The Fortnight That Was @ 19 January 2011

Happy New Year.

Sadly, though for many Australians this has not been a very happy new year so far!

If you weren’t personally affected it is likely that you have a family member or friend who was.

My parents live in Ipswich and last Tuesday I flew up there to help them evacuate and move their belongings to higher ground. Although the flood waters stopped within 20m of their home, I was pleased that I could be there with them during a stressful and worrying time. 20-30 homes in their immediate area were completely flooded. Our thoughts and prayers go to those who were affected.

As well as the humans costs of pain and suffering and disruption, there is a cost to the national wealth.

While it is difficult to assess the full impact at this early stage, there is unlikely to be significant changes to the CY11 growth outlook, given that government spending and rebuilding work will likely add to growth later in the year. At the same time, sharp rises in food prices will place upward pressure on inflation, but the Reserve Bank should look-through these one-off price spikes and not increase rates directly.

If anything interest rates could drop by 0.25% correcting the unnecessary hike last November.

On the property front, in and around the flooded areas, rents are likely to rise by as much as 10%. This rise is expected given that up to 10,000 households are seeking temporary accommodation, as well as the influx of tertiary students at this time of the year.

Properties in flood areas are expected to drop but given that 98% of homes in this region didn’t flood, the property market as a whole should remain buoyant.

If you would like to view this online, please visit www.empirefp.com.au

The Fortnight That Was – 22 September 2010

The news over the past fortnight was centred on the US with the latest report by the National Bureau of Economic Research concluding that the United States recession, which was felt internationally, has ended and the recovery process officially began in June 2009. This sent world markets higher, with the US and Australian markets reaching 4 month highs. In other US news, Federal Reserve Chairman, Ben Bernanke, declared official interest rates would remain near zero for the foreseeable future, as the ecominic recovery in the US slows.

The Australian dollar is again threatening to reach parity with the US dollar, with the ‘Aussie’ recently reaching a peak of 97 US cents. This is excellent news for those of you looking forward to an overseas holiday, but less pleasing for international visitors to Australia. With the Australian dollar so high, good quality international stocks are looking relatively cheap.

 If you would like to view this online, please visit www.empirefp.com.au

The Fortnight That Was – 31 August 2010

Despite it being over a week now since Australia went to the polls, we are still no closer to knowing who our next governing party will be. This has lead to uncertainty in the market with differences in key policies regarding the mining tax and national broadband network affecting some of Australia’s largest companies.

 

Leads from the US have also been weak with the Dow Jones Industrial Index closing below the 10,000 point level last Thursday and weak economic growth figures for the second quarter, prompting concerns that the US economic recovery is still uncertain at best. However, Federal Reserve chairman Ben Bernanke announced that the Fed is determined to prevent the economy from sliding into a double dip recession and will use all the tools it has available to avoid this. Bernanke also predicted the US economy would continue to grow modestly for the rest of the year, with conditions ripe for stronger growth in 2011.   

 

In Australia, we are currently in the mix of reporting season, with some key market heavyweights announcing results over the past fortnight. Australia’s largest bank, Commonwealth Bank, increased it’s total revenue for the year by 12%, resulting in a profit for the year of $4.7bn.

 

If you would like to view this online, please visit www.empirefp.com.au

The Fortnight That Was – 30 July 2010

 Underlying inflation unexpectedly slowed in the period 12 months to June. At 2.7%, this lies within the Reserve Bank of Australia’s target range of 2 to 3%. As a result it is unlikely that the RBA will lift interest rates next week. In fact it is not implausible that rates will remain on hold (at 4.5%) for the next few months (the Labor Government will certainly be pleased with this).

 The previously proposed 40 per cent profits tax can certainly be blamed for the AUD dropping from US92.77c to US81.04c over a six week period. As a RBA board member recently stated ”the idea that you announce a tax on the mining industry at the time a sovereign risk crisis is going on in Europe is stunning to me”. The AUD is now trading around the US89c mark.

 [Sovereign Risk is the risk of a government becoming unwilling or unable to meet its loan obligations, or reneging on loans it guarantees]

The reduced likelihood of near-term interest rate rises, better than expected company profits, and strong performance among regional markets (i.e. Japan, Hong Kong and China) have all attributed to pushing Australian shares higher. 

Although US house prices have risen above expected levels in May, the US economy still remains a concern. Thankfully the Asian economies (that are powering along) are having a tremendous positive influence on our economy. But, as Niall Ferguson (Harvard University Professor of Economics) was recently quoted “these Asian economies alone cannot propel the world into a sustained growth pattern”. However, the can and are offsetting the negatives effects of the US economy on ours.

If you would like to view this online, please visit www.empirefp.com.au

The Fortnight that Was – 7th July 2010

So ends a positive year on financial markets, with the Australian All Ordinaries Index closing the financial year up 12.5% from this time last year. Internationally, the Dow Jones Index was up 16.8%, whilst the Hong Kong Hang Seng Index (up 9.3%) and London’s FTSE100 Index (up 15.7%) both recorded strong gains.

The Reserve Bank of Australia has now signalled they will be pausing on interest rates to assess the impact that the 6 recent rate rises has had on the Australian economy. It appears likely that this will only be a brief pause on the way to more ‘normal’ interest rate settings. Financial markets have priced in two further rate rises prior to the end of the year.

The Australian property market continues its strong run, with supply shortages driving both house prices and corresponding rents. Changes to foreign ownership laws in the past 3 months have done little to dampen enthusiasm in the property market.

