Rebalancing is now well underway

Services employment surges
Australia’s monthly Labour Force figures have pointed towards some promising employment figures of late.
Another 42,000 jobs were added in the last month of data on a seasonally adjusted basis, taking total employment to a new high of well over 11.75 million.
The detailed quarterly figures released on Thursday shed further light on where the new jobs are being added (in short, services), and where they are not (mainly mining, manufacturing and agriculture).
Generally speaking this is positive news for the largest capital cities, but not such great news for cities with a heavy dependency on manufacturing.

And it is rather calamitous news for many resources regions.

Let’s take a look via two charts…
Trend 1 – Mining & manufacturing decline
There are a few interesting points to note from the first chart below, within which I have pulled together figures from a selected range of industries.
Firstly, the light blue line indicates the long, slow and structural decline of manufacturing employment in Australia, from a peak of close to 1.2 million towards just 900,000 today.

The lower Aussie dollar might help the outlook over the medium term, but the long term trend is nevertheless down, down, deeper and down.

Secondly, mining employment is clearly now heading back down from whence it came, after the mining boom fired total employment to an exuberant peak of more than 275,000.
Despite the huge ramp up in resources export volumes, mining employment is likely to have some way further to fall – some marginal coal producers look particularly vulnerable according the Reserve Bank’s liaison – although it is estimated that employment in the sector will remain considerably higher than its long run average before the mining boom began.
Thirdly, it is interesting and important to note that mining is in fact only a relatively small employer in absolute terms at around 229,000.
Healthcare, by comparison, is a booming sector which employs more than 1.48 million people, while professional, scientific and technical employment has surged to now also sit above 1 million.
Approximately 70 per cent of economic activity in Australia is accounted for by the services sector, and therefore it is critical to the rebalancing process that this sector continues to record strong employment growth.

Although I didn’t include it in the above chart so as not to over-complicate matters, another key growth sector is set to be education which now accounts for 937,000 employees, or 8 per cent of the total workforce.
The growth in the booming export industry that is foreign students will have a key role to play here – this is another sector which benefits from a lower Aussie dollar, with a record 147,000 enrolments seen in the first quarter of 2015 alone. 

The good news is that, as the above chart clearly indicates, low interest rates are taking effect and services employment has surged materially higher over the past year.
Trend 2 – Services now driving employment growth
In the early stages of the rebalancing process jobs growth was very much about the residential construction boom story.
The flip side to this was that last year some 33,000 jobs have been shed from the mining sector, and it is sure to be a tough time ahead for many resources regions.
Manufacturing employment has also continued to shrink, albeit at not quite such a dramatic pace, while agriculture and fishing shed some 28,000 positions over the year to May 2015.
Despite the drag from these sectors the Australian economy has added more than 255,000 jobs over the past year according to the ABS “original” data series, very much driven by strong growth in services employment.
Healthcare added a whopping 98,000 new jobs in the year to May 2015, and this is a sector which is expected to thrive over the decades ahead as the Australian population both expands and ages.
Meanwhile professional, scientific and technical services accounted for a further 92,000 net new positions added in just the past 12 months.
Accommodation and food services employment has surged by 55,000 over the past year, and arts and recreational services added another 28,000 positions (#culture).
The lower dollar has helped to drive these two sectors in particular in a pincer movement of positive feedback – that pincer consisting of record tourist numbers visiting Down Under in the past year and fewer Australians holidaying overseas, a double whammy of the encouraging variety.

The above graphic underscores quite neatly how the next couple of years is likely to play out in Australia.
Mining employment is all set to continue its decline, that much seems clear, while there are also headwinds facing the manufacturing sector, particularly in automobile manufacture.
It will be services employment which needs to pick up the slack, and the latest data suggests that this rebalancing process is now well underway.
Futures markets expect that by June 2016 we might well have seen one further interest rate cut to a cash rate of just 1.75 per cent in order to generate the requisite growth.

What price Hershey's then?

I wrote a piece earlier today in my Yahoo Finance Contributor’s column about Hershey’s China challenges.  As I noted in the article  fascinatingly the famous chocolate company made a sharply differentiated comment about the progression of sales and profits in America compared to China:

‘The company’s North America confectionery business is on track to deliver on its 2015 financial objectives…In China, Hershey chocolate growth was below expectations in April and May. As a result, the company has tempered its expectations for organic net sales and operating income growth. Macroeconomic challenges and trends are affecting consumer shopping behavior resulting in continued softness within the China modern trade, particularly the tier one hypermarkets where the company generates the majority of its chocolate sales’

Which makes me think: what price Hershey’s then?

