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

54.2 million worries

We are going through one of those periods where it seems there is a long list of things for investors to worry about: the US election; the Fed; ever present fears about a break of the Eurozone; and China. This article, from Dr Shane Oliver (AMP Capital) discusses some of the very real risks out there and how to manage the noise and worry. Definitely worth reading.

Read more here                                                                                                                                  Rick Maggi

The Australian Housing Market

Housing matters a lot in Australia. Having a house on a quarter acre block is part of the "Aussie dream". Housing is a popular investment destination. And the housing cycle is a key component of the economic cycle and closely connected to interest rate movements.

But in the last 15 years or so it has taken on a darker side as a surge in house prices that started in the late 1990s has led to poor affordability and gone hand in hand with surging household debt. Reflecting this, predictions of an imminent property crash bringing down the Australian economy have been repeated ad nauseam since 2003.

This note looks at the risks of a property crash, particularly given the rising supply of units, implications from the property cycle for economic growth and how investors should view it. 

Read article here

Do You Have an Estate Directory?

Ok, so you've planned for retirement, you have insurances in place, your Wills are up to date, and you've appointed Enduring Powers of Attorney. You couldn't be more organised - well done!

But do your loved ones know where your Will is located? How about your insurance and superannuation documents? Do they know who your Lawyer, Financial Advisor and Accountant's are? How about that key to the safe or special filing cabinet?

You can see where I'm going with this.

An 'Estate Directory' is a simple but extremely useful document to have in times of crisis. Basically, it's a list of important contacts and the location of documents that you can give to your next of kin, leave in an obvious place, or lodge with us, your Financial Advisor.

Don't let your well considered plans unravel at the worst possible time. If you're a client of Westmount, ask for an Estate Directory today (it's free).

Rick Maggi

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.

The US Presidential Election

The attached note looks at the US Presidential and congressional elections that are looming large, especially now that the polls between Donald Trump and Hillary clinton are neck and neck.

Read more here.

Super: Further Clarification

The Federal Government has provided further clarity on how the proposed 'bring forward' and $1.6 million eligibility threshold will work with regard to superannuation. The details can be found here - all very interesting, but if you would prefer a plain-english explanation, please call me personally.

Rick Maggi

$500k Lifetime Limit Scrapped

The Government today announced major changes to the superannuation package contained in the 2016 budget, including scrapping the backdated, lifetime cap of $500,000 on non-concessional contributions (NCCs). However, anyone with over $1.6 million in super will not be allowed to make further NCCs. Today’s announcement includes several other changes.

The full announcement by the Government is attached here.

The announcement does not change the lowering of the concessional contribution to $25,000, and with the reduction in NCCs from $180,000 a year to $100,000, weaker flows into superannuation than in the past can be expected. It’s likely to hit SMSF inflows harder, since these are generally used by wealthier investors who can afford the extra contributions.

Read a full summary of the superannuation package here.

Home values rise 1.1%

The CoreLogic Home Value Index recorded a 1.1% rise in dwelling values in August, with six of the eight capital cities recording a lift in dwelling values over the month. Performance of the combined regional areas remained comparatively soft, with dwelling values virtually flat at -0.1%.

The strong combined capital cities headline result masks the underlying movements associated with dwelling values which are trending differently from region to region and across the broad property types.

In Sydney and Melbourne, dwelling values continued to increase at more than 1% month-on-month, with the cumulative growth (June 2012 to date) now reaching 64% in Sydney and 44% in Melbourne. Outside of Sydney and Melbourne, the third highest rate of capital gain over the same period was Brisbane at 18%, and was as low as 4% for Darwin.

The most recent twelve month period has seen dwelling values rise by a lower 7% per annum, with Perth and Darwin the only capital cities to record a fall in dwelling values over the same period, dealing by 4.2% in both cities. Softer economic conditions and a significant fall in overseas migration rates, together with an increasing net outflow of residents to other states and territories, has made a substantial dent in housing demand, reducing values and rental returns.

Read the full report here.

Interest Rates Steady

The RBA has resolved to keep interest rates on hold at 1.5 per cent ahead of a possible US rate hike on 21 September and the release of Australian CPI figures on 26 October.

As expected, RBA governor Glenn Stevens’ final meeting before handing over the reins to his successor Philip Lowe proved to be uneventful.

The decision to keep rates on hold was in line with market expectations, with the ASX 30 Day Interbank Cash Rate Futures September 2016 contract pricing in a 95 per cent chance of ‘no change’ to the cash rate.

UBS chief economist Scott Haslem said the RBA is likely to remain on hold for the “foreseeable future” given firm growth data, a likely lower trend in the Australian dollar and concern about financial stability.

“While inflation will remain low, core inflation is likely to drift modestly higher from here,” Mr Haslem said.

The ANU Centre for Applied Macroeconomics Analysis (CAMA) Shadow Board attached a 57 per cent probability to 1.5 per cent being the correct policy setting.

“The CAMA RBA Shadow Board clearly believes that the cash rate should not be cut any further,” said the Shadow Board. “After the RBA’s decision in August to cut the cash rate to a historic low of 1.5 per cent, there is good reason to pause.

“Unemployment fell slightly, but only because of a large increase in part-time employment. With consumer price inflation equaling 1 per cent year-on-year, well below the RBA’s 2-3 per cent target band, and wage growth a modest 2.1 per cent year-on-year, there exist little immediate inflationary pressures,” said the Shadow Board.

Rick Maggi

Super: not giving an inch

At the Bloomberg Address today, Treasurer Scott Morrison was asked about his previous statement about not changing the superannuation rules and his definition of retrospectivity. His unequivocal reply leaves little hope for those expecting a retreat.

His reply...

“I stand by everything I said in that statement for the simple reason that the retirement phase remains tax-free. You know that. The retirement phase account, which under our proposal with a transfer balance cap, will mean that 99% of people who have balances less than $1.6 million will remain absolutely in exactly the same situation that I referred to.

The changes that we put forward, which I hope at least from my point of view as Treasurer I never have to revisit, and I certainly have no intention of revisiting them, will ensure that those rules are now set for the future.  

Why did we have to change the superannuation system? Because we have an aging population and we have system that is frankly overly generous for large balances, and the cost of having those large balances and the tax concessions … which have only been there since 2007, by the way, they weren’t introduced by Henry Parkes or anyone else like that [Editor’s note: Parkes served five terms as Premier of New South Wales between 1872 and 1891]. Those arrangements were brought in when the Budget had a $20 billion surplus and $40 billion in cash.

What we have chosen to do is make the superannuation system more sustainable in future. We have targeted a higher rate of tax, true, at the whopping rate of 15% for earnings on balances above $1.6 million. That enables us to preserve the exact situation that I was speaking in favour of at the SMSF Conference. We allow 99% of people who have saved for their retirement to have the deal that I said they should have, that is, paying no tax on what they have contributed to superannuation over their lifetime.

I know there are those with balances more than $1.6 million who are unhappy about that. I know there are less than 100,000 people in the country who have already put more than $500,000 into super after their pre-tax contributions [Editor’s note: he probably means in after-tax contributions]. I know there are those on very high incomes who will be paying more on their contributions going into superannuation now than before.

The alternative to that is for me to tell my kids, ‘You’re going to have to pay higher taxes to support those concessions.’ I don’t think that’s fair and I’m not going to do it.”