Last night we attended the 2010 TELSTRA BUSINESS AWARDS. Empire Financial Planning was, for the first time, afforded the opportunity of being part of the Telstra Business Award’s process – we were thrilled to be chosen as finalists.  We congratulate all other finalists in their categories for their determination, vision and ability that gives them the edge to excel.

 If you would like to view this online, please visit www.empirefp.com.au

The Fortnight That Was – 23rd June 2010

There is now one week until the end of the financial year, and in order to maximise your income tax deductions, now is the time to ensure all tax planning matters are finalised.

 

Our tax planning checklist includes:

• Superannuation contributions: ensure your contributions are received by your fund before 30 June;
• Prepayment of interest on loans must be made before 30 June to claim a tax deduction this financial year;
• Asset sales for assets with capital losses must be recorded before 30 June; and
• Ensuring you have all receipts and paperwork in order to maximise your allowable tax deductions this financial year.

You can refer to our latest newsletter for more detailed information on tax planning.

 

On the markets, the Australian All Ordinaries index gained 2.4% over the past fortnight, with the International Monetary Fund and the European Central bank approving a liquidity fund for Eurozone members. There is also speculation that the Resource Super Profits Tax may not be be implemented in its present form, with Prime Minister Rudd’s approval rating suffering in the polls.

 

The Reserve Bank of Australia Governor, Glenn Stevens has indicated that interest rates are now likely to be on hold until August / September this year, as the impact of recent interest rates rises are assessed. This is good news for mortgage holders who will finally get a respite from the six interest rate rises since October 2009.

The Fortnight That Was – 28th May 2010

Over the past fortnight, worries over the Greece sovereign debt issue have weighed on our market, with the All Ordinaries Index falling to a level 4,322 points on Thursday. This level is 13% below the recent high of 5,024 points.

Share market analysts are referring to the recent weakness as a ‘bull market correction’ meaning it is a pause in the recovery following the Global Financial Crisis, rather than a new downturn in the markets. Shane Oliver, Chief Economist from AMP Capital Investors puts it this way:

 ”The global recovery is likely to remain on track, the profit outlook is positive, monetary conditions are easing, China is likely getting closer to easing up on its tightening measures and shares are now very cheap again”

In the US, whilst there has been positive economic news flowing through, markets still remain nervous about Europe and the Dow Jones Index recently fell below the psychological 10,000 point level.

Locally, the economic news remains positive, with interest rates moving to more normal levels, unemployment falling and the retail sector showing strong sales in the lead up to the June 30 end of financial year sales. 

The Fortnight That Was – 12 May 2010

There were not too many surprises in this years Federal Budget with the Treasurer, Wayne Swan, delivering what he described as a ‘no frills responsible’ budget. There were a couple of sweeteners such as the 50% discount for interest income and a standard tax deduction for work related expenses, but many of the measures that impact on financial planning just reconfirmed the Governments response to the Henry review.

A closer look at the budget papers delivered a few unexpected blows including a permanent reduction in the maximum co-contribution and matching rate.

It appears we will have to wait longer to hear more about the Governments view on the large number of Henry review recommendations still to be addressed.

We have put together a report for you (attached).

This report, as always, focuses on the impact on financial planning strategies and how they may affect you.

Should you have any questions please contact us.

(to view our fortnight that was online - http://www.empirefp.com.au/index.asp )

The Fortnight That Was – 28th April 2010

Steve Keen, the Perth academic who famously predicted Australian house price would fall an average 40% through the credit crisis, has finally arrived at the top of Mount Kosciousko. After making the prediction in 2008, Rory Robertson of Macquarie Bank made a bet with Steve that if house prices fell even 20%, the loser would walk from Canberra to the highest mountain in Australia, wearing a T-Shirt that read “I was hopelessly wrong on house prices”. Steve lost the bet as house prices only fell an average 5% during the crisis, although have since shown double digit price gains.

The Australia sharemarket, after reaching 5,000 points in early April, has dropped back below this level with persisting doubts over the rescue package in Greece, plus executives of Goldman Sachs being charged with fraud by the US Securities Exchange Commission (SEC).

The long awaited Henry review of the Tax System is due for release this Sunday and is expected to propose wide ranging reforms to Superannuation and personal savings, although the implementation of the reports’ recommendations will likely take many years (with some recommendations possibly too unpopular to be implemented at all).

Our next fortnightly report will follow the 2010 Budget Announcement by Treasurer Swan, touted as an ‘Election Year Budget’ and not expected to be too tough on voters.

The Fortnight That Was – 12th April 2010

During the past fortnight, the Reserve Bank of Australia (RBA) again raised their benchmark cash interest rate by 0.25% to 4.25%. The major banks took no time in passing on the full raise to their mortgage holders. News reports over the weekend made sobering reading for mortgage holders, with key economists predicting home loan rates could reach 10% in two years if the pace of the Australian economic recovery continues. In this situation, property investors are likely to enjoy higher rental returns as potential homeowners are priced out of the market and force rents further upwards.

The Australian sharemarket reached an 18 month high during the week, with the All Ordinaries Index nudging 5000 points.

Internationally, the European Union has agreed to lend Greece up to 32bn Euros, with the IMF tipping in a further 13bn Euros, in a bailout package worth up to 45bn Euros. The loans will be made at below market rates and will shore up the Greek balance sheet that has come under pressure in the past month. International share markets reacted positively to the news, with the US Dow Jones Index briefly passing 11000 points for the first time since September 2008.