‘The opinions that are held with passion are always those for which no good ground exists; indeed the passion is the measure of the holder’s lack of rational conviction. Opinions in politics and religion are almost always held passionately.’
Bertrand Russell, Sceptical Essays
‘My opinions may have changed, but not the fact that I’m right.’
We were in the Port Phillip headquarters break room earlier today, chatting with Jason Stevenson. He sits on the Guild’s board as our mining expert. He’s also the analyst for Diggers and Drillers. What Jason doesn’t know about investing in the mining and resources industry is probably not worth knowing.
Jason’s been faithfully reading the DR these past two weeks, and he posed an interesting question. One that we thought we’d take the time to answer. ‘What do you really think will happen to the Australian dollar? Surely you’ve got to have an opinion.’
Of course we have an opinion! And an educated one at that. We were happy to share our opinions with Jason. But we’re not going to share that with you here today, because the last thing we want is our opinions to influence your investment decisions. Or our own, for that matter. Unlike Ashleigh Brilliant, quoted above, what, god forbid, if we are wrong?
For better or worse, not everyone shares this…err…opinion on sharing their opinions.
An article by David Potts in this week’s The Age Money is titled, ‘With the Reserve Bank Predicting a fall in the dollar, now’s the time to look overseas.’
The article shows how much the Aussie dollar has risen against other currencies over the past five years overlaid on a nifty globe background. 40.9% against the Indian rupee; 23.7% against the Russian rouble; 40.6% against the Vietnamese dong. There were less impressive gains against the Philippine’s peso (2.8%) and Malaysian ringgit (2.4%). And the Aussie actually lost -7.8% against the Kiwi dollar.
Convinced you need to shift your money overseas yet? We’re not.
If you’ve been following the DR these past two weeks, you’ll know that investing part of your portfolio overseas is a vital part of proper asset allocation. It’s a corner stone of the Golden Rule of investing. You should already have a fair bit of your wealth spread around internationally. Ramping up this allocation on a whim based on the week’s hottest opinions is akin to currency speculating. You’re better off at the roulette table. At least there you’ll get free drinks.
Focussed on the dollar, Potts goes on to write, ‘Although it’s holding its head comfortably above US90 cents you won’t find an economist anywhere who thinks it can stay there, let alone go higher.’
There’s not an economist anywhere that thinks that? Anywhere? Really?
‘Even the Reserve Bank, not one normally to forecast currencies, says the dollar is “overvalued, and not by just a few cents”. It goes further with some fee-free financial advice: “We think that investors are underestimating the likelihood of a significant fall in the Australian dollar at some point.”It’s generally believed the Reserve thinks about a 10 per cent depreciation is called for… When the dollar was rising there was always the question of whether to hedge. But since it’s more likely to fall than rise that’s no longer a pressing concern.’
Well that’s it. We’re convinced now. Forget about hedging. We were going to keep all of our wealth invested within Australia, but with this fresh news, we’re going to move it all overseas! Based on the Reserve Bank’s opinion, how can we possibly lose?
Or is it possible that the Reserve Bank, which actually does forecast currencies fairly regularly — whenever it want to influence them — is talking its own book. It’s no secret they believe the ‘stubbornly high’ dollar is having a negative impact on Australia’s economy. Maybe that’s why, ‘the Reserve thinks about a 10 per cent depreciation is called for.’
Back in the break room, we explained to Jason that it’s not just the Australian dollar. We have opinions on a whole range of issues.
‘Take property prices’, we told Jason. By this time, his coffee was getting cold, and he appeared to be regretting asking us our opinions in the first place. No matter! We ploughed on.
It seems everyone has an opinion on where Australian house prices are headed. And there’s good reason for that. The value of Australian property doesn’t just affect homeowners and renters. It impacts the entire economy. Four out of five mortgages are held by the big four banks — the same big four that make up 40% of the ASX.
Now the Reserve Bank of Australia is worried about speculation in the property market. They say the upswing in house prices with today’s low interest rates can’t continue. This speculation, they say, encourages unrealistic expectations of higher house prices yet to come.
The IMF is banging on the same drum. They say Australian property is the world’s third-most expensive on a ‘house price to income’ basis.
I imagine you’ve heard that before. The IMF made similar noises last year. And what happened? House prices are up 10%.
On the other side of the opinion coin, many experts see the growth trend continuing. Real estate agents are talking about ‘unprecedented demand’ from Chinese buyers. And low interest rates, possibly for years to come (who knows!), have them convinced that prices will keep going up and up.
Now we’ve both worked in the property industry in the past. And we have well informed opinions on property prices, as we told Jason before he could slip out the door. But the point is, that’s all they are — opinions. We know better than to gamble our wealth on our assumptions of what lies ahead.
The point is that it’s foolish to assume that anyone, no matter their fancy title or affiliations, has a crystal ball that allows them to forecast a completely unknowable future. They may get it right once or twice. A few might even get it right for several years running. But at some stage their predictions are going to fall flat. And if you’ve bet your future wellbeing on their opinions, you’ll pay a very costly price.
We’ve had a great time writing to you for the past two weeks. We hope you’ve learned something, not only about the Albert Park Investors Guild, but about the investment world in general. And about how you can take control of your future and work towards a better, smarter and richer life.
On our last day captaining the good ship Daily Reckoning, we wish you a great weekend.
If you want to know more about the Guild and our membership, keep an eye on your inbox next week.
Bernd Struben and Meagan Evans
For Markets and Money