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Dec 08
From the Wealth Plus Group we thank you for your
support during 2008 and wish you a wonderful
Christmas with family and friends, and a safe and
relaxing New Year.
Our offices will close end Friday 19th December.
We will return on Monday 5th January.
For any urgent enquiries during this time please email
[email protected] Emails will be checked periodically.
Welcome back to ‘the Word plus’ – the newsletter for
The Wealth Plus Group, your financial partners
The Word Plus aims to provide you with educational financial information and keep you
up-to-date with important events and changes within the financial services industry. We hope
that this provides an interesting and relevant service that helps you understand this complex
industry.
In a climate of high volatility this issue of The Word Plus focuses
largely on the Australian and global markets. You will find the
following information:
• Markets are volatile, but have we seen worse? This month we look into the crisis enveloping global financial markets.
Viewing a major event in isolation from those that have gone
before it can skew perceptions, so we look back through history
to investigate whether the current crisis has the potential to be as bad as the crash of
1987, or even the Great Depression. Despite what you may read, it’s not all bad news out
there. We also discuss the positive outcomes emerging from the crisis, including the
aggressive and co-ordinated global response to strengthen the world’s economy and
financial system.
• News - as always there has been a lot happening in The Wealth Plus Group since the last newsletter. We would like to welcome staff and clients at Aequitas Financial Services to
the Wealth Plus Group and the Word Plus
• Margaret River Canadian Mixed Foursomes Golf Event - read about the annual golf weekend sponsored by Wealth Plus Solutions and Wealth Plus Lending
• Managing Debt - at this expensive time of the year, Paul Tate from Wealth Plus Lending provides guidelines to managing debt.
• Market Watch - we provide the latest analysis from Colonial First State on November figures. We review the Australian Market, the Global Market, Fixed Interest and Listed
Property.
• Finally, for your taste buds - don’t miss our delicious and nutritious summer recipe, Snapper & Green Mango Salad - enjoy!
he lp ing you ach i eve f inanc i al i ndepend -
Markets are volatile, but have we seen worse?
There is no doubt that the global financial crisis currently enveloping world markets is significant and
has had devastating consequences. However, it’s important to put the recent volatility in perspective
by looking at previous downturns.
Sensationalist coverage doesn’t help investors
It’s not the media’s fault that bad news sells more papers, but sensationalised media reporting on an
almost-daily basis can make it hard for investors to make informed and rational judgements regarding
the current state of financial markets and the effect on their own investments.
While it’s vital to stay informed about what’s happening in markets, it’s important that you learn to
separate facts from sensationalism. A good source of information is the Reserve Bank of Australia
(RBA). The RBA publishes regular updates on financial markets and the Australian and global
economic outlook.
Volatility is nothing new
Sharemarkets fluctuate daily. While some rises and falls are larger, or
occur faster, than others, these ups and downs are a normal part of the
economic cycle.
It’s also worth remembering that to date, the long-term trend of
sharemarkets has been upwards. Downturns come and go, but
historically the market has always returned to previous levels and then
surpassed them. This makes it important to view the current falls in the
context of previous financial crises.
When have we seen severe downturns in the past?
In the last 40 years, the Australian market has seen at least 10 significant downturns, most of which
have been associated with recessions in the United States (US) and slower global economic growth.
As the table below shows, while the extent and length of each downturn has varied, to date the
sharemarket has always bounced back significantly in the year following the end of the downturn. Of
course, we can’t yet predict when the end of the current downturn will occur.
Is the current crisis as bad as the situation in 1987?
While the scale of the current decline is comparable to the 1987 downturn, the difference is in how
each crisis has played out and the causes behind it. The 1987 crash is thought to have been caused
by high company debt levels, stretched valuations and speculation. In the 12 months prior to the peak
in 1987, the S&P/ASX All Ordinaries index rose around 88%, indicating that speculation had got the
better of valuations.
