Economic Update: April-June 2021

Economic Update: April-June 2021

Updated on COVID-19, Economy

Employment surprise JobKeeper was a cornerstone of Australia’s response to the coronavirus pandemic. It provided millions of Australians with an ongoing income and kept thousands of businesses afloat, so when it came to an end in March expectations were that there would be a sharp spike in unemployment. One estimate was that 150,000 workers would lose their jobs. Happily, that wasn’t what happened. From March to April the unemployment rate dropped from 5.7% to 5.5%, then fell to just 5.1% in May. That’s below the 5.2% that applied in January 2020 before the pandemic hit, and an amazing outcome given the damage that COVID-19 continues to inflict on a virus-weary world. Housing continued to sizzle… Aspiring homeowners and upsizers endured another quarter of woe as home prices continued to soar. Nationally, dwelling prices were up 6.1% for the quarter and 13.5% for the year, with houses outperforming units. Of course, on the other side of the equation are homeowners, many of whom are delighted by the significant boost to their wealth. Continuing low interest rates remain the key driver, but other issues have played a part, including stamp duty discounts and households redirecting the cash they would otherwise have spent on overseas holidays. Lockdowns last year also affected the normal supply of property leading to pent-up demand. As subsidies are rolled back, supply and demand normalise and if population growth remains low, property price growth may well come back to ‘normal’ levels. And despite the RBA not expecting to raise interest rates until at least 2024, some economists are pointing to the low unemployment figures to predict that interest rates may begin to rise by the end of 2022. There is also growing speculation that the RBA and APRA will lift lending standards (e.g. requiring lower loan to valuation ratios) in order to rein in galloping price growth. …as did share markets Global markets performed strongly over the quarter with many setting record highs. Locally the S&P/ASX200 rose 7.7%, beating the MSCI All-Country World Equity Index, which was up 6.9%. Tech shares were back in the lead with the NASDAQ gaining 11.2%, while the S&P500 rose steadily to gain 8.6%. The Aussie dollar fell slightly against the major currencies weakening late in the quarter following talk that the next move in US interest rates may be up. Also… – Workers receiving the minimum wage will see a boost to their pay packets from July, with the minimum wage rising by 2.5% to $772.60 per week or $20.33 per hour. – Most people will see the superannuation guarantee (SG) payment from their employers rise by 0.5% to 10% of normal wages. This is one step on the path to raising the SG to 12% by 2025. – According to Credit Suisse, nearly one in ten Australians are now millionaires. Twenty years ago the figure was less than 1%. Of course a million dollars today doesn’t have the buying power it did 20 years ago, but only Switzerland has more millionaires per capita than we do. – Massive infrastructure projects and home renovation booms have caused a global shortage of building materials. An indicator, perhaps, that some COVID-19 stimulus measures have been a tad overdone?   The information provided in this article is general in nature only and does not constitute personal financial advice.

What does a good financial adviser do?

What does a good financial adviser do?

Updated on Aged Care, Budgeting, Economy, Finance, Insurance, Investing, Retirement, Superannuation

Some people may think that a financial adviser’s role is to forecast the direction of the share market from month to month and invest clients’ money accordingly. This is not the reality, of course. Investments are only one small part of what your financial adviser can provide for you. Consider for a moment the number of websites, newsprint and broadcast time dedicated to financial topics these days. Australians seem to have an insatiable appetite for understanding finance. Whether it’s the latest share market activity, economic news or the constantly changing tax and superannuation rules, a licenced financial adviser can help answer your burning questions and save you the hassle of finding it yourself. Usually, the benefit you receive from a financial adviser can be spelt out in dollar terms. It might be the income tax you have saved by re-structuring your salary, or a new concession from the Australian Tax Office (ATO) or Centrelink that you didn’t know you could get. The finance section of your newspaper or online magazine probably includes a regular “advice” or “Q & A” column. By law, these columns must warn readers that the advice does not consider your personal situation or needs, and you should consider its appropriateness before acting. In setting your financial strategy, a good financial adviser will take the time to get to know you and your circumstances. This means that everything recommended to you—the investment portfolio, super contribution strategies, savings plans and insurance advice—is tailored to your personal needs, goals, and tolerance to risk. As the years go by, your financial strategies will need adjusting due to changes in the broader environment or something closer to home. Whatever the case, your adviser is there to help you make the most of the good times and the bad. And a regular financial review doesn’t always mean major changes, but at least you’ll know that you’re on the right track – and not having to do it alone. Quality, knowledgeable advice is critical, and wherever you are on your financial path, now is always the best time to talk to us.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Quarterly Economic Update: January-March 2021

