Aussie Industrial shares extremely expensive

In a presentation this weeks by Schroders, the chart below was provided - showing that on a Price/Earnings basis, Australian industrial stocks are at their most expensive valuations seen over the last 30 years. Why is this important? When investing, if you buy investments that are very expensive by long-term historical measures, you should normally expect poor or bad medium-to-long-term investment outcomes.

The American economic war with China

Donald Trump's goal is to drive a “reorientation of global supply chains out of China.” So it would seem that the confrontation between USA and China is only going to escalate .... with potentially profound negative consequences for Australia. Steve Bannon was probably the most influential person designing Donald Trump's strategy - to win election, and in office. In this 40 minute interview, Bannon provides a very insightful description of Trump's strategy vs China, vs NATO and re Russia. He correctly assesses Russia as just a nuisance because economy-wise "it is only as big as Texas" .... with the real game being the "economic" war with China. https://www.cnbc.com/video/2018/07/19/full-i

The Trump Doctrine

This seems like a good summary - from an insider: The second-best self-description of the Trump Doctrine I heard was this, from a senior national-security official: “Permanent destabilization creates American advantage.” The official who described this to me said Trump believes that keeping allies and adversaries alike perpetually off-balance necessarily benefits the United States, which is still the most powerful country on Earth. When I noted that America’s adversaries seem far less destabilized by Trump than do America’s allies, this official argued for strategic patience. “They’ll see over time that it doesn’t pay to argue with us.” https://www.theatlantic.com/politics/archive/2018/06/a-

Contrarian investing - Allan Gray's approach.

Personally, I find a lot of merit in contrarian investing. Behavioural Finance Theory ( https://en.wikipedia.org/wiki/Behavioral_economics https://www.morningstar.com.au/learn/article/behavioural-finance-why-is-it-so-relevant-in-the-field-of-investing/9041 https://www.forbes.com/sites/jamescahn/2014/02/18/8-more-things-top-investors-avoid/#4d0e880f7c16 ) argues that markets, sectors and individual shares swing between periods of extreme optimism (over-expensive) and extreme pessimism (very cheap) and that this is because of the way human investors behave. Awareness key features of behavioural finance (eg loss aversion, confirmation bias, endowment effect, anchoring, herding, recentness bias

Leverage makes Aussie banks vulnerable

Chris Joy writes in this weekend's AFR as follows: Every borrower who fails to meet their obligation to service a loan threatens the safety and security of Australian depositors' hard-earned savings. And since a large bank's equity capital is typically leveraged 19 times, it does not take many loans to go foul before they risk blowing up these institutions, as we learned during the global financial crisis. If just 5 per cent of CBA's total credit exposures were written off, this would completely wipe out CBA's $45 billion of equity capital that safeguards depositors from the prospect of losses incurred in bankruptcy. (Only around half of all bank deposits by value get the benefit of the gov

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