Looking at the company’s statement published earlier today and, additionally, a productivity initiative release (here) which detailed personnel change and a US$100m+ charge, the company’s earnings capability is going to be impacted.  As Hershey’s management note:

‘full-year reported earnings per share-diluted, including charges related to the productivity program announced today in a separate press release of $0.29 to $0.35 per share-diluted, is expected to be in the $3.62 to $3.79 range. In 2015, the company expects to achieve approximately 15% to 20% of the aforementioned productivity program total pretax savings of $65 million to $75 million. The company expects adjusted earnings per share-diluted to be in the $4.10 to $4.18 range, an increase of 3% to 5% versus 2014, including dilution from acquisitions and divestitures of around $0.20 per share’

So basically a 3-5% underlying EPS increase for 2015 stripping out the restructuring spend element.  No shocker for a well-known consumer brand but for a company trading on over a x14 EV/ebit multiple not the most compelling multiple and even lower than the sales CAGR over the last 5 years or so (earnings would typically grow faster than this due to operational leverage).  
This is no surprise given that whilst international sales are only c. 15% of total Hershey sales, international operations account for over 30% of total growth.  Therefore a slowdown in China does feed negatively through.  

Fortunately Hershey’s has a good balance sheet including a propensity not to be shy to buy back shares. 2014’s buybacks were equivalent to around 2.9% of the current market cap.  Add onto this the 2%+ dividend yield and Hershey’s has not been shy to return effectively a 5%+ yield to shareholders.  That is not too shabby at all – albeit that this equates to broadly the free cash flow yield (note that the company does have a target debt:ebitda range at x1.5-2 nicely above the current c. x1.3 i.e. plenty of scope for releveraging if required.  

Thoughts then.  As noted above (and despite the solid balance sheet and cash flow situation), a x14s type multiple is not super cheap – but is not super expensive either.  Broadly speaking a sub US$85 share price is a touch below a prospective x14 EV/ebit multiple (about the right starting purchasing level for a global branded business with a good balance sheet) and a sub US$75 share price (or c. x12 EV/ebit prospectively) would be a ‘double up’ / augmentation sort of level perhaps reflecting further patchy shorter-term performance/conditions.  
In short, two levels to be thinking about Hershey’s stock.  I have added them to my flag list.  

The advantage of downloading from your bank regularly – Fraud Prevention

Many of my clients download their bank transactions directly from their banks online system.  Some, however, only do this once a month when they are ready to reconcile all of their accounts.  There is one very strong reason I recommend completing the bank download feature in Quickbooks at least once a week.


I have experienced this personally, and I have seen it happen to my clients. 

You could be in for a very rude awaking as you trod along during the month keeping track of your account register as you enter each transaction that you complete.  Then one day you get a phone call from the bank saying you are overdrawn.  Or, perhaps you are out in the field and attempt to use your credit or debit card only to have the charge declined.

Downloading regularly can bring fraudulent charges to your attention immediately and allow you to dispute those charges before overdraft and/or over limit charges start to pile up on your account.  It’s much easier to get credit for these charges with your bank as soon as the fraud is detected  then it might be a few weeks or even months later.

You may think that you have nothing to worry about.  You take every possible precaution you can think of to prevent identity theft.  You shred every paper, pay monthly fees to a credit monitoring service, and more.  But a stolen debit card number can wipe out your cash on hand in one day!

Consider keeping your personal records on Quickbooks (in a separate “company file”) so that you can use the bank download feature for these accounts as well.  Being diligent, and monitoring for yourself is your best defense.

AFG record May for mortgage lending

Record May for AFG
Australia’s largest mortgage aggregator Australian Finance Group (AFG) released its May 2015 mortgage figures, and it proved to be the biggest May on record. 
The group wrote 10,668 mortgages in the month (note that the index is not seasonally adjusted).

The total value of loans in the month broke $5 billion for the second time in May at $5,017 million.

The first time this barrier was broken was in March of this year.

This result represents a thumping 18.9 per cent increase on the May 2014 figure, with the record values written driven predominantly by a surge refinancing.
Consequently the proportion of loans written to investors pulled back from 43.1 per cent in April to 40.9 per cent in May.
Non-major lenders increased their market share from 25.3 per cent in April to 28.1 per cent in May, which is an interesting point given the recent tightening in lending standards.
AFG noted that many borrowers believe that we are now close to the bottom of the interest rate easing cycle.
Despite this, Reserve Bank Governor Glenn Stevens noted in his Brisbane speech today that the Reserve remains “open to the possibility of further easing”.

