As the violent market volatility continues and emotions run high, I think this article, written by DFA Australia's Jim Parker ('Outside the Flags') manages to cut through the hysteria, helping to refocus the mind on what matters most when markets go awry. A good read for investors, retirees, and anyone looking for a little perspective. Read Are We There Yet?
02/02/16:Super or the mortgage?
Many people wait until their home loan is paid off before investing more in super. However, if you are currently making more than the minimum home loan repayments, you may be better off when you retire if you make additional super contributions instead. Super or Mortgage?
For more information, contact Rick Maggi at Westmount Financial on 9382 8885.
01/02/16: DON'T LET A TOUGH START TO THE YEAR SET THE TONE
Last year global sharemarkets were hit by a range of worries including a slowdown in Chinese growth, rising US interest rates and slumping commodities prices.
However, despite the global market sell-off over the last few weeks, we expect conditions to somewhat improve during 2016, with global growth continuing and interest rates (monetary policy) remaining highly accommodative.
Interest rates... Interest rates are expected to remain low in 2016, and in Australia they might even go lower. The reality is that growth, while improving in some quarters, is still relatively constrained.
While the US Federal Reserve may raise rates a little further, they are likely to be extremely cautious as they wouldn't want to inadvertently derail the progress being made in the US economy.
Elsewhere around the world we're likely to see further easing, particularly in Japan, Europe and China. On the home front, Australia will continue to perform below potential and that is likely to encourage the Reserve Bank to cut interest rates again.
In short, there will be a lot of incentive for investors to look beyond cash and bank deposits where returns are going to remain very low for some time. For example, global share returns are expected gain in the vicinity of 7%-9%, according to AMP Capital.
Australian property market. The Australian property market is basically slowing down. However, the various capital cities and regions have been performing quite differently from each other, with price declines in Perth and Darwin, modest growth in Adelaide, Hobart, Canberra and Brisbane, and significant strength (at least in recent years) in both Sydney and Melbourne.
The slowdown has been in Sydney and Melbourne with negative house prices and lower auction clearance rates taking hold over the last three months, primarily due to the government's push to slowdown bank lending through tougher lending requirements and higher interest rates. These factors have combined to dampen investor sentiment and the downturn is expected to accelerate into 2017. That said, we don't see a property crash coming either.
Implications for investors? The combination of okay global growth, still low inflation and easy money remains positive for growth assets. But ongoing emerging market uncertainties combined with Fed rate hikes and geopolitical flare ups are likely to cause volatility.
> Global shares are likely to trend higher helped by a combination of relatively attractive valuations compared to bonds, continuing easy global monetary conditions and continuing moderate economic growth.
> For shares we favour Europe (which is still unambiguously cheap and seeing continued monetary easing), Japan (which will see continued monetary easing) and China (which will also see more monetary easing) over the US (which may be constrained by the Fed and relatively high profit margins) and emerging markets generally (which remain cheap but suffer from structural problems).
> Australian shares are likely to improve as the drag from slumping resources profits abates, interest rates remain low and growth rebalances away from resources, but will probably continue to lag global shares again as the commodity price headwind remains.
> Commodity prices may see a bounce from very oversold conditions, but excess supply for many commodities is expected to see them remain in a long-term downtrend, so patience is required.
> Very low bond yields point to a soft return potential from sovereign bonds, but it’s hard to get too bearish in a world of too much saving, spare capacity & low inflation.
> Commercial property and infrastructure are likely to continue benefitting from the ongoing search by investors for yield.
> National capital city residential property price gains are expected to slow to around 3-4%, moving into negative territory during 2017 as the heat comes out of the Sydney and Melbourne markets.
> Cash and bank deposits are likely to continue to provide poor returns, with term deposit rates running around 2.5%.
> The downtrend in the $A is likely to continue as the interest rate differential in favour of Australia narrows, commodity prices remain weak and the $A undertakes its usual undershoot of fair value. Expect a fall to around $US0.60.
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.
