FMA Wealth Commentary – June 2020

All aboard!! called out the Fat Controller as Thomas the Tank Engine and his train-friends started their journey again with a puff here and a puff there. They smiled (well there is a permanent smile drawn on Thomas’ boiler-front face 😊); they were back in business chuffing along.

Are we getting back ‘on the tracks’ to business? The wise investor, Warren Buffett, recently made a simple, but typical, analogy of comparing the global economy to a train engine to explain a complex situation. It was along the lines (er, rails!) of the difference between the Global Financial Crisis circa 2008 and the Covid-19 Crisis of 2020. During the GFC, the economy got derailed off the tracks and was notably damaged while, with the new Covid-19 Crisis, it was a case where, through government instigations, the global economy was taken off the tracks!

Obviously, the reason we went into a shutdown mode over the past three months was because of the fear and potential damage that Covid-19 could do if it got out of hand. We all know and have experienced the defensive measures that were undertaken. And we know and saw the economic cost in wealth to best ensure health!

Spectacular stimulus and cash injections by governments around the globe were speedily done to combat the fragility caused by taking ‘the economies’ off the tracks. The great balancing act indeed! And we all were ‘put in’ the sanitising and social distancing mode, accentuated by border closures.  Once again, it is quite amazing how Australia and New Zealand have become global beacons in what was needed to be done to avert a massive health crisis and what could have been a potentially alarming mortality result. You can say that it was because of a combination of good management, an egalitarian approach to what we each needed to do and, yes, a dose of luck too.

So, three questions can be asked and probably answered. Is this crisis diminishing? Yes. Are we on the road back to general normalisation? Yes. How far will this go and how will this ‘adjusted’ world look? To this, we are not sure as this is the stage we are at now; it is a recovery work in progress. The economic thaw is lifting as the restrictions are now being relaxed, and economies are being reopened at varying degrees around the world.

So, now, the ‘removed’ economic train has been placed back on the tracks, as the lockdown measures are being lifted, to varying levels, around the globe. Things are happening, there is movement from the station, a puff here and a puff there! This type of action and reaction which has being playing out is new to us all. However, I feel that there has been a bit of disconnect between why the economy train was taken off the track and what that meant, and sometimes it has been forgotten that the intention was always to get ‘the train’ back up and running as soon as possible.  

The recovery is underway; the pieces are been put back in place. The ‘Break Time’ is over. The challenge and the barometer will be the actual speed and success of the re-build that is now happening, but it has been pretty positive so far. We are seeing fiscal stimulus and more positive recovery expectations as the key drivers of this improved sentiment.

The rallying stock markets in many countries of late attest to this ‘economic train’ being placed back on the tracks, and starting to slowing roll along again. Really though, this all is not a surprise, other than maybe the speed upwards in the markets has near matched the speed down in March and April. In the US, for example, the S&P 500, being their benchmark index, last night returned to positive territory for 2020. Furthermore, the US Nasdaq Composite index hit an all-time high also last night, although probably not so surprising given how important technology and communications have been to all us, personally and businesswise, in the past few months! Quite extraordinary has been the swiftness of this US markets rally, yet other markets around the globe too have pushed notably ahead. In Australia, the benchmark ASX 200 index is still a little down, about 6%, for 2020. And that excludes dividends paid during that time, so the variance in totality is even less than that figure. We are now actually up 35% from the lows set in late March this year, when the fears of this ‘unknown’ virus were probably at their worst, and the lockdowns and border closures were (sensibly) enforced. However, the crisis has not proved as dire as some feared.

As we have said before, there would be, and there was no bell rung to say ‘now is the time to buy’. The ‘bell’ is really understanding when things are overly cheap, and when good stocks (or bonds or property) are being sold along with the not so good ones. Then it is time for the prudent, long-term investor to buy good quality assets at great prices is both satisfying and sensible. And also, to bear in mind living within ones means!

People will say ‘oh, but what if….’. What they need to also ask is, ‘oh, but what if not…!’ (Sounds very JFK like!). There will always a reason or a concern for holding back doing something; yet fears often do not turn into realities. There are no guarantees in life or in investing but sometimes I consider that people can over-think and over-listen to the worry merchants: the biggest enemy to investing is just that issue. There are just so many variables in play or possibly may come into play, that common sense and conviction can be blurred and even forgotten in the noise, sadly.

Back to fundamentals and a simple investment philosophy can be the safest approach.  If you have a sensible plan for investing, including when you are in retirement, why not stick with it. Long-term investment planning and diversification, with practical management, will typically pay rewards of income and growth for the investor, as well as peace of mind. Turn off the media hype and sensationalism. Why people scramble to regularly listen to bad news and to skewed views is a mystery because this is a major impediment to investors keeping on the right path to successful, long-term investing! And we need to invest for our futures.

The current state of play can be described as being, not bad but still not so good. There is a way to go, we all know. When the governments begin reducing the support packages such as Jobseeker, Jobkeeper, Homemaker, etc. there will be turbulence, no doubt, and that will be a truer test and picture of where the real economy is at and going. Further adjustments and extension of some support packages may be needed.

The future is always going through unchartered waters but, certainly now, at least here in Australia and in New Zealand,  we are far better resourced (e.g. actually a big surplus of ventilators now!) and at the ready should the Covid-19 virus infection rate increase again. And life and business will and must go on, and be adaptable to change, some will be negative but much positive, I feel, as we see is happening now. Certainly, there are many economies and businesses that are working to survive the impact of the last few months, but if they survive these testing times, then they could well thrive ahead. Let’s keep the economy on the tracks and moving forward!

As always, should you have any queries or wish to talk about what is going on, please do not hesitate to contact us.

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FMA Wealth Commentary – April 2020

With a sense of awkwardness, I walked out to the end of my driveway just before 6.00am on Saturday morning, Anzac Day 2020, to show respect to the ‘ANZACs’. As we know, the official dawn services were cancelled because of the Covid-19 virus restrictions.   

There were a few, but not many, neighbours in our street that also appeared at the end of their respective driveways. The few candles that were being held, twinkled to show their holders’ presence and the symbolism. Dawn was unfolding and there was a reverend silence in the unseasonably warm Autumn air. It was all quite surreal yet peaceful.   

Like most people doing this particular ‘first-time’ type of Anzac commemorative exercise, I was uncertain as just what you do. Maybe just a few minutes of reflective silence of acknowledgment and appreciation for the extreme sacrifices borne by those back in 1915, as well as over the subsequent years of war over the century of years’ ago; then I just go back inside my home maybe?  

But, then, from somewhere up the street, the Australian national anthem music (no words) could be gently heard as it broke the street’s silence. This was immediately followed by the New Zealand national anthem music (again, no words). All was quite stirring as the early morning sunlight crept up from the horizon.   

A voice could then be heard reciting the traditional Anzac Day Ode, “They shall grow not old, as we that are left grow old: Age shall not weary them, nor the years condemn; at the going down of sun, and in the morning, we shall remember them. Lest we forget”.   

A recording of the haunting ‘Last Post’ ensued and, only a moment after that, the ferries in Sydney Harbour could be heard bellowing out a long-lasting blast of their horns. Those few minutes in all were so powerful; it sent a shiver down your spine and put a lump in your throat. Gradually then, we quietly went back inside to our own houses but, no doubt, all of us there, and the many others around the nation, were both reflective and uplifted by the sequence of those commemorative events we just heard.   

