David Novac – YMYC – 8 Feb 2017

  • February 7, 2017
  • Kate Sheehan

David Novac on Sky BusinessDavid Novac, Expert Panelist on YMYC, Sky Business, Channel 602

Please join David for his insights on the stock market, share investing, companies and local & global financial trends.

Please see videos below:

YMYC – 8 Feb 2017

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More reading:  Time Bomb in the Markets

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Video Transcripts below

Video Transcript: YMYC – 8 Feb 2017

Video 1

Announcer: Top Tips Wednesday, continues with Your Money Your Call.

Ken Bloomfield: The share market advanced around half a percent today, on the back of broad-based industrial sector gains. Whilst the energy and materials sectors struggled. It’s too early to judge yet, in the reporting season, however, the results so far have generally been solid.

Hello and welcome to Your Money Your Call, I’m Ken Bloomfield from Financial Clarity, if you have a question about shares our phone lines are open on 1300 30 34 35, or if you’re a bit shy, you can email us on yourmoney@skynews.com.au.

Joining me on the panel tonight is Matt Joass, from the Motley Fool, is that the right pronunciation?

Matt Joass: Yes, that’s right, Matt Joass. It’s pretty good, definitely one of the better ways to pronounce it.

Ken Bloomfield: Okay, well welcome Matt. And David Novac, from Wealthwise. David you’ve been doing this for quite a while now.

David Novac: Thanks, I have.

Ken Bloomfield: You have. We won’t go into quite how long, but anyway, it’s been a long time.

David Novac: I’ve got a few grey hairs there.

Ken Bloomfield: Bit of experience in the market doesn’t go astray, that’s for sure. Welcome to the program everyone.

Now gentlemen, reporting season really started off seriously this week. How do you think it’s going so far? David, too early to tell?

David Novac: Look, there are a couple of good reports today. Carsales, we’re obviously happy with that report, even though the profit was down 8%, I think it’s the outlook statement and the expansion in Latin America.

Also Rio came out with their result, which was the big one, around 5PM today. And it was a good result. They didn’t shoot the lights out, but they beat consensus of 4.9 billion, and came in at 5.1 billion, up 12%.

Paying the dividend as AUS$1.625 or there about. Which is a pretty good div. And also, a US$500 billion buy back. So, I think it slightly exceeded consensus, but it didn’t shoot the lights out.

Ken Bloomfield: Yes, it’s interesting too, the miners are just being a bit conservative, after having been through a few near-death experiences in the last 10 years. There’s a definite feeling of conservatism in the boardroom, I think in both Rio and BHP.

Matt Joass: Yes, I think particularly around the expansion rate, they’ve put in a lot of expansion work now, the last couple years have been more about finding cost-synergies and that type of thing. And we’re starting to see that bear fruit, and at the same time commodity prices have helped out a lot.

Ken Bloomfield: Oh, they certainly have, and it is interesting to hear management talking down the commodity prices at every opportunity they can. Because they know that to get the business on a sustainable footing long-term, it has to be viable at the prices that we got back to in February last year, which was pretty cheap.

David Novac: Yes, and also they reduced their debt down to a net US$9.59 billion, which is 17% gearing, which is very low.

Ken Bloomfield: It’s very low isn’t it.

David Novac: So they’re in a very financially strong position now.

Ken Bloomfield: There’s good reasons of course for a mining company to have lowish gearing isn’t there, with the volatility in the commodity price?

Matt Joass: Yes, I think particularly in the market that we find ourselves in now. We were talking a bit before the show about China, and I’ve definitely been of the opinion for a while that a lot of China’s growth has been coming from debt expansion, which can’t keep going forever. And China, at the same time, is trying to pivot away from its old kind of industries, to consumer led growth, which doesn’t have as much-

Ken Bloomfield: That’s what they said they were going to do a few years ago {Crosstalk} building stuff again.

Matt Joass: We’re still waiting for it to happen. Yes, every time the economy slows they just put that lever back down, they add more debt. But there’s a certain point where that doesn’t work anymore.

So, I think the miners are right to be cautious about that. Not going out and, just because commodity prices have run up, trying to go search for a whole lot, and open new mines, that type of thing. It is the time to consolidate and cut costs still.

Ken Bloomfield: Good, fantastic, and anything else that court your eye in the last couple of days, the Transurban result was a nice solid one too.

David Novac: Yes it was, especially the prospect of Trump spending and with their roads in Virginia. So, there’s a good expectation that if he follows through with his spending plan, that will help Transurban. But, also Premier Investments reported today, and they surprised the market, up 14%.

Ken Bloomfield: And who would have thought so, really, in the retail space. Because the retail numbers came out the other day and they were pretty tame.

Matt Joass: Absolutely, it is always the case with retail, there are winners and losers within that. So, Premier obviously did quite well, some of the other newer entrants have been doing quite well, some of the department stores I believe are still going to be quite weak, but we’ll see as they come out.

Ken Bloomfield: Now before we get going today and take our first question. Matt, can you just give us a bit of a summary for the viewers as to what you do as your day job, because I think it helps to lend a bit of context to the answers you give, and we’ll go with you next David.

Matt Joass: Yes, absolutely. So, I work for a company called the Motley Fool. So, our mission is to help the world invest better. We’re trying to help every day, regular Australians, individual investors, to invest better. And I run a service there called Motley Fool Pro. So, we’re building a portfolio of $1 million of real money that members can follow along with, investing in the ASX’s best companies, and balancing different companies against each other.

Ken Bloomfield: Good, and what sort of spread of stocks do you have within that portfolio.

Matt Joass: We tend to find that most of the value is in the small-cap and mid-cap end of the market, but we basically go wherever there’s-

Ken Bloomfield: So, you do a lot of research in that area?

Matt Joass: Yes, when you’re looking at some of the big banks, and you’ll have 50 other analysts you’re competing, I like to go the smaller end where it’s just me, or maybe a couple other people. So, I just tend to find better bargains there, but we go wherever there’s value.

Ken Bloomfield: Okay great, and David, you’ve been, as I said, I keep on booning you up as a veteran of the industry, but you’ve actually been doing this for a long time, and you help to educate investors.

David Novac: Yes, for the past 20 years, we at Wealthwise educate investors on how to invest with confidence and wisely, and not lose money. That’s the most important thing. And, we do a combination of technical and fundamental analysis. So fundamentally picking good companies, solid growth companies. Technically knowing when to buy and when to sell. I’ve found that timing is everything.

