18 May What I Don’t Know I Don’t Know (or Lies, Lies & Damn Statistics !!)
Statistics, numbers, economic analysis, editorials, opinions are all provided on a daily basis through various forms of media. As I have told clients anybody can make numbers dance & sign or as the old Rod Stewart & The Faces Song goes – “You can make me dance, you can make me sing, you can make me do just any old thing”
https://www.youtube.com/watch?v=mvQyZ6IREkg
More & more today there is a morass of information available to everybody. The point is that we have to cut through all of the information and make some value judgements based on the information available and then take appropriate actions. This way we make informed & balanced decisions, rather than make knee jerk reactions.
Take different opinions that have been in the popular press this week
Facebook to list at a minimum price of $38 per share valuing the company at $104 bn. Mark Zuckerberg will be worth anywhere from $16bn – $20bn & Bono of U2 will pick up a cool $1bn for buying 1% of Facebook for $100m over 12 months ago (It is always who you know not what you can do !!!). The general consensus is that Facebook is a game changing company that has plugged itself into the psyche of the western world & growth will continue unabated
The company earned $1 billion last year, a 65% increase from 2010. Assume another 65% increase this year (a bullish assumption, considering that first-quarter earnings declined from a year earlier) and the Facebook will earn $1.65 billion. This provides an earnings yield of 1.65% (which is similar to the income yield on 10 Year US Treasuries). On top of that at a $104 billion market value, Facebook is set to debut at a nosebleed death-defying heights Price/Earnings multiple of 91.2 a massive price to pay for future growth.
This week we have also seen Australia’s level of unemployment drop to 4.9%, on the same day that Australian Government 10 Year Bond Yields hit their lowest level in 60 years of 3.3%, whilst 3 year bonds were at 2.60% (which is 1.15% < the official cash rate). Even though Australian rates are low, they are still high by Western World standards. This makes them attractive to foreign buyers (who own > 70% of our bonds), given our country’s AAA rating & reasonable economic growth prospects. Generally reducing unemployment would mean perceived inflationary pressures building & rates going up, but however if you work 1 hour in a week you are not unemployed according to ABS statistics !!!!
Lastly the $ Australian dollar has dipped below $1 USD this week on the Greek/Euro & I have heard comments that it could retreat back to the low 90 cent range. Conversely Dr. Savvas Savouri, of the British-based Toscafund hedge fund, in Sydney this week for a conference, predicts the Australian dollar will reach $US1.30 by 2013 – and $US1.70 by 2014, as the US greenback relinquishes its “exorbitant privilege” as the world’s default currency. Imagine what that would do to interest rate/fiscal policy, inflation, manufacturing, exports, tourism, etc. etc.
Dr. Chris Caton BT Financial Group’s long time Economist has previously remarked that he sees 2 types of Economists that makes $ Australian dollar predictions (and you could use this line of thinking for virtually any prediction): –
- Those Economist That Don’t Know, or
- Those Economists That Don’t Know That They Don’t Know
Or as My Teenage Children Tell Me – DAD YOU DON’T KNOW ANYTHING !!!!!!!!