Apologies for the recent 2 week absence. I have been out of the office in training seminars. Something about teaching old dogs new tricks springs to mind.... 

Its been an interesting 2 weeks most noticeably topped off by that stunning 482 point jump in the Dow last week. It seems the market is of the firm belief that just pumping money into the system will solve all ills. It wont. 

Why?

Well for two reasons:

1.    Pumping money into the system is supposed to create an inflationary environment. To date, inflation is the least of concerns in the Western world. The key cause of this is that the Central Banks print money, give it to the national Banks who then (in effect) hand it back to the Central Bank as security for their loans (capital requirements) and;

2.    It hasn’t solved the main problem. The debt is still there. The central banks have effectively handed out money to the banks to then purchase new issues of debt.

Just look at Japan as a case in point. They have been carrying their debt burden for 20 years, pumping money into the system in a hope to inflate their asset values thus reducing their debt problems. It hasn’t worked. We all know, that at some point, debt has to be paid off.

Austerity is a key requirement in debt reduction and as yet, hasn’t been fully embraced.

The reality is, markets are going to continue to be volatile for some time to come as Governments play around the edges hoping the situation magically resolves itself. 

The other interesting point has been the 2^nd interest rate cut. With rates falling, cash and cash alternatives are beginning to look less attractive and I was asked during the week where to hide because any which way you look, returns are at risk. For those who are absolutely reliant on their investments for income maybe an annuity is an option worth investigating for some of their cash. For those looking for growth there are still opportunities in the market, we just need to be patient.

And while the market is volatile, dividend yields are good. Our recommended portfolio yields 5.5% plus franking credits, well above fixed interest yields. 

As always, a mixture is going to be the best option.

This week our new recruit, Daniel Spencer takes a peak at Telstra, who has performed rather well of late. Is it time to sell? 

With rumours of a takeover in the press this week I have also revisited Forge Group who we last looked at in August. To be honest, I am not surprised. A company with no debt, high cash and good earnings (and earnings growth) is always going to be attractive. Would you take it over if you could? Read on... 

Next week will be the last Investment Insight for 2011 as we break for Christmas holidays and we will return in late January 2012.

As always, if you know someone who might be interested in subscribing to the Investment Insights have them send me an email requesting they be added. 

Have a great week. 

Nick Rundle

Director of Financial Strategies