And lastly, risk management. Knowing how to manage your risk, and invest safely. I also teach options strategy. So, we run face to face workshops, and online mentoring for traders and derivatives as well.

Ken Bloomfield: So, a really pretty broad gamut of different levels of investor?

David Novac: Yes, so it’s really to teach people and empower people too, who want to invest directly themselves, and run their own self-managed superfunds or portfolios. That’s mainly been our clients for the last 20 years.

Ken Bloomfield: Okay, good, thank you gentlemen. And for my mind, I’m a financial planner by day. I spend most of my day running an investment portfolio for my clients, and a lot of the other people in the firm do the day to day financial planning. Because that’s what fires me up. I enjoy that.

So, a bit of different experience here. Viewers please give us a call, and ask us a question at any time. We’ll go straight to our first email, we’ve got an email from Daniel. Daniel asks, unfortunately on my broker’s advice, I bought TPG, code TPM, shares when the price was much higher than current levels. I simply wish to know whether I should buy more at these prices, hold onto my existing shares, or sell them.

Okay, well, we’ve got a broker who’s in the spotlight there, but sometimes they give good advice, sometimes not so good. So, TPM, what do you think at these prices now David? They’ve had a pretty big adjustment there last year.

David Novac: Yes look, I bought some TPM actually the day before yesterday. So, I’m happy with the bounce today, which is a nice strong one. I like TPG down here. I think it seems to be grossly oversold, but look the trend is very weak at the moment. But I think down here, it is compelling value, and I can see a technical bounce here, and the fundamentals still look pretty good to me. Same with Vocus as well.

So, I like the stock. It’s hard to get aggressive on a stock that’s going down and the old saying is, don’t try and catch a falling knife, but I had to go in to buy this one. I saw it down here, and I like the value. And it could easily get back up to around the $6.70, $6.80. Maybe to those highs at $7.50 again, but let’s see what the results are like. But I think down here, it’s a little bit overdone.

Ken Bloomfield: Okay, and I guess the important thing is just to make sure you’ve got your rules in place and you follow your rules. Because, if your rule is, for example, that you don’t mind doing a little bit of bottom fishing, with stocks that have really been smashed, then I guess you’ve got to know how you’re going to play that, and for what percentage of your portfolio you’ll commit your money.

David Novac: Correct.

Ken Bloomfield: And I guess that’s the sort of thing you’re talking about in your seminars, educating people. Because obviously with a stock like this. There is some truth of course to the first profit downgrade is usually not the last, but, it would seem that there is also some value in a company like TPG, it seems like it just got a little bit too hot for a little too long. The air has gone out of the bubble, but it’s still a well-run company.

Whereas if we were, comparing it with Vocus, and we often get this question on the show, TPG or Vocus. What would your preference be out of those two, because I’m a bit worried about the management problems at Vocus that they’ve had, whether that’s an endemic issue within the company or not. Whereas I feel more comfortable with TPG’s management.

David Novac: Yes, I agree with you there, just on paper, the numbers look better for Vocus.

Ken Bloomfield: Yes, they look very cheap, don’t they?

David Novac: But again, on the management side there’s some question marks. But I like both of them. I do prefer TPG, but on paper I’m saying that Vocus comes out ahead slightly.

Ken Bloomfield: Good. What do you think Matt?

Matt Joass: Yes, I think both are looking fairly attractive at these levels. I’ve been casting the ruler over both of them. I think probably Vocus will be slightly more interesting for me, because I like some of their assets and how much of that business is corporate, which wouldn’t be affected by NBN. So, that kind of attracts me too it, but again, you’re right, they’ve got a lot more management problems.

For me it was just a matter of, we’re going to wait a few weeks, and see what the results look like after the half year. There’s been a lot of promise around what’s going to happen in the second half, and we just want to see what’s happened in this most recent half. It’s a bit of wait and see for me. Both are not businesses that are going away, they have some really great recurring business lines, and I just want to see what happens.

Ken Bloomfield: Okay, thank you gentlemen, and now for my mind, I’ve taken a very small chunk of both of those stocks. But we’ve got about a one third position in each of them at this point in time, until they do start recovering.

Now we’ll go to Frank. Frank is calling from Victoria, how can we help you tonight Frank?

Frank: Yes, hi panel. I’ve got a question for Matt. I hold a small technology company for about three years called Empired, EPD. And I think they’re going alright, but I just want Matt’s opinion on it.

Ken Bloomfield: Empired, EPD, okay.

Frank: That’s correct.

Matt Joass: Yes, I do quite like technology companies generally. I haven’t bought Empired, and the main reason is it’s around basically what is a technology company. Empired are offering a lot more of what I would consider a consulting business. So, it’s not a product where you can build it once, and you know, you write those zeroes and ones once, and you can sell them a thousand times.

So, for that reason, their profit margins are dramatically lower than what I would like to look at, it’s around 30% gross profit margin, I like more 80%-90%. It’s still a business that has been growing very strongly. It’s one that hasn’t kind of crossed over for me, because I haven’t seen the cash flows come through.

And for that type of business, I would want quite stable, steady earnings that are growing, and I just haven’t seen that from Empired. It’s one that’s definitely been on my list, so I went through recently, all the small tech companies that made the list of having potential to look at, but it just hasn’t crossed over in that quality, reliable, high profit type of business that I like to look for.

Ken Bloomfield: Okay, good, and what do you think David?

David Novac: I don’t know anything about this guy, it’s a very small-cap, only 156 million, and there’s only 122 million shares on issue. And the average turnover is less than 100,000 shares per day.

Matt Joass: You have to be very right, if you’re going to get them.

David Novac: It had a shocking fall at the beginning of last year, and since then it’s recovered nearly 50% of that fall, so it’s been a gradual improvement. But the numbers, to me, don’t look great. Just looking at the financials. They’re not earning a profit at this stage. I don’t know much about it, but they seem to be in the IT services infrastructure area, and that seems like a good place to be. But other than that, I don’t know much about it. The liquidity would be a worry for me.

Ken Bloomfield: So, easy to get into, hard to get out of, a bit of a lobster pot.

David Novac: Yes, as soon as someone wants to sell, you’ve seen what happens, last year.

Ken Bloomfield: And Matt, in that sort of small-cap, tech space, are there any particular favourites that you like?

Matt Joass: Yes, probably the favourite company that we’ve built up a bit is Hansen Technologies, I know that it’s obviously done quite well. But it’s still one that we think has a lot of potential to keep adding by acquisition. It’s a billing software company, and this is about the stickiest product you can imagine.

