Welcome to the March Newsletter.
I must apologise for the lateness of this month's Newsletter. Kay and I are in the process of moving house and for those of you who have moved recently you will appreciate that suddenly your life is turned to chaos. Even though we are doing it over a couple of weeks the disruption is tiring and our arms ache. Oh to never have to move again! There is a good side to it though and that is a good opportunity to get rid of 'stuff' you never use that someone else might. Thanks to Vinnies and eBay.
To more serious matters regarding your investments, the property market and economy. GE Money have been in the news recently as they decided not to pass on the recent rate cut to their customers. Many are looking to refinance away from GE who are looking to exit the Australian market.
We also have received several economic reports from the MFAA, Residex, HTW, Westpac and NAB Capital which make for very interesting reading.
We hope you gain some insights that assist you in these challenging economic times.
Richard.
Consumer confidence can do nothing other than wane in a situation where there is constantly such bad news being dispersed by the press and Government. It is time to get things into perspective. Read more ...
Simon Allsop (MyAccounts) attended a presentation on the Government Stimulus Package recently. It was presented by Duncan Barber, a Partner at one of our associated Tax Accounting firms. Read more ...
Last week, the Commonwealth Bank of Australia (CBA) Chief Executive, Ralph Norris has made a series of statements that put the whole situation in perspective."Australia is better prepared than most countries to weather the global economic slowdown, helped by the biggest boost in disposable income in the nation's history. Read more ...
It all looked so easy – buy the property, clean the property, rent the property, make loads of dough. The equation always came out the same. By popping up the “For Lease” sign and looking on ..... Read more ...
During the past couple of weeks we have received several very interesting reports from Westpac regarding the housing market and economy. Go to the reports....
The last year has seen unprecedented turmoil in the world markets. In particular there has been a lot of "talk" about market trends. Generally speaking, a "market trend" is the direction in which the financial markets are moving. Read more ...
It is not since May 1991 that we have seen such a significant interest rate adjustment process by the Reserve Bank in any 6 month period. In May 1991 the adjustment for the 6 month period to May was in total 5.75%. Read more ...
The Government has recently announced a business & household stimulus package which will provide some much needed cash to individuals and greater encouragement for business owners to invest some capital into their business. Read more ...
GE Money has again outraged borrowers by not passing on any of the 3 February 100bps rate cut to its mortgage customers. Instead it said it will temporarily waive its Deferred Administration Fee (DAF) to allow borrowers to move lenders. Read more ...
This is a report we received from Geoff Maunsell at Lifecycle Insurance Brokers (1300 792 818) during the week. There is some interesting comment on interest rate cycles and the anatomy of a recession. Read the report (
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It looks like the days of the 100% home loan are gone for some time to come. Lenders are now insisting on purchasers having 3% genuine savings towards the purchase of a property.
Lenders, like the CBA, have said that the genuine savings will need to be verified and may comprise of any of - a demonstrated saving pattern established over a 3-month period, a gift – must be held in an account for a minimum of 3 months, a term deposit – must have been held for a minimum of 3 months, cash – acceptable only if placed in an account for a minimum of 3 months, shares – must have been held for a minimum of 3 months or equity in existing property.
As you can see from the above list this will deter many from entering the property market. However, there are other main stream lenders that are not as restrictive as the CBA so to find out what options are available all you need to do is call us on (02) 8060 0618 and we will give you some straight answers.
Simon Allsop, from myAccounts, attended a presentation on the Government Stimulus Package recently and forwarded us the presentation. It was presented by Duncan Barber, a Partner at one of our associated Tax Accounting firms. Given the amount of talk in the media about the Government giving real tax breaks to small business, and cash handouts to individuals, I thought that you may find this of interest.
It is important that you understand what you are entitled to from this. Please keep in mind that not all of this has been made legislation as yet. Should you have any questions regarding the presentation, please contact Simon or your current Tax Adviser.
Simon is the Managing Director of myAccounts provides regular bookkeeping services, short-term projects as well as monthly reporting and GST submissions. View the presentation (383k Powerpoint).
Last week, the Commonwealth Bank of Australia (CBA) Chief Executive, Ralph Norris has made a series of statements that put the whole situation in perspective.