Maybe we should well remember that, especially in these testing of times, we still do live in the ‘Lucky Country’. And that description about Australia well extends to the state of play here, and in New Zealand, surrounding the current Covid-19 virus situation.  

Whilst walking just over a week ago, I ran into (metaphorically speaking of course in these social-distancing times), a doctor friend of mine who specialises in the respiratory field; very pertinent with this Covid-19 situation.  I knew he has been heavily involved in the coordination of Covid-19 preparedness for many weeks’ at one of the major hospitals on the North Shore. The enormous mission for him and the team was to be ready for the very probable excess influx of people from the spread of this very contagious virus. Scores of hospital beds, protective clothing, masks, ventilators, quarantined areas, procedures and staffing were all aspects of this challenge of readiness. Supplies of these critical items were certainly not at their fingertips! He said that it was a scramble given the global demands on these such supplies, and the suddenness of the sheer scale of this pandemic.  

My doctor friend said that they were simply hoping that the enforced containment measures rapidly put in place by the government here, would ‘buy them time’ to be as ready as best possible for what had been expected as the deluge of cases of the virus sick people needing critical attention. The death prediction numbers for Australia caused by the imported virus were to be in the many hundreds at least. He said it was expected around the middle of April for the predicted peak of serious Covid-19 cases. There were grave concerns at the start of April amongst him and his fellow medical practitioners, that hospitals here would be just unable to handle the anticipated many serious virus cases. The infected people from cruise ship debacles’ and the ‘March Aspen skiers’ returning, only added to this grim prediction and concern.  

However, and to all our great fortune, my doctor friend simply said to me, and to quote him, it has been “simply a miracle” that Australia’s case numbers from Covid-19 have been so few, including the mortality rate,  in the actual numbers and in relative terms when compared with virtually any other country.   

Australia’s containment measures, including closing the borders, daily update information and reinforcement messages, the unprecedented Government and RBA stimulatory actions and packages, as well as a solid community response to what was asked to be done, such as social distancing and measured isolation , have all worked exceedingly well to date as we relievedly know.   

The many weeks’ of containment restraints to fight off the health threat appear to have worked. This will now allow for the restraints to be gradually (and carefully) lifted. We know that we are certainly not ‘out of the woods’ yet, meaning the threat of the virus spreading, does still exist. However, we are all better equipped and educated to the combatting of the virus so, with vigilance and care, we hope there are even bluer skies ahead in this regard.  

In early March, we wrote that if the Covid-19 virus could be contained and controlled, and eventually eliminated to at least a non-life-threatening degree, then world economies should start to return to more normalised activity again over time. This should still happen as things stand, but nations impacted by the virus are at different stages in this cycle. The longer the lockdown, the longer it would take to go through the recovery phase.   

The level of global economic stimulus generated over the past month or so to reduce the economic fallout resulting from the virus pandemic, has been ‘shock and awe’ like in both its size and the speed delivered; greater than that done during the GFC over a decade ago.  Has all this stopped the financial market concerns and stemmed the sapped confidence of people around the globe? This is the next big test but, with time, and with more normality to be returned around the globe, it does appear to look more positive in its totality. Yes, there will always be the, “ah, but what if…”, we know. Yet, we also know, that uncertainty is a fact of life. The belief of perseverance paying off in the long run must outweigh this false cause for letting uncertainty rule our actions now and for the future. The past couple of months’ have been an enormous challenge for all of us. Still, we have faced it, and it has tested our resilience. To date, we have done what we needed to do. It has also exposed some ‘unknown’ frailties in how we do things.   

Strangely though, in a perverse way, Covid-19 and the ‘lockdowns’ have been events which have given us (and will continue to give us) the opportunity to re-assess and re-adjust how we as Australians (being the nation as a whole including, hospitals and medical services; schools; businesses, small and large; families and individuals, etc.) do things. This ‘time-out’ has given us opportunities that we normally would not have had to reflect, reignite, replenish and rejuvenate. It is an opportunity to refocus on what we are doing and the how and the why. Otherwise, if this event had not occurred, it may have been just us all doing the same old, same old, without being able to stop (albeit done under duress!), and to reconsider many things. And, maybe, good reforms will grow from this all. We can but hope.  

Turning our discussion now to investments, and a couple of important basic principles that I feel need to be reinforced during these volatile times we all are experiencing. Two common misconceptions (and which the media often accentuate) is how many investors view their investment portfolios. One aspect or principle is what a portfolio valuation actually means to an investor and, the other one is what the actual income received side of investments means.   

The principle of valuation can be misunderstood or misused. A common case in point: a client recently phoned me to discuss some general investment matters. She also made a comment that it was great to see her superannuation portfolio ‘recover’ somewhat from the low point of the week before during the dramatic sell-off because of the Covid-19 virus fears. True, but she then said that this portfolio was still ‘down’ some 20%+ from the market highs of mid-February. Again, true. However, this observation by her is a common trap or distraction. Some people (and all media) keep comparing valuations to the ‘high point’, such as “investors have lost billions since the highs of last month…!” is a common heading we see or hear on the media obsession channel whenever they can broadcast it. But, really, why make such a comparison especially if you did not buy at that high point?   

The only two valuation times i.e. price times that do really matter are when you actually bought – how much you paid for them – and when you actually sold (or will sell, if you do so) – and how much you sold them for. All those other price moves, those daily valuations, those up prices, those down prices, do not really matter, do they? Why worry about a valuation when you are not selling? Investors should buy quality assets to build income producing portfolios and real growth over time.  

A valuation at any point of time is where buyers are ready to buy, and sellers are ready to, or need to sell. In weaker markets, prices retreat from where they were, as buyers pull back and seek cheaper prices which they anticipate. Conversely, in stronger markets, prices advance from where they were, as sellers pull back and seek higher prices which they anticipate. Simple Demand and Supply actions in motion reflected by the prevailing market force prices.   

If you are not buying or not selling (those being the only two important points in time!), then the ‘other’ valuations do not really matter other than maybe a point of interest, or maybe to get a sense of how all is progressing. Think of this statement in terms of house prices too! We all like valuations of assets we own to go up but why ‘panic’ if prices come down unless you do have to sell. Makes sense? I believe so and hope so, especially when buying quality investment portfolios.  

A second investment principle I think that needs to be remembered, as it can be overlooked especially in times of volatility, is the income side we earn on an ongoing basis from our investment portfolios. Measuring a portfolio’s one price in time against another price in time must also be considered in the context of what that investment mix has actually delivered to investors in dollar returns e.g. dividends, rent, interest during the period. This is described as total returns not the just one valuation point versus another one. Media often fail to report the total return of investments, just focusing on valuations and not mentioning income returns, which are often very important and substantial, especially with equities. If you are not intending to sell your investments, then the income streams received reminder is very important, as it is a major reason behind why we do and should invest!   

Always keep sight of what you have set out to do over time! And do not be distracted by the noises of confusion, misinformation and short-termism. These are traps to being successful investors.  

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FMA Wealth Commentary – March 2020 – Update 3

Yep, we all are certainly under siege! This is the closest any of us have been to a war-like situation. Scott Morrison has described this saga as the ‘gravest test since World War II’.