So we many not have seen the last of the interest rate cuts just yet.

Index goes quarterly post listing

Historically AFG has released its Mortgage Index on a monthly basis.

However, following AFG’s successful listing on the securities exchange, the group has determined that its Mortgage Index will then be published on a quarterly basis from July 2015.

And the average fund manager says…

Yes it is that time of the month again for all fund management industry watchers as the BoA-Merrill Lynch Fund Manager survey hits town.  It is fair enough that putting your hands on a copy is harder than ever but with all due reference to the content providers here are a few of the graphics that I have managed to get hold of…plus a few thoughts of my own surrounding them.

Well when Mr Draghi in the most recent ECB interest rate decision press conference tells you to anticipate volatility…that is what you logically do.  Funny how yesterday I sold my long EU volatility positions at a pleasant profit…  Quite amazing to see how little H2 2008 volatility protection there was…

The anti US dollar love is high and after touching 100 the DXY (trade weighted US dollar) is now trading at a more reasonable 95 and change.  For what it is worth I think euro/US dollar is about right here. If you are looking for crowded trades then high yield or the Chinese stock market are probably more sensible places to look.

 Fair enough…I guess my preferred scenario of some some sort of Greek reform/restructuring bundle has element of the first two bars

Again personally thinking I don’t think the Federal Reserve should raise rates BUT I guess the bigger insight is that we are a long distance from normalisation.

Frankly volatility is probably now more apparent if the Fed don’t raise rates in September and people ask why (if pushed my personal preferred scenario):

 Following on from the above, the ‘behind-the-curve’ option is simply laughable.  Geopolitics is, of course, an easy catch-all (but quite sensible).  Striking new entry from ‘Eurozone breakdown’!  The Eurozone being ranked ahead of China as a source of volatility is certainly correct.

So what do you then?  Well you build up cash…

A bit like the volatility statistics though above if this is the prevailing thought then you should be looking for opportunities to put cash to work now in the bouts of volatility.  
And additionally?  A few copies on the report were also passed to me including the stock selection friendly observation (because others are not really taking views) about Europe that: 

 Shorts across the SXXP are 28% below YTD highs and 42% below the 12 month high. Market is being led by reduction in longs and top down hedging…
On a similar basis the emerging markets are a good place to look as others are not:

The proportion of investors expecting to underweight global emerging markets surges to a net 21 percent from net 6 percent in May.

So lots of insights but the consensus is telling me that during the summer the trick is to be more active despite it maybe feeling uncomfortable to be so as the beach calls.  


Cranes, cranes…
There has been a strong supply response for a number of the Australian housing sub-markets in response to low interest rates and rising prices.
Indeed, rolling annual building approvals are now at their highest level on record, and the residential construction industry is now likely to be approaching its full capacity.
The above chart shows that this cycle has been very much been about an increase in attached dwelling approvals and construction, rather than detached housing.
Much more detail on this phenomenon can be found here.

Where might we see oversupply?
In Sydney, around the inner south we are already seeing new supply aplenty.
If you want to see the kind of thing I am talking about, check out a few of my photos here.
Brisbane too has a number of sectors of the market which are prone to overbuilding (I took some more photos here, for example).
Back in the harbour city there have also been than 7,000 approvals in Parramatta and Auburn combined in the year to April 2015, so that particular sector of the market is also likely to be flooded with new apartment buildings in due course.

CoreLogic-RP Data‘s excellent research also suggests that both Hornsby and the Hills District are likely to see more units constructed than the underlying demand for them.

Caveat emptor…

How Do I Record A Pre-Payment From My Customer In Quickbooks

You have two options depending on how you wish to have the information appear on your balance sheet.

Method #1

The simplest way is to enter the payment in the Customer menu under “Receive Payments”.  If there are invoices already entered for this customer and you do not want to apply this prepayment to those invoices, just un-check the invoice that Quickbooks auto-applied the payment to.

After you uncheck this option the Overpayment note at the bottom of the screen will disappear.  Click Save & Close and an option box will pop up on the screen.  Since this is a prepayment will want to the select OK which will save the payment to the Customers account as an un-applied payment.

Entering the pre-payment using this method will have the effect of reducing the accounts receivable balance in the Assets portion of your balance sheet.