"Australia is better prepared than most countries to weather the global economic slowdown, helped by the biggest boost in disposable income in the nation's history. The combination of tax cuts, lower fuel prices and interest rate reductions (average home loan rates are now 5.85%), and the pre Christmas $10 billion Federal Government hand out has resulted in an 11 per cent boost to the average Australian's disposable income over the past six months. That is equivalent to almost three annual wage increases and is by far and away the biggest increase in disposable income, on average, in the history of Australia," he said.
"Another stimulus package of some $42 billion from the Federal Government and an additional $60 billion from state and territory governments is currently going to soften the slow down. The governments at State and Federal level should be commended for being decisive," Mr. Norris said. "CBA's economists estimated that one-third of the December stimulus payments had been spent, a third saved and a third was used to pay down debt. Paying down debt can't be a bad thing."
But Mr. Norris cautioned about becoming too pessimistic about the economic outlook. "Everybody is uncertain about the future (and) I'm not saying that we're going to be immune to the international crisis," Mr. Norris said. "There's a danger in this environment that we can be too negative and that we end up covering our thoughts in doom and gloom," he said. "Australia was well prepared for the slowdown because of the 17 years of economic growth prior to the financial crisis, 10 years of fiscal surpluses, low unemployment and interest rates that were relatively higher and which add room to move lower."
Another commentator prepared to be more optimistic is CommSec's Craig James, who noted that "Australian banks are in a better financial position than the US and Europe, and had a higher exposure to the domestic market. Australian banks are still recording solid profits at time when overseas banks are reporting losses."
Mr. James also observed that "Australian house prices were unlikely to fall. Despite gloom and doom predictions, house prices haven't slumped in Australia," he said. "Quite simply, population has been rising in recent years but supply of housing hasn't kept pace, leading to an under-supply of housing."
Rent! (Not the Musical..)
It all looked so easy – buy the property, clean the property, rent the property, make loads of dough. The equation always came out the same. By popping up the “For Lease” sign and looking on maniacally as tenants fought tooth and nail to get a place to park their futon, you could (for a small additional monthly contribution) start accumulating a formidable Trump-like portfolio upon which others would look in envy *insert evil guffaws here*.
Of course, despite the moustache twirling image of a landlord lounging upon a mountain of loose change, we know that in fact most lessees are Mum and Dad type investors trying to park their readies in the corporeal world of bricks and mortar. Sure they may dabble in the extreme sport that is the stock market, but most are happy enough to accept a vehicle where there is a tangible asset as dirt meets engineering and the result seems a prudent way to ensure a reasonable income in retirement. Read the full report (
During the past couple of weeks we have received several very interesting reports from Westpac regarding the housing market and economy. Click on the report name to access the report.
Australian Housing Note 13th March (
55 Kb)Australian Labour Force Feb. 2009 (
116 Kb)Market Insights, March 2009 (
583 Kb)Australian Housing for January 2009 (
184 Kb)Q4, 2008 for GDP (
370 Kb)Current Account Deficit (
64 Kb)Australian Dwelling Approvals (
333 Kb)Trade Balance as at January 2009 (
54 Kb)Outlook for Australian Property (
1.67MB)Outlook for Australian Property Markets 2009-2011 - Melbourne (
617 Kb)Outlook for Australian Property Markets 2009-2011 - Sydney (
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Article courtesy of La Trobe Investments
The last year has seen unprecedented turmoil in the world markets. In particular there has been a lot of "talk" about market trends. Generally speaking, a "market trend" is the direction in which the financial markets are moving. These trends can be classed as "primary", "secondary" or "secular" trends.
A trend is referred to as being "primary" when it lasts for a year or more, whilst a "secondary" trend is one that is of shorter term, such as a few weeks or a few months. It is important to note that whether a trend is "secondary" or the beginning of a "primary" trend can only be determined once it has either ended or has exceeded the extent of a "secondary" trend.
Secular trends on the other hand, are trends that are deemed long term and can last from 5 to 25 years. These secular trends relate to much broader economic and social changes, such as urbanisation, technological developments and changes in political structures.
Trends can be either up or down and are usually described as "Bull Markets" or "Bear Markets". Bull Markets are associated with increasing investor confidence. This confidence motivates investors to buy in anticipation of future price increases leading to capital gains. The expression "bullish" is used to reflect an optimistic outlook.