We are all bunkering in (well, really, no choice!). We are all in this together. The coronavirus impact is proving to be severe on both people’s health practices as well as their wealth status. No one foresaw the rapid extent of what has become known as the ‘lockdown’ and restricted social activity. And, this situation is evolving and well in progress as we well know, and it will likely continue for a while as we also well know.

Regarding the spread of the virus we are told it will get worse i.e. more infection cases and more death, before it gets better. There is no coronavirus vaccine yet but there will be. In the meantime, containment of the virus has become the ‘main game in town’.

 As with many countries now, the Australian Federal Government and the State Governments have decided that unprecedented travel bans and border controls,  along with social distancing and growing isolation measures, are the best way to tackle the virus until a vaccine or something similar beforehand comes to the fore.

These such containment measures for the virus transmission are completely new to all of us, and are hard to fathom. The strict measures are creating a growing and concerning economic shutdown. They have also hurt our investments. Yet, we know we must all adhere to the imposed measure to ‘flatten the infection cases curve’, as it has become termed, in this biosecurity led environment we are now enveloped in. These tough containment measures will no doubt cause short-term pain but are for the longer-term gain, and they will help avoid larger long-term consequence of a multiplying virus.

However, we definitely must also remember that these containment measures are temporary measures (unless ridiculous situations were to happen again such as letting coronavirus affected people off cruise ships at Circular Quay; or crowds flaunting an ‘I’m too cool for school’ attitude to follow containment rules, such as happened Bondi Beach; or people hosting 21st birthday parties or dinner parties for 12 besties). This containment and its consequential fallout is tough on all but let’s do what we really can to reduce the virus spread threat and contain it and manageable levels.

The sooner this is done, the sooner responsible behaviour is the norm, we should see a relaxation on these containment policies and see the unprecedented economic handcuffs being loosened. We want to get back to where we should be with the economy i.e. having these handcuffs off!

You have to pinch yourself really to believe what has just happened. If we cast our minds back to only early last month, the world economy was chugging along pretty well. However, within only a few weeks’, this has spiralled to a serious downturn with the potential to see a recessionary economic state of affairs ahead. In short, the brakes have been slammed on to prevent having an all-in crash. A health crisis has also become a financial crisis. The markets have borne the brunt of it as we know.

To help mitigate on what will be a rapid economic slowdown, the Government and the RBA are ‘throwing in the kitchen sink’ responses with policies of extreme monetary easing and quantitative easing programmes, cash handouts, tax relief initiatives, financial support measures, etc. And, yes, so too are many other countries unrolling similar types of aggressive monetary and fiscal policies in this global effort to reduce the adverse consequences of the economic slowdown and its job losses, etc.

These actions will be both good and necessary to create improved flows of money and credit into the financial system. It is meant to instil more confidence for individuals and businesses in these sudden hard times. It is aimed to avert something greater than what appears at least to be a short economic recession ahead. These measures, unfortunately, cannot be released (because of legislative and logistic reasons) as fast as the virus can spread, but the rollout of these measures is happening and should accelerate from now. This timing delay has been a frustration. Yet, I believe, and hope, that this all will help bolster the economy while on its enforced partial ‘hibernation’.

We must remember that no individual or business wants this ‘lockdown’ nor have the social isolation to last beyond what is absolutely necessary. Once we are free of this frustrating crisis, we should see a very positive response by all and a bounce back in the economy and the markets. Although, markets often tend to lead before the actual event happens!  No bell will ring!  We can hope and pray this ‘awakening’ is in the coming months rather than longer.

Our battered investment portfolios should improve back to their true value levels. As investors, it has been a very hard month to go through. Will it get harder, maybe? We may well see some more pain before gain, but we must believe in long term investment fundamentals. These principles, discussed in my previous commentaries, have not changed despite the current extreme volatility.

The forces of good versus the forces of bad! We should become the forces of good in our habits and having a long-term outlook. The financial initiatives being rolled out are good too. The forces of bad includes the virus itself; the people not following explicit medical advice; market short-sellers and those institutions that lend them the stocks to short-sell and also the hedge funds just causing market havoc for greed in these times of personal despair; and, of course, the media with its non-stop, one-sided alarmist output. I do question how some reporters/editors can enjoy being purveyors of continual bad news aimed at fear mongering that seriously impacts people’s health and wealth. They know what they are doing but simply do not care.

While all this economic lockdown and restricted social intercourse is happening, we are seeing many people and businesses facing the challenge with innovation. This whole situation is changing all of our lives but let it not dictate our lives. Necessity brings out innovation! Taxis are becoming courier services. Restaurants and cafes are converting to preparing meals and groceries for delivery rather than simply shutting down. An example to point is our local golf club has chosen not to shut down its kitchens; it now offers pre-prepared meals and goods, wines, pantry items, and, yes, hens teeth aka toilet rolls!  We can just send in our order and it can be delivered or picked up.

Many people are successfully adapting to the challenge of working from home. There is a sense of rallying for the cause of good, through adaptation. Generations before ours have done so in such times of war and other adversity. The generations post-WWII have been the lucky ones, but now it is a test of our mettle.

When we emerge from this hard and uncertain time period, I do think that there are many positives about how we as people and in business all do things. This forced upon us now situation that is challenging us to thinking are there better ways ahead in how we operate our lives. Technology and remote working are now allowing businesses to gauge how they can make this work in size. Had the coronavirus situation not happened we may not have considered or discovered these such possibilities. There will no doubt be more to come. We have also seen that with global travel restrictions in place, and home isolation reducing internal travel, how the reduced pollution and traffic have cleaned up rivers, lakes and air. Climate changers’ will be happy!

We may be thinking smarter and therefore more about the how things could and maybe should happen, not for just during this difficult coronavirus time but also for when this crisis is overcome. The world will move on. And, importantly, so we can get some live sport happening again!!

As there is no live sport to watch at present, my daughter showed me this excellent 20-minute Netflix documentary hosted by Bill Gates on pandemics and viruses. The program is on Netflix’s TV Explained series (Season 2), and the edition to watch is entitled ‘The Next Pandemic’.  It was released in November last year before the coronavirus situation even existed. This documentary is so on the money and very informative. A must see!

In the meantime, keep the safe social distancing! Keep the faith!

As always, should you have any queries or wish to talk about what is going on, please do not hesitate to contact us.

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FMA Wealth Commentary – March 2020 – Special Update

This is a very challenging time for all people; and we investors are people too. Our strength and confidence is being challenged by the machinations surrounding the coronavirus situation. It is a complex and a new situation to handle, and it will take time to work through. This we do know. We also know that it will get worse before it will get better, but, I do firmly believe, this virus and its economic impact will be resolved, just not quickly. This we know too.

Over the past couple of weeks’ particularly, we have been saturated with information, misinformation, facts, rumours, those who know (supposedly), and those who do not know (definitely); anyone who can add their two bobs worth on media and social media all contributing to one too familiar theme of constant fear. Drive uncertainty, drive fear and you ‘hit the headlines’! It’s comin’ to get ya! The world will stop fears that steal the show. Sadly, we are seeing panic in the markets, in people’s behaviour.  It has become a crisis of fear really.

Difficult as it may be (no, let’s be honest, as it is) this is when we need to step back, we need to pause, put things into perspective about this situation, put this in timeline and, simply, keep our heads. Certainly, not rush out, panic and buy toilet rolls (the symbol of the virus it has become!). Can you believe that stupidity? But it does highlight the fear and panic that people face, and how what people can be driven too when they are scared and feel helpless.

