News Updates
AS IT HAPPENS
At the time of writing, the Australian Dollar is sitting on $US0.770, which begs the question - what on earth is driving it? Read more here
For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.
You love your current office space but everywhere you turn, you’re hearing stories of how soft the office leasing market is in Perth. There are signboards all over the place and the super deals tenants are securing are approaching levels reserved for urban myths of old. You start getting excited because you can see yourself halving your rental expense overnight. And then you pull out your lease and your face drops; you’ve still got a few years left on your term.
The thing is, even if your lease expires in 2019, for example, you can still take advantage of the current market conditions.
The reason for this apparent paradox is that you can create a win-win outcome for both yourself and your landlord when you understand the factors that motivate them in the current market.
The first is that it costs the landlord more to find a new tenant than it does to keep you. This is because there is invariably a period during which a property remains vacant and this represents lost income for the landlord and additional expenses because they have to pay the building outgoings out of their own pocket. If that wasn’t bad enough for them, they also have to allow for generous incentives to lure new tenants and then pay the leasing agent’s fees on top. It can really add up, especially in the current market.
The second factor involves the outlook for the office leasing market in the medium term and whether your lease will expire in a stronger or softer market. If your lease expires during a period where everyone expects the market to be stronger then there is no motivation for your landlord to do anything now, because they’ll be able to get a better deal in a couple of years. But if your expiry is due to occur in a stagnant or softer market (the current consensus view for the next couple of years) then it’s in the landlord’s interest to do a deal now to protect themselves from this risk. In essence, the question here is whether the soft leasing market is projected past your lease expiry.
The third factor has to do with the impact of your lease term on the building’s Weighted Average Lease Expiry (WALE) which is a significant metric in the valuation of the property. The longer your unexpired term and the larger your floor area, the larger the impact you have on the building’s WALE and, by extension, on the building’s value. A healthy WALE that gets over the current softness is a good thing in an investment property and if you can contribute to this then your landlord will want to hear from you.
It all comes down to the numbers; if you can propose a solution that addresses the combined impact of the above factors then you are making things interesting for the landlord. At the same time, the proposal has to make sense for you too in terms of your business plan and growth prospects. If your solution ticks both boxes then you have a marriage made in heaven.
If you want a sanity check of your numbers – or just want to talk about the market – give me a call on 9261 6698 or email me at theo.smyrniotis@colliers.com
Alternatively, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.
Stronger than feared profit results and reasonable economic data in Australia, which are consistent with a rebalancing of the economy away from mining, are among the factors steering Australia away from a recession. Shane Oliver discusses this, along with the risk of a property crash and Australia’s declining negative gearing numbers.
Australian property update – negative gearing numbers Declining tax claims due to negative gearing in Australia are largely a result of low interest rates relative to rental yields. In other words, the benefit of negative gearing has somewhat declined. There is a broader issue at play however, which is the political debate proposing to restrict negative gearing tax concessions to only new properties.
Are we heading for a property market crash? Australian housing is expensive relative to incomes and rents. And household debt ratios are high. So yes, there is a risk of a sharp drop in property prices at some point. However, this is unlikely unless we see much higher interest rates or a surge in unemployment in the context of a recession. The foresight of the Reserve Bank and what has so far been a successful rebalancing of the economy in the face of the mining downturn mean that both of these scenarios seem unlikely at present. We’re going to see a 5-10% fall in property prices at some point in the next few years but at this stage it’s unlikely that we’re going to see a property crash.
How have company profit results turned out? The latest round of profit results reported by Australian companies related to the December half of 2015 and given recent sharemarket falls, these results have proven to be better than feared. Although resourcing companies saw big falls in profits and cuts to dividends, this was not surprising. More importantly, the remainder of results were reasonably good and showed decent profit growth.
For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.
Good advice from Tony Robbins...
How many times have you told yourself what you “should” do?
I should lose weight. I should be more confident. I should earn more money. I should have a more passionate relationship.
People have an endless list of things they believe they should do or should follow through on. And these “shoulds” carry about the same weight as a New Year’s resolution — that is, if it happens, then that’s exciting. But if not, it won’t be too disappointing because you kind of knew it wasn’t really going to happen anyway.
But what happens when you decide something is an absolute “must?” What happens when you cut off any other possibility than you succeeding — when you decide that you are either going to find a way to make something happen or you’ll create the way yourself?
When you raise your standards and turn “should” into “must,” you are making an inner shift to take control over the quality of your life. Any area you are not getting what you want is because you haven’t raised your standards.
Take your relationship, for example. This is a direct reflection of your standards. Some people are in a relationship right now but they aren’t happy because their standard is that they must be in a relationship, not that they must have passion and excitement and pure joy and love. Others may not be in a relationship because their standard is that they must not be hurt.
If you want real change, you have to be willing to do your part. And it starts with asking yourself, honestly, who you are.
