Saturday, November 17, 2012

Will History Rhyme with '88 to '93?

While updating my spreadsheets today I was almost dumbstruck when looking at the long term BEV (birds eye view) chart of the All Ordinaries Index based on the data from Yahoo since 1984.

Here is the chart that grabbed my attention:

(Every 0 is a new high in the All Ords since 1984, every number below 0 is the percentage that the All Ords is on that date compared to the All Ord index number on the date of the last high.)

1987 was the most recent comparable fall in the All Ords to 2007/09.

After the 1987 fall, it took almost 5 years for the All Ords to hit a sustained new high after the bottom and just over 5 years to hit a new all time high. We are now 3.5 years after the 6 March 2009 bottom.

If 1987 to 1993 was to rhyme perfectly then we are 12 months from a new sustained high from the bottom and less than 18 months from a new all time high in the All Ords. If it rhymes earlier, then it might only be months, or of course it could be later, but our medium to long (3 to 7 years) term outlook is that it will happen.

How could this happen? A couple of ways:
1. Sustained lower interest rates could lead to a slow but constant increase in acceptable PE ratios as investors search for yields.
2. Lower interest rates could drag down the AUD leading to a resurgence in exporting and import competing industries including manufacturing, tourism and education, also maintaining/increasing full employment and leading to inflation.
3. A lower AUD would mean that net profits from overseas operations of Australian listed companies would increase in AUD terms (depending on hedging policies and positions).

While there are still large risks of a Euro breakdown (such as caused by a Greek exit), from an adverse impact of the US fiscal cliff (or the replacement Grand Bargain which would likely still be fiscally contractionary), or from a hiccup in the Chinese leadership succession or rebalancing/end to contraction, this is still well worth watching unless you see Australia as being in the same situation as Japan in 1990 to now.

Volatility is still highly likely as outlooks to European resolution ebb and flow and the fiscal cliff looms, but the medium (3yr) to long (7 to 10yr) term outlook for the stock market if history rhymes is excellent. What has happened to the US S&P 500 over the last 2 years in raw terms could be the template for Australia's next 2 years, provided unemployment is kept around current levels overall (although large sectoral changes are likely as the mining construction boom washes off).

You might also like to look at the last article about why the long term outlook for the All Ords is a buy.

All the usual caveats about not being investment advice etc apply.

The All Ords is a Long Term Buy

I believe the Australian All Ordinaries is a long term buy for AUD investors.

Most Australians ought have the great bulk of their assets in AUD denominated assets or hedge assets denominated in other currencies as most expenses are in AUD. This article is intended only to deal with the outlook for the All Ordinaries in AUD. See the Currency qualification at the bottom of the article.

My 16 main reasons are:
  1. Interest rates have begun falling and are regarded as likely to fall further as the mining and resource engineering construction boom begins to tail off.
  2. Long term stock market growth is at about its average relationship to GDP growth. Total stock market growth since 1960 has been about the same as total GDP growth. This is in spite of it being well below in mid 1974 and well above in 1987 and 2007.
  3. Growth in the market looking back over the last 5 years is in the lowest quintile of historical averages for 2, 3 and 5 year growth and below the 40th percentiles for 1 and 4 year growth.
  4. No growth in the market since the 4896 level of the All Ords of 6 March 2011 (2nd anniversary of the 2009 bottom) would mean that in 2015 there would have been 0% growth for each of  1, 2, 3, 4 and 5 years. For each of those periodicities that would represent growth in the 29th, 23rd, 23rd, 17th and 3rd percentiles (calculated historically recently), respectively. That is 4 out of 5 would be in the lowest quartile of growth rates. This very rarely happens.
  5. The AUD is unlikely to go much higher as it is more than 1 standard deviation above long term historical trends against most major currencies other than the JPY. A fall in the currency would make the higher employing Australian industries more competitive internationally and likely more profitable as there are few capacity constraints in those industries as they have been operating below capacity in many inputs because of increased international competition from now relative lower currency countries as well as lower wage countries. Overall corporate profitability would likely increase if the currency fell. Those that had foreign currerncy denominated net income would benefit even more.
  6. PE ratios do not reflect the fall in long term government bond rates from the 13 year average of 5.5% pa from Jan 1998 to Jan 2011 to about 3.1% pa this month. If these reductions in long term rates are sustained then, as in the US so far, yield chasing private investors could be expected to substantially re-rate the stock market higher over a period of say 2 years.
  7. Contraction of Australian federal fiscal policy is, while amplified by some timing differences in expenditure which will reverse in the following fiscal year, unlikely to be as contractionary in following years as it is in the current financial year.
  8. The federal and state governments are likely to stimulate housing construction for first home buyers to soak up employment lost as the mining and resource engineering construction boom washes off over the next few years. If the stimulus is limited to first home buyers of newly constructed dwellings, then the falls in interest rates are likely to have muted to negative effect on existing home prices as first home buyer switches from existing dwellings to new dwellings.
  9. As private balance sheets are repaired, increased cash flow from lower interest rates for mortgagors is likely to switch from debt repayment (particularly high interest rate credit cards) to spending, improving the fortunes of the discretionary retail and durables sectors.
  10. The standard Coppock indicator for Australia has turned upward from below zero, normally a positive sign for the stock market for a number of years (but not without falls/volatility and this indicator failed about 15% of the time.)
  11. The market doesn't look anything like a top. I have looked at the median growth at a market top compared to prior market tops over periods from 2 months to 5 years. Growths since the last market top in April 2011 in all the periodicities are substantially below the median growths between tops since the November 1991 top.
  12. Australian demographics are more favourable than many countries over the next 5 to 10 years, based on the current bi-partisan immigration numbers.
  13. Australia has no government debt problem unlike many other countries. We do however have a high ratio of private debt to GDP but this is manageable if people stay employed and interest rates do not rise much in proportionate terms.
  14. The growth in the Australian savings rate has taken place and is now stable. The "damage" from the large increase in the savings ratio is complete, although it could incerase further if there are external shocks from US fiscal cliff, Europe EURO zone exits or Chinese leadership eratics.
  15. While US unemployment including on a U6 basis remains high, total employment has been continuing to increase, growing the economy in total. US house prices may have bottomed. US mortgagor households in total continue to lower their repayments through refinancing to lower rates, giving the household sector more spending power than previously, or at least maintaining it in the face of shorter hours and lower wages for many. The US remains the biggest economy in the world (for now and probably for another 5 years.)
  16. Chinese fiscal consolidation seems complete for the present. While growth rates and increases in resource consumption might not approach former rates, and a rebalancing to consumption probably means less mineral and energy resource consumption, the end of falls will be positive, even if most people resent mere stability as they do in Australia at present.
Sure, there are significant risks from Europe (how long will Greece and Spain put up with 25% unemployment) and the US (the fiscal cliff would be very contractionary to GDP) but we have seen how stock markets in countries with dramatically lower interest rates have reacted to increased corporate profit margins and dramatically lower interest rates. Our own stock market has been more muted so far because the falling commodity prices have hit profitability of the large mining & resource sector, but the rest of the market has had a significant increase.