Most of their customer relationships are decades old, because, if you could imagine, Telstra needs to bill all its customers, once they’ve got that software in place, they’re very unlikely to want to switch, because the whole business basically runs around it, it plugs into everything.

That business is also very low growth, organically. So, around 5-8% would be great for that. But they have been able to acquire other small sub-scale tech businesses and roll them in. And these are businesses that they can buy for $20 million, $50 million, and add those in and get a lot of synergy. So, I think that’s where they’ve got a lot of potential.

So, they’ve been pursuing that strategy, they’ve been adding a lot, growing back positions. And they don’t have any debt, which is quite unusual for a roll up.

Ken Bloomfield: And they’ve been very consistent too.

Matt Joass: Exactly, very consistent, very conservatively run. Still run by the son of the founder, so very attractive for those needs.

Ken Bloomfield: Excellent. Good, thank you for that. Now we will be back with more of your questions after this short break. If you’d like to speak with our expert panel, call us on 1300 30 34 35, or email us at yourmoney@skynews.com.au.

Video 2
Ken Bloomfield: Welcome back to Your Money Your Call, we’re still taking your calls, 1300 30 34 35, and emails, yourmoney@skynews.com.au. We’ll go straight to our next caller, Nick is calling from the ACT, Nick how can we help you tonight?

Nick: Good evening gentlemen, how are you?

Ken Bloomfield: Very well Nick.

Nick: Alright. Just a couple of stocks: South32 and Magellan, they both have their results coming up, and I was just wondering if you could give me a bit of insight. And also David, your workshops, if you could tell me if there is a link with regards to the workshops that your organisation has.

Ken Bloomfield: Do you just want to go over that first David?

David Novac: Yes Nick, go to wealthwiseeducation.com, and on the front page you’ll see my courses. The one that most investors come to is called Invest for Success. It’s a two day, weekend workshop – IFS. You can see the details on our website.

We’ve actually got one, that has been postponed till early May, that would be the next workshop. Thanks for asking.

In regards to South32, this has been one of the darling stocks in the resource sector. It’s just been amazing. Since the coal price has recovered so strongly. And I’m just a little bit cautious up here at the moment. It’s had such a big run, it’s going sideways and consolidating. So, I would wait for the numbers before I could view the valuation of the company up here.

Look some of the valuation consensuses are up around the $3 level. But again, until I see the result, I’d like to hold back.

Ken Bloomfield: And you can see the stock is consolidating anyway at this point in time.

David Novac: Yes, it’s certainly been the star performer since the beginning of last year, along with Fortescue and the bulk commodities sector. So, it all depends what happens to bulk commodities and the coal price. Rio just sold their coal asset for 2.45 billion US, so they’re obviously focusing more on the iron ore sector and copper, than they are with coal.

Whether that’s a signal, I don’t know. But let’s wait and see the results first.

Ken Bloomfield: Okay, don’t go in early. And Matt, either of those stocks?

Matt Joass: I agree with the sentiment on South32, just to wait and see the numbers, the share price has gone up a lot, and it should’ve. So, it’s just a matter of whether they still beat expectations on those higher expectations now or not.

Ken Bloomfield: So, neither a buy nor a sell?

Matt Joass: Exactly, and Yes, the other one was Magellan?

Ken Bloomfield: Magellan, so MFG. So, this is the international funds management group, and this is investing in the team, or the business that runs those funds.

Matt Joass: Yes, it’s one that I haven’t followed closely, it’s an area that I don’t tend to focus on that much, but I do love the economics of the business. I don’t think it looks too expensive. I think it’s around 21 times earnings. So, a pretty reasonable price for a business that’s done very well, and clearly executed.

I think I’m generally a little cautious around fund managers, just bearing in mind the cyclicity, it’s been a good run for a few years, I don’t see any signs that that’s going to slow down by the way, that’s just something to bear in mind when I’m thinking about portfolio weights.

Ken Bloomfield: And any comments on MG?

David Novac: Look it’s been the star performer in the funds management area, but they have slowed down a bit here, and I believe there have been some outflows. But what a performance the share price has had since 2012.

Look, up here it’s reasonable value, and from what I can see from the numbers here, it’s not overly expensive, they’ve had fantastic growth, but again, I’d like to see their numbers first and really review from there.

But they did have a little bit of an underperformance, so it will be interesting to see whether they’ve had further outflow of funds or increases. But, when you look at the chart, the stock itself has been consolidating.

Ken Bloomfield: Yes, it’s been pretty amazing.

David Novac: Yes, it’s been going sideways pretty much for the last year. And after they reached that peak in December 2015, it’s just been going sideways for the year. So, we’ll wait and see until the results come out.

Ken Bloomfield: Okay, good. Just for my mind on that stock, it’s one that we’ve held for our clients for quite a long time. We met the gents from Magellan in their early days, went out and bought the stock right after the first meeting, 86c. Which was very nice.

And we took some profits, probably way too early at $8-$10, because we figured that their funds under management would probably cap out at below what platinums are, we figured they’d probably get to about 10 or 12 billion, but they’ve ended up getting over 30 billion now, and they’ve actually exceeded platinum.

David Novac: That’s amazing.

Ken Bloomfield: They’re the premier international manager from the shores in Australia. So, we still have a little bit of stock, we don’t have a lot at these levels left. Our feeling is that the guys will probably consolidate the business pretty nicely.

Their numbers have dropped off slightly from the days when they were performing really well, but that’s pretty much a function of the type of manager that they are. They manage really big solid companies. They were the companies that we thought during and in the aftermath of the global financial crisis were going to go well, that’s why we ran out and bought the stock.

Plus, the quality of the two guys who started the company, one of whom has left the company since. And left it with Hamish Douglass, who is the chief investment officer. So, for us, we think that at that 20 or 21 times, it’s a really good solid stock.

I don’t know if I’d be out there buying it at this point of time, but I don’t think it’ll be a stock that really disappoints at any point in time, unless they really start underperforming with the numbers, and my feeling is that that is unlikely, as long as people and most planners understand the type of stocks they buy, and when those stocks will perform in what cycle.

My feeling is that the sort of stocks they buy probably won’t be the best performers in the next year to 18 months in the market. I think some of the banking stocks in the US and some of the more growth oriented stocks will probably do a bit better, but I think those guys will still perform pretty well.

So, that’s Magellan, now we will take a short break. We will be back with more after the break. If you’d like to speak with our expert panel, call us on 1300 30 34 35, or email us at yourmoney@skynews.com.au.

Video 3
Ken Bloomfield: Welcome back to the program, if you have a question that you’d like answered, call us on 1300 30 34 35, or email yorumoney@skynews.com.au.

