Planes, Cranes and Automobiles

With 2016 providing so many unexpected turns, we are surprised to see the year ending rather strongly compared to the beginning of the year. It could be a case of the world getting rather delusional (or not). A big round of applause to anyone who decided to bet on the underdogs this year in both the sporting and political arena.  We will need your crystal ball next year. So for our last Views newsletter for 2016, we decided to have a more light-hearted commentary on some recent articles that stoked our interest.

Planes

Well, well, well.  If you haven’t already heard, Warren Buffett has supposedly invested in four different airlines in a recent filing. This is despite shunning the industry for the past 25 years after writing down a lot of the value of his assets in US Airways Preference shares way back in the early 90s.  He has continuously been a strong vocal critic of the horrible economics of ALL airline businesses.  So why the 180 degree turn?

Before you think that Warren Buffett has lost his mind and should just retire, it is most likely that the investments were made by his lieutenants, not by Buffett himself, especially due to the smaller size of each investment. He has provided them with an open mandate to invest in whatever they think will make money. I guess that includes airlines.

Before you go out and put airlines on your buy list tomorrow, think again. Their economics have not changed. They are still awful long term businesses to own. We would prefer to own an airline outright than buy the business. At least you will have more fun while losing money.

Cranes

One way to easily tell whether we are in a big property boom is simply to look at the horizon and see the amount of construction cranes around town. We recently read that there’s approximately 530 cranes just in Sydney alone. To put that into perspective – we have more cranes in Sydney than in six of the largest North American cities combined.

Annual housing demand stands at around 160,000 and figures have shown that the past couple of years and into at least 2018, we are likely to see supply of around 200,000 to 250,000 per year. Another hidden signal is to see what the so-called smart money in property is doing to their own property. We read with interest that two leading investors and businessmen have listed or sold – property and mortgage patriarch, John Symonds (remember Aussie Home Loan), has listed his huge waterfront mansion on the market. As well, for the first time, The Soul Pattison building in Pitt Street Mall, owned by highly regarded investor Rob Millner, was also recently sold.

Everyone seemingly has a view on property and so we are not here to preach to you on whether you should buy or sell right now, but simply to provide an observation on our thoughts. We don’t know what will happen and we are not here to speculate, but it’s sure worth noting.

Automobiles

With all the talk about electric cars, driverless cars, virtual and augmented reality, technology has really taken off parabolically over the last decade, with the start of the internet phase setting off this growth. The world could change so dramatically over the next decade or two that we simply cannot fathom what we might experience in 2025. It’s almost impossible to see a portfolio these days without having some sort of technology company in the top five holdings of most global funds.

If we were selling cars, we would be sweating. With the improvements in technology and if driverless cars begin to come to market and take off, the car manufacturers and sellers will be feeling the pinch. We could literally see cars “take off” into the future by 2030. We may even be conservative on that timeline.

So for those eagerly waiting for our outlook for next year – it looks calmer. Maybe choppier. On second thoughts, there are signs it could be a terrific year, but then again, we might just be dreaming. One thing is certain, it sure as hell won’t be boring.

With that, we wish all our clients and readers a very happy and safe festive season.  Here’s to 2017!

Disclaimer: This publication has been compiled by Financial Decisions (AFSL/ACL Number 341678). Past performance is not a reliable indicator of future performance. While every effort has been taken to ensure that the assumptions on which the outlooks given in this publication are based on reasonable data, the outlooks may be based on incorrect assumptions or may not take into account known or unknown risk and uncertainties. Material contained in this publication is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The information and any advice in this publication do not take into account your personal objectives, financial situation or needs. Therefore you should consider its appropriateness having regard to these factors before acting on it. While the information contained in this publication is based on information obtained from sources believed to be reliable, it has not been independently verified. To the maximum extent permitted by law: (a) no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up-to-date or fit for any purpose; and (b) Financial Decisions nor its employees are in any way liable to you (including for negligence) in respect of any reliance upon such information or advice. December 2016

Contact: Financial Decisions PO Box 484 Mona Vale NSW 1660, T 02 9997 4647, F 02 9997 7407