In contrast, in the 12 months prior to the peak on 1 November 2007, the S&P/ASX All Ordinaries
index rose only 27%, despite some impressive profit gains and reasonable valuations.
Performance of the Australian sharemarket around downturns
Cause of Downturn Australian sharemarket
peak to trough*
Duration
(months)
Fall in Australian
sharemarket*
Recovery after
one year*
Recession Dec 1969 - Feb 1971 14 -25.51% 11.64%
Oil price shock Jan 1973 - Sept 1974 20 -58.24% 52.85%
Recession Nov 1980 - Mar 1982 16 -36.99% 10.95%
Sharemarket crash Sept 1987 - Feb 1988 5 -44.39% 18.76%
Property crash Aug 1989 - Dec 1990 16 -27.42% 29.04%
Recession May 1992 - Oct 1992 5 -16.16% 45.33%
Bond market crash Jan 1994 - Jan 1995 12 -20.52% 24.30%
US recession and tech wreck
Jan 2002 - Feb 2003 13 -18.38% 21.38%
Global financial crisis and recession
Nov 2007 - ? 12 to date -46.9%** ??
* As measured by the S&P/ASX All Ordinaries index using end-of-month values. Past performance is no indication of future
performance.
** As at 17 November 2008.
On 21 September 1987, the Australian sharemarket peaked at 2,376 points. In the space of just 50
days it fell 50% to a low of 1,240 on 10 November 1987, including one day, 20 October 1987, when
the sharemarket fell 25%.
In the current cycle, it has taken the S&P/ASX All Ordinaries index 382
days for the sharemarket to fall 46.9% from the high of 6,853 points it
reached on 1 November 2007 to the low reached on 17 November 2008 of
3,639.
Is the world going to enter another Great Depression?
While some countries around the world – including the United States – are
approaching, or are already in recession, it is highly unlikely that we will
see a depression like that which engulfed the world in the 1930s following
the sharemarket crash of 1929.
The 1929 sharemarket crash was categorised by panic and heavy selling
by investors. Several years of poor government policies in response to the
crisis saw the Great Depression engulf the global economy. Instead of
taking quick and aggressive action, US authorities took several years to
respond. Further exacerbating the situation, the US Government lifted
interest rates to defend the exchange rate. This collapsed consumer demand and sent the US
economy into a depression that soon spread to the global economy.
This is vastly different to the response to the current global crisis. Authorities around the world have
acted quickly to support the economy and shore up the world’s banking systems. They have also
taken the important step of implementing dramatic interest rate cuts.
Is there any good news?
While we are likely to see volatility into 2009, there is some good news. The aggressive global
response should help cushion the impact of the crisis and stimulate economic growth. The measures
taken to date by governments around the world include:
• implementing fiscal stimulus packages (including tax cuts and government spending),
• providing bailout plans for troubled financial institutions,
• and reducing interest rates.
“Although a weak 2009 is expected after several years of robust
economic growth, a recovery in 2010 is likely in the global
economy,” says Hans Kunnen, Head of Investments Research,
Colonial First State. Australia is particularly well placed for an
eventual recovery in global economic growth, given our population
growth, infrastructure spend and well-regulated and profitable
banking system.”
In addition, as a result of this year’s events it’s likely that in future
the financial services industry will be subject to more stringent
regulations and controls, primarily designed to protect the interests
of investors. Lessons are learnt from each crisis to prevent similar episodes re-occurring.
How can investors benefit from this situation?
“Investors with the fortitude to remain invested during the tough times will be best positioned to take
advantage of the eventual upswing,” says Hans. “Many professional investors actually see this crisis
as a great opportunity to invest in solidly performing companies whose share prices have been
dramatically reduced as a result of negative investor sentiment.”
If you are concerned about how events in global markets could affect you, please call us on
9368 4911. We can provide you with the most up-to-date information on market conditions and
assess the potential impact on your investments.