Tactical timing of further investment
With the US fiscal cliff likely to involve the Republican controlled House and Democrat controlled Senate testing each others' resolve in a fiercely partisan contest over the coming 2 to 4 or even more months, there are likely to be scares in the US markets which will reflect into Australia. There is also the possibility of a Greek exit from the EMZ or EUR and Spanish resistance to Spanish bank bail outs other than for Spanish depositors. There are likely to be better buying opportunities in the next few months but the prediction of the timing is impossible and the markets could become quite volatile. It will be very hard to buy at the bottom as things could seem as if they are going to hell in a handbasket. Perhaps the best strategy is to dollar cost average purchase a proportion of your available investment funds over the next 6 months, although the risk in waiting a month or even 2 before starting purchases is in my view reasonably low.

Currency qualification
If as might be the case the AUD falls relative to other major trading partners/countries then the growth in the stock market might be offset by falls in the currency on the basis of comparisons with other countries stock markets when converted at market exchange rates. The AUD could well fall so that the net value of the stock market in say USD terms is no better than today.

Sunday, April 8, 2012

Demographics, Dependency and PE ratios - An Introduction

Demographics is being examined by many as a principal driver of share prices. It also lends itself as a tool for sectoral analysis both in shares, business activities and in real estate.

Some look at it in terms of opportunities for growth, others as an increasing dependency ratio causing net dis-saving, some in terms of the health sector versus eg consumer discretionary spending, or in terms of new apartments versus existing homes for capital growth.

Seeking Alpha, a US based, on line finance blog for which I am an occasional contributor, runs as one of its seven macro themes a section on demographics. There editors choices of articles on demographics are at:,editors-picks,articles 

Future changes in age dependency is an important macro factor for estimating GDP growth and sectoral performance. Age dependency ratio is the ratio of dependents--people younger than 15 or older than 64--to the working-age population--those ages 15-64. Data are shown as the proportion of dependents per 100 working-age population.. (World Bank)

Broad investment principles based on demographics
The general broad bases of demographics are that:
1. A rising population is a better investment environment than a falling population
2. A population growing over the next say decade the number and share of 40 to 55 year olds is a better place to invest than one growing the number and share of over 70's. 40 to 55 year olds are the saving and investing age group so the money needed to be invested grows, putting upward pressure on prices. Their savings have to go somewhere.
3. Consumer durables and discretionary spending is more likely to grow where populations are growing the number and proportion of 18 to 35 year olds as that is the age of first high discretionary spending (18 to 28) and household formation ( 25 to 35)
4. Health care and apartments (over houses) are better investments in populations that are increasing the number and proportion of 65+ people as they downsize, dissave, seek more frequent and complex medical interventions, move to apartments as the net benefit of yards disappears and singular responsibility for maintenance becomes an increasing burden.
5. Manufacturnig jobs will move easily to low wage, reasonably educated, young, active populations in preference to places with older, dependent populations with decreasing average health, assuming government settings are favourable to the investment required.

Some notable macro demographic trends

1. China, as a result of its one child policy, will start to have significant increases in its dependency ratio, and a stabilisation of its total population number within 10 years.
2. India has a more favourable demographic profile than China.
3. US dependency ratio increases are expected to put downward pressure on PE ratio's until 2020.
4. Europe has a slow population growth, increasing dependency profile which reduces attractiveness of new investment in many sectors and promotes more of a cash cow approach to fund investment in more attractive markets.
5. Japan has an aging population, increasing dependency ratio and there is uncertainty as to how dis-saving will effect government bond prices as the ageing population sells or redeems bonds to fund living expenses and the yields required for new issues in an environment of the highest government debt to GDP among developed countries.

Australia and demographics
There are two major impacts on Australian investment from demographics. Internal demographics is one, the other is the demographics of our most accessible (geographically and politically) trading partners.

Australia is forecast to have an increasing dependency ratio under most population growth scenarios that have any semblance of likelihood. (A scenario which targeted a stable dependency ratio of that in 2000 would require exponential growth in population at levels not politically achievable). The difference between various highly possible scenarios of population growth is in the rate of increase of dependency over time.

As will be seen below, China and Japan will likely move to reducing populations and higher dependency ratios, but India and Indonesia have relatively high birth rates and existing large populations. If these tow countries had high growth/high develoment/mercantilist government policies with low political risk, they would be extremely important relationships for Australia given their geographic proximity.

The table below shows changes to the Dependency Ratio (DR) under 2 population scenarios. Even if high immigration is used to defer the rise in DR, it inevitably happens other than in such large population growth proposals that they would be viewed as being totally unrealistic by virtually the whole existing population.
(source of data:

. Population . DR .
Year Std Fraser Std Fraser
1998 18.8 18.8 0.73 0.73
2018 22 31.1 0.84 0.73
2038 23.9 43.9 1.04 0.83
2058 24.5 50 1.15 1.03

Birth Rates
Population growth is largely a function of birth rates.

207 Japan 1.39
205 Italy 1.4
202 Germany 1.41
187 China (Mainland) 1.55
164 Australia 1.77
143 United Kingdom 1.91
128 United States 2.06
108 Indonesia 2.23
81 India 2.58

This table (based on data from Wikipedia) highlights that 2 of Australia's largest trading partners, China and Japan have significantly below replacement birthrates. Two emerging neighbours have relatively high birthrates, Indonesia and India. Most of the large developed countries other than the US have below replacement birth rates, particularly in Europe. One of China's largest markets for manufactures is Europe. The implication for Australia is that the major takers of our commodities are all in significantly below replacement birthrates and three of the main market places for the sale of goods manufactured from our commodities also have below replacement birth rates. Europe, China and Japan (as China and Japan are both large exporters and large markets).