We’ll go straight to Lou, our next caller, Lou is calling from Queensland, how can we help you tonight Lou?

Lou: Yes, good evening panel. The question I’ve got, is on a company called Future Fibre Technologies, the code is FFT. They’re basically a manufacturer of fibre optic perimeter intrusion detection services. They usually work with the oil companies and some governments as well. Now the share price has collapsed, I promise you, from $1.08, down to about 14c or 15c now.

My interest has been piqued by the fact that John Kelly, who’s the Homeland Security secretary of America, recently said that Donald Trump’s Mexican wall, could be, not only a physical wall, but also could be exactly what they do, which is monitoring surveillance.

Now maybe I’m putting two and two together and coming up with five, but I just think it might be an interesting story, but anyway, just the general opinion from the panel would be greatly appreciated.

Ken Bloomfield: Good, thanks Lou, thanks for the question. Well, what a contract that would be. The Mexican wall, Trump’s Mexican wall. Now this stock has obviously struggled a fair bit. I don’t know what the financials are on the stock.

Matt Joass: Yes, not too pretty. It’s one that I looked at briefly before, probably when it was up at around $1, which was a much higher valuation. So, it’s currently at a market cap of around 20 million. So, at 15c, you can do the maths that it used to be a much larger company. Much larger market cap company I should say.

But it just doesn’t have the revenue and cash flow to support anything like that valuation. Even at these levels it’s losing money over the last couple of years, it’s been bleeding cash. $5 million cash I believe in the last year, against a $20 million market cap. So, it’s bleeding a lot of cash, it’s not building the next Facebook platform, if I think about technology business.

This is really a hardware, then again it does involve fibre, but it’s a really an intrusion detection system as the caller said. It’s an interesting idea, around the wall. I think if there was any sign they were going to win that kind of contract, that could be extremely lucrative. But there isn’t any kind of sign yet. I wouldn’t be speculating, just because they offer a product which could potentially be used there, that they would be the ones to build it.

Ken Bloomfield: And I guess for a company with that sort of pile, or state of financial affairs, probably wouldn’t be the-

Matt Joass: Yes, probably wouldn’t be the first choice for a $20 billion wall. So yes, maybe they’d be looking for something closer to home in the US as well, given Trump’s tendencies. I’d be staying clear by that reason.

Ken Bloomfield: Maybe Pennsylvania, or Michigan something like that.

Matt Joass: Yes, they could rebase. Absolutely, so I’d be steering quite clear of this company.

Ken Bloomfield: Okay, yes, good. And David, any?

David Novac: Yes, I don’t know much about the company, I was just reading a little bit now as you were talking. It is a small cap, as just said. And the revenues, they’ve projected revenues of $18-$23 million for this financial year. Which is higher than the 15.5 million, but their costs are quite high as well. So they expect only a small improvement in net income. And I think there was a net loss according to my site; I don’t know where the net income is.

But they do have $9.7 million in the bank. And they’ve got $3 million in inventory. So, they’ve got some cash there. But until they’re positive cash flow, then I’d get interested, but right now they’re just treading water.

Ken Bloomfield: Right, so don’t jump after that. And I guess that turnover is also an issue with a stock like this, not a lot of turnover.

David Novac: Well that’s right. It’s again, only 120 odd million shares on issue, 48,000 shares turnover every day, very low liquidity. Look if they suddenly sign a big contract, with the wall surveillance, this stock would go through the roof of course, but that’s highly speculative for something like that to happen.

Ken Bloomfield: Alright, good. Thank you gentlemen, hope that helps Lou. We will go onto our next caller, we’ve got Roger. Roger is calling from Melbourne. How can we help you tonight Roger?

Roger: Thanks for taking my call. I would just like to know your gentlemen’s opinion about the banking sector please, and as an income investor, I would like to buy some more banks, and have you got any particular recommendations. Your view on Telstra please. Thank you.

Ken Bloomfield: And Telstra as well, okay. Thanks Roger. Now there are two sectors which a lot of retirees particular like. A nice reliable income coming from Telstra particular, and the banks again the only ones to cut their dividends in this cycle.

What’s your feeling there Matt, at this stage of the cycle? There are quite a few forces pushing and pulling.

Matt Joass: There absolutely are. We’ve been pretty cautious on the banks for a while now, and we’ve been fairly wrong I’d say mostly. Maybe not last year. But the main reason is that, it depends firstly on what your weighting is. A lot of Australians have 50%, 80% of their portfolios in the banks, I think that’s a big mistake.

Ken Bloomfield: That’s way too much, isn’t it?

Matt Joass: Absolutely. I think the thing that I am cautious about, is just how much debt Australian households have, and what happens when we next enter a recession. So, it’s been 25 years, almost a world record. I thought it was a world record in this quarter, it’s another couple to go. World record for longest stretch of unbroken economic growth.

Ken Bloomfield: Yes, quite amazing, isn’t it?

Matt Joass: It is really incredible. So, that’s the biggest wind you can have at the back of a bank. Which does have a kind of multiplier effect on that economic growth on its lending. So, I wouldn’t be overweight for that reason. I think they’re great businesses, it’s an oligopoly, I’m not too worried about tech disruption or anything like that.

It’s more just, the cyclical component. What happens when property prices start to slow down or fall. What happens when interest rates in the US rise, and that starts putting pressure on us. All of those things, just make me a bit cautious about the banks at this stage.

Ken Bloomfield: Okay, and I guess the thing that’s really important for investors to understand. Most people have invested in the banks over that 25-year period. So, they see banks as blue chip and very stable, and of course, if we’d been investing in US, or investing in Europe, we’d understand that banks are, as you say, a multiplier on the economy, and they actually are more volatile than most other stocks on the market, certainly when things go bad.

And, what do you think David?

David Novac: I have the same sentiments. That we are highly indebted in the mortgage built. $2 trillion in fact. Our four banks are in the top 20 in the world. CBA being one of the biggest retail banks in the world, for a population of what, 26, 27 million. It says a lot.

Our housing affordability is the worst. You can go on to most expensive city etc. But, one of the things, today, Genworth Mortgage came out with their profit lower than expected. And they’re mortgage insurers. And they’ve had some delinquencies.

Is that a leading indicator of what might come? Especially in the Perth market, West Australian market which has been hit quite hard. And we’re seeing quite a bit of residential development, but I agree. We’ve had 25 years, 30 years. Unprecedented growth. On the back of unprecedented growth in debt as well.