Important information This general advice has been prepared without taking into account your particular financial needs, circumstances or objectives, and is based on Financial Wisdom Limited’s understanding of the economic situation as at 17 November 2008. You should consider the appropriateness of this general advice to your circumstances, including by obtaining professional advice, before acting on the general advice.
Financial Wisdom advisers are Authorised Representatives of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
“While the scale
of the current
global financial
crisis is sizeable
compared to
other recent
downturns, this
sort of event has
happened before
and it will
happen again”
Hans Kunnen
Colonial First State
Wealth Plus Lending is moving
When Wealth Plus Lending re-opens after Christmas on 5th
January it will be at new premises at 96 Hay St, Subiaco. Our
new location is centrally located and provides more space for
our ever growing team. Our contact details will remain
unchanged as follows:
Ph: (08) 9388 8700 [email protected]
Fax: (08) 9380 4843 www.wealthpluslending.com.au
News
Wealth Plus Group is growing again
We are delighted to announce the addition of Aequitas Financial Services to the Wealth Plus
Group on 20th October 2008.
Aequitas is a boutique financial advising firm
with a reputation for providing first class service
and advice, especially to self managed super
fund trustees and people with more complex
needs. Their approach and expertise is a very
good fit with Mango Money Management services. The scale and additional expertise that will
come as a consequence of the combined team will bring substantial benefits to our Mango Money
Management clients. The new team will be led by Evan Salt at the Aequitas office, located only
500 meters from our current Hardy St address, at level 2, 76 Mill Point Rd, South Perth.
We would like to take the opportunity to welcome our Aequitas clients to the Wealth Plus Group
and to this, their first Word Plus newsletter.
Margaret River Canadian Mixed Foursomes
Golf Event September 2008
Margaret River Golf Club hosted the 31st annual Wealth Plus
Lighthouse Trophy Canadian Foursomes event over the Foundation
Day long weekend. The event was sponsored by Wealth Plus
Solutions and Wealth Plus Lending. This is the longest running open
golf event in the club’s 56 year history.
110 players teed off in the two day competition, including visitors
from many Perth Clubs and local members. The course was in
fantastic condition with the fast greens testing many a player.
The winners of the 36 Hole Event were Rick Zuromski and Angela
Thorn, visitors from Mt Lawley Golf Club, shooting 137 3/4.
Winner Angela Thorn with Robert Crane and
Jason Atkins from
Wealth Plus Group
Meet the Team - Paul Tate
Paul Tate is an experienced loan specialist with Wealth Plus Lending. He is
a licensed mortgage broker and holds qualifications in Mortgage and
Finance Broking, and a Diploma of Financial Services in Financial Planning.
Paul enjoys working with people to help them build their financial security for
the future.
When he is not working, Paul enjoys spending time with his family and friends. He follows all sports, especially AFL, and loves to get actively involved with his children’s many sport and leisure pursuits.
Important information
Wealth Plus Lending is a company separate to Wealth Plus Solutions and cannot provide financial product advice.
Wealth Plus Lending has no association with Financial Wisdom Limited ABN: 70 006 646 108 AFSL 231138.
Managing Debt
This month Paul Tate from Wealth Plus Lending provides guidelines to managing debt.
“Providing it is managed wisely, there may be nothing wrong with
borrowing money. Debt may be a useful financial tool because it may
allow us to buy the items we need but can’t afford in one payment, as
well as things that might increase in value such as property, a share
portfolio or a business.
But debt must be treated with respect. In my business I find that, while
many people manage debt well and use borrowed money to improve
their lifestyle and financial situation, others are inclined to overindulge
and borrow what they can, rather than what they can afford.
As with many financial objectives, I believe the best place to make a start on helping improve
debt management is with a simple, well-maintained personal budget. By working out your level of
disposable income you can decide if you can afford to make new purchases, whether from
existing savings or additional borrowings.