Dependency Ratios
Dependency ratios were relatively high in 1960 compared to in 2000. The higher dependency in 1960 was largely a result of baby boom children still being at school and many young adults having died during the second world war. Dependency ratios are forecast to increase significantly over the period to 2030 for most countries involved in the Second World War which had a post war baby boom.

Broadly speaking, the global low in dependency ratios was around 2000 and they are now tending to increase globally, but not yet in all countries. Japan Italy and Germany had increases in 2010 compared to 2000, while China attained the lowest dependency since 1960 of any of the major economies largely because of its one child policy.


1960 1970 1980 1990 2000 2010
Australia 63.3 59.2 53.6 49.7 49.6 48.0
China 77.3 77.3 68.5 51.4 48.1 38.2
Germany 48.8 58.5 51.7 44.7 47.0 51.2
India 77.6 79.6 75.9 71.7 63.8 55.1
Indonesia 77.0 86.8 80.7 67.3 54.7 48.3
Italy 52.7 55.7 55.3 45.8 48.3 52.5
Japan 56.0 45.3 48.4 43.4 46.6 56.4
United Kingdom 54.0 59.0 56.1 53.2 53.4 51.4
United States 66.7 61.8 51.2 52.0 51.0 49.6

(Source of data: World Bank download from


Demographics change very slowly, both in size of population and in age structure including DR. However they do impact and ought be borne in mind, particulalry by younger investors looking to harvest macro trends over time. For older investors, even recent retirees, they may still impact your total return over say 20 years of life expectancy. Government and Central Bank policies and investor fear and greed are likely to be much more influential in the shorter to medium term.

Friday, April 6, 2012

Exponential Growth Forever - NOT!

The greatest failing of the Australian people is the failure to understand the basic implications of exponential growth. (paraphrasing/adapting Alfred Bartlett of university of Colorado).

The greatest failure of our leaders is to adequately prepare our children for the Limits to Growth.

There are a couple of basic things we should all know about growth, compounding and the exponential function..

1. The rule of 72 lets you estimate doubling times for any rate of exponential growth by mental arithmetic. Just divide 72 by the rate of growth.
2. During the next doubling period (at whatever rate is used) of resource usage we will use more of a resource than has been used in all recorded history.
3. Estimates of resource life at current rates of usage are highly misleading in the face of annual growth in the rate of extraction.

Let's look at a few simple examples, using assumed numbers.

Assume we have 300 years of coal at current rates of extraction, but extraction is growing at 7% pa. (it has averaged over 10% growth pa over the last decade). The doubling time for the rate of extraction is just over 10 years (72 (from the Rule of 72) divided by 7% is 10.something times).

That means that over the next 10 years we will mine more coal in Australia than has ever been mined in the whole of Australian recorded history.

In very simple terms which significantly underestimate the shortening of resource life in 10 year time the resource life will have halved to 150 years from now. In a further 10 years of the same 7% rate of growth it will have more than halved again to only 75 years, but there are only 55 of those 75 years left.

Add a further 10 years of 7% growth in extraction and we can see that again the extraction rate doubles (its just simple mental arithmetic), we use more than has ever been used before in that decade (for the third decade in a row), the resource life halves again to only 37.5 years but 30 of those years are already gone.

300 years of resource at current rates of extraction are gone in 40 years at 7% compound growth per annum. (if you do this with Excel the exact answer is it runs out in the 45th year.)

If you do this exercise with Excel you will find that at 7% compound per annum the resource runs out in the 45th year, but the importance of this exercise above is to show how simple it is to work out the doubling time of the current rate of extraction and a reasonable estimate of the time of depletion of current resources using mental arithmetic.

You can convert this story to oil, iron ore, copper, brick making clay, concrete components, whatever you like. You can do it for population size, the cost of a loaf of bread. How long will it take your city to double in population at x% growth per annum.

Please don't just take my word for this. Open an Excel spreadsheet and do the numbers yourself.

Now many will say more resources will be found, human ingenuity will overcome etc.  If so, what is the cost of extracting those additional resources going to be? And transporting them if oil is also growing in scarcity or cost of extraction?

Prof Albert Bartlett of the University of Colorado has an excellent video (in 8 parts on Youtube) and a transcript of the lecture available on his website. I commend it to you.

 111. Exponential Function transcript - Arithmetic, Population and Energy - a talk by Al Bartlett on the impossibility of exponential growth on a finite planet

111. Exponential Function - Video parts 1 through 4 of Arithmetic, Population and Energy - a talk by Al Bartlett on the impossibility of exponential growth on a finite planet

Limits of Growth
All this leads to consideration of  "The Limits to Growth", both the book and its principles.

This book forecasts the collapse of life as we enjoy it in about 2050 based on increasing resource scarcity.

While it has had many detractors, many of them have not read or understood the book.

In 2008 Graham Turner at the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in Australia published a paper called "A Comparison of `The Limits to Growth` with Thirty Years of Reality".

It examined the past thirty years of reality with the predictions made in 1972 and found that changes in industrial production, food production and pollution are all in line with the book's predictions of economic and societal collapse in the 21st century.

 In 2010, Peet, Nørgård, and Ragnarsdóttir called the book a "pioneering report". They said that, "its approach remains useful and that its conclusions are still surprisingly valid... unfortunately the report has been largely dismissed by critics as a doomsday prophecy that has not held up to scrutiny."

The implications for poor populations (even in developed countries) and poor countries of increasing resource scarcity are profound. Resource wars and colonial subjugation to control resources are clearly possible and probably likely within 50 years. Some would say the Iraq war, East Timor and the Spratley Island tensions are all at least partly about oil.

Monday, April 2, 2012

Coppock Update for End of March

Only Japan has given a BUY on the Coppock Indicator (in its domestic currency, Yen (JPY)).

As at 30 March only the S&P and Nasdaq are not in negative territory and so not able to give an original Coppock BUY.

All Ords, Shanghai 180, Nasdaq 100 and FTSE 100 are in the lowest quarntile of Coppock values in their history from 1984 and 2000 respectively. The All Ords at a value of only 11 is almost in the bottom decile so one might expect an eventual BUY signal to be reliable.

Based on USD values for US ETF's and in the relevant local currency, each one has given a BUY in MACD (170, 150,20) but this is less reliable than Coppock and would have produced some whipsawing even over the period since 1 October 2011.