So, I am cautious. I just wonder, how much more growth there is in the market. But if you’re going to choose a bank, if you wanted to choose one, NAB, or ANZ, one of those. And in the Regional Bank of Queensland. If the caller wanted to look at one of those banks, that would be my pick in the sector. But again, I’m cautious going forward. What’s happening in the bond markets, there’s a whole string of things that I’m just a bit cautious about.

Ken Bloomfield: Yes, look, I think that’s really interesting to put it in that context. I think therefore if you’re looking ahead over the next 6 to 12 to 18 months, things look kind of okay with the banks. But I think you need to look at things from a historical context.

I can remember, I was actually in this industry the last time we had a recession, and I can remember Westpac shares, Kerry Packer lobbed a bid at $2.75, he didn’t get through the ACCC, but they had dropped from about 5.20 to 5.40 before that, maybe it was in the 5.80, so they were down 50%.

And most of the banks were. NAB was actually the winner in that period. It only went down 30%. The rest of them went down somewhere between 45% and 60%, in what was quite a small recession in terms of, there wasn’t any major housing boom coming up to it.

There was a commercial property problem, which was the main issue. But, I shudder to think that if China had a really big problem at some stage, and the Australian economy suffered high unemployment, or whatever, what would happen in that scenario.

David Novac: Well, we’re from the era in the 80s, I remember very well in my previous life I was an accountant, or CFO of a merchant bank for 10 years. So I know about banking. And we had very high levels of bad debt back then. And you look at the levels of bad debt today in banking, it’s the lowest in history. I mean it’s been Nirvana.

And I agree with your comments about the overweight that investors have in their portfolio with banks. Why wouldn’t you with the dividend yields, especially if you bought the stock 25 years ago. I mean, you wouldn’t sell. You’d be holding. But it is overweight. Very heavily overweight. And it is part of our index, 40% of our index is financials.

Ken Bloomfield: Which is the highest in any western country in the world by a long shot. I guess, we’re not being doomsayers here, I hope we’re not being doomsayers here, but I think there’s a healthy scepticism there that we need to bring to investing at all points in time. Just understand where we are in the cycle so we don’t over invest in a particular sector because we think it’s safe.

David Novac: That’s where you need option strategies as well.

Ken Bloomfield: You going to give us the course dates for that as well, are you David? We better move on I think.

David Novac: How to protect your downside.

Ken Bloomfield: And finally, we better answer Roger, we talked a lot about the banks there, but just quickly. Telstra, what do you think, Matt, at this stage of Telstra?

Matt Joass: Yes, I’m not jumping on it yet. I just want to see how it goes.

Ken Bloomfield: Not in the stock at the moment.

Matt Joass: Yes. Great company, not going anywhere, a lot of recurring revenue. There’s a lot to like.

David Novac: Look, I’ve just in the last couple of days taken a long position on Telstra. I like the yield and I think they could have a technical bounce back to that $5.30 level, it needs to break above $5.27, $5.28 to go higher, but I can see from here, that leading into the resolve, it could have a bit of a bounce. Just a trading position more than anything. Not long term, buy, hold.

Ken Bloomfield: Yes, okay good. Thank you gentlemen. We’ll move onto our next caller, we have, Stuart is calling from New South Wales. How can we help you tonight Stuart?

Stuart: Yes hi, my question relates to the gold play today, they’re all off by about 3% plus, like Evolution, St Barbara etc. But at that time, the gold futures and the gold spot prices were both in the positives, so what’s caused that drag on the gold stocks?

Ken Bloomfield: Okay, good question Stuart. Look, I’m going to dip out on this totally, because I never understand the gold market. We bought a bit of gold during the global financial crisis, and held onto the physical gold for a couple of years. But apart from that, I tend to pretty much avoid gold stocks generally. They’re just way to volatile for my liking. But David, as a chartist, you probably quite like them from time to time?

David Novac: Well I follow the gold price very closely, because I have gold shares. And I do occasionally trade the gold price as well. But I’ve done very well actually in the gold sector over the last 12 to 18 months.

Ken Bloomfield: Yes, I know you made a real killing there.

David Novac: Yes, Ramelius was one of my top picks there. To answer the question from the caller about the gold price. First of all, technically on the daily chart, it had that big sharp move down, and it’s had that nice move of a $100 per ounce back up above 1,200. 1,200 was a very key level when it broke, and then went down to about 1,130 per ounce US.

Ken Bloomfield: I don’t know if we can get a chart of gold can we, up on the screen there.

David Novac: Yes, you can have a look at that. But, if you look at the weekly chart on gold, it’s still down. So, this is what I call a technical rebound, in an overall downtrend on the weekly. Now, to get really bullish on gold, I’ll bring up the chart myself on my laptop.

But to get really bullish, gold has to break above the previous peak, which was way back in July 2016, which was that 1,382 level.

Ken Bloomfield: A fair way from that.

David Novac: It’s a fair way from that. So this is just the technical move up. But on the daily it’s looking positive, and it could get back up to 1,300, as a possibility. Now why the gold stocks pulled back today in essence, is a bit of profit taking. The gold price did ease back a bit last night-

Ken Bloomfield: A bit of early selling and then with the futures built up in the afternoon.

David Novac: Yes, the Aussie Dollar gold price actually moved up, because the Aussie Dollar pulled back. So, that’s trading right now, at $1,619 an ounce, so that is still higher than what it was yesterday. So I think it was just a bit of profit taking, that’s all.

The other thing to be wary of though, is you might see a rally in the US Dollar, especially coming up to the Fed meeting next month in March. Because if we see a rally in the US Dollar, you could see a pullback in gold.

Ken Bloomfield: It’s interesting the US Dollar isn’t it. Because, Mr Trump is trying to talk down the US Dollar, with some success I must say, over the last month or so.

David Novac: He has yes.

Ken Bloomfield: After a very strong rally after he won the presidency. But there’s some real opposing forces there, because the US Dollar strength tends to mean weak gold, because gold is denominated in US Dollars.

And I guess you could relate that little mini-bounce that we’ve had in gold pretty much to the US Dollar.

David Novac: Absolutely.

Ken Bloomfield: So, a lot of the view on the gold, you’ve got to go back and decide what you think about the US Dollar, don’t you?

David Novac: Yes, exactly. But look, $1,600 Aussie. For producers that’s a great price, and fantastic margin. So, they’re really generating the cash flow out there at the moment.

