05/05/15: Interest rates cut

A record low...

Today the Reserve Bank of Australia (RBA) finally decided to take the plunge and reduce the cash rate by 25 basis points to 2.00%, a record low.

This wasn't a huge surprise as economists this morning were factoring in a 78% chance of a rate cut today. Interestingly, the RBA provided no outlook statement for interest rates going forward, so unless the Australian economy deteriorates significantly from here, this could be the last of the rate cuts. We'll see.

At the time of writing, the Australian share market was initially up 1.1%, however has since fallen into negative territory as the Australian dollar, surprisingly, went up in defiance of the interest rate cut.

While this is welcome news for borrowers, the decision will put more pressure on investors, particularly retirees, with significant cash/term deposit holdings - interest rates are low and will stay low for some time to come. If you need income, it's time to consider your options.

On a different matter, the Federal Budget will be announced next Tuesday night (12 May) and, as usual, the rumours have been flying fast and furious, from superannuation to negative gearing to pensions.

Our advice is to ignore the background noise. Typically, the lead up to every Federal Budget is a showcase of worse case scenarios and general fear mongering, coming from both side of politics, usually leading to fairly unspectacular, watered-down announcements on the night.

We'll distill the budget details into a simple, easy to understand report for our clients soon after budget night, once we've had a chance to thoroughly weigh-up the proposals on the table. More importantly, we'll contact you individually should there be anything important to discuss.

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

10/04/15: Australian home prices and interest rates

Where are we headed?

The interplay between falling interest rates, the Australian dollar and housing demand is a complex one. While the RBA would dearly love to see our dollar fall, rising house prices, particularly in Sydney and Melbourne, isn't part of the script. So what happens if, as widely expected, interest rates are cut again in the coming months? Another interesting read from AMP's Dr Shane Oliver.Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

24/03/15: Cast in iron?

Protecting your portfolio against investment 'fashion'

Dimensional VP, Jim Parker, discusses the pitfalls of building investment strategies around "hot" sector stories. Read more here

Rick Maggi Westmount Financial Clear Focus. Better Solutions.

04/03/15: Australian economy still in the doldrums...

More help needed...

Through 2013-14 it seemed the Australian economy was starting to transition away from a reliance on mining investment to more broad based growth. Unfortunately this transition has wavered a bit recently and growth has remained below trend. Fortunately, the RBA has recognised the problem and resumed cutting interest rates. This note looks at the outlook for growth and rates and what it means for profits and investors. Read more here

Rick Maggi Westmount Financial Clear View. Better Focus.

03/02/15: RBA cuts rates by 25bps, shares rally

An 'insurance policy' for growth...

The official cash rate has been reduced to a new record-low of 2.25 per cent after being left on hold at 2.5 per cent since August 2013.

The Reserve Bank’s decision has come as a surprise: a survey of 30 economists and commentators found that 28 expected the cash rate to remain unchanged.

Westpac, NAB and ANZ all subsequently forecast that rates would fall some time in the first half of 2015.

The two survey respondents who predicted today’s cut were Bill Evans, chief economist at Westpac, and Nathan McMullen, head of product and digital at RAMS.

Mr McMullen said that with consumer confidence and inflation low, the Reserve Bank would cut rates to help boost the economy and depreciate the Australian dollar.

Several of the other survey respondents also gave an indication of what forced the Reserve Bank to act, even though they didn’t expect it to happen as early as today.

ME Bank’s general manager of markets, John Caelli, said growth and consumer confidence have been weaker than the board would like.

“Market sentiment has fundamentally shifted over the past two months as oil prices have plummeted and concerns about deflation in Europe grow. This has led to markets expecting 0.50 per cent in rate cuts in the first half of 2015,” Mr Caelli said.

The cut is being seen by many as an 'insurance policy' on growth going forward.

Of course, while this is great news for borrowers, it adds further pressure on investors, particularly retirees, with significant exposure to cash. With that in mind, it will be important for investors in search of a decent yield to be particularly wary of new and wonderful investment products promising higher yields - so please, run it by us before taking the leap!

At the time of writing, the Australian dollar has responded to the rate cut by falling from 0.78 to 0.77, while the local share market has rallied about 1.6%.