From the summaries below (taken from a review on Incredible Charts Free Version)
a) US medium and long bonds seem to have stopped rising in price, as do Gold and Energy.
b) Thailand seems close to giving a BUY,
c) Brazil, Germany, India, Japan, Singapore, South Africa, S&P 500 and emerging markets cyclical falls might be coming to an end, although prices look as they they might be on a short term down.

1-3 year US bond (SHY) Below Zero, Falling
7-10 year US bond (IEF) Above, Rising, Flattening
20+ year US bond (TLT) Above, Rising, Flattening

Australia (EWA) Below, Falling
Brazil (EWZ) Below, Falling, Flattening
Canada (EWC) Below, Falling
China (FXI) Below, Falling, Steepening
Germany (EWG) Below, Falling, Flattening
India (INDY) Below, Falling, Flattening
Indonesia (EIDO) - No Coppock generated (Short history)
Ireland (EIRL) - No Coppock generated (Short history)
Japan (EWJ), Below, Falling, Flattening
New Zealand - No Coppock generated (Short history)
Phillipines (EPHE) - No Coppock generated (Short history)
Singapore (EWS) Below, Falling, Flattening
South Africa (EZA) Below, Falling, Flattening
Thailand (THD) Below, Flattened
S&P 500 (IVV) Below, Falling, Flattening
UK (EWU) Below, Falling

Emerging (EEM) Below, Falling, Flattening
EMU (EZU) Below, Falling

Energy (XLE) Above, Falling
Gold (GLD) Above, Falling slowly

Original data for the above dashboard free from Colin Nicholson's Building Wealth Through Shares

All Ords End March 2012 Update

We are in the balance based on the indicators I follow.


All moving averages I follow are pointing up, other than 200.

All the moving averages crosses I follow are positive.

Long Term MACD (170,150,20) was a buy on 19/1/2012 according to Incredible Charts Free Version

Europe has created so much liquidity for the next almost 3 years that few expect a crisis for a year or more even though the PIIGS all have budget and trade balance and current account balance problems that are likely to be insurmountable for probably most of them without continuing drip feed by one subterfuge or other.

US is strong and defying Hussman's and ECRI's calls for recession. ECRI's recession call is so old as to be wrong, certainly in the sense that it was so early as to mislead. I think most people have just moved on to calling it a false call without further qualification or explanation.

Causing Caution

Coppock (14,11,10) has not yet signalled a BUY.

Resistance  at 4400 to 4450 in the All Ords is however very strong as can be seen in the graph at the bottom of the Dashboard. The All Ords has run out of steam above 4300 9 times and fallen back below 4300 and it was over 4400 back on 28 October 2011.

My modified Turtle which is set to minimise, but not prevent, whipsawing does not signal a buy until 4470.

China slowdown continues to bring on commentary and the MACD (170,150,20) is looking like it might break down which could reflect into Australia through commodity prices and volumes.

Australian Economy

Australia maintains the two, three or four speed economy, with those sectors not doing so well calling for assistance and interest rate cuts.

Full time employment and GDP growth remain positive(both YOY), house prices are falling only slowly on average (from some of the highest multiples of average incomes in the Anglo world) and not falling significantly in all markets and inflation has averaged above the middle of the target range for about 2 years, so there does not seem to be a clear macro justification for a cut.

Australia has a good safety net for those who have lost employment because of slowdowns in retail and manufacturing and there are opportunities for those with skills willing to move to mining and processing areas.

The Dutch disease, its likely long term impacts, and the situation in which we will find ourselves if we allow a hollowing out of most of the tradables sector remains a concern, but probably more appropriately handled through fiscal and other policies, not monetary policy.

 Nothing is certain in this world, but my expected outcome is no rate cut in April and none unless the are clear national problems with negative employment growth YOY, major falls in house prices, inflation below the target range (or a clear indication it is very likely heading there).

Sharemarket Outlook

My 3 main scenarios are:
1. continue range trading from a top not higher than 4450 back towards 4000
2. breakout above 4470 but a false break out and no Coppock trigger or a very shortlived trigger undone by the next European, US or Chinese concern. (Spain, Portugal and Ireland are in focus here)
3. breakout above 4470 and a medium term rise of 10 to 30% over 2 years.

If the market breaks out above 4470 I will be in for, say, 50% and if there is a Coppock signal I will be in for the next, say, 50%, but still wary of a crisis induced breakdown.

Saturday, March 24, 2012

Market to GDP Ratios - Can Australia Soar?

The Australian market could soar based on its current Market Capitalisation to GDP percentage ratio. Australia's ratio is the closest to its medium term minimum of 21 markets considered at GuruFocus' Global Market Valuation page (

The whole page is worth a read as it considers GDP growth, dividends in addition to the historical range and current Market to GDP before projecting a growth rate for the stock market over coming years. While I think there may be significant diiferences in outcomes to those projected, the methodolgy and inputs are worth consideration.

The chart on historical GDP growth alone is worth a look:

Does Market to GDP compared to the prior low show Australia will soar?
Here is our current interest, the current ratio of Market to GDP ("M/G")  compared to medium term historical minimums of that percentage. Colours generally help identify the 6 highest and 6 lowest in each column. In the "Years" data column it shows those that might not have a single full cycle and those that clearly have multiple cycles, although only the US data has 1974 and the first oil shock.

From the table above, Australia is the country with the lowest  ratio of current M/G to historical low M/G in the years covered by the data. (Column "Now / Min")

11 countries are closer than Australia to the highest M/G ratio (Column "Now / Max") they have had in the years covered by the data and 9 are further from the historical high so Australia is near middle of the range on this measure.

We should note however that Australia has the second highest historical minimum after Singapore and so could be being rerated internationally because of concerns re housing markets, near extreme high resource prices and currency about 2 standard deviations above long term trend against USD.

If you are looking for a country that has likely above average GDP growth and a low M/G ratio compared to its historical low and in relative terms, China is worth watching.

If you think that Europe will move over time to improve its outlook and grow then Italy and Spain are near their historical lows.

Or Is It A Warning?
One could take the view that the countries regarded by the international investing community as likely to have worse problems  in the near future are the ones with the lowest "Now / Min". If China has a hard landing it would certainly have a bad impact on Australia, and we already know that Italy, Spain, Belgium and France have problems already and they are likely to have shrinking GDP or zero growth if austerity is maintained.