Ken Bloomfield: And that’s the difficulty too isn’t it, because in assessing the gold price, when the US Dollar goes up, the Aussies Dollar tends to go down, but gold also goes down. So it’s a matter of the quantum of how much gold goes down compared to the Aussie going down, as to what the Aussie Dollar gold price is. And that’s where some of the confusion in the gold price that people tend to get confused by, day to day, and week to week.

David Novac: Yes, but the gold price has actually been going sideways for three years

Ken Bloomfield: The Aussie Dollar gold price?

David Novac: No, the US.

Ken Bloomfield: Yes, just trading in a band at the moment.

David Novac: Mostly between 1,200 and 1,300.

Ken Bloomfield: Good, thank you gentlemen. Now, we will go to a break at this point. We’ll be back to answer more of your questions in just a moment.

Video 4
Ken Bloomfield: Welcome back to the show. If you have a question that you’d like answered, pick up the phone and give us a call on 1300 30 34 35 or email yourmoney@skynews.com.au.

Now we have Nancy on the phone. Nancy is calling from Sydney, what is your question tonight Nancy?

Nancy: Hi panel. My question is MyState Limited.

Ken Bloomfield: MyState Limited, yes.

Nancy: And Oil Search.

Ken Bloomfield: And Oil Search, code MYS for MyState, and OSH, gentlemen would either of you like to have a go at that one, David maybe, either of those two?

David Novac: This is a diversified financial product and services group. And one of the groups is the Rock Building Society. So, it’s more like a regional diversified financial group. To tell you the truth, looking at the numbers here, it’s not shooting the lights out in terms of growth in any way. The yield is a pretty decent yield around 6% fully franked. But the earnings are fairly flat. Looking at the chart, it’s had a pretty good rebound from the lows recently when it was down there in November, from about $3.80 up to here where it’s about $4.60. Approaching a major resistance level, I call it $4.80.

Personally, I would be taking profits, if you were lucky enough to buy it at the bottom. I would be taking profits. Plus I’ve got a divergence on one of my indicators, called the up relative strength index. And that’s telling me you could see a reversal here.

So, there’s not much for me to like about it up here, to tell you the truth. So, I wouldn’t be a buyer, but I would certainly be taking profits on it.

Ken Bloomfield: And Matt?

Matt Joass: Yes, I’d sort of broadly agree. It’s not one that I follow closely, but just looking at the numbers, it hasn’t been growing very much. It’s had about 1.7 times price to book, which is fairly rich.

Ken Bloomfield: Yes, certainly for a regional business.

Matt Joass: Exactly, it’s not one of the top four banks by any means

Ken Bloomfield: Don’t we know what’s happening with the Rockhampton economy. I suppose they’re affected by the downturn in the mining sector up there, but of course they’ve also got a bunch of other industries up there, including-

Matt Joass: Yes, and again, all the comments that we made earlier around the banks, do kind of apply here as well. On a broader level, as a diversified financial planner to a lesser degree, but still. So, I’d be a little cautious around that.

Ken Bloomfield: Okay, and Oil Search. Do you like Oil Search?

Matt Joass: Again, it’s not one that I follow too closely. I tend to avoid oil explorers. But it does generate a lot of cash flow, so it’s very different from a lot of the more speculative companies out there. So, I guess you have to have a pretty firm opinion on oil prices. I don’t have a particularly firm opinion on them, but I don’t see them going back to where they were in the past.

I do think the economics of oil production has changed dramatically. So if they get back up to $70-$80 a barrel, I could see that being a limit now for oil, where it never used to have that kind of limit. So yes, general reasons to be cautious around those.

Ken Bloomfield: Okay, and David, do you like oil at these levels, and do you like Oil Search?

: I have liked the energy sector, in fact I’ve been playing that sector. But right now I’m a bit cautious. Technically you have to have a view on oil in any of the oil stocks that you’re looking at buying. Oil Search really has good long term gas supply LNG for the next 30 years.

So, it looks good from that perspective. It all depends again on the oil price. I would be cautious. If the oil price drops below US$50 per barrel, then we could see a bit of a sharp retracement here. So, the charts are telling me to be cautious at the moment.

But a number of major brokers, I can’t think of the one that just recently upgraded Oil Search to a buy, but the chart itself-

Ken Bloomfield: It’s been funny though hasn’t it. There’s been quite a bit of good news around Oil Search, and the price has just not reacted at all.

David Novac: Well it had already had that big run up, and it’s gotten a bit ahead of itself. Ahead of the curve if you like. And now for the last year it’s been going sideways. It needs to break out above $7.50 convincingly before that would be a technical buy, in my view.

But I’d wait for the annual result coming up. The half-yearly result wasn’t flashed, after what we saw what happened to the oil price. But I’d really like to see what their annual result is like. And right now, would not buy it, waiting for that annual result, having a good look at it and what the oil price does.

Ken Bloomfield: Alright, okay good. I mean, the oil price is interesting isn’t it. Because it would seem to me now, because there’s been quite a bit of retrenchment of capital expenditure in the oil sector over three or four years, usually once you get that big retrenchment, in fact it’s down about 45% since 2013.

Once you usually get that retrenchment it means less exploration, less production in the ensuing years, but as you said Matt, in this particular occasion, we’ve got those shale fields in the US which have got up and running before, and a lot of money’s been sunk into them, and they all know at what point the oil price needs to get to before they turn on production. Before they make money.

So, it’s going to just keep a lid on that price as it’s going up.

Matt Joass: And just the whole nature of it, it’s more like an oil factory in a way right. It’s not like you have to go and invest 10 years in drilling this deep well. You literally just go out and produce.

Ken Bloomfield: So, it’s changed the dynamics of oil a lot hasn’t it.

Matt Joass: And it’s a very political market. I think Saudi Arabia recently came out and said yes, we deliberately manipulated the price down to try and drive shale out of business, and were very happy that that’s worked. I do think that could put some upward pressure on oil.

So, it’s just that there’s not this same limit that they can get to, that they have. And I think if we’re thinking politically, then I think Saudi Arabia probably wants the oil price to start creeping up as they look to float part of their huge national oil companies.

So, if we’re thinking in that kind of, putting that hat on, then I think there are some indications that oil could start creeping up again.

Ken Bloomfield: Yes, it’s an interesting point you make there about Saudi Arabia, because they took on a lot of debt when the oil price was very high. They spent a lot of money and they got themselves in a bit of strife, once the oil price actually collapsed. So, they need the price to gradually creep upwards, and they’re the swing producer. They produce over 10% of the world’s oil. And it’s an incredibly low cost. So, you would imagine they would be able to, now that they’ve got some sort of agreement with OPEC, that they’ll be able to support that price.

