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As the CFO of one of the world’s leading specialist natural resources investors, and after having employed Luke in a previous role, I’ve been thrilled with the efficiency, capability and service-offering Seneca have been able to offer my SMSF. Relative to the conflicted banks and standard ‘stockbrokers’ they provide me with unique investment opportunities, considered financial advice and most importantly, really tailor their advice to my circumstances and investment preferences. I think their innovative approach is set to really corner the market.

Rob Bishop - CFO, AMCI Investments Pty Ltd

Luke and the team at Seneca have been instrumental in driving returns for our SMSF in recent years. As the CEO of one of Australia’s most innovative organic fertiliser company’s, whilst I’ve been busy operating our business, Seneca has been able to provide us with a diversified set of direct and indirect investment opportunities, provide timely and strategic advice and educate us on our behavioural biases, resulting in excellent compounding returns. We’ve been strong supporters of Seneca since day 1 and enjoy the high-touch, often daily interactions we have with the team and appreciate the respect they show us and our money. We look forward to a long associate with Luke, John, Victoria and the rest of the team.

Anton Barton - Executive Chairman, BioAg

As retirees, the staff at Seneca have done a wonderful job managing our super fund and our additional family financial assets. Their attention to detail, willingness to go the extra mile and friendship is something we value immensely.

Stan W. - Family Office, VIC

The team at Seneca are a refreshing mix of capital markets expertise and client-centric wealth and investment advisory. They have an ability to deeply and quickly understand equity capital market transactions and work with the corporate advisor, such as Cadmon, to devise a client-focused, favourable deal structure, find the appropriate investors and support a company from its first external capital injection through the various stages of development. We continue to enjoy working with Luke, John and the team.

Cameron Low - Managing Director, Cadmon Advisory

I wish to endorse the work / advice I have received from Luke & the team at Seneca over the last 12 months. I have really appreciated the personal & efficient care they have conveyed to me. The bottom line , however, has been the financial results have bettered our proposed expectations with reduced risks. This includes all costs & charges. I have no hesitation in recommending Seneca for financial advice.

Dr Mervyn Cass

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This week on the desk Blog series
Preview
Good afternoon,

Welcome to the last weekly note for 2019.  I’m calling it a week or two early this year as I’m travelling on Friday next week and then I’ve got a super-busy week in Perth before Christmas holidays (I’m taking 2 and a-bit weeks off).

Thanks for reading my weekly rant for another year, the audience has grown again this year despite, at least in my opinion, the content getting worse.  Sorry about that, its just the reality of running a growing business – less time to share ideas, more time just implementing them for clients.

ASX 200 fell quite a bit this week, down 2% on the back of a tantrum from the toupee toting toddler who runs the United States of America. Defensive sectors performed best.  The S&P500 was up 0.91% on Friday so maybe we get a bit of relief on Monday morning.
All in all, it’s been a stellar rolling 12 months.  Total return on the ASX 200 was 23%.  Just goes to show, markets normally find a way to climb the wall of worry and earnings rarely collapse in the dramatic fashion that analysts, pundits and forecasters like to predict.  I think modern, algorithm-driven, personalised media has a lot to do with our extreme views of the world – whether that’s economics, politics or financial markets. 
Resources (red) again outperformed Industrials (green), over this period, by 5%. 
Though the ride was much bumpier, with the largest drawdown across the ASX 200 Resources Index c.14%, the biggest fall in Industrials was a little over 5%. I know where I’d rather invest my hard earned money!
Preview
Happy Sunday afternoon,

Tapping this one out from my apartment in Fitzroy on Sunday morning after I ran out of time on Friday (admittedly, a social commitment) to write this.

The ASX 200 had a pretty strong week, adding 2% as pretty much everything rallied.
I realise I sound like a broken record but the market only went up because the bond market rallied (yields fell).   Aussie 10 year bond and the ASX 200 over the past week below.

The value of every company increases if we decrease the discount rate.
The gap between the earnings return on the ASX 200 listed shares and the bond return offered by the Australian Government to loan them money for 5 years has, in recent history been generally under 4.75% and above 3.75%.  Think about this as the “extra return” offered by companies for taking a risk with your capital (for the finance graduates, the “equity risk premium”).

We can see below that this premium recently hit 5.5% and has since closed to 5% as the market has rallied.
Preview

Good afternoon,

The ASX 200 is down 1.26% for the week, dragged down by the banks, property trusts and defensives.

The market is looking reactive to any negative trade war news. It seems to me that it’s the view that stocks will continue to catch a bid while earnings are flat-ish/up a bit and the world isn’t going to spin into a trade-war induced slow-down.

Locally, rates might get cut again… but I don’t think so. The property market has enough green shoots (well, at least according to the media) to probably keep the bankers hands under their bums and off the “cut” button.

Westpac
Lawdy lawd! AUSTRAC reckon Westpac have done similar to CBA (maybe worse) and had 23 million AML/CTF breaches including 12 cases resulting in child exploitation. Each offence is worth a civil penalty of c.$20m (apparently) so on basic math that’s a…. sh*tload of money ($460 with 12 zeros).

The board just came out and “unreservedly apologised” – read it here.

Look, Google “Westpac AUSTRAC”, I’ve not much more to say about it. I’m not sure you’d be too interested in your retail entitlement offer at $25.32…

If you want to know if the banks are good value, look at last week’s weekly note.

Preview
The ASX 200 up 0.84% for the week. Tech and healthcare leading, financials are not as bad as they look with 3 banks going ex-dividend.
Big 4 Banks
Banks have now all reported and no material surprises. They are having a hard time generating revenue, with interest rates very low and growth in lending quite meagre.  However, they aren’t experiencing much ‘distress’ or bad debts, so while they are cutting dividends and probably setting up for a period of more reinvestment, they can afford to, as shareholders are still getting a nice margin over term deposits.I demonstrate this point with the below chart of the ANZ dividend yield (NTM) with the RBA cash rate in green.  About as big of a gap as we’ve seen.
But the earnings outlook is pretty tragic. I’m not picking on ANZ as you could do this for any of the big four. EPS forecasts for the banks are to go backwards by 11%. 
CBA probably had the best report of the big 4 with some one-off, low-quality movements tipping them to about a 3% beat ahead of market expectations. Cost management remains an issue across the sector, though as I said prior, CBA, like their peers, reported good asset quality, and it appears customer-remediation provisions are adequate. 

Is it a good time to buy the banks?
Preview

Good afternoon,

ASX 200 added a 0.90% for the week, trading at 6,732 pts. Resources led the market, (+2.7%) though non-resources materials stocks faired even better (i.e. Amcor +4.15%), defensives lagged (Telco -1%, REITs -0.9%) and large caps outperformed smalls.
The market has been trading in a range, not much below 6500 but struggling to get much above 6750. 
It’s stuck in a range because bond yields have stopped falling.

I’ve tried to take out the day to day noise in the below chart by just showing your monthly prices. In red is the Australian 10 Year Bond Yield, inverted (a line going up means yields are going down and prices going up). In blue is the ASX 200 (inc dividends reinvested).

Note the recent divergence. The tailwind of 2019 appears to be fading.
Bond prices have started to fall (meaning yields are going up) though the market hasn’t really reacted yet. Valuations are still high, despite the earnings picture looking reasonably bleak. 

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