As an aside, if the low M/G is a warning it seems that few believe that US will impose austerity in 2013 as is  the outcome of budget deals already done, defaults on reaching deals and expiring Bush tax cuts. The table below from the Congressional Budget Office shows the dramatic austerity based on current settings. I have little doubt that budget outcomes like these would cause a recession in the US before mid 2013 which would last till at least mid 2014 and that there would be little the Fed could do to alleviate it. If imposed it would be a "recession we had to have" to get debt under control.

                       2011    2012     2013     2014
Revenues        2,303    2,456    2,968    3,283
Outlays           3,603    3,627    3,580    3,668
                     _____    _____    ____    ____
Total Deficit   -1,300    -1,171    -612    -385

And of course, if the US goes into recession other countries either have to stimulate through increased budget deficits or will likely also have to endure recession (and have the automatic stabilisers increase deficits anyway.)

Note on methodology
Because of the differing ranges for differing countries and the apparently different average relativity of the Market to GDP (see Italy which is low at 22.5 and Singapore which is high at 254), I felt it was more likely to be meaningful to look at the ratio now compared to the low point in the ratio. On this measure Australia is the closest to its lowest ratio of Market to GDP based on the last 12 years data (which includes the lows of  of 2002 and 2009 (a dramatic low) and the highs of 2001 (a modest peak) and 2007 (a dramatic high in terms of 5 year growth and compared to GDP).

Notes re years of data 
The data for Australia does not capture the lows of 1974 or 1987 which might have had lower Market to GDP ratios, but these years are captured for some other countries, so some caution is warranted. The Data for all countries other than Belgium captures the 2007 high and 2009 low. The data for all countries other than Italy, Russia and Belgium captures the full cycle from the 2002 low through the 2007 high, 2008/9 low to this year.
The exact date of the last update of GDP figures is not known and so the potential variation is significant for countries that are contracting like Spain or expanding quickly like China.
The last update of the market capitalisation is not known and it is not known whether it is based on the ETF referenced or the total capitalisation of all publicly listed stocks.

Monday, March 5, 2012

Coppock, MACD and Dashboard Update

The month end summary is:

1. Coppock says not yet for All Ords
2. Coppock now says BUY for Nikkei 225 in Yen
3. MACD says BUY for All Ords
4. Modified Turtle says not yet for All Ords
5. Virtually all moving averages say BUY for All Ords
6. 2 Month growth SMA's say pause or fall likely for All Ords

My interpretation is that for a medium term investor, don't buy more until the All Ords breaks 4470 and at present there is a significant risk of a fall of 10% as 2 month growth rates reached rarely sustainable levels (84th percentile at daily peak) and the 10 day and 30 days SMA's of 2 month growth have rolled/are rolling over.

Here are the tables:

Coppock and MACD (some Major International Markets):

Note that only the Nikkei has a positive BUY (for Yen or hedged international investors). All other Coppocks lost ground and the early March figures already show another fall other than for Nikkei, so the end of month figures weren't mere window dressing. The falls for S&P, Nasdaq and FTSE are technically meaningless as the only true Coppock signal is turning up from bleow zero and these indices had Coppocks aboev zero at 29 Feb.

The other major note is that all long term MACD's have already shown buys, but this is a slightly more volatile indicator. Will Coppock follow? Time will tell.

All Ords Dashboard:

The SMA's are generally indicating an uptrend has commenced both on direction of their trend and on most crosses.

Growth percentiles indicate the market is not likely to be overpriced. The 3 year growth and percentile is an artifact of the 2009 bottom and will shortly start to revert as we move more than 3 years from the 2009 bottom, but the 4 year figures will start to look higher as the 3 year figures fall.

2 month growth is slightly elevated above median but is falling from recent highs. It's cycle could indicate a fall of around/near/more than 10% as it's 10 and 30 day SMAs have/are rolled/rolling over.

1 and 2 year performance continue to indicate we are near a median bottom (at Sept 2011) based on data since 1984.

Performance against  GDP also suggest that the market is not overvalued.

Earnings Yield against 10 year Bond Yields indicates the market is cheap compared to most of the modern (post 1960) period, but it should be noted that in the US the Dow (DJIA) went for very long periods where investors demanded higher yields on shares than bonds out of fear of losses based on recent experience, uncertainty and patriotism.


The pattern of recoveries since 1984 also indicates we may well be in a continuing major up trend but there is one major fly in the ointment. The recovery from the bottom in 1987 was terminated by a loos of almost all the gains as we moved to 1991. The 1987 fall takes some relevance as it was the last fall of 50% in the All Ords prior to 2008/9.

The range of possibilities for the future is wide (less so if reindexed to the current day past the bottom and most recoveries continued largely positive from this point, other than the 1987 descent to 1991.

Modified Turtle
My modified Turtle breakout indicator has not yet been broken. I have modified the rules and numbers to reduce chance of being whipsawn, but it comes at a cost of likely lower returns for having missed a section of upturns and selling later in any major fall. The chart above shows the sideways pattern for the last few months and that the All Ords faces stiff resistance around the 40% above the bottom mark which as the following chart shows is at around 4400.From my dashboard above you can see that my modified Turtle says I should have been out for months and not get back in until 4470 (based on being interested in medium term cycles, not trading.)

As volatility has decreased so has the distance between the buy and sell lines. The upturn in various SMA's of the All Ords can also be seen in the chart below.

Being loss sensitive because I am in drawdown phase I am waiting to see if the current peaking of the 2 month cycle leads to declines, waiting for a Coppock BUY signal and waiting for a modified Turtle break out.

Friday, March 2, 2012

Building Approvals Review

Building Approvals by Value jumped dramatically in January 2012. The jump is in the 99th percentile of monthly growth since 1974.

There are also some concerns about the YOY and MOM jump in value in Victoria and SA.

NSW Vic Qld SA Total
MOM -9.1% 75.3% -6.2% 1043.8% 51.0%
YOY -3.2% 85.6% -0.7% 774.2% 61.5%

MOM -27.5% -23.2% -34.2% -64.9%
YOY -15.1% -46.1% 76.8% -48.2%


The main point of this article is to look at the trends and whether we are looking at an employment recession, particulalry in Victoria and NSW.

The chart below is deflated at 7.5% . This is 3.5% for inflation, 2.0% for population growth and 2.0% for increases in real wealth (which leads to bigger more expensive buildings and more space per person in a building. The result of choosing these deflators is that the use of a 7.5% total deflator gives a virtually horizontal linear trend, putting slowdowns in sharp relief.

From this chart of deflated building approvals, the current 12 month moving average is about the level of the 2001 bottom. 2001/2/3 was a period of very slow growth in Real GDP.

