Oliver's Insights – Review of 2022, outlook for 2023. Expect a rough ride but ultimately better returns

Key Points

  • - 2022 was dominated by high inflation, rising interest rates, war in Ukraine & recession fears. This hit bonds & shares hard, driving losses for balanced growth super funds.

  • - 2023 is likely to remain volatile and a retest of 2022 lows for shares is a high risk. But easing inflation, central banks getting off the brakes (with the RBA at or close to the peak on rates), economic growth likely stronger than feared & improved valuations should make for better returns.

  • - Australian residential property prices likely have more downside, ahead of a September quarter low.

  • - The main things to keep an eye on are: inflation; central banks and interest rates; US politics; China tensions; and Australian residential property prices.

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Superannuation scams

How to spot the signs and Protect yourself from super scams

  • Phishing scams for your personal details

  • Encourage you to open a self-managed super fund

  • Offer to get access to your super early

  • Check your balance and contact details

  • Update your account security

  • Contact your superannuation fund directly

  • Know the rules about your super

  • Speak to someone you trust

  • Don't deal with anyone who is not licensed

  • Take steps to stop identity theft

Please read full article here

Oliver’s insights – medium term inflation pressures & implications for investors

Key points

– The surge in inflation should start to reverse next year

– However, five structural trends suggest higher medium term inflation pressures than pre-pandemic. These are: a move away from economic rationalist policies; the reversal of globalisation; rising defence spending; climate change & decarbonisation; & a fall in workers versus consumers

– This will likely constrain medium term investment returns compared to the pre pandemic years

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Oliver's Insights – The home price slump continued in November, with still more to go

Key points

- Australian national average home prices fell another 1% in November and are now down by 6.9% from their high, having seen their steepest fall in the last forty years.

- Rising mortgage rates are the main driver of the slump and there is likely more to go. Since April a buyer on average full-time earnings with a 20% deposit has seen a 25% decline in their home buying power.

- While the time taken to save a 20% deposit to buy a home in Australia has fallen, it’s still double mid-1990s levels.

- We continue to expect a 15-20% top to bottom fall in home prices out to the September quarter next year, as the full impact of rate hikes flows through and as economic conditions slow sharply into next year resulting in rising unemployment, followed by a gradual recovery.

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Oliver's Insights – Five medium term inflation pressures and implications for investors

Key points

- The surge in inflation should start to reverse next year

- However, five structural trends suggest higher medium term inflation pressures than pre-pandemic. These are: a move away from economic rationalist policies; the reversal of globalisation; rising defence spending; climate change & decarbonisation; & a fall in workers versus consumers

- This will likely constrain medium term investment returns compared to the pre pandemic years

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Risk-Off, Yield-On

With interest rates higher amid a challenging macro environment, we see a compelling case for bond allocations and are cautious about higher-risk investments.

  • We believe caution is warranted during a period of elevated inflation and an economic slowdown. And yet, the volatility in financial markets over the course of 2022 has created attractive investment opportunities, in our view

  • .We see a compelling case for bonds. Alongside what we see as attractive yield potential, fixed income also looks favorable from a macroeconomic perspective – bonds historically tend to be resilient in a recession.

  • We believe investors should be thoughtful and selective when approaching investments in equities, real assets, and other higher-risk markets. We assess a range of market and macro factors to inform our thinking on when and how to re-engage more broadly with risk assets.

Red full article here

Budget repair begins, tax reform is next

The Albanese government has been praised for taking the first step towards budget repair by banking its unexpected commodities windfall, with serious tax reform likely to be addressed in future budgets.

With government debt expected to hit the trillion dollar mark in the next financial year and the debt interest bill the fastest-growing area of government expenditure, the treasurer is under pressure to improve the budget bottom line.

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Crypto scam alert + How a rate rise will affect your mortgage

Crypto scam alert: How to avoid the latest investment scam

Think you have been scammed?

  1. Do not send any more money.

  2. Report it to your financial institution. If you are not happy with your financial institution’s response, you can make a complaint to the Australian Financial Complaints Authority and seek an award compensation for damages.

  3. Be wary of secondary scams or money recovery services that may offer to help you get your money back for a fee.

  4. Contact IDCARE, a free government-funded service, which can help to develop a specific response plan. IDCARE will never contact you out of the blue.

