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Important Annoucement from Centre Capital
We are pleased to inform you of a great investment opportunity that we are pleased to recommend to our clients, as it offers a great opportunity to create wealth whilst managing risk and attaining tax benefits for this tax year.
There are two distinct strategies, one for wealth accumulators (Strategy A) and one for Self Managed Superannuation funds or investors with cash looking for higher returns than cash but limited downside (Strategy B). Please follow this link to some further information on our website, but please do not hesitate to call us and find out more.
Action would need to be taken promptly to capitalise on the tax deduction available for this year’s return.
We would also like to take this opportunity to remind everyone to contact our office to discuss tax planning initiatives that need to be implemented for your personal circumstances before 30 June. Please follow to our latest newsletter that deals with a number of these strategies.
There are two distinct strategies, one for wealth accumulators (Strategy A) and one for Self Managed Superannuation funds or investors with cash looking for higher returns than cash but limited downside (Strategy B). Please follow this link to some further information on our website, but please do not hesitate to call us and find out more.
Action would need to be taken promptly to capitalise on the tax deduction available for this year’s return.
We would also like to take this opportunity to remind everyone to contact our office to discuss tax planning initiatives that need to be implemented for your personal circumstances before 30 June. Please follow to our latest newsletter that deals with a number of these strategies.
How Safe is it to Invest in Australia
According to a report from Dun and Bradstreet, Australia is the highest ranking country for "security of investment" making it one of the safest places in the world to invest. Australia shares the honour with Switzerland, Canada and Norway out of the 161 countries surveyed.
Given the current debt problems faced by Greece and other European countries the sovereign risk is at the fore front of many investors thinking given the global reach of modern financial markets. Australia's main trading partners such as US, China and the UK are in the top 11 and seems to indicate that our moto of the "lucky country" will continue. Unlike most of the rest of the world Australia has hardly missed a beat during the Global Financial Crisis and is forecast to grow at 3.3% this year by Dun and Bradstreet compared to the global growth of 2.4%.
Given this Australia looks like a safe investment destination however you still need to buy the right assets. In a report released by the Economist recently they stated that Australian house prices are some 54% over valued based on traditional price-rent ratios. I remember seeing the same survey 2 years ago and the US was featured as one of the most expensive countries with 8 out of the top 10 most expensive cities being in the state of California. That was pre GFC and the fact that US prices have plummeted means they no longer are expensive according to long term valuation methods. Caveat Emptor which is latin for "buyer beware".
Given the current debt problems faced by Greece and other European countries the sovereign risk is at the fore front of many investors thinking given the global reach of modern financial markets. Australia's main trading partners such as US, China and the UK are in the top 11 and seems to indicate that our moto of the "lucky country" will continue. Unlike most of the rest of the world Australia has hardly missed a beat during the Global Financial Crisis and is forecast to grow at 3.3% this year by Dun and Bradstreet compared to the global growth of 2.4%.
Given this Australia looks like a safe investment destination however you still need to buy the right assets. In a report released by the Economist recently they stated that Australian house prices are some 54% over valued based on traditional price-rent ratios. I remember seeing the same survey 2 years ago and the US was featured as one of the most expensive countries with 8 out of the top 10 most expensive cities being in the state of California. That was pre GFC and the fact that US prices have plummeted means they no longer are expensive according to long term valuation methods. Caveat Emptor which is latin for "buyer beware".
2010 Federal Budget Summary
The budget delivered last night from Mr Swan was pretty uneventful and will not be remembered beyond lunchtime today.
There wasn’t much in it for superannuation and financial services, as all the big ticket announcements had already been released last week with the Henry Tax Review.
In summary;
- Gradually increasing the Superannuation Guarantee rate to 12% from the current 9%.
- $500 super contribution tax rebate for low income earners.
Summary of Key 2010 Budget Announcements
The key proposals announced in the Budget include:
- The maximum co-contribution matching rate and payment amount will remain at 100% and $1,000 respectively with indexation being frozen on the applicable limits.
- Individuals will only need to include 50% of interest income of up to $1,000 from certain investments in their tax return.