The media just keep adding to the bonfire of fear, sadly, rather than be constructive in helping work through this dramatic time.  Quoting the well regarded market consultant, Jim Stackpool, who wrote in an article this morning, “Add in the terrible elements of our social media habits, as Professor Scott Galloway suggests, it is clear that the coronavirus mayhem is illustrating how badly the world is reacting to the globe’s first real social media epidemic. Many of us do not know how to react”.

Stackpool adds, ”When stuck in our own real crisis, regardless of its origins, the last thing we need is our handheld social media machines driven by advertising clickbait promising more headlines to worry about and products with all the solutions!…and do not get distracted by the toilet roll headlines, they will come and go”. Yes, so true.

My advice to clients really is I think it comes down to simply we need to control what we can control. That is a proactive response, and a necessary behavioural response. Act rationally and with a view to the future. I think that this is exactly the advice you would give someone in difficult times. What we cannot control, we need to know and understand. Be sensible! And, yes, if you have cash to invest then these are opportunities to buy cheap yet still quality investment assets! I am practising what I preach!

This is a very challenging time for all people; and we investors are people too. Our strength and confidence is being challenged by the machinations surrounding the coronavirus situation. It is a complex and a new situation to handle, and it will take time to work through. This we do know. We also know that it will get worse before it will get better, but, I do firmly believe, this virus and its economic impact will be resolved, just not quickly. This we know too.

Over the past couple of weeks’ particularly, we have been saturated with information, misinformation, facts, rumours, those who know (supposedly), and those who do not know (definitely); anyone who can add their two bobs worth on media and social media all contributing to one too familiar theme of constant fear. Drive uncertainty, drive fear and you ‘hit the headlines’! It’s comin’ to get ya! The world will stop fears that steal the show. Sadly, we are seeing panic in the markets, in people’s behaviour.  It has become a crisis of fear really.

Difficult as it may be (no, let’s be honest, as it is) this is when we need to step back, we need to pause, put things into perspective about this situation, put this in timeline and, simply, keep our heads. Certainly, not rush out, panic and buy toilet rolls (the symbol of the virus it has become!). Can you believe that stupidity? But it does highlight the fear and panic that people face, and how what people can be driven too when they are scared and feel helpless.

The media just keep adding to the bonfire of fear, sadly, rather than be constructive in helping work through this dramatic time.  Quoting the well regarded market consultant, Jim Stackpool, who wrote in an article this morning, “Add in the terrible elements of our social media habits, as Professor Scott Galloway suggests, it is clear that the coronavirus mayhem is illustrating how badly the world is reacting to the globe’s first real social media epidemic. Many of us do not know how to react”.

Stackpool adds, ”When stuck in our own real crisis, regardless of its origins, the last thing we need is our handheld social media machines driven by advertising clickbait promising more headlines to worry about and products with all the solutions!…and do not get distracted by the toilet roll headlines, they will come and go”. Yes, so true.

My advice to clients really is I think it comes down to simply we need to control what we can control. That is a proactive response, and a necessary behavioural response. Act rationally and with a view to the future. I think that this is exactly the advice you would give someone in difficult times. What we cannot control, we need to know and understand. Be sensible! And, yes, if you have cash to invest then these are opportunities to buy cheap yet still quality investment assets! I am practising what I preach!

And regarding my lengthier newsletter of last week, all still stands in what I wrote. Keep the faith!

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FMA Wealth Commentary – March 2020

  It has been a turbulent couple of months for many people, with a sequential case of ‘F’ events happening. We have had the calamities of the Fires, the Floods, and now the Flu situations! Yet, despite these local and global destructive events, the markets did not shy away, and indeed had gained, generating strong returns really for the past year up to last week. Then, last week, a fourth ‘F’ emerged with a definite adverse impact, that being ‘Fright’!


I think it is fair to say that the past week has been a very testing one for all including for investors. This northern winter infectious virus, given the name coronavirus (COVID-19), has been known about for at least the past two months, and had initially been regarded as just another virus, and which had its origin from mainland China. Yet, this particular virus had this air of uncertainty about its actual source, with it thought from the ingestion of bats by some Wuhan residents’ firstly, and then this rectified to being sourced from the eating of the Pangolin mammal, a supposed delicacy. This small mammal is sadly on the endangered species because of it being hunted for meat! Anyway, it has been tracked as the coronavirus carrier and the eating of its meat is where this all began.  

Slowly, over recent weeks’, more cases of coronavirus were heard of as more people in China were diagnosed with the virus, and then in other parts of Asia. There was one case on a cruise ship in Japan which was then quarantined by authorities with all on board – so, with nowhere else to go, over a 100+ people became infected (not a very smart move but always is easy to know in hindsight).

  When it emerged last week that other countries, particularly in Europe and the Middle East, had identified people with the virus, it has now become a far more serious concern. There were more cases of the coronavirus than thought and, worse, is that it was spread in more countries than figured. Then, we had the World Health Organisation coming out and stating this virus and its spread is a ‘high level’ concern that could be upgraded to pandemic status (we all hit our Google search buttons to see what exactly is a pandemic and versus say an epidemic!).

  The small problem of a flu-like virus is now seemingly becoming exponential. The genie is out of the bottle so to speak. The impact of this virus is bigger than thought.  

And so, before you know it, as was evidenced in the past week or so, the media is on to it creating a frenzy, everyone is concerned and many panicking (and face masks are sold out!). People suddenly feel vulnerable and the markets turned viciously last week.

  Medical experts are working through with a vaccine solution and economists are modelling and predicting away the scenarios ahead. Governments around the globe are now jumping with vigour to contain the spread of the virus and its concerning impact on economies. It all came to a head: uncertainty, fear and ultimately the stoking of panic has resulted, hence, what we saw in the markets last week.

    Present Situation

  The hedge funds smell blood, the aggressive traders start shorting the markets mainly through selling futures and other derivatives, algorithmic trading systems go into their programmed action, and the selling cascade goes into force. This force can be quite sizable and brutal when it hits, especially with the accentuation of fear and panic prevailing! Panic brings more panic and the chaos compounds.

  And seeing all this, one of the immediate reactions that investors think of (and alas, some act on) is to jump into the ‘liquidity trap’. Because this all is painful to watch and listen to – everywhere you turn on the 24-hour media machine – as is talks only about doom and gloom surrounding the events in motion. It is the only focus in town! Selling creates bad news which the media sells! The liquidity trap, the phrase I think Warren Buffet coined, refers to selling what is liquid in times of volatility, and the equity markets are extremely liquid. Portfolios of shares can be turned into cash quickly by hitting the sell trigger but, sadly, are often done at targets where, because of the panic, low and poor value prices just so the seller can say ‘get me out, broker’!  

Pull the trigger first, hit sell and then, sadly, once things settle down, as they do, the seller contemplates that they probably should not have sold good quality investments in a rush of panic and have done so at poor prices. I will cover more on this important point further on. In saying that, I think we all do need to stop, think, better understand, and put this whole situation into some perspective and sensible timeline. And stay calm!  

As Coolabah Capital Investments described in their succinct research paper on Friday about the coronavirus situation after the heavy week of selling which was had; “The inherently unknowable nature of the coronavirus is creating widespread market failure…..flowing from extreme information asymmetries”.  