  5. Report the scam to the Australian Competition & Consumer Commission at Scamwatch and to the Australian Cyber Security Centre at ReportCyber.

  6. Report to ASIC if you notice ASIC’s logo, references to Moneysmart or ASIC staff on a company’s promotional materials. Include a link to the website or a screenshot. Your report may disrupt the scammers and hopefully will warn others to avoid it. Unfortunately, ASIC cannot help you get your money back.

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Oliver's Insights – Seven things for investors to keep in mind in rough times like these

The attached note takes a look at the ongoing volatility in share markets and key things for investors to keep in mind. The key points are as follows:

  • Share markets remain volatile and at risk of further falls reflecting worries about inflation, aggressive central bank rate hikes, the war in Ukraine and recession fears.

  • Seven key things for investors to bear in mind are that: share market falls are normal, but the key is to make the most of compound interest; selling shares after a fall locks in a loss; trying to time investment market moves is hard; share pullbacks provide opportunities for investors to buy them more cheaply; Australian shares still offer an attractive income flow; shares invariably bottom with maximum bearishness; and finally, to avoid getting thrown off a long-term investment strategy it’s best to turn down the noise.

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Identity theft - Protect your personal information

If your personal information falls into the wrong hands, it can be used to steal your identity.

If you've been affected by the recent Optus data breach, the Office of the Australian Information Commissioner has information on how to respond to a data breach.

The ACCC's Scamwatch has released information on the latest scams arising from the breach. 

It's important to:

  • report the breach to your bank and super fund

  • change your passwords

  • be on the lookout for suspicious emails, phone calls, texts or messages through social media

  • keep close watch on your bank account for any unauthorised transactions

  • request a temporary ban on your credit report to ensure no unauthorised loans or applications

Natural disasters and your home insurance

It's devastating when a natural disaster destroys or damages your home. Finding out you don't have enough insurance can add to your distress.

Understanding what events and damage are covered by insurance can help you get the right cover for your home.

Knowing if you live in a disaster-prone area can give you a better understanding of your risk. This helps you choose coverage for the events that are most likely to happen to your home.

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Oliver's Insights – The RBA hikes rates by 0.25%. Here are five reasons why the RBA was right to slowdown and the top is near

The attached note takes a look at the RBA's latest interest rate decision and why it made sense to slow down the pace of rate hikes. The key points are as follows:

  • The RBA sensibly dropped back to a 0.25% hike this month taking the cash rate to 2.6%. Its still signalling more hikes ahead though.

  • Slowing the pace of rate hikes makes sense: the RBA needs to allow time to assess the impact of rate hikes so far given that they impact with a lag; many households will see a sharp rise in mortgage payments which will depress spending through next year; global inflationary pressures are easing; inflation pressures are less in Australia than elsewhere; and there is now a high risk of global recession which will impact Australia.

  • Just because the Fed is prepared to run a high risk of recession does not mean the RBA should too. The Fed has an unfortunate track record of continuing to hike until there is a crisis.

  • We still see the cash rate peaking at 2.85%, but acknowledge upside risk to 3.1%. By late next year the RBA is likely to be cutting interest rates.

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Oliver's Insights – Booms, busts and investor psychology – why investors need to be aware of the psychology of investing

The attached note takes a look at the impact of investor psychology. The key points are as follows:

  • Investment markets are driven by more than just fundamentals. Investor psychology plays a huge role and helps explain why asset prices go through periodic booms and busts.

  • The key for investors is to be aware of the role of investor psychology and its influence on their own thinking. The best defence is to be aware of past market cycles (so nothing comes as a surprise) and to avoid being sucked into booms and spat out during busts. If an investor is looking to trade they should do so on a contrarian basis. This means accumulating when the crowd is panicking, lightening off when it is euphoric.

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Oliver's Insights – Seven key charts for investors to keep an eye on in assessing the investment outlook

The attached note takes a look at seven charts we see as critical for the investment outlook. The key points are as follows:

  • While we are optimistic on a 12-month horizon, shares remain at high risk of further falls and a re-test of their June lows in the short term given hawkish central banks (including the RBA), heightened recession risks and geopolitical risks.

  • Seven key global charts worth keeping an eye on by investors in assessing the investment outlook are: global business conditions PMIs; US inflation and our Pipeline Inflation Indicator; unemployment & underemployment; inflation expectations; earnings revisions; the gap between earnings yields and bond yields; and the US dollar.

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