Federal Budget 2017: Snapshot

On Tuesday 9 May, the Federal Government handed down its Budget for the 2017–18 financial year.

According to Federal Treasurer Scott Morrison, this year’s Budget is founded on the principles of fairness, security and opportunity. Mr Morrison claims that the government’s proposed measures will raise almost $21 billion in revenue over the next four years, returning Australia’s budget to surplus by 2021.

Here are some of the key Budget announcements. Note that each of these proposals will only become law if it is passed by Parliament...

Read Budget Summary Here (Colonial First State)

Watch Budget Overview Here (MLC)

Read Budget Commentary Here (AMP)

Trump Tantrum?

Since the US elections back in November, the 'Trump Trade' has sharply boosted global share markets, based on the promise of lower taxes, less regulation and other 'pro-growth' policies. After a lengthy period of economic 'stagnation' (not quite true), the prospect of Donald Trump ushering-in a thrilling, no-holds-barred period of Reaganesque optimism is an intoxicating idea, no doubt contributing to his election in the first place.

But is all of this about to come unstuck? Quite possibly.

With a Presidency already under fire for possible Russian collusion, bogus wiretapping claims and a myriad of other missteps, you could be forgiven for thinking that you've just stepped out of a time machine and it's 1974 all over again.

Nixon aside, Trump's massively eroded political capital and growing credibility problem points to short-term danger for the sharemarket. If Trump is no longer trusted, or even liked, his capacity to swiftly enact his pro-growth agenda is suddenly at risk, and with it, the quick sharemarket gains made since last November.

And Trump's first litmus test will be tonight's vote on his revised healthcare bill. If the vote doesn't pass or is post-postponed, markets will be rattled. Brace yourself, but don't forget the opportunities that come with uncertainty - we've been here before.

Rick Maggi

Top 10 New Year Headlines

What will 2017 hold? Our natural curiosity about the future makes a ready-made market for speculative media articles about events likely to drive financial markets in the coming year.

But the assumption driving much of this seasonal coverage is that the mere turn in the calendar from one year to the next justifies overhauling your investment portfolio, generating significant turnover and unnecessary cost.

Against that background, here are 10 perennial New Year headlines to watch out for in the coming weeks...

1. “New Year, New Portfolio”
This journalistic boilerplate trades off our desire for reinvention as the calendar year turns. The presumption is you should completely change your investment strategy as if you were updating your wardrobe.

2. “Different Times, Different Strategies”
This assumes that the world has changed so dramatically that the rules of diversification and discipline no longer work. If you’re persuaded, look at last year’s forecasts.

3. “Brace for Uncertainty”
Saying the future is uncertain is a bit like saying night follows day. In the past year, there was Brexit and the US presidential election. In the coming year, there are elections in Germany and France. In other words, there is always uncertainty and there is always plenty of scope for speculation.

4. “Interest Rate Fears Mount”
Conjecture about central bank policy is a hardy perennial for financial media looking to fill space. Thee irony is that market expectations about these movements are already incorporated into current prices.

5. “Ten Stocks to Count On”
What if you could whittle your portfolio down to a handful of stocks and get rid of the rest? It might seem like a nice idea. However, it is also a dangerous one as the lack of diversification leaves you open to idiosyncratic influences.

6. “The World has Changed Forever”
Actually, the world is always changing. Economies rise and fall, businesses flourish and perish, some investments do well, while others languish. The rules for dealing with that haven’t changed at all.

7. “The Right Moves to Make Right Now”
This headline assumes there is a perfect time to invest and, equally, a perfect time to cash in. Problem is there’s no evidence you can reliably time the market. And in any case, everyone’s needs are different.

8. “Make Your Portfolio Bulletproof”
The idea that nothing you invest in should be falling in value is certainly an attractive one. The truth is no portfolio is likely to be completely bulletproof. Some parts of the portfolio may outperform, others may lag. Hence the need for diversification.

9. “Invest with the Stars”
No, this isn’t your horoscope for 2017. It’s a headline regularly attached to profiles of the top performing stock pickers of the previous year. But while everyone loves a winner, how many of them repeat?

10.“Take Charge of Your Wealth”
Who doesn’t love do-it-yourself stories? Just buy yourself some trading software and play the currency market from your spare room. Alternatively, you could hire an advisor and get your life back.

The truth about these holiday front covers is they are usually cooked up in an editorial meeting a few weeks out from the holiday season. They’re easy to write. They’re timeless. They’re clickbait. And, best of all, you can recycle them year-to-year.

In any case, what you do with your investments shouldn’t change according to the news, but according to your own needs, goals and risk appetite. Decisions are better made under the guidance of an advisor who understands your circumstances.

That’s a better foundation for a happy new year. 

Jim Parker, 'Outside the Flags', Dimensional Australia

MARKETS REBOUND

Good afternoon,

Yesterday $34b was wiped off the Australian share market (down 1.9%) and today $58b was put back on (up 3.3%) as investors took heart with President-elect Donald Trump’s conciliatory victory speech. The major winners today were resources, with BHP and Rio jumping by 8.2% and Fortescue 10.2%, buoyed by Trump’s plans to invest in large ‘rebuild America' infrastructure projects (roads, bridges etc.). 

But just as yesterday’s slump should have been taken with a grain of salt, the same logic needs to apply to today’s encouraging rebound, and until a clearer picture of Trump’s policies emerge, you should expect continued short-term volatility. However, there is little doubt that Trump’s policies (from what we know so far) will have an inflationary, higher earnings growth bent. And how bonds, property, shares and our currency might react to this new paradigm is hard to gauge at this point. 

However at the end of the day markets will work through those uncertainties as they do with all news - all opinions will be accommodated in prices and there is little that any one person can do to change that. 

Ultimately, when the news environment is at its hottest, successful long-investors must be at their coolest.

I’ll keep you posted.

Rick Maggi

IT HAPPENED

Today’s US election results were a surprise to most and are likely to have a short-term impact on global share markets. Locally, our markets fell by just under 2% today, erasing gains made over the last two days - yes, after all of the media hysteria today (ie $34 billion ‘wiped off’ the sharemarket etc) markets are merely back to Monday’s levels.

Looking ahead, US markets look as if they might fall by roughly the same percentage this evening as investors weigh the potential pros and cons of a Trump presidency.

As we’ve seen before, these kinds of knee jerk reactions are typically short term in nature, so I would strongly suggest just ignoring the ‘noise’ over the coming weeks, and even consider taking advantage of market weakness, as long as you’re prepared to accept some short-term volatility.

We’ll continue to monitor the situation closely.

Interesting reading...

Shane Oliver

Bloomberg                                                                                                                                    Rick Maggi

US elections: implications for investors

Hillary's 11-point lead from just a few short weeks ago has since evaporated, with the two candidates now running neck and neck.

So what are the implications for Australian and global investors? Read more here

Interest Rates On Hold

Now that the weekend's grand final sporting festivities have come to a close, I'd like to draw your attention to today's rate announcement and the thoughts on why the Reserve Bank of Australia has made this decision. 

In making this call, the RBA has resisted temptation to further lower rates, opting instead to wait until the September quarter CPI data is released to allow it more time to measure the impact of the August rate cut.