- Tax payers will have the option to claim a standard deduction of $500 in 2012/13, increasing to $1,000 in 2013/14.
- The benchmark interest rate for capital protected products will retrospectively be the indicator rate plus 100 basis points.
- Super funds paying terminal medical condition benefits will be eligible to claim a deduction.
- The Commissioner will be able to exercise discretion in relation to excess contributions tax before an assessment is issued.
- If you want a more detailed analysis please refer to Client's Area of our website.
Euro Debt Crisis
There have been some countries in the Euro, the most publicised being Greece, which have been guilty of spending more that they make. This escalated last week when the ratings agency Standard and Poor’s slashed their sovereign debt rating to just above “junk” status saying investors would be lucky to get 30-50% of their investment back. This saw the cost of Greece debt escalate through the roof which in turns means they would be struggling to pay their interest bill yet alone reduce the level of debt.
On April 11th the IMF and Euro countries announced a €45 Billion fund to renegotiate all debts maturing this year at “kinder” interest rates. However what about subsequent years? On 2nd May the euro-zone governments and the IMF set out the terms of a €110 billion rescue for Greece which depended on Greece accepting harsh austerity measures which resulted in riots and unfortunately a loss of life in Greece. This was not enough to settle investors’ nerves.
The main concern for investors “globally” is the risk of contagion that such fears would spread to other Euro countries such as Portugal, Spain, Italy and Ireland. This would result in their bond markets freezing up and we would be faced with similar scenario as to the credit crunch the global economy has spent the last 18 months pulling itself out of. The interests of “Euro” investors is a little more obvious. Of the estimated €164 Billion of Greek debt around 72% of this is held by Euro nations with Germany holding about 32% of total debt. This on top of the fact they all have the same currency, The Euro, this means pragmatically that any bailout is really bailing themselves out. The reason it has taken so long has been a number of issues including political posturing as Germany had an provincial election last week and the German people were very anti the Greek bailout.
European policy makers have now unveiled an unprecedented loan package worth nearly €1 trillion and a program of bond purchases in an attempt to stop a sovereign debt crisis that threatened to shatter confidence in the euro. Under the loan package, euro governments pledged €440 billion in loans or guarantees, with €60 billion more in loans from the EU’s budget and as much as €250 billion from the International Monetary Fund. As EU rules don’t allow direct central bank lending to governments, the European Central Bank said it will conduct “interventions” to ensure “depth and liquidity” in markets. The purchases will smooth markets and the cost of funds but they won’t increase the overall money supply in the financial system.
This new package could also be applied to other countries in the Euro should they experience difficulty but given the coordinated effort from the Euro nations and the IMF this should go a long way to thwarting potential speculators trying to instigate further “excessive” action in these debt markets.
Markets can then move onto their next point of “interest”.
On April 11th the IMF and Euro countries announced a €45 Billion fund to renegotiate all debts maturing this year at “kinder” interest rates. However what about subsequent years? On 2nd May the euro-zone governments and the IMF set out the terms of a €110 billion rescue for Greece which depended on Greece accepting harsh austerity measures which resulted in riots and unfortunately a loss of life in Greece. This was not enough to settle investors’ nerves.
The main concern for investors “globally” is the risk of contagion that such fears would spread to other Euro countries such as Portugal, Spain, Italy and Ireland. This would result in their bond markets freezing up and we would be faced with similar scenario as to the credit crunch the global economy has spent the last 18 months pulling itself out of. The interests of “Euro” investors is a little more obvious. Of the estimated €164 Billion of Greek debt around 72% of this is held by Euro nations with Germany holding about 32% of total debt. This on top of the fact they all have the same currency, The Euro, this means pragmatically that any bailout is really bailing themselves out. The reason it has taken so long has been a number of issues including political posturing as Germany had an provincial election last week and the German people were very anti the Greek bailout.
