Latest News from Newealth

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The modern Olympic Games brings both armature and professional athletes together into an equal competition to win a pinnacle Gold Medal.

However, the pay cheques for the various sporting disciplines are far from equal.

Forbes compiled a list of the highest paid Olympic Athletes competing for a Gold Medal and their earnings over the past 12 months in US dollars.

We doubt that it would come as any surprise that basketball, tennis and golf are the sports that pay their athletes the big dollars.

Click to read.

Australian Consumer Price Index (CPI)

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The Australian Bureau of Statistics (ABS) has just published that the annual CPI inflation increased to 3.8% to the 30 June 2021.

This big jump is a reaction to the introduction of free child care and a record fall in fuel prices in the 30 June 2020 quarter last year which when adjusted for these large one-off price impacts scales annual CPI inflation increase back to 1.6% to the 30 June 2021.

So is the the start of runaway inflation?

Unlikely, as you can see in the attached, inflation in developed economies is forecast to jump up temporarily and then come back down as supply of goods increases as part of the post COVID-19 recovery.

Click for chart.

However, in the longer term our thinking is that inflation is dead or at least will remain at almost nothing because of technology.

Robotics and artificial intelligence are combining together to eliminate humans from the work force. Fewer people working means less wages and it is the absence of wage pressure that subdues inflation.

We will have to wait for time to tell us just how right or wrong we are in our thinking.

Ponzi Schemes: 8 of the very best

• Posted by Dejan Pekic BCom DipFP CFP GAICD

A Ponzi Scheme is a form of investment fraud that pays profits to earlier investors with the money from more recent investors.

They are nothing more than lies and deceit.

Attached are 8 of the biggest Ponzi Schemes perpetrated in the United States since 1990.

Click for chart.

The learning, when you hear the words sexy and exciting in the same sentence as investing, RUN.

We are pleased to confirm that we have not once in our 30 years of providing advice to clients been entrapped by any of the Australian or American schemes and nor are we going to be beguiled by Bitcoin which is not a Ponzi Scheme by definition but still a financial disaster.

Just ask the hundreds of thousands who bought Bitcoin at US$63,150 in April 2021 to see it collapse to US$34,456 today which is a 45% loss of capital.

Will the price of Bitcoin drop to US$0?

Unknown but most likely because it is not an investment, it is a collectable and the price of a collectable depends on the number of collectors who see value in the item. As the prices collapses, it is likely that less and less will be willing to pay for lines of code.

Demographics: Millennials (Gen Y)

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Bernard Salt is one of Australia’s leading demographers and has an interesting take on the reason for the current accelerating residential house prices.

Millennials (Gen Y), typically defined as being born between 1981 and 1996 are moving out of units/apartments/parents due to family formation and need more room to raise children.

The attached chart shows over 600,000 more individuals landing in the 30 and 40 year old demographic over the next 5 years which he argues is accelerating demand for residential houses.

Click for chart.

That implies that the current high residential house prices are here to stay and will only go higher subject to a substantial increase in interest rates and or China dramatically reducing the consumption of our hard commodities.

Both these negative factors are unlikely in the next 3 to 5 years.

However, the future is always full of unknown detail and so as Benjamin Graham taught, remain invested according to your appetite for volatility and when fear and panic take hold, then react by buying more quality assets at discounted prices.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

China is going green and that means that the coal export market for Australia is going to go the way of the dinosaur in the coming decades.

Click for chart.

Australian Household Wealth: AU$14 trillion

• Posted by Dejan Pekic BCom DipFP CFP GAICD

Very much doubt that it will come as any surprise that the vast majority of Australian household wealth is built on residential property.

Australian households have amassed AU$14 trillion in wealth and almost AU$7 trillion (half) of that wealth is made up of residential property followed by superannuation in a distant second with AU$2.8 trillion in assets.

The primary residence has been the bedrock of wealth during the whole of my three decades to date and is likely to continue while the taxation benefits make it so advantageous.

However, even though we do professionally love the primary residence it is important to remember that you cannot eat bricks or sell a bathroom when you need cash.

Click to read.

Executive Salary, Incentives & Tenure

• Posted by Dejan Pekic BCom DipFP CFP GAICD

We are pro-business but don’t understand how any business can pay an employee AU$43m for one year of work.

Yes, the Chief Executive Officer (CEO) must be paid and paid well but AU$43m for one year of work!

Is it theft or value for shareholders to pay a CEO AU$43m for one year of work?

Is it the business or the CEO that earns the return for shareholders?

The Board of Directors is responsible for this outcome.

The Board of Directors represent the shareholders that own the business (that’s us) and it is they that approve the remuneration policy of the CEO.

Click for table.

Friday Tidbit

• Posted by Dejan Pekic BCom DipFP CFP GAICD

The numbers are in and they are spectacular for passive investing.

For example, if you bought all the good and all the bad listed companies in the ASX200 and in proportion to their market capitalisation you would have made a 24.0% index return for the 12 months to 30 June 2021.

This is an outsized performance number.

The real eye popper however is iron ore which has jumped up 206.0% in price and is a big reason for why the Australian economy is doing so relatively well during this COVID-19 Pandemic.

Remember, past performance is no guarantee of future performance.

Click for table.

Interest payments on Government debt

• Posted by Dejan Pekic BCom DipFP CFP GAICD

There are many insights in this 5th Intergenerational Report which aims to forecasts an outlook for the Australian economy and the Federal Government’s budget over the next 40 years.

One piece of good news is that the cost of interest payments on Federal Government debt is likely to be contained for the rest of this decade, however it is then forecast to double into the 2040’s and 2050’s.

Click for Chart 6.11

The solution, reduce the amount of debt and you are most likely to reduce the cost of interest payments but there is a significant issue with this plan, Governments do not earn an income.

Government revenue is derived by taking from one segment to give to another which means that to repay debt and or the increasing interest cost they must take from you.

For a full copy of the 2021 Intergenerational Report please click the following link.

Click to read.

Please contact us if you want advice on how to minimise and reduce your tax liability in the coming decades.

Superannuation Changes

• Posted by Dejan Pekic BCom DipFP CFP GAICD

We have attached a short two page technical paper on the key changes that the Federal Government has made to superannuation which came into effect from yesterday, the 1st July 2021.

Enjoy and remember, disciplined saving is always good. For everyone.

Click to read.