Jun-2001 0.6%
Sep-2001 1.6%
Dec-2001 0.8%
Mar-2002 1.4%
Jun-2002 1.1%
Sep-2002 0.5%
Dec-2002 1.0%
Mar-2003 0.3%
Jun-2003 1.2%

While GDP might be supported by the resource boom, there is a real chance that employment in the most populous states will not as older more experienced workers with construction experience will be less mobile, while younger, more mobile workers will have less experience and it might not be regarded as sufficient for more complex resource project construction.

The possible solution to lower employment in Sydney & Melbourne will be fly in, fly out (FIFO)but with lower wages than might otherwise be the case as construction unemployment bites harder. FIFO will bring its own problems for families and resource companies but would ameliorate the labour and employment problems that will otherwise exist.

Now is the time for construction workers in Sydney and Melbourne to be increasing skills relevant to resource construction and operations, including vehicle and equipment licences, specialised welding skills and the like.

Could the Reserve Bank be keeping rates high to encourage savings to fund the resources boom and to cause concern for developers to allow some unemlpoyment in construction to assist in providing labour for the resources boom, or is it just a happy congruence of events?

Thursday, March 1, 2012

Is This Why Whitlam "Had To Go"?

Maybe it was a backlash against rapid social change, maybe it was a reaction to some very poor/naive ministerial thinking like the Khemlani Loans Affair, maybe it was because of the proposed "buying back the farm" (well mining projects actually) by RFX Connor, maybe it was because of the destabilising effects of inflation, or maybe it was because the owners of businesses could see themselves going backwards compared to nominal GDP growth.

Since about 1960 to now the Australian All Ords has grown at just over twice the rate of GDP. But it grew far slower than that during the Whitlam years. In fact GDP went up by 95% from September 1959 to September 1974 and the Stock market was back at it's 1959 level.

From June 1972 to September 1974 the All Ords fell from 414 to 194 (over 50%) while GDP grew by 6%.

It looked terrible for owners of shares. But from 1975 to 1987 were the golden years for shareholders as PE ratios were rerated from 5.4 to 20.1. Since 1987 PE's have fallen back to about 15 but that has been offset by GDP growth over the period.

The Whitlam years coincided with some of the worst years ever for shareholders in terms of shareprice growth compared to GDP growth. Look at the increase in cumulative under performance from late '72 to '75. December 75 was -100 on the chart. It didn't get much worse than during the Whitlam years. (I am not arguing causation, as that must be considered in light of the first oil shock.)

(When the edge of the purple area is sloping down to the right shares are getting a lesser share of GDP growth over the last 10 quarters, when the edge of the purple area is sloping up to the right shares are growing much faster than GDP over the last 10 quarters).

The chart also provokes the question, "In a just and equitable society should", or alternatively "Does efficient capitalism really demand that" equity holders get a return that grows at twice the rate of GDP?"

"In a self centred society are workers entitled to use whatever means they can to maximise their share of production, income and wealth in the same way owners of capital are so entitled?"

Or as Ayn Rand might say the proper moral purpose of a one (worker)'s life is the pursuit of one's own happiness (or rational self-interest), ......even if it means forming unions and demanding an unsustainable share of the fruits of production and service.

Dangers in Periodic Growth Measures - But the Medium Term Outlook Could Be OK

As we approach the 3rd anniversary of the 6 March 2009 bottom of the Australian All Ordinaries let's look at actual and projected growth for the All Ords.

Consider the following tables. Each table includes a column which shows what percentile of performance since 1984 each period's performance falls within. For comparison, the right hand column shows the median percentile for each period taking into account all tops in the All Ordinaries since 1984. The performance which might cause concern that we are near a market top is highlighted red in the percentile column. We will see how it advances year by year because of the change in the market levels which are falling out of periodic performances as time goes by.

At 6 March 2012 if the market is at about present levels (I have assumed 4400):

All Ords 4400 6/03/2012 Med Top
Perf Over % Percentile Percentile
1 year -10% 14 68
2 years -8% 16 83
3 Years 40% 76 77
4 years -20% 4 54
5 years -23% 0 79

Three year growth looks quite high in percentile terms. You might feel that, based on that measure, the market shouldn't go much higher. But on each other period the market is at quite low levels of growth and could easily be higher.

Also, what will happen to 3 year performance after 6 March 2012 if the market stays at about current levels? It will fall significantly!

But, 4 year performance which is presently near all time lows in percentile terms will start to increase significantly!

This happens as the relatively high market levels of 2007 and early 2008 fall out of the calculation and are replaced by the lower values of the current market, even if the All Ords stays around current levels.

So lets look at a scenario for 6 March 2013. We will see that 3 year performance goes back to well below the mean (50th percentile) at 16th percentile, whereas 4 year performance is now in the 65th percentile and well above the median 4 year performance for market tops since 1984.

All Ords 4400 6/03/2013 Med Top
Perf Over % Percentile Percentile
1 year 0% 29 68
2 years -10% 12 83
3 Years -8% 16 77
4 years 40% 65 54
5 years -20% 0 79

So now we can look at 2014 and 2015 and you will see how the percentile performance would continue to change each year. These tables continue to use 4400 (around current market values, rounded for convenience) at 6 March 2014 and 2015.

First 2014:

All Ords 4400 6/03/2014 Med Top
Perf Over % Percentile Percentile
1 year 0% 29 68
2 years 0% 25 83
3 Years -10% 14 77
4 years -8% 12 54
5 years 40% 38 79

And now 2015:

All Ords 4400 6/03/2015 Med Top
Perf Over % Percentile Percentile
1 year 0% 29 68
2 years 0% 25 83
3 Years 0% 22 77
4 years -10% 9 54
5 years -8% 1 79

 It can be seen that by 6 March 2015 without further growth the All Ords would be well below median values for each performance measurement period, would be near all time lows in growth percentiles for 4 and 5 years and dramatically below the median levels of performance for each period at prior market tops since 1984.

In fact the All Ords could grow by 12% pa for each of the next 3 years (from my assumed level of 4400 at 6 March 2012) and all performance measurement periods would be below the median levels for the market tops since 1984. In the table below the rows are in descending order from 1 to 5 year performance. The top half of the table is percentage increase over the relevant period of years. The bottom half of the table shows the percentile since 1984 into which that performance falls, again in descending order from 1 to 5 years. Every percentile in 2015 is less than the median percentile for that period of performance for the market tops from 1984 to February 2012.

