Newsletter – February 9 2018

“The Reserve Bank has now officially said Interest Rates are on hold, fully as expected.

But remember the stock market today…it has fallen another 3 per cent…

This means, on top of the $30 billion lost yesterday, its nearly $60 billion wiped off the value today.

This increasing volatility means that really the Reserve Banks has got not much option but to leave Interest Rates on hold…” (Watch Here)

Newsletter #45 – Feb 9 2018

This week the stock market went on a wild ride…that’s probably the only way to describe it.

The “collapse,” as some are calling it, in the US stockmarket can be interpreted in two quite distinct ways.

It is either the beginning of the Donald Trump inspired US economic miracle – or it’s the correction that Wall Street HAD to have?

Either way, it caused intense nervousness among investors and governments around the world.

But what triggered the fall in the US Stockmarket?

The answer…0.2 percent. You can blame this all on 0.2 percent.

0.2 percent was the difference between what was forecasted and what was the actual result for US wages growth which was reported last Friday. The market expected 2.7 percent, the result was 2.9 percent. 0.2 percent…that is all.

But that 0.2 percent difference was enough to set off a 650 point fall (2.5 percent) in the Dow Jones on Friday, and another 1,175 fall (4.6 percent) on Monday US time.

It was the biggest one-day fall for the market in almost seven years. Almost $490 billion wiped off the value of US equities in just two days.

In Australia – $90 billion was gone in two days.

When the All Ordinaries opened on Tuesday morning, the green writing instantly turned all red. It brought back memories of the 2008 GFC or Black Monday in 1987. Many shareholders thought they were in real trouble. But as I have said many, many times this week – this is not the case.

We are not in the middle of another GFC. We did not witness another Black Monday. It was a simply healthy correction of the market that was needed.

Now – I’ve just mentioned the reason for this whole schmozzle. And it was 0.2 percent. Let me explain further…

The 0.2 percent is so important because its evidence of the US’s strong economic growth – which is creating more jobs – and putting pressure on wages to rise. This means then inflation is likely to rise and with it – interest rates.

If interest rates start to rise, then banks and financial stocks come under pressure, hence the sell-off.

Now, last week, Janet Yellen, in her last appearance as the head of the US Federal Reserve, hinted that the economy was improving enough to perhaps speed up the timeline for interest rate hikes as it reels in some of that extra cash – so there you go. More evidence that America’s economy is doing quite well. Shouldn’t we be jumping for joy about this? The economy is strong! Rejoice!

But it seems many are worried what a rise in interest rates means. I have warned many times about the likelihood of interest rates in Australia and what it will mean for already cash-strapped households.

Now – the US economic cycle is more advanced than Australia’s. And it’s being spurred on even further by Trump’s corporate tax cuts and other pro-growth policies that – in Australia – remain stuck in the Senate, unlikely to pass anytime soon.

Now – the key to understanding the fundamentals of all of this is employment numbers. It was only a matter of weeks ago, Trump tweeted that black unemployment was the “lowest ever recorded in our country”. And, I will say again, that is something to boast about.

Remember – supply and demand. With more people in jobs, its harder for employers to find people to work so it means they are offered incentives, a large pay packets, benefits, etc. We only have to look bak to the mining boom to see an example of this.

Cooks and painters were paid more than $150,000 a year to work in mining areas. This is what I mean. The stronger the demand for work is, the more likely we will see wages rise. And its exactly what has happened in the US.

People are working more, supply and demand is greater and therefore, wages are rising. And the 0.2 percent difference between what was forecasted and the actual result…well, to be honest – it’s not a bad thing.

We are starting to see the same thing happen again in Australia; unemployment right now is at 5.4 per cent. And with anything under 5 percent considered close to be full employment, wages are expected soon to rise.

But if interest rates have to rise to head off inflation (long term, inflation has historically been a bad thing for job creation), it might not be a bad thing.

As I mentioned, in Australia, wages have not yet started to grow, but the signs are there.