If you need to see which customers have un-applied payments posted to their accounts you can run the A/R Aging Detail report under the Customers & Receivables section of the Reports menu.  Any un-applied payments will appear as credits (minus) on the report.

In addition, by using this method you can apply the prepayment to any Job associated with this customer by double clicking on the payment in the Customer Center and selecting the invoice(s) to apply it to.  All Jobs for a Customer will appear for a payment posted just to the Customer and not to a specific job.

Method #2

If you wish to post your Customer’s prepayments to a liability account that will appear in the liabilities sections of your Balance Sheet you can do this using a Sales Receipt to record this transaction.

Step one is to create an account on your chart of accounts for the liability such as Customer Deposits.  Use the Other Current Liability account type when setting this up.  Next you will need to create an Item in the Item list to direct to pre-payment to this liability.

From the Item button on the Item list select New.  Choose the “Other Charge” Item type.

Enter the appropriate name and description for the item, choose the non-taxable tax code and select the account the you created in the chart of accounts for this liability.

 Create a sales receipt for the customer using the Sales Receipt form.  Use the Item that you created in the item list and enter the amount of the payment.

  In this way you can record the payment number the payment method, and because you are using a Sales Receipt and not an invoice the funds appear as a balance in the liabilities section of the balance sheet rather than reducing the Accounts Receivable balance on the balance sheet.  Once this Sales Receipt is created you can see the transaction on various Customer reports.  However, it will not appear in any Accounts Receivable reports.

When you are ready to apply this prepayment to a customer invoice you will need to do a journal entry to move this amount into accounts receivable.  Simply debit the Customer Deposits account and credit Accounts Receivable.  Include this Customer name in the Customer/Job column of the journal entry.  If you use Jobs under your Customer register, the journal entry to credit accounts receivable must be attached to the “Job” (in the Customer/Job column) that is being invoiced. 

To apply this prepayment to an invoice, open the invoice by double clicking on it in the Customer Center and click the Apply Credits button.  Once the available credit has been selected choose Done.

This material is for informational purposes only and not intended and financial, legal or tax advice. Please consult your finance, legal or tax professional to confirm the accuracy of all information. Quickbooks is a registered product of Intuit.

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loans against goods in kenya

Is it leasing? I have been receiving a lot of questions from my fellow Kenyans who are really in dire need of soft loans to be repaid in just within a few months.The loans range between ksh1000 to ksh100000.Do you know why you can’t borrow? Its because you don’t qualify for a loan! What next ? Are you going to remain that way for life? Do you know what is leasing?
  Today there’s Olx which is very famous but do you really needed to sale you laptop or car? If you simple needed money consider leasing.Though there are very few established independent leasing companies, these people are very handy at times.Let me talk about ‘Mombo’,a financial services company in Kenya.
 Situated in Nairobi Kenya at the Landmark Plaza ,these guys give out a variety of loan facilities including salary advance loans ,title deed loans ,logbook loans and what I liked and thought I should share was the Pawner loans.
  This pawner loan works like this.You bring your valuables for example laptops, jewellery watches, art ,cameras or anything for valuation. Then the Mombo people will give you some loan against your good(s) and that’s it . Because you wanted the money for a short period but your goods for a lifetime ,you can repay the loan within less than six months and have your commodities back!

 What do you have to say about this? Note that, this is different from the usual collateral you would provide against a loan from KWFT ,KCB or any other lending institution.
  If you know any of such leasing company that can serve even those clients with small commodities or you have anything about mombo,leave a comment

Start Invest As Low As RM100! Now Everyone Can Invest!

Many people have always thought that one would need a lot of money to start investing. But, contrary to this common belief, investing is not just for the rich people. In fact, it is in investing that could make one rich! Yes, I’m talking about…. 

Start your investment as low as RM100 only!  