6/03/2013 6/03/2014 6/03/2015 Med Top
12% 12% 12% 15%
1% 25% 25% 37%
3% 13% 40% 41%
57% 16% 26% 33%
-11% 75% 30% 70%

61 61 61 68
26 70 70 83
26 38 77 77
83 33 44 54
0 85 26 79

The moral of the story is that after booms and busts, when looking at relative performance compared to historical records, care has to be taken to ensure an understanding of what is falling out of the periods as well as what is coming into the periods from recent changes.

This is not a prediction of market rises for a particular length of time or even at all. It is just to ensure that we understand how the performance of the market over time periods is affected by the index values falling out of the period being examined. It also gives some idea of what could be possible if past patterns were to repeat, but past performance is no guide to future performance. Remember Japan and look at China and consider our private debt levels.

Since 1985, the longest period of negative 1 year growth being maintained appears to be from January 2008 to September 2009. The shortest significant periods seem to last about 12 months. But to get back to 0 growth over 1 year the market has to have turned up from the lows which would seem likely to have occurred by 6 months after 1 year growth first went negative. If the 1 year growth went negative in around July 2011, then by December 2011 you would be expecting to see an upturn in the market, with 1 year growth getting back to positive by July 2012.

There are a lot of things indicating that unless this time is different, the current upturn is likely to be sustained for a year or two.
1. Coppock is looking like turning up from below 0 and has been down to 13th percentile
2. 1 year performance has been negative for almost 9 months and has been down to 14th percentile
3. 2 year performance has been down to the 8th percentile, currently 13th percentile
4. Market has been to a median bottom based on various measures such as percentage fall of 20%, sum of growth over 1 & 2 and over 1, 2 & 3 years and has recovered more than 10%
5. 10, 30, 50 and 100 day moving averages have all turned up.
6. The 3 quarter market performance compared to a long term average has started increase. It rarely breaks down again until getting well into positive territory (ie getting 3 quarters at significantly above 7% pa increase in All Ords)
7. RBA has moved away from forecast tightening to having eased and being aware of the contractions in the real, non-resource, high employment sectors of the economy.

So statistically speaking the probability is for the All Ords to rise over the medium term (unless we were to have a performance like Japan where the performances and percentile cureves changed dramatically during the unwinding of the 1990's bubble.)

The Caveats to this are:
1. Things can always get worse as they did leading into 1991 which fell back almost to 1987 lows.
2. China could have a hard landing
3. Greece will still probably default eventually and Portugal and Ireland are not out of the woods.
4. There are still some calls out for a US recession based on "ensembles" of data (ignoring monetary data which has been grossly distorted by FED intervention, although Hussman seems to have let his timeframe drift out from 8 weeks to 18 months and ECRI seem to have gone very quiet. The Conference Board revised its Leading Indicator series but it suggests that the danger may have passed.
5. Oil prices are back near recent highs and there is uncertainty regarding Iran supply.
6. There is virtually no growth in Australian employment and this often leads to recession, but the savings rate seems to have stopped rising so as incomes increase even at low rates it might now flow into spending.


Assigning probabilities I would say 70% chance of a reasonable period of growth continuing for up to 1 to 2 years, with the chance increasing to 85% if we get a positive Coppock signal and the market breaks out above previous resistance around 4500. The Coppock did not give a signal at the end of February, 2012.

12% pa growth from current levels for the next 3 years would not look extraordinary for 1,2 or 3 years, although the 4 and 5 year growths would look quite high in separate years as explained above.

An All Ords of 5300 in 2015 would look quite reasonable on most "growth over period" measures.

Whether that growth would be evenly distributed or would be higher in currently depressed sectors is a matter of conjecture.

Thursday, February 16, 2012

Without PE Re-rating There's Not Much Appreciation

The period from September 1974 to March 1992 was an incredible time to be a holder of the All Ordinaries.

This was the period after the first oil shock and during which stag/inflation was defeated.

The period was marked by the re-rating of PE ratios from 5.4 to 20.1. That PE re-rating drove huge increases in the value of the All Ordinaries.

When you compare that period to some others of equal length and to the period since June 2001 to now, you quickly see that when you strip out the period of the re-rating of PE's, capital appreciation from the All Ords is very poor compared to commonly quoted numbers like 7% pa.. The capital appreciation shown does not include dividends, which would add a few percent onto the return (and really should not be ignored, but are for the purposes of this comparison).

The table below shows the rates of return after indexing each period to 100 at the start date of that period.

Start Date Sep-1974 Sep-1994 Sep-1961 Jun-2001
End Date Mar-1992 Mar-2012 Jun-1979 Mar-2012
Start 100 100 100 100
End 815 210 197 124
N Per 70 70 70 43
Rate / period 3.04% 1.05% 0.95% 0.51%
Nom Rate PA 12.2% 4.2% 3.9% 2.0%

We can see the same thing graphically which brings the point home more sharply. The sustained dramatic capital appreciation occurred only during the period of re-rating of PE's as inflation was defeated.

We can also see the 2004 - 2007 boom quite clearly in the chart below ( at period 41 to 55 in red and 12 to 26 in yellow) and ask ourselves why we thought it would never end, particulalry when we look at consistency of 10 year government interest rates over the period and the lack of any real boom in GDP growth.

The only consolation we can take is that over the coming 27 periods we could see a higher rate of capital appreciation of 7.1% to the end of 2018 if we are to get to the 200 indexed value seen for the other two 70 quarter periods (not including the re-rating period) in the chart below.

The questions then are,
1. "What sort of appreciation ought we expect from buy and hold in the absence or a significant re-rating of PEs?"
2. "Are we likely to see a re-rating of PEs and if so which way?"

Long term bond yields are presently low compared to earnings yields on the All Ords. If interest rates go down and stay down then a re-rating is possible and even likely over a few years. If interest rates come back up, then there could be big losers in bonds and possibly in stocks.

Overarching all of this is "How long will the Balance Sheet Recession last?"

Tuesday, February 14, 2012

Mid Feb Coppock, Long MACD, Modified Turtle and Dashboard Update

My long term MACD indicators are saying BUY for the major markets I watch, The All Ords moving averages directions and crossovers other than 50 > 200 are saying BUY, but the traditional Coppock is saying "not yet" for the markets I follow (although the All Ords is neutral mid month). My big reservation for the All Ords is that it may still be range bound between 3900 and 4500 and my modified Turtle indicator has not signalled a buy, although it is set for few whipsaws. It requires a breakout above 4450 but having been whipsawn once I am looking at 4500.