And our view is that oil probably will creep up nicely over the next couple of years, but not up to $100 again. And therefore, we like the oil sector at this point of time, as you do. We also quite like the domestic gas sector, so we’ve just bought into a couple stocks that are supplying into the domestic gas market, because with all the gas that’s going from Queensland overseas, there’s a real shortage of gas coming up and the Australian government can’t get its act together and get a decent policy for energy in place.

David Novac: The other factor to take into consideration is that the rig count in the US has gone up. The shale oil produces quite a bit. So, that’s adding more oil into the market.

Ken Bloomfield: Back in. So it keeps going back in each time the market goes up.

David Novac: Right, so you’ve got that factor. But again, the charts are telling me on the ore prices, to be really cautious. That if it breaks that 50 level, it could go back down to 46, 47 very quickly. So, I would just hold back for the time being.

Ken Bloomfield: Okay, thank you very much gentlemen. Now we will go, it’s time for a short break, so we’ll be back with more of your calls in just a moment.

Video 5
Ken Bloomfield: Welcome back to the program, we’re still here in our hour and a half extended, Your Money Your Call. So please, jump on the phone and call. We now have Luke, Luke is calling from Brisbane. How can we help you tonight Luke?

Luke: Good evening panel. Looking at BHP and Rio, they’ve had a stellar performance the last few months. Just wondering, I’m wanting to get into the stocks, and just trying to find the best price to get in.

Ken Bloomfield: Okay, thanks for the call Luke. Good question there guys. Because they have had a fantastic run from February last year. Don’t know what BHP’s percentage gain is, must be 70% or 80%. I know they were down at what, $14. So, they’re not at 25, so yes.

David Novac: Yes, a lot of fund managers have missed this run big time. Underweight and so underperforming in their funds compared to the ones who got in, and were lucky.

Ken Bloomfield: Yes, it’s made a really big difference to returns this year, just that one play in particular. The large cap resources.

David Novac: Again, with both BHP and Rio, you really have to have a view on commodities, on iron ore and on oil.

Ken Bloomfield: Particularly for Rio on iron ore. Because it’s almost all the turnings now, is in the coal division.

David Novac: Yes. It’s after such a stellar run up here, same with Fortescue. In fact, I was very bullish on Fortescue back in January.

Ken Bloomfield: I remember that.

David Novac: $1.50.

Ken Bloomfield: I thought you were crazy at the time.

David Novac: Yes, I was crazy getting out when it got over $2. I thought, I was a genius. And it just kept going and going to $7. But no one could predict the iron ore price was going to run, even Goldman Sachs.

Ken Bloomfield: No, it was very unlikely that it was going to bounce to over $80.

David Novac: I mean, Goldman Sachs, the biggest investment bank in the world, were saying they were forecasting US$35 a ton and look where it is now, $82.

Ken Bloomfield: But we should talk about China here shouldn’t we?

David Novac: Yes.

Ken Bloomfield: Because what’s going to happen long term with Rio, iron ore and copper is all about what’s going to happen in China.

David Novac: And Trump.

Ken Bloomfield: And Trump. Which you can’t talk about one without the other. There’s some real geopolitical issues out there. But if we just look at China in terms of their steel consumption, and why iron ore has gone up. It’s a little bit hard to really understand it.

The inventories aren’t really telling us the story that there’s a real shortage of iron ore. But there’s no doubt that the Chinese really pressed the foot on the accelerator in terms of building again, between February last year and now. And indeed, a lot of that is still flowing through the economy.

David Novac: But the thing I’ve got a problem with, is there’s an oversupply of steel, and the Dalian futures market, it’s a casino. You don’t get a rise like we’ve seen in iron ore, and suddenly there’s a shortage of supply.

Ken Bloomfield: And I think if Mr Trump comes on the scene and actually starts looking at the dumping of steel outside of China in the rest of the world, and really focuses on that. And there’ve been some World Trade Organization cases against China on this over the last four or five years, since they’ve joined.

That would really change the dynamics as well. But we just don’t know when this is going to happen. And my concern with jumping on the band wagon at this point of time, is that we’ve had a fantastic run in the iron ore price, and in the price of Rio and BHP, both companies will be around in 10 to 15 years, there’s no threat to that, there’s no worries about that if you’re a long term investor.

But, I’m just not convinced that this is the right time to be buying the stocks.

David Novac: I agree. After a run, I would just be cautious at the moment, and wait for a pullback of some kind. They’ve had such a good run, I wouldn’t be eager to chase them up at the moment. And also, I’m cautious like I said, about the oil price as well.

Ken Bloomfield: Alright, in the short term.

David Novac: Yip.

Ken Bloomfield: Okay, good. And what do you reckon Matt?

Matt Joass: Yes, I completely agree. So, China’s growth model for a long time was based around exports. And that started hitting a bit of a limit around 2008, 2009 because there just wasn’t enough demand in the rest of the world to buy it all.

And so that’s when they started, and at the same time we had the GFC which kind of compounded them, but that’s when China really started hitting the gas on debt. And it took a couple of years. There was one big round of stimulus, one of the biggest relative to GDP ever in the world. Happened in China.

Ken Bloomfield: And saved Australia. That’s why we’re 25 years without a recession.

Matt Joass: Absolutely, did save Australia, I don’t want to say too much about it. But they didn’t really take away the sugar rush after that, over the next few years. And every time the economy starts to slow down, they hit the gas again with more debt. To the point where debt to GDP is up around 300%, which is a very developed market level. But it’s gone that far in just a few years.

So, a huge amount of GDP growth has just come in from debt growth, and at a certain point that reaches a level where you’re spending so much money, just servicing your existing debt, that you can’t reinvest in the economy, and everything else.

For that reason I’d be pretty cautious on what’s driving the demand. I think that there’s a kind of a view that Trump can pick up the slack with infrastructure. But they’re very different economies.

Ken Bloomfield: And the quantum too. The quantum is nowhere near what Trump’s talking about compared to what the Chinese did.

Matt Joass: Exactly. Trump’s talking about $1 trillion, that’s the big goal over many years. China does several trillion dollars a year of fixed capital investment. So their $10 trillion economy, around $4 trillion of that is just pure fixed capital investment. That which drives iron ore and all these things. So again, the quantum, I completely agree.

Ken Bloomfield: There’s a measure, I’m not sure whether you can actually look it up on the internet, but it’s called the credit intensity of GDP. It’s a really interesting figure. It’s basically how much as a percentage of borrowing of the economy you need to generate 1% of GDP. And China now, it’s up around 5% or 6%.