This is important, especially for those who just started to work and thinking where your salary could goes to. So instead of putting into your bank saving account with very minimal of interest that barely able to counter the inflation, why not making a regular saving plan in Unit Trust? (Provided that you already have an emergency fund of 3 to 6 months of salary)
Snowball Effect
Snowball effect is where you invest a small amount of money regularly, eventually the small amount of money will gain in size and momentum and ultimately leads to exponential growth. Of course, this would required discipline to maintain and keep going the good habit.  
Compounding Effect
Apart from investing regularly, reinvesting the gains from your investment is important to grow it even bigger with the power of compounding. Take a look at the chart below, 30 years down the road with RM100 monthly, without taking out the interest or gains, the difference could be as big as RM47,000! 
Delayed gratification is needed for this the power of compounding to take effect! 
You gotta resist the temptation for an immediate reward and wait for a later reward
Nevertheless, the rates of return is important as well if you wish for a bigger difference at the end of the period. With a 15% of compounding interest, the return could hike up as much as 10 times of the return of 3% interest return. It is all depending on how much you want at the end of the day and how much risk you could take! 
Dollar Cost Averaging Effect
Regular Savings Plan actually utilizes the dollar cost averaging principle whereby investing a fixed amount of money regularly will eventually resulting an average price, regardless of the market up or down. Good thing about it? You do not have to time the market on how to buy low sell high! Nobody could do it correctly every time anyway. Without the emotions involved, mentally stress and wrongful decision could be avoided
Start NOW Effect
YES you gotta start now! Every year you waste, there will be an opportunity cost for the procrastination. Look at the example given in below table, Investor A and Investor B invested the same amount which is RM6,000, but Investor A started 5 years earlier than Investor B. 10 years later, Investor A richer than Investor B by RM3,568
Investor A : RM6,000 -> RM11,171 -> 86%!
Investor B : RM6,000 -> RM7,603 ->  27%!
Okay, at this point you may feel that RM3,568 is nothing right? But do remember that the amount you putting in is just RM100 per month. The more you put, the more you get! So the percentage of 86% is more accurate to tell the return!
RM1,000 per month? That would be RM35,684! 
RM10,000 per month? That would be RM356,836!

Invest regularly in unit trust as low as RM100! Yes, you may just start RM100 per month as initial investment! No commitment on how long it has to be as well! A total of 202 funds available from different fund houses via iFAST. All you have to do is just contribute thru your bank cash account Direct Debit Authorization (DDA) or Financial Process Exchange (FPX). Need no worry as there is no processing/administration/transfer cost
Now everyone can invest! 
For more information or if you wish to invest, feel free to contact me at
Till then. 😉
Earn, Save, Invest, Repeat!

Five Important Tax Credits

You might be eligible for a valuable tax credit. A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are even refundable, which means you might receive a refund rather than owe any taxes at all. Here are five popular tax credits you should consider before filing your 2009 Federal Income Tax Return:

  1. The Earned Income Tax Credit is a refundable credit for certain people who work and have earned income from wages, self-employment or farming. Income, age and the number of qualifying children determine the amount of the credit. EITC reduces the amount of tax you owe and may also give you a refund. For more information see IRS Publication 596, Earned Income Credit.
  2. The Child and Dependent Care Credit is for expenses paid for the care of your qualifying children under age 13, or for a disabled spouse or dependent, to enable you to work or look for work. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  3. The Child Tax Credit is for people who have a qualifying child. The maximum amount of the credit is $1,000 for each qualifying child. This credit can be claimed in addition to the credit for child and dependent care expenses. For more information on the Child Tax Credit, see IRS Publication 972, Child Tax Credit.
  4. The Retirement Savings Contributions Credit, also known as the Saver’s Credit, is designed to help low-to-moderate income workers save for retirement. You may qualify if your income is below a certain limit and you contribute to an IRA or workplace retirement plan, such as a 401(k) plan. The Saver’s Credit is available in addition to any other tax savings that apply. For more information, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
  5. The Health Coverage Tax Credit pays up to 80% of the health insurance premiums for eligible Trade Adjustment Assistance recipients and Pension Benefit Guaranty Corporation payees. You can complete IRS Form 8885, Health Coverage Tax Credit to claim the credit on your tax return. To determine if you’re qualified, or to find out how to receive the HCTC each month, visit and search for “HCTC.”

There are other credits available to eligible taxpayers. Since many qualifications and limitations apply to the various tax credits, taxpayers should carefully check their tax form instructions, the listed publications and additional information available at IRS forms and publications are also available by calling 800-TAX-FORM (800-829-3676).

  • 1040 Central
  • Publication 596, Earned Income Credit (EIC) (PDF 281K)
  • Publication 972, Child Tax Credit (PDF 128K)
  • Publication 503, Child and Dependent Care Expenses (PDF 167K)
  • Saver’s Credit
  • Health Coverage Tax Credit
  • Form 1040 Instructions (PDF 1,101K)

YouTube Videos:
Earned Income Tax Credit – English | Spanish | ASL

This material is for informational purposes only and not intended and financial, legal or tax advice. Please consult your finance, legal or tax professional to confirm the accuracy of all information.  

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