European policy makers have now unveiled an unprecedented loan package worth nearly €1 trillion and a program of bond purchases in an attempt to stop a sovereign debt crisis that threatened to shatter confidence in the euro. Under the loan package, euro governments pledged €440 billion in loans or guarantees, with €60 billion more in loans from the EU’s budget and as much as €250 billion from the International Monetary Fund. As EU rules don’t allow direct central bank lending to governments, the European Central Bank said it will conduct “interventions” to ensure “depth and liquidity” in markets. The purchases will smooth markets and the cost of funds but they won’t increase the overall money supply in the financial system.
This new package could also be applied to other countries in the Euro should they experience difficulty but given the coordinated effort from the Euro nations and the IMF this should go a long way to thwarting potential speculators trying to instigate further “excessive” action in these debt markets.
Markets can then move onto their next point of “interest”.
Markets Sell Off – Is This a Case of Here We Go Again?
Obviously the concerns in Greece and the concerns they have over debt and the possibility of spilling over to over European countries has been the focus of the market’s attention for the last 2 weeks. This attention has overshadowed the economic and company specific news coming out of the US which has been very positive. This has resulted in investors selling down a range of assets due to these concerns. Whilst this matter is one that needs to be resolved, and I believe it will, this event whilst serious will be handled and not be a cataclysmic event. Keep in mind the worlds global economy was faced with inhalation not so long ago and we survived that. I will talk more about Euro debt crisis in next week’s blog due to be released on Tuesday.
In regards to the bigger picture markets have had a strong rally off their lows in March 2009 this very steep recovery in value needs to at some point been moderated to a more acceptable level as nothing can go on forever. Investors know this and basically get to a point where they look for an excuse to sell down to achieve this. This is the normal part of a market cycle where it tries to revert back to an “acceptable” level of value. The difficulty in trying to predict these big swings in reverting back to “acceptable” levels makes it a guessing game that is impossible to get right that is why we use low points, created by such sell offs, to buy cheap assets (notwithstanding it may get cheaper next week) because we know in 2-5 years we will have done well out of it. We are currently looking at a strategy to utilise for all our clients to be able to benefit from this opportunity whilst mitigating further downside risk without the need to contribute your own capital which we will get more info to you in the coming weeks.
Another feature of modern markets is the technology aspect which played a large role in the volatility in Wall Street’s falls that at its peak was about 10% for the day. There have been cases of incorrect trades entered for S&P index as well as Proctor and Gamble which lost at its worst some 37% during the session. If someone with fat fingers enters an incorrect trade this can have a huge flow on effect as traders lodge their trades in the computer system to execute automatically. There is also a range of computer trading systems that will trigger other transactions automatically in the event of certain market movements. One erroneous trade can result in a huge flow on effect of transactions which can cause wild movements which can then create panic from the individuals making it quite a scary proposition.
In regards to the bigger picture markets have had a strong rally off their lows in March 2009 this very steep recovery in value needs to at some point been moderated to a more acceptable level as nothing can go on forever. Investors know this and basically get to a point where they look for an excuse to sell down to achieve this. This is the normal part of a market cycle where it tries to revert back to an “acceptable” level of value. The difficulty in trying to predict these big swings in reverting back to “acceptable” levels makes it a guessing game that is impossible to get right that is why we use low points, created by such sell offs, to buy cheap assets (notwithstanding it may get cheaper next week) because we know in 2-5 years we will have done well out of it. We are currently looking at a strategy to utilise for all our clients to be able to benefit from this opportunity whilst mitigating further downside risk without the need to contribute your own capital which we will get more info to you in the coming weeks.
Another feature of modern markets is the technology aspect which played a large role in the volatility in Wall Street’s falls that at its peak was about 10% for the day. There have been cases of incorrect trades entered for S&P index as well as Proctor and Gamble which lost at its worst some 37% during the session. If someone with fat fingers enters an incorrect trade this can have a huge flow on effect as traders lodge their trades in the computer system to execute automatically. There is also a range of computer trading systems that will trigger other transactions automatically in the event of certain market movements. One erroneous trade can result in a huge flow on effect of transactions which can cause wild movements which can then create panic from the individuals making it quite a scary proposition.
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