Part of my role as a loan broker is to find the lending facility that is best for my client. Generally
the cheapest form of borrowing is redrawing some of the equity in your home, but if that is not
available then there are also credit cards, store cards or personal loans.
The most obvious way to help manage home loan debt is by starting with a level of borrowings
that you can afford.
Then you should aim to pay off the loan as fast as possible by making higher than minimum
repayments, maintaining your payments if the interest rate falls and
increasing payments if your income rises.
Credit cards and store card may be a flexible and convenient way to
facilitate your purchases but may charge relatively high interest
rates. You should aim to help minimise the impact of these high
rates by paying off the card debt in full every month; avoiding second
cards and offers to increase your credit limit; and using fee free
transactions where possible, such as making payments by phone or
internet.
I tell my clients that a credit limit is not a license to spend. Your
budget and bank balance are the best guide to how much
discretionary income you have available for spending.
Of course juggling credit cards, store cards, personal loans and a
home loan, all charging different interest rates and fees, is a difficult task.
Some of my clients find the best way to overcome this problem is to roll all their loans into one.
Known as consolidation, it may help you reduce overall debt and get
back in control of your finances.
However, there is a downside. By combining short-term debts into a
longer-term, lower-rate debt you could effectively increase the cost of
the original debt, simply because you could still be paying off your
television twenty years down the track.
It is also important that you change your spending habits if they are
what caused you to get into difficulties in the first place. Consolidating
debt is of no use if you cannot stop the borrowing cycle.”
If you would like debt management advice, please contact Paul Tate at Wealth Plus Lending
0407 987 207 to discuss your situation.
“I tell my clients
that a credit limit
is not a license to
spend. Your
budget and bank
balance are the
best guide to
how much
discretionary
income you have
available for
spending.”
Market Watch
Colonial First State provides analysis on the latest global and Australian market figures.
Economic Commentary
November was not a good month for economic news.
This month a range of groups released their 2009 forecasts for
Australian and global economic growth. Among groups to
release forecasts were the Reserve Bank of Australia (RBA),
the Commonwealth Treasury, the International Monetary Fund
(IMF) and the Organisation for Economic Co-operation and
Development (OECD).
All groups expect economic growth to continue in Australia in
2009, however forecasts for global growth are particularly
weak. The US, Europe and Japan face recessions while
emerging markets such as China and India face slower, but still fairly robust growth.
In the face of ongoing financial market turmoil, the United States made adjustments to its US$700
billion banking and credit market rescue package. It also announced a further US$800 billion
package to get credit flowing through the US financial system.
The UK announced cuts to its Value Added Tax (VAT) while at the same time cutting official interest
rates from 4.5% to 3.0%. Official interest rates were also cut in the Euro zone, China and Australia.
The global economy has now seen a raft of rescue packages that aim to support the global financial
system and stimulate economic growth in 2009. Australia’s most recent contribution was the $300
million to be given by the Federal Government to local governments for the purpose of constructing
public amenities. Such measures will help sustain employment and spending in the economy.
The AUD fell in November, down 1.3% from US 66.45 cents at the start of the month to US 65.58
cents by month end. Lower interest rates and the continued offshore selling of Australian equities
dampened demand for Australian dollars.
Australian shares
Despite a late rally, Australian share prices fell over the month.
October’s 14.0% decline was followed by a 7.8% fall in November. The
S&P/ASX All Ordinaries index reached a new low of 3332 points in the
month to be down 51.3% from its peak in early November 2007. Such
levels were last seen in early 2004.
The market was buffeted by domestic and offshore news. The ongoing
credit crisis is placing pressure on companies with debts and those in
need of capital. During the month, companies to announce capital
raisings included National Australia Bank, AMP, Sonic Healthcare, CSR
and QBE Insurance.
The market also saw companies beginning to give guidance on future
earnings. Harvey Norman spoke of a 30% decline in earnings while
Qantas was indicating the possibility of a 64% decline.