Quarterly Economic Update: January-March 2021

Updated on COVID-19, Economy, Investing

The global COVID-19 jab-fest gathered pace with some countries, including Israel and the United Kingdom, achieving high rates of immunisation. However, the rollout has had some issues. Rare side effects linked to the AstraZeneca vaccine saw a number of countries suspend its use for a period of time, and Australia was slow off the mark with its immunisation rollout. The longer it takes to vaccinate the world, the slower the economic recovery. Hot property Pushing COVID-19 off the front pages was the big jump in residential property prices. Nationally, CoreLogic’s home value index jumped 5.8% for the quarter. Sydney led the jump with a 6.7% lift. In March alone the index rose 2.8%, the biggest rise in 32 years. Most of the action was on the first home and owner-occupiers front, though investor purchases were also up. The main fuel being added to the property price fire is ongoing low interest rates. With the RBA indicating rates will most likely remain low for years, that could continue to inflate property values and see more people priced out of the market. Helping to fuel the market was good employment numbers. Seasonally adjusted, the ABS reported an unemployment rate of 5.8% in February, down from 6.3% in January. However, this counts people on JobKeeper as employed. Taking this into account, Roy Morgan put unemployment at 13.2% in February, with 21% of the workforce either unemployed or under-employed. Blocked artery In late March the container ship Ever Given provided a graphic example of how small things can have a huge impact. Strong wind gusts saw the giant ship wedge itself bank to bank across the Suez Canal, one of the world’s main shipping arteries. Suddenly 30% of world container shipping ground to a halt. Fortunately, the ship was freed after a few days, and the backlog of ships was cleared a few days after that, but it was a stark reminder of how vulnerable large parts of the economy are. Key numbers The pace of recovery in the local and international share markets slowed during the quarter as prices crept close to or exceeded their pre-pandemic levels. The S&P/ASX200 rose 3.1%, trailing the MSCI All-Country World Equity Index, which was up 4.2%. Tech shares ran out of puff with the NASDAQ only gaining 1.4%, while the S&P500 surged late in the quarter to gain 6.1%. The outlook Many countries are experiencing third and fourth waves of COVID-19, and it’s a fair bet that the virus will continue to dictate the way we live for some time to come. But it’s not the only game in town. US President Joe Biden has taken climate change off the back burner and moved it front and centre. That means our government and businesses will need to pay it a lot more attention too. Expect carbon tariffs to become a hot topic. On the local front, with interest rates all but ruled out as a tool for managing the residential property boom, talk is turning to the use of regulatory methods to dampen demand. These could involve requiring bigger deposits or limiting the rate of credit growth. And with JobKeeper now wound up employment figures will come under close scrutiny. Expect to see a jump in unemployment this current quarter.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Economic Update: October-December 2020