The impact of the coronavirus to people is serious but is manageable, meaning very few people by percentage will actually die from the virus. However, the greater concern appears to be, and is, what will be the resultant reduced global economic trade and business activity, etc.  

The main strategy now by authorities around the globe is for the containment of the virus. This is the primary challenge, and at least active endeavours are underway for this containment. However, and what is really behind the fears of the coronavirus causing a global economic slowdown, are the drastic measures used for the containment of the virus itself spreading!

A Catch 22 predicament really. The dramatic images of lockdowns highlighted by the media is fuelling ‘the’ panic! As the Coolabah article correctly notes, “ that the problem with the policy of containment, which is currently the only viable option, it effectively throws the economic baby out with the bathwater, (potentially) crushing economic growth in the interim”.  

Beyond the token trademark image of millions of facemasks that people in Asia, and now Europe, are wearing in the hope of not contracting the virus, we are now seeing the signs of serious government containment measures abound in different countries: some airports and sea ports closed; travel bans in and out of China and other countries now being enforced; group events being cancelled; people being restricted to only their homes (conjures the bleak image of the Great Plague of London in 1665 and the  containment policy of locking the ill people in their homes and planking up the doors!).

The containment process all means less trade, less travel/tourism, and less business activity, all resulting in less spending and reduced economic activity. It spells of an economic slowdown no doubt….but really for how long must be properly considered in reality!  

  Ahead (Action)

  I think it is very important for investors to remember, that this containment approach is not a permanent feature, it is preventative measures for longer term success against the virus. These measures will be lifted once the coronavirus situation abates. We just do not know when. In the meantime, life goes on, as it always does when these ‘black swan’ like events arise in our lives!  

There are three powerful mitigants to all this bad and topical news according to the Coolabah research which I will now quote here. “First, a vaccine will be developed in the next 12 months (and human trials have already begun). Second, there is likely to be an effective anti-viral drug available within six months (trials well underway)

…..And, finally there is evidence that the virus struggles to spread in warmer climates (the southern hemisphere at present) so that, as with the flu, COVID-19 will fade during the northern hemisphere’s summer season”. Makes sense; and as an older client of mine with a medical background said to me on Friday, that drinking warm water and hot drinks will thwart the coronavirus! The virus hates such warmth! And today is the first day of spring!

  I would add another vital positive factor. I do believe that there is and will be a solidarity amongst all countries in their efforts at combating this virus and to remedy the economic fallout as speedily and cooperatively as possible. Australia, with its strong medical and health system, and its apparent state of preparedness, itself appears to be ready for the likely challenge ahead of dealing with any virus cases and a possible increase of these. Yes we are an island continent, but we are not immune to world economic events and consequences.

Events such as we are experiencing now highlight how inter-dependent the world really has become. On the economic front, Coolabah research adds: “From a policy perspective, (we should see global central banks and treasuries) have rate cuts to support growth coupled with more extensive liquidity and asset purchase operations i.e. quantitative easing or QE…to help bridge extreme information uncertainties until a vaccine is available.”

  When specifically examining Australia’s situation, the article states that, “This will necessitate the Australian government to set aside (postpone) its 2020 surplus target (by having increased government spending on the likes of infrastructure) and with the RBA supporting the ensuing fiscal stimulus with rate cuts and perhaps its own government-bond focussed QE to put downward pressure on the Aussie dollar, which will assist externally-facing industries”. I would add as well as also assisting our important economic areas of tourism and foreign student education.

    Ahead (Important Investment Perspectives)

  I have been asked by several clients in the last couple of days about the events in play, and what are my thoughts on this? There are no guarantees we know, but I outline my key thoughts below. In the end, a person makes the final decision regarding their investments. Are we likely to see continued market volatility in the coming weeks’ and even months’? I think that is a yes, as well as the likelihood of some more market retracement in price terms. We must also remember that although we have seen around a near 10% correction in the market in just a week, it must be put in the context of having seen strong gains of 20%+ over the past 12 months! This must be put in perspective in market cycles. Market corrections are a natural part of market cycles, particularly after strong market rallies!

  So, what should a true investor do amidst this more peculiar and testing time we are experiencing now? Well, really try and ignore the noise, the hype and the media negativity, much of which is based on fear mongering and not on the facts or on your personal investment objectives. Media has a lot to answer for regarding the inaccuracy and one-sided approach to what they transmit in such times. They want drama, they want panic, irrespective of its consequences on people and their reactions to what is ‘written’.  

Ride out the storm as you normally would and should. If you do not have to sell, and you are an investor, why sell? Control what you can control. Do not become part of the panic.  

Your investment portfolios are typically set up and designed for growth over the long-term, and most particularly, for the generation of income streams to fund your non-working years. They are in a researched quality investment mix designed aimed for the investor’s needs and wants. Yes, prices do move, and volatility will rear its head on occasion, as it is doing so now, but selling a good asset mix in volatile times is not a sensible long-term investment strategy.  

There is the thought (or is it of comfort!) of course, that if I sell now – in the middle of the panic – then I can simply buy back in at much cheaper prices. On paper that strategy works but in reality, what if this does not happen or you are spooked into getting back into the market, or the pull-back you expect or you are told will happen just does not (the markets can move very quickly as we know). This leads to a jump in and jump out approach. You adopt a trading mentality. This is not what investing is about. Do you sell your home or investment properties when a bout of volatility hits? I would doubt so.

  On the opposite tack, weakness in markets brings about cheaper buying opportunities for adding quality investment assets to your portfolio!

  As I always have said, investing can sometimes be a tough gig as we have known on occasions of high market volatility in the past (e.g. recent events such as Brexit; the nuclear stoush between North Korea and the US; the China/US trade war), and we too know at this very moment but, I do believe, it does get easier with time, understanding, experience and patience, and it does deliver results. We must also remember importantly beyond the moment in play just why we are investing. Keep the outside noise at bay!

  I certainly concur with Coolabah research’s conclusion as to what is happening right now, where they say “When all is said and done. The current fear and anxiety will translate into a tremendous buying opportunity because COVID-19 virus has no real ramifications in the long-run. That time has, however, yet to arrive”.

  When will it be time to buy, there will be no bell to signal this is the time! A sensible approach for real buyers in these times, I think, would be to select what investments assets they want to add to or buy, and scale in this buying on these market pullbacks.

  This is a difficult and uncertain time for all. There are no guarantees things will or will not happen. We all wish we could know the future. However, remain resolute and, as history has often shown, the best times to buy is when things look the worst! This is how I am personally approaching this somewhat turbulent time.

  A belief in the benefits of long run investing and the building of quality investment assets.

Keep the faith! Yes, another ‘F’ but one we all need in life when bad news encroaches us!  

  As always, should you have any queries, please do not hesitate to contact us.    
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FMA Wealth Commentary – January 2020

These quite extraordinary times continue for people and for investors. And, we have entered the New Year and the new decade on a wave of this continued momentum.

As people, we are seeing and we are being personally impacted by faster and faster global changes through technology and automation, healthcare, social media, population growth, climate change and awareness, and demographic changes. We are also seeing a growing swell of government policy reforms being demanded by people. This ‘people’ side of things is discussed further on.