29/01/16: The super savings gap
While as a nation we collectively face a large retirement savings gap, there are a number of smart things you could consider doing to help make sure your future financial security isn't at risk. Read more here
For more information, contact Rick Maggi at Westmount Financial on 9382 8885.
28/01/16: The plunging oil price...
Falling oil prices are currently in lockstep with share prices, which is unusual. So understandably, plunging prices have been seen in a negative light, but is it all bad news? Is there an upside to low oil prices? AMP's Dr Shane Oliver takes a balanced look at this recent phenomenon. Read more here
01/01/16: Here's to You...
When we look back at the things that helped make 2015 a great year, our warmest and fuzziest feelings come when we think of you, our client.
So thank you for choosing Westmount. Here's to another prosperous, healthy, exciting year full of possibilities!
The Westmount Team
17/12/15: IS THIS The official end of the GFC?
After much delay and much warning, the Fed has finally raised the Fed Funds rate from a range of 0-0.25% to 0.25%-0.5%. The move signals confidence in the ongoing recovery in the US economy after the crippling effects of the Global Financial Crisis. More importantly, the language of the Fed was sufficiently dovish with regard to future rate hikes.
At the time of writing, the ASX200 has gained almost 100 points, on top of the previous day's 118 point rebound, and BHP shares are up over 5% - a major relief to for investors who watched the local bourse fall in each of its six prior sessions.
04/12/15: A constrained year for investors
As the end of 2015 draws to a close, it's a good time to take a look at the year we've had, but also consider what the year ahead might look like. With the US economy accelerating, and Chinese growth slowing, we're moving into less familiar territory, potentially unnerving inexperienced and seasoned investors alike - so going forward you'll need to keep your wits about you.
AMP Capital's Dr Shane Oliver provides an excellent overview of 2015/16. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
20/11/15: Second hand news
Media and the markets
Why don't the media run more good news? One view is bad news sells. If people preferred good news, the media would supply it. But markets don't see news as necessarily good or bad. Read on
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
19/11/15: US interest rates: Fear or celebrate?
5 reasons not to be too worried about 'The Fed'
In this article, AMP Capital's Dr Shane Oliver discusses what is on everyone's mind lately, the strong possibility of an interest rate hike in December. Is this something that should be feared or celebrated? Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
14/11/15: Active vs Passive: The Latest Scorecard
Not looking great for active managers...
The Standard & Poors scorecard, which compares active manager investment performance with index fund performance is here, and the results further validates Westmount's investment philosophy - great news for our clients. Read more here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
03/11/15: Rates steady
A positive development...
As broadly expected, the Reserve Bank of Australia (RBA) decided to hold off a little longer and keep interest rates steady today.
While there is a general consensus out there that the RBA stands ready to cut interest rates in the future should the Australian economy remain sluggish, the RBA wants to see more economic data filter through the system as some parts of the Australian economy are actually showing signs of life. And if the economy continues to gradually improve, the RBA will be less likely to move on rates (a good thing).
So in short, the RBA, by it's language today, is effectively saying that conditions are by no means ideal, but good enough for now.
Of course, the RBA will also be looking over its shoulder to the US, where interest rates are widely expected to rise either this or early next year.
We'll keep Westmount clients informed of any new developments going forward.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
29/09/15: Market Update No 3
A tough quarter...
Following steep overnight falls in Europe and the US, today our own market followed suit, with the benchmark S&P/ASX200 index down a hefty 195.1 points, or 3.82 per cent, to 4,918.4 points.
So far this quarter, local markets have fallen by just over 9 per cent. So with just one day left in the quarter, it is likely to be the worst period for investors since the third quarter of 2011, when the market fell 13 per cent amid an economic crisis in Portugal, Ireland, Italy, Greece and Spain.
This time however, the explanation is an easy one to understand – China’s slowing economic growth. Over the September quarter, and especially the past two months, China's manufacturing sector has come under severe pressure.
With iron ore prices flat lining over the quarter, oil prices down and the price of copper in free-fall, it’s easy to understand why Australia’s resource sector, which is heavily dependent on demand from China, is experiencing the perfect storm.