Economic Update: October-December 2020

Updated on COVID-19, Economy, Investing

COVID-19 update Finally, some good news on the COVID-19 front: several vaccines have been rolled out in a number of countries. While a huge step forward in bringing the pandemic under control, it comes at a time when, globally, more people are being infected with the coronavirus, and more people are dying from it than at any previous point in the pandemic. There is a long way to go before victory can be declared. Meanwhile, Victoria squashed its second wave of COVID-19 infections, sparking a bounce in its economy as it enjoyed an extended period of no community spread of coronavirus. Unfortunately, the virus found a way back into both Victoria and NSW, kicking off fresh border closures and holiday chaos. The local view As was widely anticipated, the RBA cut the cash rate target by 0.15% to 0.1% in November. While welcomed by borrowers the cut put additional pressure on net savers by making it even harder to find low risk income yielding investments. Some are turning to peer-to-peer lending platforms, or even high yielding shares, which may partly explain the strong recent performance of the ASX. The official unemployment rate in November was 6.8%, the same as in August. However, using a different methodology, Roy Morgan calculated unemployment to be 11.9% in November, with a further 9.1% under-employed. While hardly cause for celebration, this was the first time since the pandemic began that both figures showed a month-on-month drop. The world stage The US election delivered a change of president, with markets responding positively as the result became clear. As the year came to a close, a sigh of relief was heard from millions as the US Congress approved a coronavirus relief package worth $US892 billion ($1.18 trillion). The package includes $US600 payments to most Americans. After years of negotiation and with just days to spare, the UK and EU managed to agree on a BREXIT trade deal. While it will keep the goods flowing between the UK and Europe, the agreement doesn’t cover the huge services sector. The markets It was a good quarter on the markets with the main global and US indices zooming past pre-COVID-19 levels. The MSCI All-Country World Equity Index rose 13.4%. The Australian market followed suit, with the S&P/ASX200 rising 13.3%. However, the Aussie market has yet to return to its February high. In the US the S&P500 rose 11% and tech stocks continued to attract buyers with the NASDAQ up 15.5%. The A$ gained strength rising 8.2% against the greenback. While partly due to a weakening of the US$, the A$ was also up 2% against the British Pound, 3.4% against the Euro and 5.6% against the Yen. The outlook Beyond direct health effects much of COVID-19’s economic impacts have been due to fear. It will take many months, but as vaccines are rolled out, and provided they bring the pandemic under control, much of that fear will dissipate. As it does economic activity should pick up strongly. Less likely to see any positive developments in the immediate future is the tense relationship between Australia and China. Australian coal miners, winemakers and barley growers will continue to bear the brunt of the dispute. Fortunately, China is still highly dependent on Australian iron ore, the price of which has soared by 78% since the start of the year. For current market conditions and further economic analysis, contact our financial advisers. We’re here to help!   The information provided in this article is general in nature only and does not constitute personal financial advice.

Market crashes: The good, the bad and the ugly

Market crashes: The good, the bad and the ugly

Updated on Economy, Investing

Just as night follows day, it seems part of the regular cycle of the world’s share markets that market crashes and falling prices follow good times and rising prices. The impact of the COVID-19 Global Pandemic has been typical of such downturns, prompting a 35 per cent sell off in world share markets and a dramatic fall in economic activity. For many, it has prompted memories of other equally, and sometimes more devastating, downturns in the world’s share markets. The most famous was “Black Thursday” in 1929, which led to an 80 per cent collapse in share prices and sparked the Great Depression, lasting for more than 10 years. What caused it? The wild excesses of the roaring twenties when consumer confidence was at a record high and the introduction of margin loans, where people could borrow up to 80 per cent of the value of shares. This created a classic investment bubble, where optimism overwhelmed caution, and people started buying shares with the mistaken belief they would always increase in value. A drop in agricultural production due to droughts and a fall in economic production caused a sudden reversal in sentiment. A similar situation occurred 60 years later in 1987 where panic selling on Black Monday wiped approximately 30 per cent from the value of the key US market index, the Dow Jones – its biggest one-day fall. It put an end to the ‘Greed is Good’ mentality of the eighties and prompted a review of the relatively new, computerised share trading systems. Yet it seems investor’s memories are short. Not long after this, markets got caught up with a new investment bubble prompted by the development and growth of the Internet. Companies raced to find their place online, and suddenly, all Internet companies were considered a sure bet. This speculative buying ran out of steam when the Dot Com Bubble finally burst in 2000, wiping 45 per cent off the value of shares. Whilst sharing commonalities with previous crashes, the Global Financial Crisis of 2008, was also in many ways unique. It was the direct result of dodgy lending practices in the US housing market, which created a toxic class of home loans, commonly referred to as sub-prime loans. Typically, these lenders ignored the individual’s ability to repay the loans and instead focused on the belief property prices would continue to rise, and there would always be people prepared to rent these properties. It created a typical investment bubble in the US housing market. Eventually, people found they could not meet their repayments, nor could they sell the properties held as securities. Causing enormous problems within the US banking system and the collapse of several international banks. The lesson to be learnt from all these devastating crashes is that while no two were the same, they were all similar in nature. All were created by exaggerated investor beliefs that prices would never fall. Therefore, it is essential to think carefully before investing, ensuring each investment is made with a long-term mindset, and that sudden market corrections do not lead to panic selling. As history has shown, market downturns follow upturns, but as long as the investment is fundamentally sound, it will fully recover any lost value. Contact us today for sound investment and financial advice to withstand market volatility.   The information provided in this article is general in nature only and does not constitute personal financial advice.

