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Tom Scollon
Chief Editor
George Fontanills , the great options master has often stated that if we look around us we can see lots of things that tell us what is going on that will help us in our trading. Two examples come to mind.
As I was out for my morning run today down by the beach it struck me that the number of healthy wannabe's who needed fitness coaches was growing. What is wrong with just running alone or in a group? I guess that is not as cool. As I finished my run, just past my local shopping area, I saw so much more that made me conclude that some people have money to burn and/or we are experiencing an era of great affluence. We just have to look at the vast number of new cars on the road. As many of our cars are imported the rising dollar has made them cheaper. And as an aside China's goal is to start shipping new cars en masse that will be below $10,000 – almost the disposable car.
In my area another cool thing to do is to share croissants and lattes at the local coffee shop with your kids before dropping them off at school in your luxury vehicle. And we are buying boats and expensive surf skis and bikes - a different $2000 bike for every terrain. I guess we are only here on this planet for a miniscule period but phew, it is conspicuous consumption. Call me uncool, but I reckon we are living for the day. The soothsayers have it that we will pay for all of this one day. Apart from the wage pressures facing employees I can see evidence that whilst the cost of many hard goods is falling as proportions of our income, we are buying more of them. And we are spending more on mobiles, tolls, cable TV, gym memberships and the like. These used to be hidden consumables but now represent large proportions of our cost of living. Our cost of living is without doubt rising and whilst the Reserve Bank may make only one more interest rate rise in the medium term – over the next two to three years we will see many more. If we don't cool our spending they will do it for us. A 10% interest rate will have a nasty effect on our standard of living and of course for us investors it will make a big dent in what could become an overheated share market. The evidence is all around us.
On the same issue of observing evidence in the world around us. I was in Harvey Norman the other day – yes more spending – and I noticed the store was, well, in my opinion, sort of sloppy. The range of goods, the service. It did not strike me as a business that was sharp and lively. A week or so earlier I was in JB Hi Fi and was blown away by the stock, the service, the marketing – it was a store that ‘meant business'.
Having a look at a chart for both companies, JBH is going up and up and HVN – yes you guessed it on the slide!
Enjoy the ride.
Tom Scollon
Editor
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