Coppock Dashboard (including MACDs, using close US ETF as a proxy when looking at USD values).

Note that I have added a percentiles row in the Coppock Table. 4 of the 6 markets listed have Coppock scores in the lowest 30% in the history I have. Japan is unusual in that it has been in a Secular decline for over 20 years with progressively lower ending bear markets, so its Coppock score's relatively high percentile reflects that. one day Japan might move into a secular bull market, although its demographics are against it.

All Ords Dashboard including Coppock, Modified Turtle and Median Bottom Comparison (1 & 2 Yr growth).

Note that other than Coppock, modified Turtle and 3 year growth rate everything looks BUY. I think the 50 > 200 cross is too subject to whipsawing to be a first indicator of a BUY or SELL, so I tend to discount it.

I note that we are still around a medium term bottom in terms of 1 and 2 year growth, but as we approach the 3 year anniversary of the March 2009 bottom the 3 year growth and its percentiles become more worrisome.

At 4400 it would be 40% and 81st percentile.

At 4900 it would be 58% and 91st percentile.

As we pass the 3rd anniversary then it is possible that even if the All Ords stays relatively stable 3 year growth will moderate as the lows fall out of the period, but 4 year growth may increase as the 2008 highs fall out of the 4 year period. Remember, periodic growth figures are as much about what has fallen out of the start of the period as about the recent changes in the market. both ends of the period count.

Modified Turtle Says Not Yet

Because we are below the previous recent peaks around the 4400 mark there is a real risk of being whipsawn by a range trading market. The modified Turtle indicators are set to minimise risk of being whipsawn.

My Modified Turltle is not a guarantee against whipsawing, but it is set to minimise them, but at the cost of missing some rise before buying and enduring some fall before selling so any whipsaw will be costly. The BUY and SELL are 8.6% apart at present.

Fundamentals, GDP, Emerging Markets and Comparative Bond Yields not considered.

I have not considered fundamentals, fiscal settings or relationships with GDP and Bond Yield in any detail in this post. This post is primarily about market timing indicators.

 I remain concerned about recession risk in Australia. My indicator is YOY employment growth being flat and trending down, a strongly inverted yield curve 3M to 3Yr and 3M to 10Yr and AUD still very high and recently increasing hurting manufacturing and tourism.

All Ords growth compared to GDP growth is at a relatively low level, even if the extraordinary growth in the All Ords from '74 to '87 as PE ratios adjusted from 5.4 to 20.1 is discounted.

10 Year Bond yields are reflecting a strong preference for Government Bonds over Shares. This could lead to a PE re-rating over time, or could indicate danger for bond prices if there were no recession and emerging inflation leading to rises in rates across the yield curve or a liquidity squeeze because of our dependence on offshore savings to finance our debt. I regard inflation as unlikely given Australian fiscal policy of striving for surplus next year, but the squeeze on offshore funding is already evident from the recent bank rises in variable mortgage rates.

My article on the Cream Portfolio shows that a mix of 6 Emerging Markets have been very good over 10 years and seem very consistent and still trending well.

If the trend is your friend, then subject to the whipsawing and range trading caveat, its now, when Coppock turns up or at over 4500.

Maybe 1/3, 1/3, 1/3 is something to consider.

Not Financial Advice

As always, this is not financial advice, just my thoughts on investing which may be totally inappropriate for other people's circumstances and which change with changing markets. While history may rhyme, it may not be a good guide to the future.

Saturday, February 11, 2012

The Cream Portfolio

Give me the Cream
The Cream Portfolio comes in two flavours, Developed and Emerging. Each flavour has a special recipe.

Emerging Cream has a sweetness in excess of 3, while Developed Cream is much less sweet at only a bit over 1. (Average the top 6 scores in the far right column of each of the tables below to see what I mean.)

I sure wish I'd have seen the recipe for Emerging Cream 10 years ago!

What are the Recipes?

Developed Cream is made from:
1. New Zealand
2. USA
3 Ireland
4. Australia
5. Singapore
6. United Kingdom

Emerging Cream is made from:
1. Indonesia
2. Phillipines
3. Thailand
4. Colombia
5. Peru
6. South Africa

Can I improvise?
All good cooks improvise. You can have Emerging Cream with Developed Cream, or you can leave out or add ingredients. Or you could choose to mix up an entirely different batch, but it might not be cream, although it might become cream later. You could leave out the last 1 or two ingredients in each flavor, but that would reduce the diversification and increase the risk. You could add more ingredients and increase the diversification, and probably reduce the "risk"and probably dilute the return. You could make a Mixed Cream flavor with some ingredients from each recipe.

Show me the Money!

Here are two charts that show you the money about the Cream Portfolio.
Developed Cream

Emerging Cream

Look at the returns in the Emerging Cream. It has certainly been a lot sweeter than Developed Cream!


Making the Cream Portfolio is based on analysis of the best performing markets in USD terms over a number of different periods weighted towards following recent trends.

The data comes from MSCI Barra Performance tables for Countries.

I have weighted 3 Month To Date, 1 Year to Date and 3 Year To Date performance with multiples of 10, 7.5 and 5, then calculated a total. Then I have ranked each of the tables by the total score.

In each time period in each table I have coloured the better performances in Green and the worst ones in Red.

From the consistency of the Green and Red you can see that some countries know how to make the stock market go up or are blessed with the right resource mix and some don't.

Maybe the terrible performances of eg the EMU countries will revert. If they do it will be picked up through the heavier weightings of  3MTD and 1YTD compared to 3YTD.

You can get the data for free and make your own version and play wioth different weightings, but you can see from the consistency of the colours across time that it won't change the rankings dramatically.

Every 3 months (or more or less frequently if you like) you can redo the exercise and adapt the recipe.

A Few Caveats
This is stock market cream. Sometimes stock market cream can go sour virtually over night, like in 1987. Sometimes it goes sour slowly but still goes very sour, like in 2008. You might decide that too much stockmarket cream is not good for you and add some sort of Long Term Bond Cream to the mix. When you play with recipes sometimes you spoil them and wish you had stuck to the original. Nothing works all the time, but I was impressed by the historical consistency as well as the sweetness of both the Emerging Cream and Developed Cream. Finally recipes go out of favour and what was goo last year might not be good next year!