Rick Maggi Westmount Financial

12/01/15: 2015 Outlook

2 things you need to know…

The economic backdrop for the year ahead is likely to be fairly similar to what we saw in 2014; expect continued economic expansion but at a relatively modest and more uneven pace…

Globally • Growth is likely to remain around 3.5%; ranging from 1-1.5% in the Eurozone and Japan, 3.5% in the US and 7% in China. • Inflationary pressure is likely to remain fairly low and the overall monetary backdrop, despite a probable tightening by the US in the middle of the year, will remain fairly easy. We will likely see further easing in Europe, Japan and China.

For Australia • We should see growth move up to around 3% • Inflation is likely to remain benign • The Reserve Bank of Australia is projected to cut the cash rate to 2.25% early in the year with a 50% chance of another cut in the June quarter.

Rebalancing the economy As Australia transitions back to a more balanced economy, investors should try to avoid getting too gloomy. Yes, the mining sector is slowing down, but low interest rates and a falling Australian dollar is providing a great boost for non-mining parts of the Australian economy. For instance, we’re seeing a return to life for retail-related areas of the economy. Housing and construction has picked up, construction activity related to infrastructure continues, and the tourism, manufacturing and higher education sectors are showing signs of improvement.

Unemployment will eventually fall While economic growth is still not strong enough to lead to a fall in unemployment, we expect that the job market in 2015/16 will start to pick up as the stimulus to the economy from lower interest rates and the falling Australian dollar starts to feed through.

What does this mean for investors? It should mean another year of reasonable returns for diversified investors. But there are two key things that investors need to be mindful of: 1 What we saw in 2013 and in 2012 (returns of around 20%) out of shares is not sustainable over the long- term. Expect something more like 8-10%; 2 Every year experiences a lot of ‘noise’ and 2015 will be no different. This can be negative in terms of distracting you from your key investment strategy. Try and turn down the volume on the financial news and focus on maintaining a long-term investment strategy. (Dr Shane Oliver, AMP Capital)

Rick Maggi Westmount Financial

02/12/14: Interest rates remain on hold

Where to from here?

The Reserve Bank of Australia has announced the outcome of its monthly board meeting, deciding to leave the official cash rate on hold at 2.5 per cent.

NAB chief economist Alan Oster said he expected no change in the cash rate until the end of 2015.

"The RBA still believes that a period of stability in interest rates is the most prudent policy for the time being," Mr Oster said.

"While there are tentative signs of an improvement in household spending, they do not yet signal a sustained change in household and business conditions," he added. In the absence of any "major surprises", the cash rate is unlikely to rise until late 2015, Mr Oster said.

Westpac chief economist Bill Evans noted that the November monetary policy meeting minutes were "slightly more dovish" than October's. "The growth outlook is a little less optimistic while there appears to be less hysteria around the potential risks associated with the housing market," Mr Evans said. "Indeed there is no implication of a substantial intervention by the authorities. The RBA is clearly in an ongoing ‘wait and see’ mode," he said.

It is also worth noting that in other quarters further interest rate cuts are being predicted for 2015. Deutsche Bank today went on the record predicting two 25 basis points cuts mid and later next year.

Our view at Westmount is that talk of interest rate cuts is premature at this point. Unless the Australian economy significantly deteriorates further, we expect the RBA to simply maintain current rates a little longer than previously expected. Of course, if rate cuts do occur, this would probably be a positive for shares and property, so it is critical to keep your portfolio diversified and flexible at all times.

Watch a full interest rate report from Macquarie here.

Rick Maggi Westmount Financial

30/10/14: Punchbowl removed: The end of 'Quantitative Easing'

End of an era… After a year long phasing down period, last night the US Federal Reserve finally ended its quantitative easing (QE) program, introduced at the height of the Global Financial Crisis back in 2008.

Since the worst days of the GFC, unemployment has fallen, consumers are spending again, businesses are investing and banks are lending. So after all is said and done, QE seems to have actually worked - the US economy is now well and truly into expansion mode and looking a lot stronger than Europe and Japan that have taken longer to adopt QE.

It would be fair to say that, while the US economy isn't exactly booming, the Fed Reserve's decision to take the economy off life-support was, at least for now, an important sign that the US may now be able to finally stand on its own two feet.

While the punch-bowl may have been removed from the table, the music continues to play. Consistent with the Fed Reserve's softly, softly approach, they've also indicated that interest rates won't be going up in a hurry, even as the US economy continues to recover - an encouraging signal to the US (and the rest of the world) that concrete evidence of a sustainable recovery will be needed before interest rates are finally raised in earnest.