The various financial system rescue announcements improved investor attitudes towards financial
institutions in Australia towards the end of the month. Citigroup was given a further US$20 billion in
backing while the US government assumed some of its bad debts. The effective rescue of Citigroup
sent the message that a repeat of the Lehman Brothers failure - which sparked a massive sell-off in
global equity and credit markets - would not be repeated.
The perilous state of banking around the globe saw financials fall heavily early in November and
then pick up in the last week. Commonwealth Bank ended the month down 15.4% while National
Australia Bank was down 12.6%.
The factors pushing the market down have not disappeared but policy actions, such as reducing
interest rates, government spending programs and global action to support the financial system will
have a positive impact over time. In the meantime, the domestic economy is slowing and parts of the
Western world are slipping into recession.
The S&P/ASX 200 Accumulation index (which includes re-invested dividends) fell 6.2% in November
to be down 40.0% over 12 months.
“While
forecasts for global growth
are weak, economic
growth is expected to
continue in Australia in
2009”
Global shares
All major equity markets fell in November. With several large nations slipping into recession and
large offshore banks continuing to report losses, global equity markets found little support. There
was a rally towards the end of the month but the damage was already done. The MSCI World index,
a broad measure of global shares, fell 6.7% in USD and was down 5.5% when measured in AUD.
Over 12 months, global shares were down 44.6% in USD terms and have
fallen 25.3% in AUD terms
A 16.9% rally in the last week of November was insufficient to stave off an
overall 5.3% decline in the US Dow Jones Industrial average over the
month. The S&P 500 fell 7.5% to be down 39.5% over 12 months. Further
banking and credit market rescue packages were announced but the US
auto industry giants were denied access to emergency funding.
The election of Senator Barrack Obama as US President, the outline of his
spending plans and his selection of economic advisors were generally well
received by the market, however, the President-elect has a lot of work to do as the US economy
slips into recession.
Asian markets generally followed global markets but at a lower rate. With Japan now officially in
recession, its market fell a further 0.8% to be down 45.7% over 12 months. Hong Kong was down
0.6% for the month and Singapore fell 3.4%. Bucking the trend was China whose Shanghai B
market rose 20.0% following the announcement of rate cuts and an economic stimulus package. Its
market is down 69.1% over 12 months.
The declines in European markets were not as severe as those seen during October. The UK
market was down 2.0%, the German market fell 6.4% as did the French market. Official interest
rates fell across Europe and the European Union announced a modest stimulus package. Despite
this, Europe faces a recession during 2009. The European Central Bank cut official interest rates by
0.5% to 3.25%.
A 19.7% decline in the price of oil to US$54 per barrel did little to help
oil producing nations.
Fixed interest
Policy makers continue to work overtime endeavouring to support their
credit markets. Improved capitalisation of banks, improved flows of
credit and lower commercial lending rates go hand in hand.
The turmoil in global financial markets continues to see strong demand
for government bonds. US 10 year government bond yields are at
levels last seen in the early 1950s with yields at 2.92% at the end of
November.
At the beginning of the month, 10 year Australian government bond
yields stood at 5.17% while domestic corporate bonds with credit
ratings in the range BBB- to BBB+ had an average yield of 10.29%. By the end of November, the
yields were 4.60% and 8.64% respectively. The higher corporate bond yields reflect the current
illiquidity in corporate bond markets and the relative risk of default in that market.
Listed property
The listed property sector actually rose 0.3% in November but is down 52.1% over 12 months.
The sector faces a significant debt refinancing task over the next few years and a slowing economy.
In this environment, future distribution yields and future capital growth are uncertain.
Global property markets fell heavily again in November. The S&P/Citigroup BMI World Property
index fell 13.2% in AUD terms and is down 41.7% over 12 months.