Bear markets are associated with a steady drop in the market over time. In this market environment investors who are anticipating further losses are often motivated to sell. This negative influence has lead to the expression "bearish" reflecting a pessimistic outlook.
Economists often refer to the "ups and downs" of Bull and Bear markets forming a "V" graph. The "V" describes over time the shape of market performance in a Bear Market i.e. the going down and the subsequent recovery of a Bull Market i.e. the going up, when graphed.
The current Bear Market we are experiencing has been unique given the speed of decline and breadth of wealth destruction that has occurred in a relatively short time frame when compared to other Bear Markets which have occurred. The Great Depression Bear Market took 34 months from peak to trough, while the 1973-74 Bear Market took 20 months and the 2000-02 tech wreck took 33 months.
This highlights that some Bear Markets can take years before they hit bottom. However, a positive note is that in the majority of instances (historically) most Bear Markets ultimately result in "V" shaped recoveries.
This however, does not mean the current market situation will follow such a prescribed script. Relying on history may not be helpful as the current Bear Market has a root cause that has never been experienced before - an unprecedented build up of decades of debt. There is no certainty on how the deleveraging of debt, the collapse of the shadow banking system, the freezing of global credit markets, hedge fund disintegration and possible deflation will play out.
No one knows how the consumer psyche has been damaged with the equity declines last year. Some believe it will take years for consumers to rebuild their balance sheets, in turn creating a graph that more resembles a "U" or even a "L" shape pattern in which markets take a decade to recover.
On the other hand, there has been an unprecedented global response to the crisis, with many Governments globally, including the Australian Federal Government, implementing huge rescue packages and many Reserve Banks around the world implementing significant easing in monetary policy. The responses have largely been a coordinated effort, with all major economies pulling in the same direction.
All of these actions are designed to ensure that the markets can recover in the quickest possible time and to help ensure that the turnaround in investor and consumer confidence resembles the traditional "V" graph of recovery.
Market Wrap with John Edwards from Residex
It is not since May 1991 that we have seen such a significant interest rate adjustment process by the Reserve Bank in any 6 month period. In May 1991 the adjustment for the 6 month period to May was in total 5.75%. This represented an adjustment of something in the order of 33% of the peak rate of 17.5%. The adjustment of 3.75% in the last five months is significant but not as high. However, in percentage change terms it is close to 50% of the peak rate of 7.25% in March 2008.
The last adjustment to the cash rate by the Reserve Bank was on the 4th February. The rate now stands at a potentially similar rate to that which one could have expected to be set by the Reserve Bank in the mid 1960's should the same system we have now, then existed.This last rate adjustment seems as if it has "hit the spot" as far as the housing market is concerned.
The auction clearance rates for the week ended 14th were significantly improved with some markets reporting a clearance rate of something in the order of 70%. Up until this date the market was reacting moderately well to the changes but did not show any signs of strength. While it is too early to announce a solid turn around, clearly there is increased interest in property. The question for me is; will this increased interest translate into an accelerated number of sales as banks enforce stricter credit conditions?
The tables in the attached report presents figures to 31st January 2009. The February numbers when calculated will provide a better view of the public's response to the government stimulus and the actions of the Reserve Bank. View the full report.
GE Money has again outraged borrowers by not passing on any of the 3 February 100bps rate cut to its mortgage customers. Instead it said it will temporarily waive its Deferred Administration Fee (DAF) to allow borrowers to move lenders. Borrowers have three months to take advantage of the waiver agreement.
However Wizard customers have been left in a precarious position - while they get 12 months to take advantage of the waiver, they have to refinance with Aussie or pay the full DAF. The waiver started on 1 March - nearly a month since the RBA cut rates by 1%.
Managing director of GE Money Home Lending, Lisa Davis said the waiver was one of the conditions of the sale of Wizard to Aussie. GE Money said the waiver was in response to its inability to pass on any of the recent cash rate cut due to the continuing high cost of funds on the wholesale money markets.
The DAF is a charge payable when a customer discharges a home loan before a predetermined period has elapsed, with the maximum period being five years from settlement of the initial loan. In New Zealand, GE Money will reduce variable interest rates by 50 basis points for Wizard loans, and by 25 basis points for mortgages sold through third party mortgage managers, brokers and introducers.
If you are a GE customer then call us to take advantage of the DAF waiver while it lasts and refinance to a better lender.