As investors, we have seen the markets finish the previous decade with a flourishing 2019, which was quite different to the close out of the preceding decade! The past decade has had its many challenges no doubt but, for the true, long-term and logical investor, it has provided solid investment returns in most sectors of the available asset allocation, especially in the growth and income producing areas of shares and property. Investors have had the opportunity to genuinely build their wealth.

In describing his recent assessment of how things look for investors ahead, the Head of Australian equities at Fidelity Worldwide Investments, Paul Taylor, states that “We are in the unusual position heading into 2020 of having tailwinds from both monetary (easing) and fiscal policy (government spending). Having pretty much used up all monetary policy ammunition (through successive easing), governments are now being asked to step up with further fiscal policy to help economies break free of this very low growth world. This will come via significant infrastructure development which should be good news (for investors) as low interest rates combined with fiscal stimulus is normally a positive environment for equity returns”. This includes, I would add, the very good global equity and property returns we saw in 2019.

The conflict or challenge to this is what Taylor adds in saying that “While conditions remain constructive for the Australian equity market, it is certainly not without risk. For lack of a better word, the ‘populism’ based politics that seems to be sweeping the world is very anti-growth in its approach. Populist policies like protectionism (i.e. trade wars), anti-immigration and government intervention are all anti-growth in nature and are likely to continue to put downward pressure on the already sluggish one or two percent economic growth range in most developed economies”. Taylor says he remains positive ahead, and he encourages investors to focus more on the next decade than just the next year. This makes good sense.

There was a degree of negativity heading into 2019, with the usual media led ‘fear of this and fear of that’ stories. This included the spruiking of a global recession being quite possible. This particular ‘fear’ was dissipated by upcoming facts and results (e.g. US corporate profits continuing very well). Facts versus Fears! So, we saw a resultant strong rally in the markets. And, 2020 appears as though this will continue onwards but very unlikely to the degree of what we saw last year, particularly as this new year has started with the markets already at record highs.

Moreover, there does appear to be more global stability than a year ago; or maybe the fact that no major meltdown happened has meant less fear. Although there are always ‘fears’ to find! There is the Chinese economy to worry about, whether the US/China trade war reignites, or in the US election late this year, will the Democrats win (unlikely, but a concern if they did)?

Although, there is no doubt that interest rate cuts and fiscal spending, allied with low unemployment, have substantially supported the strength in markets as well as turning around the what was definitely a weaker residential property market.

Traditional asset allocation models are being challenged in these changing times. The investment markets have seen investment money has moved out of cash and bonds in the latter months of last year into investments such as equities, property and infrastructure where returns at least have a chance real possibility of being better and more attractive. The fast pace of the rally in the markets of late is probably justified in the big picture but a consolidation pullback would be healthy. In saying that, there is still considerable cash looking to be invested, so any pullback(s) will be used by investors to buy yielding assets.

At mentioned earlier, these are extraordinary times for people. Despite this background of positive markets, I think that we would agree there does appear to still be this air of uncertainty or caution amongst people. There is so much change happening in all our lives. Much of the pace of this change can be daunting. Social issues such as climate change response, population growth and traffic congestion, sufficiency of energy supply and of water supply trigger concerns and often deep debate. The tragic bushfire dramas across Australia of late have further highlighted unease, and these have literally sparked a swell of ‘we do need a plan of committed action’.

I see much of the true ‘concern’ issues we face as being a lack of cohesive planning and foresight by government. I think that we all want to see long term plans in place to make our energy supplies consistent and affordable, to have proper bushfire controls, to agree a climate change response, to remove traffic gridlocks, to reduce regulation and red tape, etc.

However, plans to manage these issues must be practical and realistic, and implemented with vision not just a reactionary band-aid treatment of throwing money at the damage done..

One thing the bushfire calamity sadly demonstrated was just how bureaucracy can impede decision and action. Australia is over-governed; we have local, state and federal layers. They were arguing just which was responsible for how to respond and how to resource the growing need to fight the calamity. Do we really need a both local level and state level government? Cut one layer surely.

Having calls for a Royal Commission into what happened with the bushfires is simply a waste of resources and a way of Government avoiding it having to risk making the obvious decisions we need made What we do need is a Government brave and visionary enough to seriously work on solutions to these matters of concern. And to do so beyond a mere reaction to appease present media hype.

Furthermore, we seriously need to have a bipartisan approach between the prevailing government and the opposition (isn’t ‘opposition’ such a negative description, wouldn’t the term ‘alternative government’ conjure up something more positive in its depiction at least!) in how to tackle these such social issues with a long term strategy that will continue on regardless of which party is in power during that time.

This time frame for these ‘national development plans’ may need to be 10, 20 or 30 years national plans. In other words, plans and projects of national interest and development should be undertaken with the necessary commitment and surety of being completed and implemented, start to finish!

Government should have an acute focus on the things needing important attention. Why not have a uranium policy/plan to reduce coal dependency over time; why not use these great record low interest rates to raise long term funding for the numerous national infrastructure projects such as bushfire hazard reduction, such as water catchment and containment in city and regional area, such as more tunnels road programs, such as airport and port improvement; such as developing regional centres that will reduce city congestion. Some of these projects will take many years, even decades, to be completed, and will ‘outlive’ government after government, but that is what this planning should be realistically about. Blueprints that will happen! Build for better!

Make greater use of, and incentivise the use of private capital from fund managers, super funds, and even the ordinary person to support projects close to their hearts and minds! Get a buy in from people and from corporates! I know that it sounds a bit like the old cry to buy ‘war bonds’, but I think you get my drift!

The Morrison Government truly has a chance to really show leadership now where it matters with people and for the good of the country. Its success could actually be planning the future beyond what will be its term(s) in government. People will respect this, people like and need proactive leadership on important issues. Reducing regulation would also be on my wish list!

If this approach happens, I do believe that you will find improved confidence, optimism and greater economic benefits result too.

Switching discussion here, Governments have their role in our lives, but when it comes to personal wealth creation and management, people really are still responsible for their own planning. This is very important. Building wealth is based on investing in the right mix of assets over the long-term. It starts with having a plan, a process and a commitment to persevere. Investing is like life in some ways, it has its ups and its downs but it goes on!

Increasing wealth should and can be enhanced by using concepts such as Saving regularly, as we do through using superannuation and through dollar cost averaging; Compounding to accelerate growth, as we do through re-investment; Tax management to deliver better net outcomes, such as through the right investment structures (especially superannuation) and franking credits, and using CGT discount availability, etc; and also by having sensible Diversity in our investment asset mix.

Diversity reduces investment risk by spreading the risk, which in turn adds to actually having more stability over the long term.

Yet, the actual concept of ‘what and why’ about investing is relatively straightforward. Fundamentally, if you invest sensibly with a long-term horizon, you will be rewarded with a growing asset base, with their resultant income streams. Where many people flounder or fail to understand is with the ‘how to’ actually do investing. Investing is full of complexity, volatility and is prone to both domestic and global economic, political, and technological changes, as well as the exposure to handling negative media interference, and with what appears to be becoming more of a consideration are social issues, such as climate change considerations.

The actual concept of investing and the why to invest remain the constants in the process. It is the understanding and the navigating the investment road, including asset allocation and product selection, which are the variables, just to name a couple of them! The benefit of experience and even of being mentored in investing such as through good advice, should deliver better knowledge, appreciation and patience surrounding the diverse world of investing.