Are you a winner? Or are you always a step behind? Are you the life of the party? Or are you more reserved?
Answering this question and discovering what your true beliefs are about yourself is critical. Because this is your identity. And the fact is we are hard-wired to follow through on who we believe we are.
Consider someone who is trying to quit smoking. He may say to himself, “I’m going to do my best to stop smoking, but I’ve always been a smoker.” It doesn’t matter how hard he tries, if his identity is that he is a smoker, it’s futile. And the days until he is back smoking again are numbered. Because we act consistently with and ultimately become who we believe we are.
Most people, if they look at how they are living their lives today, will find that their identify is based on a set of standards and a set of beliefs they created 10, 20, 30 or more years ago. In fact, many of us made decisions when we were kids about what to believe, what we are capable of, and who we are as a person, and that became the glass ceiling that controls us. But are you the same person you were back then? Are you the same person you were even a year ago?
Eventually, most people simply stop trying to break through that glass ceiling. They chock it up to “that’s just the way it is in my life,” or tell themselves “that’s just who I am.” But ironically, when you do this, you are actually denying who you really are. You are living under a false identity that is based off of false beliefs you adopted some time in the past.
So how do you define yourself? And when did you start to believe that? How many years ago did you decide what you could and could not do in your life? Don’t you think it’s time to raise your standards, turn your “shoulds” into “musts” and give yourself a new identity?
The strongest force in the human personality is the need to stay consistent with how we define ourselves. And you may just find that by making these changes, you can make lasting change in your quality of life. - Tony Robbins
Subscribe to the Tony Robbins newsletter here.
For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.
Once again Warren Buffett has presented a compelling long-term view of the growth potential of the US economy. In doing so he draws upon his long lifetime experience to explain that betting against the USA was and remains a foolish investment endeavor…
“For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honoured and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.”
The following few sentences, from his introduction, make some telling observations about the last 80 years and the future of the USA..
“It’s an election year, and candidates can’t stop speaking about our country’s problems (which, of course, only they can solve). As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history. American GDP per capita is now about $56,000. As I mentioned last year that – in real terms – is a staggering six times the amount in 1930, the year I was born, a leap far beyond the wildest dreams of my parents or their contemporaries. U.S. citizens are not intrinsically more intelligent today, nor do they work harder than did Americans in 1930. Rather, they work far more efficiently and thereby produce far more. This all-powerful trend is certain to continue: America’s economic magic remains alive and well.”
“Today’s politicians need not shed tears for tomorrow’s children. Indeed, most of today’s children are doing well. All families in my upper middle-class neighbourhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name just a few – transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbours now do. Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. Clashes of that sort have forever been with us – and will forever continue. Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.”
Warren Buffett's logical and optimistic sentiments serve as a gentle reminder to investors, retirees and superannuation members alike that current economic or market conditions are not necessarily predictive. We are always in a 'cycle', and like all cycles (good or bad), they eventually must come to an end.
For more information, contact Rick Maggi on 9382 8885 or rickmaggi@westmount.com.au.
A weekly drop of more than 5 percent has only happened 28 other times since 1980. If you're trying to decide what to do this week, maybe this chart will help. It gives you a look at what happened in the S&P 500 in the weeks following a 5 percent decline. On average, the market is relatively flat the next week, up 1.65 percent over the next four weeks, and up close to 5 percent over the next 12 weeks. Also important to note is that 60 percent of the time, the index moves higher the following week.
Some of the standout years include huge drawdowns of more than 20 percent over the next 12 weeks in 1987 and 2008. On the opposite side of the spectrum, there were massive turnarounds in 1998 and 2009.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.
The rout continues
Following a 3.5 percent sell-off on Wall St last Friday night, local and Asian markets continued to shed hard won gains with China leading the way, falling 8.5 percent in just one day. For some background on what has been happening, please read my previous note (Market Update 1 - 21 Aug 2015). For an updated viewpoint Read more here from Russell Investments.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.
Sometimes it helps to take look the world through an unconventional perspective when thinking about the size of things.
So here’s a pretty awesome map from Bank of America Merrill Lynch’s Chief Investment Strategist Michael Hartnett that shows the world according to free-float equity market capitalisation in billions of dollars measured by the MSCI.
The US, with a market cap of $US19.8 trillion, is the biggest and represents 52% of the world’s market cap. Japan is in second place at $US3 trillion, followed by the UK at $US2.7 trillion, and then France at $US1.3 trillion.
Notably, Hong Kong’s market cap is nearly the same size of China (both of which are significantly smaller than countries like the US and Japan).
Meanwhile, Russia, which has a bigger surface area than Pluto, is about the same size as Finland in terms of market cap.
Check out the whole map below.
Rick MaggiWestmount Financial Clear Focus. Better Solutions.