It’s gone up from 1% 10 years ago, generating 1% of GDP, in fact it was even below that before that. To now 5 or 6. So they’re borrowing 5% or 6% of GDP to generate 1% worth of marginal GDP, which is a real worry at this point in time. It means there’s a lot of inefficiencies in the spending that they’ve got.

Now, the problem is of course, we just don’t know when this whole deck of cards is going to fall over, or whether there’s a bunch of other things they can do in the economy to really dampen down the impact of it when it does happen.

But, there’s no doubt that there’s a problem building up, and every time that they, as you say, put the pedal to the metal and put it on the gas, it causes a bigger problem down the track.

Matt Joass: I say it’s like an elephant riding a unicycle. You know it’s horribly unstable. You know it’s going to fall over at some point, you just don’t know when. I think China’s having a very important Communist Party meeting in September, which Xi Jinping is trying to consolidate some power. So, there’s a few signs that everything would keep going quite well until then I imagine. I don’t see them taking away the sugar head until at least after that has settled down.

But at some point, you do reach that limit, and for that reason I’d be cautious. Of the two, BHP, Rio. I like that BHP is a bit more diversified, as you said, Rio is almost completely iron ore now. That’s going to really move with China. So, for that reason, of the two, probably BHP, but again, I’m not buying either at these prices.

Ken Bloomfield: Okay, good. Thank you gentlemen. We will move onto our next caller, Mark is calling from New South Wales. How can we help you tonight Mark.

Mark: Yes, good evening there gentlemen. I’m just interested in CTT, Central Petroleum. And the forecast head with them. I believe there’s meant to be a pipeline built across to Mt Isa that may help them out a little. And where to from here. And whether they’re likely to be taken over as Santos have sold their interest in part of the fields that they’re working in the Territory there.

Ken Bloomfield: Yes. Okay, good Mark, good question. Yes, a lot of movement. Santos is getting rid of quite a few businesses to try to reduce their debt. They sold a bunch to, I think it was, Senex, and maybe Coopers. Which, I think it was Coopers actually, not sure about Senex. But certainly Coopers.

Which is one of those gas players, that is looking to provide the domestic market with gas. Now, CTP, is that one, has it been on your radar, I mean you’ve been playing that oil and gas space.

David Novac: Not this one.

Ken Bloomfield: Not this one, okay.

David Novac: No, this one I haven’t looked at in a long, long time. The share price has moved up quite nicely the last few months, since those lows in September to a high of about 20c. I was just reading quickly to get an update. There was an unsolicited takeover bid by Macquarie at 17.5c. I think it was last year by the looks of it. And the company knocked it back.

Santos sold 50% of that pipeline that the caller was talking about. Red as well. But look, the company has a market cap of around 78 million, with 5.9 million in the bank. So, that’s not going to get you very far. And they’re not cash flow positive. In fact, I just brought up their quarterly cash flow statement, just for the December quarter.

At the end of January, $4.6 million in receipts from customers. Production costs were 3 million, and then you’ve got staff costs, nearly 800 thousand. And then interest on the loan is 1.6. So they had net cash flow of $86 thousand for the quarter.

So, for a market cap of 78 million, with a cash flow of 86 thousand.

Ken Bloomfield: You’ve got a capital raising coming.

David Novac: Look, I’d want to see their cash flow improve, and so, just on that alone. They’ve got negative earnings; It’s pretty hard for me to get too excited about this.

Ken Bloomfield: Good. Thanks David. Matt?

Matt Joass: Yes, I have a couple of the same concerns. I’m not very familiar with the company. Just looking at their financials, has bled a lot of cash for a lot of time. Has a lot of debt. I’d be very cautious. And hearing that the latest quarterly financial is just as bad, or not showing a recovery yet, I’d be cautious around this one.

Ken Bloomfield: Yes, you might just have a look at Coopers. They did a capital raising recently, I think it was 28c when they bought some of these assets off Santos. Looks like they’ve got a fair bit of backing from the market. Looks like they might even buy some more assets off Santos maybe. But that might be a more solid bet. A much bigger company than Central Petroleum. But worth a look at.

David Novac: And the outlook definitely looks more positive for Coopers.

Ken Bloomfield: Yes, and I guess the dynamics of the energy market in Australia is interesting that the government hasn’t really got a coordinated energy policy at this point of time. And because all the gas coming from those big producers, Origin and Santos, are being shipped overseas, we have a potential shortage of gas, and also because the coal-seam gas isn’t going ahead in, certainly in New South Wales, and some of the other states have bans on it. We’re potentially facing a real shortage of gas for Australia. And these guys are in there trying to plug the gap.

Now, we have another caller. We have Max. Max, how can we help you tonight.

Max: Hi, thanks for taking my call. Two WA gentlemen. Firstly-

Ken Bloomfield: Hello Max, are you still there?

Max: Oh, sorry.

Ken Bloomfield: You cut out after you said something about WA. I’m back there next week.

Max: Can I talk now?

Ken Bloomfield: Yes, all good Max.

Max: I’d like your thoughts, David, on Resolute Mining, so I can sleep tonight, do you think they’ll get to $2? And that’s all, thank you.

Ken Bloomfield: Okay, thanks Max. Look, Resolute’s one of the most volatile stocks on the market. I think in the last couple of days it was up 7%, and then today it was down 6% I think. And I know that because my nephew, who’s over from Perth, visiting and working in my office at the moment noticed it. His father used to be involved with the company. So, Max, well done on noticing that.

He pointed out to me, 20-year-old, he said, why are these miners so damn volatile, up 7, down 6. But is it going to get to $2, David?

David Novac: To answer your question Max, it all depends on the gold price. If the gold price can keep moving higher, and get back up to 1,300, then definitely, it can get back to those previous highs. So, it all depends on that, and again, we talked about the US Dollar earlier in the show.

So again the question, yes it can. And it’s not overvalued up here. A lot of these gold companies are trading on still really good, low earnings multiples. So they still have room to move. But the bounces they’ve had based on the technical move of gold has been nothing short of stunning.

Look at Newcrest, it fell to $16.50, and now it’s almost back to 24, in just 6 to 8 weeks.

Ken Bloomfield: Incredible volatility, and we just had the chart of Resolute up there a minute ago, I mean, the stock was at 20c or 30c, 18 months or two years ago. Up to over $2, back down to under $1, and now they’re in the mid $1.

David Novac: So it’s a volatile commodity. Certainly Max, it can get back up there, but again the caveat being the gold price trending up.

Ken Bloomfield: Okay, good thank you David.

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