Note The latest IMF forecasts can be found at www.imf.org. Forecasts from the RBA and the Commonwealth Treasury can be found at www.rba.gov.au and www.treasury.gov.au respectively while the OECD forecasts are at www.oecd.org.
General Information The information contained in this market update is of a factual nature only and is not intended to constitute
either general or personal financial product advice. It does not take into account your particular investment objectives, financial
situation or needs. You should consider the appropriateness of the information having regard to your own objectives, financial
situation and needs. You should consult your financial advisor for advice before making any decision on the basis of this
information. A product disclosure statement (PDS) outlines specific information relating to a financial product. You should read the
relevant PDS prior to making any decisions about whether to acquire a product. Past performance is not indicative of future
performance. Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138
“Policy actions,
such as
reducing
interest rates,
government
spending
programs and
global action to
support the
financial system
will have a
positive impact
over time”
Snapper and Green Mango Salad
Seves 4
Preparation Time 15 mins
Cooking Time 10 mins
Ingredients:
4 (150g ea) pink snapper fillets, skin on
80ml (1/3 cup) peanut oil
60ml (1/4 cup) lime juice
1tbsp finely grated galangal
2 cloves garlic, coarsely chopped
2 small red chillis, coarsely chopped
1 cup coriander sprigs
1 cup mint leaves
3 green onions, thinly sliced diagonally
1 tbsp finely crushed palm sugar
2 tbsp fish sauce
1 green mango, thinly sliced
bowl iced water
To serve: fried shallots (available from Asian grocery stores) and steamed jasmine rice
Method:
1 Place fish in a single layer on a tray. Combine 1/4 cup of the peanut oil, 1 tbsp of the lime juice, galangal and half the garlic and chilli in a bowl, pour over fish, turn to coat and marinate for about 10 minutes.
2 Remove fish from marinade. Heat remaining peanut oil in a heavy-based frying pan over medium-high heat, add fish, skin-side down, and cook for 2-3 minutes or until brown, then turn and cook for another 3-4 minutes or until just cooked through. Remove from pan and, when cool enough to handle, flake into large pieces.
3 Meanwhile, place herbs and green onion in iced water to crisp. Place palm sugar in a mortar, add remaining garlic and, using a pestle, pound to a coarse paste. Add fish sauce and remaining lime juice and stir to combine. Transfer to a large bowl, add green mango and stand for 5 minutes.
4 Drain herb mixture, add to mango, then add fish and toss lightly to combine. Scatter with fried shallots and serve with steamed jasmine rice.
Business Address
20 Hardy Street
PO Pox 1077 South Perth WA 6951
[email protected] www.wealthplus.com.au
www.mangomoney.com.au
Phone: 08 9368 4911
84% of people who have seen a financial
planner in the last 12 months report that they
are very or fairly confident that they will have
enough money to retire comfortably. This
compares with 57% among those that have not
seen an advisor at all. Nielsen research
Commissioned by ING Australia, 2007
Important Information
Wealth Plus Solutions Pty Ltd & Mango Money Management Pty Ltd are authorised representatives of Financial Wisdom Limited ABN 70 006 646 108 AFS License 231138, which is a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. This newsletter contains general advice only and is not intended to constitute personal financial product advice. It has been prepared without taking into account the personal circumstances, financial needs or objectives of any one person. Individuals are advised not to rely on this information when making their own investment decisions. Instead, they should seek professional advice. Where appropriate you will be provided with a Product Disclosure Statement in relation to the product recommended to you. You should consider this document before making any decision to use the product in question. The content of this newsletter is based on the understanding that Financial Wisdom Limited has understanding of the relevant laws as at 30 June 2008. While all care has been taken in the preparation of this newsletter (using sources believed to be reliable and accurate), no person, including Wealth Plus Solutions Pty Ltd, Mango Money Management Pty Ltd, Financial Wisdom or any other member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. Market return figures current as at 30 August 2008. Past performance is no indication of future performance.