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Title: January Newsletter 2019
Created: 2019-01-04

Good morning all

Christmas was a busy time as usual, getting everything ready for the big day including cleaning the house, yard and windows, which all seem to be dirty again the next day. Once the big day arrives everyone comes over, has a great time by eating all the food and making a mess and then going home leaving you to clean up the mess again. However, not being the Grinch at Christmas, it was so good to get the family all together in the same room to swap funny stories of days gone by and relive the memories that make life worthwhile! Sometimes these stories do grow as the years roll by and there are also stories that are told to remind you that given a different set of circumstances history may have been totally different; such as “what would it have been like if there were only three children’? and “what if you named us differently”? I must say my daughter Jessica, as a little girl, was very upset when she heard we were going to call our middle child Julia as she thought Julia sounded like Jewels and to a kid that was a big thing. We changed the name to Jorja and looking back think how little things make a difference. Jessica is still asking Jorja to thank her by the way J Finally, on the family front, our Grandson was spoilt rotten (as to be expected) and cleaned up on the presents and was the king of Glendinning Road for the day being handed around, kissed, hugged and loved by all. On a post final note I must say when the little bugger gets cranky I can only last about 15 minutes before I go and find somewhere quiet J Grumpy Granddad.

Onto the markets and as we know there has been a roller-coaster ride over the last three months with the markets taking a bigger than normal pullback that has affected all our investment balances. As you know last time we spoke I was expecting a pullback of around 4-5% but it appears this has been roughly a 10-11% pullback due to a number of factors I will discuss, but in short the economy is not in bad shape and this is not the beginning of a crash or a long term downswing that could turn into a protracted recession. This is a pullback only and the reason for this is simply the market pricing in the rising interest rates in America and the quantitative tightening by the US Federal Reserve after all the years of cheap easy money. As we all know, since the GFC in 2008, the US Federal Reserve has flooded the market with money to keep the cashflow moving through the economy and helping businesses stabilize and grow and keep everything running in the economy. During the post GFC the US Federal Reserve has printed trillions of dollars and has built up a large deficit on their balance sheet and are now starting to pay down this debt. To achieve this they are lifting interest rates. As you can imagine by increasing interest rates the economy starts to cool due to less money being available to spend due to higher interest rate repayments. Adding interest rate increases to the end of President Trump’s tax stimulus has slowed things down somewhat as businesses get used to less circulation of cheap money. As market (investments) pricing (valuation) is based on future values and analysts realize that the economy is tightening prices have been priced lower and hence the fall in current values.

Another issue that we have discussed is rising interest rates. The emerging economies have been burdened with larger interest repayments to the United States, who is the major lender to the world economy making up some 75% of the world economy.  So adding higher interest rates to emerging economies decreases economic activity which in turn feeds into the overall slowdown with less money in circulation. Emerging economies include most Asian and South American countries plus our main trading partner China, which is having a trade war with the USA at the moment. This trade war has not helped because it adds to the uncertainty of perception about how things are going and as we all know, the economy is run on perception and the worse people feel about how things are going the worse things get. Adding a trade war to constant bad economic news in the media has certainly not helped with people worrying about how they are going to pay for essentials to what they are going to retire on? Another reason for uncertainty is China has been growing at a very high rate over the last 15 years and analysts year in year out are predicting a Chinese slowdown at some point, regardless of whether this is going to happen. The thing is, China play their cards close to their chest, so no one really does know what is going on with their economy. One thing that is clear is that with the size of their population and the growth together with the enormous transition they have made, they are very powerful and wield great financial economic value to the world.

This year will be interesting as we have come to the end of a high growth cycle and a more conservative pattern will now take over for 2019. I think your funds will recover by about April or May and then move forward, but as I have said, at a slower pace until we get through this period of bad news and human made problems (but I won’t point any fingers). Having said that the main areas that we will be concentrating on is dividend income and a more moderate growth strategy to keep things moving forward and increasing your portfolios. Australian shares are still going to give good dividend returns and a small growth but will remain in the positive. International equities will recover but the large returns will turn more conservative to single digits and not be the huge amounts as before. Infrastructure returns are recovering nicely so that will be a good area to remain. Overall return will remain soft but most of our portfolios remain more on the conservative side of the investment spectrum so losses are limited. As we spoke about before the higher return always have the higher losses but these are part of the swings and roundabouts. Markets always come back and it has been a while since the last downturn so we were expecting a pullback and here it is. This will last a few more months and maybe have a few more bumps and worries but in the end it will smooth out and be positive so don’t be too concerned with what is happening.

Apart from that I wish you all a Happy New Year and hope that you remain well and have a good year in whatever you do. My staff and I will be here for any queries and to answer any problems that you need answered.

Until next time happy investing and be sure to Like and checkout our Facebook page, which has some photo’s on there that are a source of my staff’s amusement from the Christmas function we held J

Kind Regards


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