Since April, local share markets have been extremely volatile to say the least, gradually drifting lower by about 10% (as of today). Other markets have also fared poorly, e.g. Chinese shares -32%, Asian shares (ex Japan) -18%, Emerging market shares -18% and Eurozone shares -13%. Even the US share market, which has been relatively stable during this period has given back about 6%.
What's happening?
First the backdrop. It should be recognised that the seasonal pattern for shares typically sees rougher conditions over the period May to November, consistent with the old saying "sell in May and go away, buy again on St Leger's Day" (a UK horse race in September).
So with this typically difficult May-November period as our blank canvas, consider the following list of worries...
Greece: Between April and June the immediate, highly publicised concern was, understandably, Greece. Thankfully, the emotional charge surrounding Greece and the Eurozone has, at least for now, greatly subsided, with the general agreement to a third bailout program. Of course, we could see a small flare-up again with today's news of a snap Greek election.
China: More importantly, bubbling away in the background, have been legitimate concerns about China's slowing economy, and the impact this might have on the global economy, particularly commodity reliant countries like Australia. These worries have come to the fore in recent weeks in response to soft Chinese economic data, fuelled by China's recent decision to devalue their currency - an unpopular move, but I suspect a positive in the long run - what's good for China generally helps Australia.
It should also be noted that before China's share market 'crash' of 30%, the Shanghai Index had risen by over 250% in just the previous two years. And this phenomenon is not new. In 2007/2008, the Shanghai Index rose 90%, only to fall 70%. So I believe the takeaway here is to not read too deeply into the Chinese share market.
Commodities: Commodities were already in a secular bear market, reflecting a surge in supply and price upswing during the 'boom' years. Slowing growth in China and the rising trend in the value of the $US only adds further pressure on commodities and Australia's challenged resource sector.
Unfortunately slowing growth in China and its subsequent currency devaluation has also put further pressure on already weak emerging market economies, which these days represent more than 50% of world GDP. Emerging economies really do 'matter'.
US interest rates heading-up: The combination of slower growth in China, falling commodity prices, weakness in the emerging world and the fragility of growth in developed countries indicates that inflation will not be a problem for a while yet. Just the same, the US Federal Reserve appears to be heading towards a rate hike soon and this is creating intense uncertainty - markets don't like uncertainty.
Is it a correction or something worse?
While it's certainly no fun, periodic sharp falls in the range of 5% to even 20% are actually quite normal and healthy. Of course, it becomes more concerning if the rising trend in share prices gives way to a declining trend and a new bear market sets in.
But as Sir John Templeton once observed "bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria". There seems to be a lot of scepticism out there. Shares are simply not seeing the sorts of conditions that normally precede a new cyclical bear market: shares are not generally overvalued; they are not over loved by investors; and low interest rates are likely to remain for quite some time.
Of course, this update hasn't taken you particularly circumstances into account, therefore, if you need personal advice speak to us, or contact your financial adviser.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
This update is published by Westmount Financial/Westmount Securities Pty Ltd (ABN 42 090 595 289/AFSL 225715). It is intended to provide general information only and does not take into account any particular person’s objectives, financial situation or needs. Because of this, you should, before acting on any information in this document, speak to us and/or a taxation/finance professional.
Every year, fund manager Vanguard produce a graphical, chronological 'snapshot' of the performance of local and international sharemarkets, property, cash and bonds, along with significant news events of the day. Always worth a look. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
The Chinese share market has fallen dramatically in recent months. So what does this mean for you? Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
As generally expected, the "No" vote won the day, with over 60% of Greeks rejecting further 'austerity' measures. So clearly it's back to the negotiating table, for now. So what does this mean for investors going forward. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
As house prices rise and/or when economic activity slows, the inevitably cries for tax reform can be heard from both sides of politics. This note focuses on the debate around the four major "tax concessions" in Australia - negative gearing, capital gains tax discounts, dividend imputation and, of course, superannuation. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
Where are we headed?
As local markets slide and interest rates fall, it would be easy to assume that Australia's fortunes have taken a sudden turn for the worst. That would be a mistake. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
The Government's superannuation co-contribution for lower income earners seems to shrink by the year, but it's still worth the effort. Read here for more information.
Or if in doubt, call us on 9382 8885 before June 30th.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
AMP Capital's Dr Shane Oliver discusses the thinking behind their investment projections, and offer some interesting insights for the medium term.
This is an excellent read for retirees and investors - a little technical in parts, but worth persevering. In the end, I think the most important takeaway is that we should have reasonable return expectations going forward, and watch your asset allocation more than usual. Please call me if you have any questions.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
With just over a month to go, and the Federal Budget behind us, now is the time to prepare for the end of the financial year. Created by AMP, this is an excellent link for those clients needing a checklist. As you would expect, it's AMP-centric, but the fundamentals are universal. As always, feel free to call me personally if you'd like to take a closer look at your personal situation. Read EOFY checklist
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
