and connectivity, it's all destiny and it's only just begun.
Monday, October 17, 2016
By Simon Bond
The rationale behind many of the most successful investors is to go to sectors and places where nobody is, get set, then sit and wait until others catch up.
Most of the time, this takes a tremendous amount of patience and the lead time is longer than people think. Due to the instant and always on nature of the investment world, this gets harder each day as we are continually bombarded with reasons to be wrong.
I mention this due to the reasoning behind Google’s big hardware event recently, it wasn’t the hardware at all.
It was all about the Assistant, the artificially intelligent digital helper that caters to your every whim and powers your every interaction.
Artificial intelligence (AI) is an area of computer science that emphasises the creation of intelligent machines that work and react like humans. Some of the activities computers with artificial intelligence are designed for include:
- Speech recognition
- Problem solving
On average Google now processes over 40,000 search queries every second, which translates to over 3.5 billion searches per day and 1.2 trillion searches per year worldwide.
Cloud-based AI will become an increasingly ingrained part of our everyday life. But it will come at a price. Cloud computing obeys the law of increasing returns, sometimes called the network effect, which holds that the value of a network increases much faster as it grows bigger. The bigger the network, the more attractive it is to new users, which makes it even bigger, and thus more attractive, and so on.
A cloud that serves AI will obey the same law. The more people who use an AI, the smarter it gets. The smarter it gets, the more people use it. The more people that use it, the smarter it gets again. Once a company enters this virtuous cycle, it tends to grow so big, so fast, that it overwhelms any upstart competitors. As a result, our AI future is likely to be ruled by an oligarchy of two or three large, general-purpose cloud-based commercial intelligences.
Futurist Kevin Kelly, one of the most respected writers on the subject has been discussing the issues surrounding AI for decades and in an article published in Wired Magazine in 2014 he said the following:
“AROUND 2002 I attended a small party for Google—before its IPO, when it only focused on search. I struck up a conversation with Larry Page, Google’s brilliant cofounder, who became the company’s CEO in 2011. “Larry, I still don’t get it. There are so many search companies. Web search, for free? Where does that get you?” My unimaginative blindness is solid evidence that predicting is hard, especially about the future, but in my defense this was before Google had ramped up its ad-auction scheme to generate real income, long before YouTube or any other major acquisitions. I was not the only avid user of its search site who thought it would not last long. But Page’s reply has always stuck with me: “Oh, we’re really making an AI.”
I’ve thought a lot about that conversation over the past few years as Google has bought 14 AI and robotics companies. At first glance, you might think that Google is beefing up its AI portfolio to improve its search capabilities, since search contributes 80 percent of its revenue. But I think that’s backward. Rather than use AI to make its search better, Google is using search to make its AI better. Every time you type a query, click on a search-generated link, or create a link on the web, you are training the Google AI. When you type “Easter Bunny” into the image search bar and then click on the most Easter Bunny-looking image, you are teaching the AI what an Easter bunny looks like. Each of the 12.1 billion queries that Google’s 1.2 billion searchers conduct each day tutor the deep-learning AI over and over again. With another 10 years of steady improvements to its AI algorithms, plus a thousand-fold more data and 100 times more computing resources, Google will have an unrivaled AI.
My prediction: By 2024, Google’s main product will not be search but Artificial Intelligence”.