Remember, copper is viewed as a baseline for the health of the Chinese economy because it is used heavily in industrial building, housing construction and technology.
AMP Capital's head of portfolio management Debbie Alliston said China is the key factor in plunging share prices. "Markets are reacting to fears that this going to slow global growth significantly, particularly for those countries that are reliant on Chinese demand," she said.
Weakness in the Australian banking sector, amid moves by regulators to slow lending to property investors amid soaring Sydney and Melbourne home prices, has also weighed on the share market.
On top of that are the usual worries about the timing of a US Federal Reserve interest rate hike.
But Ms Alliston said members of superannuation funds with investments in a range of assets should not panic about the market's downturn, and sit tight instead. "This is definitely not another GFC," she said.
According to another analyst, the market's heavy fall has “Australian shares looking cheap, and stock valuations are probably near the point of luring buyers back into the market, especially with interest rates set to remain low.”
We'll keep Westmount clients updated on any important developments.
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.
18/09/15: The Cycle of Market Emotions
Seem familiar?
Produced by Russell Investments, I'm afraid to say that this particular illustration, going back to August 1984, brings back many, many memories. Worth a quick look. View Here
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
17/09/15: Putting recent share market falls in context
Implications for investors
At the time of writing, the Australian share market (ASX200) has fallen by 13% since the highs of February this year, much of this occurring over the last couple of months. It also seems that the usual doomsayers have been working overtime, doing their level best to frighten investors into either subscribing to their alarmist newsletters, buying their books or engage investment services. On the other side of the spectrum you have some perennially optimistic fund managers and financial advisers who prefer to bury their heads in the sand, refusing to acknowledge that the landscape has changed.
Of course, the truth is usually somewhere in between, and very few commentators strike the right balance better than AMP Capital's Dr Shane Oliver. In this article, Dr Oliver provides a calm, balanced, 'grown-up' perspective of the recent share market falls, and their place in history. As usual, this publication is a must for anxious retirees and investors. Read more here
Also, read 9 rules for investors to keep in mind
Going forward from here, Westmount clients will continue to be kept apprised of the latest important developments, in real time, good news, or bad.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
01/09/15: Interest rates on hold
But for how much longer?
The Reserve bank board met on Tuesday 1 September and kept official interest rates on hold at 2%, continuing to assess the impact of the two rate cuts earlier in the year.
Lack of business investment No doubt the RBA board would have discussed at length current weak commodity prices impacting our national income, the lack of business investment as well as two key developments that arose earlier in August. These include the recent devaluation of the Chinese currency and the weak Australian unemployment report.
Unemployment rate Previous RBA commentary indicated it considered the unemployment rate profile was around 6%. However the other key development in August was that the unemployment rate jumped to 6.3%. A higher unemployment rate is also a catalyst for an inflation downgrade, due to weak wages growth.
Business conditions and confidence The NAB business confidence survey for August pared back the post Budget gains, however both conditions and confidence are suggesting a turnaround in the non-mining economy, with conditions varying greatly across industries. The confidence index is still positive and holding around average levels.
Macquarie Bank is of the view that the combination of the Chinese currency devaluation, a weakening labour market and excess capacity in the economy all support the case for a further rate cut in November. The next RBA board meeting will be held on Tuesday 6 October.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
28/08/15: Busting the bond myth
Rate expectations...
The decline in interest rates to historic lows in recent years has led to anxiety among Australian investors about what will happen to their fixed interest holdings when overnight interest rates begin to rise.
This apprehension is based on the conventional view that longer-dated bonds underperform in this type of rising interest rate environment.
Dr Steve Garth provides another perspective in Cuffelinks.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
25/08/15: The Patience Principle
What we all know deep down inside...
DFA's VP Jim Parker weighs in on the latest market volatility. As always, Jim's 'Outside the Flags' issue is worth a quick read. Read here.
Rick Maggi Westmount Financial Clear Focus. Better Solutions.
24/08/15: Market Update 2 - 24 August 2015
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.
24/08/15: Let's compare...
A few surprises...
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.
Capital
Rick MaggiWestmount Financial Clear Focus. Better Solutions.