Why seeing a financial adviser could be your best Xmas gift

Why seeing a financial adviser could be your best Xmas gift

Updated on Economy, Investing

The run-up to Christmas is usually a hectic time. Aside from the shopping and Christmas parties, there are deadlines to meet, loose ends to tie up and, for many farmers, the last of the crop to harvest. Whatever Christmas looks like for you, it’s essential you spend your time and money in a way that brings you and others around you joy and deeper connection. This is a time of year where there are rarely work and other commitments that need attention, leaving us with the space to focus on deepening the special relationships around us. Put simply, Christmas is about quality time with loved ones, not overextending yourself by spending too much. Once the big day is over many of us are able to slip into a more relaxed mode, but as your focus turns to leftover turkey and pudding, or lounging on the beach, why not spare a thought for your financial situation? With everyone else relaxing, the Christmas holiday period can be an ideal time to check your finances and start the New Year with everything in order and heading in the right direction. As their clients hit the beach, the holiday period is often a quieter time for the financial advisers who remain on deck. That’ll make it easier to see a busy adviser. And while there’s always plenty to do down on the farm, that post-harvest period may be the perfect time for farmers to sit down with their financial advisers. If a rainy day puts a dampener on your holiday fun, why not dip into the filing cabinet and tidy up the paperwork? You may be able to get rid of old documents you no longer need (make sure you dispose of them securely), find new opportunities, or discover important things that you’ve overlooked. Is your cash working hard enough for you? Has your portfolio become unbalanced? Are your personal insurances all in order? Are you saving enough? So why not make a Christmas resolution, to call us and make an appointment to review your financial situation. You’ll come away well equipped with some New Year resolutions to keep your finances humming along for the year to come.   The information provided in this article is general in nature only and does not constitute personal financial advice.

What is money… really?

What is money… really?

Updated on Economy, Finance

That $50 note in your pocket. What’s it worth? “$50,” you say, probably thinking it’s a dumb question. But is it really? Or a sheet of plastic and a bit of ink that likely cost the note printer less than a cent? Your $50 note only has value because the government declares that it does. This lack of intrinsic value means your $50 note, and the balances of bank accounts that represent most money in circulation, might better be described as currency rather than ‘real money’. Over the past few thousand years all sorts of items have been used as currency, from shells and cocoa beans to soap and cigarettes. But to be considered real money, several key criteria need to be met. The most important are that it is: Recognised as a medium of exchange and accepted by most people within an economy. Durable. Portable, having a high value relative to its weight and size. Divisible into smaller amounts. Resistant to counterfeiting. A store of value over long timeframes. Of intrinsic value, i.e. not reliant on anything else for its value. Throughout history gold and silver have come closest to meeting these and other criteria, though nowadays you’ll have difficulty in paying for your groceries with gold Krugerrands. Also, you’ll want to keep your gold and silver in a safe place, and it was people seeking to do just that which gave rise to paper money and our current system of bank-created money. What started out as a good idea… Centuries ago goldsmiths would take in gold and silver for safekeeping and issue the owners receipts, or notes, confirming the amount of gold held. The depositors soon discovered that these notes could be used for payment in place of the physical gold, but the goldsmiths noticed something else. It was rare for anyone to redeem all their notes at once. They saw the opportunity to issue notes as a loan that borrowers paid back over time, with interest. Provided borrowers paid back their loans on time and only a small proportion of owners wanted their gold back at any given time, all was well, and goldsmiths transformed into bankers. But this didn’t always work out. An economic shock might see everyone wanting their gold back, and if the bank couldn’t deliver the full amount that was demanded, it went broke. To help prevent this, many countries created central banks, with some governments even acting as lender-of-last-resort. While government control and the rules around banking have evolved over time, private banks are still the source of most currency created today. When things get real In economically stable times it’s easy to think of currency and real money as the same thing. However, a couple of examples reveal the difference between the two. One is when a government starts printing money to pay for its programs. Inflation usually results, and the value of currency can plummet. In the case of hyperinflation, paper money and bank deposits can quickly become worthless as happened in Germany in the 1920s. The difference between currency and real money and the issue of intrinsic value has implications for other investments. If you would like to learn more, talk to us. We’re here to help.   The information provided in this article is general in nature only and does not constitute personal financial advice.

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