Most of us will be (and should be!) investing for many decades. It could be from say age 20 through to age 90, or more! On average, most people will be investing or using the fruits of their investing in some manner for 50,60,70+ years!  If we start earning wages from school or university, we will likely be earning and investing super. This is often the starting block for many of us. The earlier people really begin to invest and also understand investing, the better i.e. the better off and more self-sufficient they should be in their years ahead.

Anyway, let’s see how the roarin’ twenties roll out! Well, a good start so far from the kick-off!

As always, should you have any queries, please do not hesitate to contact us.

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FMA Wealth Commentary October 2019

As discussed in our last commentary, these are extraordinary times for the Australian investor and even more so for the global investor. We have, these days, ridiculously low cash rates and bizarrely low bond rates, with several countries actually having negative yields. Cash rates and bond yields have fallen even further in the last couple of months.

And all this is while equity and property markets remain strong despite having ‘bouts of volatility’ about the same thing, aka the China/US trade war. Cheap cash and lower interest rates should help boost markets and activity. That is what central banks are hoping for, with fingers crossed! Yet, it is more complicated than that, and more needs to be done.

The weird concept of negative interest rates/yields has many rational people confused. What are negative interest rates really, and why are they becoming more prevalent now around the globe? Why on earth would people buy a guaranteed negative returning asset, particularly when there are other asset classes that will or at least have a far greater chance of a good positive return to the investor?

Turning directly to the negative interest rate situation. I consider there are two types of ‘negative returns’. In the first case, and one that is now an actuality here in Australia, is where you earn a positive nominal interest rate return on your cash, term deposit or bond however, now, when the interest or bond coupon is less than the prevailing CPI i.e. level of inflation in real terms you will lose money. If you earn less than inflation (which is currently at an annualised rate of 1.6%), your investment is effectively losing money. For example, if you, an investor, bought an Australian Government Bond (AGB) today and held it to maturity, you would yield 0.68% p/a for a 2yr AGB; 0.70% for a 5yr AGB; and a paltry 1.01% for a 10yr AGB! And should you pay tax on your meagre interest earnings then that loss in real terms will sadly be accentuated!

In the second case, you will also actually lose money; meaning lose it in two forms in terms of the money eventually returned to an investor in nominal terms as well as in real terms! Europe is a clear case where this is now occurring. The German Government Bund (GGB) is a good example to illustrate this such scenario. If you, say a German investor, bought an GGB today and held it to maturity, you would simply lose money, full stop! You would get a negative yield of -0.74% for a 2yr GGB; -0.70% for a 5yr GGB; and -0.45% for a 10yr GGB! To explain this scary outcome using the 5yr Bund as a current example. You are offered 0.00% coupon (interest) on the bund, which you can buy now for $103.57. Then, when it matures in five years’ time, the government gives you back $100.00 being the face value of the bund. So, the loss locked in, both in actual cash terms and even more so in real terms! Go figure!

So, why are such securities being bought? There are several reasons. I think, out of habit of people just buying good old bonds; out of a belief that it is still good to always own bonds in a portfolio for diversification; and also because, other than high growth investors, all other portfolio profiles will include bonds, to varying degrees, in a portfolio. When bond prices are rising (and thereby yields falling), as has typically been the case for several years now, bond returns have been good – but only if you offloaded the bonds and have not held/hold them to maturity when the revert back to the lower face value on the designated maturity.

Bonds are generally considered defensive, low risk investments. However, the whole question of investors owning bonds now is becoming very questionable. Yes, we do need diversification in investment portfolios, but buying more bonds now when bouts of market volatility occur, is probably not the answer! Certainly, being overweight bonds in these times does question logic especially where investors require income from their investments.

There is a lot of talk by local economists and the like about activity and growth being quite stagnant, and even of a recession here being imminent. I do struggle to see ‘this’ recession happening here soon, especially with the recent tax cuts still to kick in and our relatively strong employment rate. Have you tried to find staff in recent times? It is very hard! I speak with clients from many areas of business and, like financial services, finding the right staff is probably the biggest challenge facing many firms here.

Yes, a recession may mean tougher times are prevalent, but recessions are part of economic cycles. They do not happen often, and supposedly, very rarely in Australia, but they do and will happen, as do expansionary and boom periods to which we are more accustomed too! Economic cycles happen. Of course, Australia is part of the world of economies, so we are prone to overseas events and economic cycles as well as to how things are going here.

Certain business sectors, such as retail, are definitely feeling the pinch and the grip of global competition and of online purchases being so readily available in these times. The impact, speed and development of the internet and similar technology combined have changed our world (especially retail) forever. People and businesses have to adapt and evolve so quickly now. We live in this world that is faster and faster with even more and more information available. It is a challenge for all especially handling and manoeuvring with this continual pace of change. It is all this rapid change that I consider is what does create discomfort and uncertainty, at various stages, for businesses and for people alike.

One outcome of all this increased visibility, globalisation and increased competition via access to more markets to access more and cheaper goods, etc. is that inflationary pressures have reduced globally. However, speaking of inflation, I remain perplexed at how the Bureau of Stats comes up with continually low annualised inflation numbers. Other than some food items being possibly unchanged in prices, virtually everything else seems to be rising at rates well faster than official weighted inflation figures. Any services, insurances, education, health, council rates, fuel and travel costs just keep going up. And there is little wage growth to combat these rises to the consumer and their families. At least mortgage rates are coming down, so this is a cash flow boost to many households. There is ‘talk’ that inflation will fall even further, but this could well change if stimulatory monetary and fiscal measures do gain traction.

I do think that consumer and business confidence has waned. So why is there this ‘flattish’ sentiment supposedly around. The sheer pace of change, discussed above, brings with it fatigue and uncertainty. What also cannot be underestimated is the negative impact that the Labor election campaign had on investors and businesses for the many months leading up the Federal Election held a few months ago. Fortunately, Labor failed to get elected because of the recognition by voters of Labor’s regressive and class segregation policies. Nor can we underestimate just how damaging has been the Banking Royal Commission for the country. Yes, there have been the remediation benefits to impacted consumers, however, the sheer financial cost, reputational damage and the pulling out of, or the reduction to, many banking and financial services, and to lending by the banks,’ as a consequence of the Commission has, I fear, outweighed the intended benefits. It was a political football. Labor had said it would undertake a full banking enquiry when it came to power, so Turnbull jumped in beforehand to say that ‘we’ will do it. A country must have a strong banking sector (and ideally one with very strong ethics) to underpin a strong economy. We are all paying for the Commission’s outcomes. Ignoring the argued benefits of the Commission for a moment, further regulation and compliance has slowed down the economy and raised business operational costs. Many businesses are having to push their wheels of motion through more ‘wet mud’.

So, to also help move things along and to encourage growth activities, with official cash rates already squeezed down to such low levels, increased fiscal measures and more investment by governments must occur, together with pro-business and more stable policies needed. Maybe also seeing a pull back on some of the constant and often questionable regulatory framework we are being tied up in. We all can only hope that this will all occur!

Certainly, global events such as the ongoing China/US trade dispute and the Brexit saga have fuelled market concerns and volatility on many occasions during the past couple of years. It has become quite tiring but, if these such issues can be resolved favourably, then the growth market sectors of equities, property and infrastructure are primed to advance further ahead, especially in the US. This would be a good result for investors with sensibly diversified portfolios but understanding that allocation to traditional defensive assets is now a far more questionable choice with such very limited income and very limited, if any, capital gain prospects in the current environment. Taking more supposed ‘risk’ by investing in more growth-oriented investment assets needs to be decided by investors based on their income needs, risk appetite and, really, logic and common sense!