If wages do rise, the Reserve Bank will not be far away from lifting interest rates. Money markets right now indicate the first rise in rates will be February next year, but if wages show signs of rising sooner, then it could be earlier than that.

Economists right now are divided about the strength of Australia’s economy and when those rate rises will arrive.

One group points to the cooling in house prices and construction, and say this will be enough to slow job creation this year; leading to low wages growth, low inflation and no interest rate rises this year.

The other group says the housing cycle might slow, but it will not go away because of Australia’s rising population. They say wages growth will continue as more jobs are created and, so long as the US economy does not fall off a cliff, commodity prices and Australia’s economic growth will also pick up.

Either way, you have to keep watching this economic debate – for your job, mortgage rate, business and superannuation fund depends upon it.

9News –

The Commonwealth Bank has all but admitted it will face penalties for money-laundering…and shareholders are taking the hit – Listen Here 

Money News –

Why won’t One Nation’s Senator Pauline Hanson back company tax Cuts? – Listen here

Work.Life.Money –

Rick Price and Jack Jones join me live in studio fro a chat before their upcoming tour –Listen here from Sunday

Interviews and Stories for the week

Interviewed  Andrew Richards, CEO, Energy Users Association of Australia titled ” Is AGL’s profit because of your rising energy bills?

9News: Profit vs. Prices

Interviewed  Steven Worrall, CEO, Microsoft Australia titled ” Microsoft Australia launches National Skills Program

Interviewed  Chris Lynch, CFO, Rio Tinto titled ” Rio Tinto Shareholders to get record payout

Interviewed  Ian Narev, CEO, Commonwealth Bank titled ” Commonwealth Bank Shareholders hit hard

9News: Payback Time

Interviewed  Lasanka Perera, Director, Independent Reserve titled ” Should you buy Bitcoin now?

Interviewed  Peter Harris, Chairman, Productivity Commission titled ” Should banking competition be suppressed in the name of safety?

Interviewed  Alan Oster, NAB, Chief Economist titled ” Was Christmas retail as good as expected?

9News: RBA leaves Interest Rates on Hold for the First Time in 2018

9News: Market Bloodbath

How plummeting Wall St stocks could impact your wallet

Interviewed  Tony Shepherd, Former President, Business Council of Australia titled ” Is Bill Shorten deliberately lurching to the left?

Interviewed  Roger Waters, Pink Floyd co-founder titled ” Roger Waters: ‘People don’t go into rock and roll bands for the art, old boy’

Interviewed  Dr John Tickell titled ” What are the secrets to living a longer life?

Interviewed  Adam Linforth, Budgy Smuggler titled ” Origins Australia: Budgy Smuggler

Interviewed  Janet Gibson, General Manager, Buzz Connect titled ” Aussie company the clear stand-out at Superbowl 52

Interviewed  John O’Sullivan, Managing Director, Tourism Australia titled ” Will there be a Crocodile Dundee reboot?

Interviewed  Mark Bayley, Head of Credit Strategy and Research, FIIG Securities titled ” When will Interest Rates rise?

Interviewed  David Paradice, Paradice Investment Management titled ” $31 billion wiped from Australia Shares

9News: Market Meltdown

Top 10 Variable Rate Home Loans for Feb 2018

Top 10 Fixed Rate Home Loans for 1 year Feb 2018

Top 10 Fixed Rate Home Loans for 2 year Feb 2018

Top 10 Fixed Rate Home Loans for 3 year Feb 2018

Top 10 Fixed Rate Home Loans for 5 year Feb 2018

Top 10 Variable Rate Investment Property Loans for Feb 2018

Top 10 Fixed Rate Investment Property Loans for 1 year Feb 2018

Top 10 Fixed Rate Investment Property Loans for 2 year Feb 2018

Top 10 Fixed Rate Investment Property Loans for 3 year Feb 2018

Top 10 Fixed Rate Investment Property Loans for 5 year Feb 2018

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