The ending of US QE is also a positive for Australia and removes a source of upwards pressure on the Australian dollar (great for exporters).

Rick Maggi Westmount I Financial Solutions

25/09/14: Australian property - a little too hot?

...well that depends

A balanced analysis of the Australian property sector. Read more here

Rick Maggi Westmount I Financial Solutions

04/09/14: Profits and the Australian economy

Not bad!

The property reporting season that just finished was reasonably good with profit growth expectations affirmed. Read more here

Rick Maggi Westmount I Financial Solutions

04/09/14: How long can interest rates remain on hold?

…perhaps a little longer

An interesting read for a recurring theme out there. Read more here.

Rick Maggi Westmount I Financial Solutions

03/04/14: Are we in a property bubble?

A commentary from Dr Shane Oliver...

As the China driven mining boom fades, the Australian housing recovery couldn't come at a better time. But with interest rates poised go up over the next six-twelve months, what does this mean for property investors and borrowers? Read more here  (Rick Maggi, Westmount. Financial Solutions.)

02/04/14: Connecting the dots

'Outside the Flags' with Jim Parker

Human beings love stories. But this innate tendency can lead us to imagine connections between events where none really exist. For financial journalists, this is a virtual job requirement. For investors, it can be a disaster. Read on here   (Rick Maggi, Westmount. Financial Solutions.)

15/03/14: Why asset allocation is so important

…making a comeback

If we've learned anything since the GFC, it's that a well diversified portfolio of assets, including local and overseas shares, property, cash, bonds etc., is the smartest (and easiest) way to preserve and grow your capital, whether you are retired or accumulating assets. Even as the global economy recovers, thanks to the pain experienced by most of us during the GFC, its unlikely that a new found respect for asset allocation will fade anytime soon.

In this article, Dr Shane Oliver explains what asset allocation is, why it's important to you and how to manage the economic cycles. It should be liberating to know that about 90% of the gains (or losses) investors experience in a lifetime have to do with the amount of exposure they have to various sectors like shares, property, cash etc., and much less to do with micro-decisions such as stock selection or the specific managed fund they purchase.

In other words, managing your portfolio of assets can be much less time consuming, less stressful and less expensive, if structured and maintained properly, regardless of your personal objectives and style. (Rick Maggi, Westmount. Financial Solutions)

Read here

07/03/14: Australia: Looking beyond the gloom

Cheer-up, it's much better than you think!

In this article, AMP's Shane Oliver focuses on the Australian economy, which has been getting some depressing press lately. Read more here  (Rick Maggi, Westmount. Financial Solutions.)

19/02/14: China debt worries and growth

Overdone?

Whether you have a superannuation, pension or managed fund, direct shares or property, what happens in China, the world's second largest economy, matters to your financial health. In this article AMP Capital's Dr Shane Oliver looks more closely at some of the 'noise' surrounding China these days, and whether this is something we should all be worried about. As usual, an easy to understand reader-friendly article from one of Australia's most respected Economists. Enjoy.  Read article here  Rick Maggi (Westmount. Financial Solutions.)

17/01/14: The Year Ahead

Westmount Clients Only

19/12/13: The Fed finally tapers

...and what it means for investors

Overnight the US Federal Reserve announced that it will begin carefully and slowly scaling back its massive stimulus program next month. It is the central bank's first step towards winding back the stimulus that has helped the US recover from its worst recession since the 1930s and a sign that the US economy is recovering.

In response, the US share market surged by almost 2% and at the time of writing, local markets are up by about 1.5%. Our local currency immediately dropped to 88.18 US cents but then quickly recovered to 89.45 US cents as investors digested the news. Most importantly, this should be viewed as good news. AMP Capital's Dr Shane Oliver discusses the implications for investors here. Rick Maggi (Westmount. Financial Solutions.)

30/11/13: Deflation or rising inflation?

What is the risk?

AMP Capital's Dr Shane Oliver looks discusses the potential consequences of a deflationary spiral versus rising inflation on your hip-pocket. Enjoy. Read more here  Rick Maggi (Westmount. Financial Solutions.)

27/11/13: Perth tipped to grow fastest

Perth to grow beyond Brisbane...

A quick and interesting article on Perth's growth prospects. Enjoy.  Read more here  Rick Maggi (Westmount. Financial Solutions.)