As noted previously, all in all, maybe we don’t need to wear the shades but the future here still looks pretty bright!

As always, should you have any queries, please do not hesitate to contact us.


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FMA Wealth Management Commentary- May-June 2019

How good was the Saturday night’s viewing of the Federal Election analysis as the results came to hand after 6pm! Yet, earlier, at midday on election day, the bookmakers had the Coalition out to 7 to 1 to win the election, and Labor was considered unbeatable at 1.1 to 1 to win. Most media commentators believed those odds too. It was the grand final ‘match’ that Labor could not lose. And Labor behaved that way.

But, as the night unfolded, the gloom was lifting, the interest heightened, the eventual outcome was looking quite different. The election ‘guru’ analyst, Anthony Green at the ABC, was making an early prediction that it could appear that the Coalition may just win this. People were listening to him further boldly predicting that the Coalition could actually secure a clean majority to re-form Federal Government for the next three years. And, as the night played out, that is exactly was happened. This was ‘real’ reality TV!

The Coalition won. Scott Morrison, who many had regarded as merely a caretaker PM until their ‘inevitable’ Federal election defeat, was now being considered a visionary strategist, a likeable ‘you get what you see’ leader with authority, a doer, an ‘ordinary Australian’, who had united his party. He led from the front and had a clear message.

More and more people, ‘the quiet, the hardworking and the retired Australians’ in particular, were believing in the positiveness of this all. With both the two fighting and disruptive schoolboys in the Liberal party, Turnbull on the left and Abbott on the right, now gone there is a growing belief that politicians may be finally hearing the message to them from the people that they get on with their jobs (or they get out), and so that we can get on with ours. We are all fed up with what we have seen in the past ten or so years of what generally has been a political circus in Canberra from both sides of politics. The Morrison led government is more centralist in its approach to that of recent governments, which appeals to the greater majority of the Australian people. Morrison and his team have a mandate now so let them get on with the agenda.

A Labor win under the never popular, Bill Shorten, would have been regarded, as many economists and business leaders have articulated, as a quite unpalatable dark cloud for the country because of comrade Shorten’s radically high taxing and socially divisive policies, and the overall perceived negativity in his ‘get the big end of town’ message. As Paul Kelly, The Australian’s editor-at-large, wrote in his recent column, “The most astonishing election result since World War II, is attributable to two forces – Morrison’s superior reading of the Australian character and Bill Shorten’s overreach in his agenda for radical change”. Kelly elaborated on this by saying that really it was a case of the majority of “…Australians who do not want sweeping change, class warfare or progressive ideology imposed upon them, but seek instead a government offering reliable, steady and credible returns. The Abbott-Turnbull era is closed. The Morrison era is launched”.

The markets here responded very well last week to the election result as the growth markets of equities and property rallied strongly on the back of increased business and consumer confidence, for a surging boost to the economy, the returning to budget surplus and, of course, hope for good leadership and practical initiatives. The ASX 200 hit a 12-year high last week buoyed by all this.

The Federal Government’s Budget measures announced in April can now be put to Parliament when it reconvenes likely late next month. It is believed that the upcoming changes to the Senate’s composition should allow a greater likelihood for the passage of the initiatives.

As was noted in last month’s newsletter, there were three main areas that the budget concentrated on, being Taxation, Superannuation and Welfare. There were broad personal tax cuts and tax offsets announced; for superannuation, including increasing the age limit by two more years, up to age 67, where both concessional and non-concessional superannuation contributions can be made without the Work Test restriction; and for welfare recipients including an energy assistance payment for residents. The key measures in these areas were outlined in our newsletter last month post the budget announcement.

Moreover, the feared radical changes proposed by Labor to franking credit refunds, to negative gearing, to capital gains discounts, to superannuation contribution limits, to increased tax on certain superannuation contributions, the flat line 30% tax on trusts, and to a re-imposition of the debt repair levy of 2%, etc. have now gone with Labor’s failure to secure government (and Bill wonder’s why!). Fortunately, there now is more clarity and certainly ahead for investors and for the overall economy.

In a world where there is slowing economic growth or a low growth environment, we can say for Australia that these welcome upcoming personal tax cuts and the almost certain official interest rate by the RBA next month (and another anticipated later in 2019 as well) should particularly provide stimulation to our economy where both inflation and wage growth remain low. The declining housing market and retail market nationally should be helped by all this too.

As a consequence of these fiscal measures and of monetary stimulus occurring both here and abroad, good quality investment growth assets from both the equities and property sectors should enjoy further gains ahead for long-term investors. The returns from cash and bonds, the traditional defensive assets, will only become lower, verging on being insignificant, when certainly compared to the inflationary impact on them. So, people seeking/needing income and growth returns ahead must realistically consider an investment approach using quality growth assets despite volatility risks. Furthermore, utilising tax effective investment conduits such as superannuation become even more valuable in these lower return times.

Yes, there will always be headwinds of some sort ahead. For example, the on-off trade war between China and the US continues to be a concern for global economic growth but, on balance, a resolution is anticipated. China needs this matter to be resolved more than the US as its exports are affected much more. Then there are the usual bursts of geo-political aggravation to help create volatility when all gets too quiet! Part and parcel of investing!

Let us hope that the enthusiasm and perceived stability generated this week continues and develops further.

As always, should you have any queries please do not hesitate to contact us.

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FMA Wealth Management Commentary – April 2019 Federal Budget 2019

“Back in the Black, and Back on Track” was the call cry of the Morrison Coalition Government when delivering the 2019 Federal Budget last night.

The Government was saying it has turned the deficit ship around and now transferring to the surplus path, so there will be benefits of this surplus for all. There are to be tax cuts and increased fiscal spending. As anticipated, it was a good budget, and one clearly aimed as a pre-election one. It was an upbeat budget, with many positives features and few negatives, and certainly nothing contentious and not complex. It was a build on last year’s budget.

Remembering that there will be a Federal Election, with the date to be announced imminently, and the likely election dates being either May 11th or May 18th, so only weeks’ away! The Coalition is behind in the polls to Federal Labor so this budget is a critical play by them to reverse the present likely outcome of a Shorten Government. This budget should help the Coalition’s re-election cause versus Labor’s election campaign broadcasting increased taxes and class division. As discussed in last month’s newsletter, if Labor form the new government, based on its rhetoric to date, it will bring in increased regulation, higher taxes and an anti-wealth policies sentiment, all of which are not really conducive to encouraging investors who are, at present, enjoying the continuation in the positive global markets.

There were three main areas that the budget concentrated on being Taxation, Superannuation and Welfare. There were broad tax cuts and tax offsets announced; for superannuation, including increasing the age limit by two more years, up to age 67, where both concessional and non-concessional superannuation contributions can be made without the Work Test restriction; and for welfare recipients including an energy assistance payment for residents.

Please click here for a concise report from Macquarie Research of the 2019 Federal Budget and what it means to you. Obviously, with the looming Federal Election next month, it is uncertain just how much will get through and be legislated before then. We will need to see.

And, as always, should you have any queries on the Federal Budget or other matters please do not hesitate to contact us.

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