Good Afternoon, 

I hope this email finds you all happy and healthy and enjoying life as much as you are allowed to before things become unhealthy. Well, here we are its May already and the footy season is upon us and for all the Eagles fans I hope you have not broken your TV yet and are looking on the bright side of life. I can hear that Monty Python whistle again, damn you Brian. Anyway, as you know my household goes for either Dockers or North Melbourne and in the first time in many years, we can cheer a win or two which is fantastic for the soul. Poor old North Melbourne is struggling to get out of the change rooms, but someone must back the old shin boners in their time of need. On a separate note, my daughter Jessica graduated University in March with a degree in Health Science which was a very proud moment for the parents. After all the complaining and tears she finally got there in the end so I can now stop complaining and crying about the fees and charges for this daughter. Just think I only have 2 more daughters to get through university and one of those is still 2½ years away so it should be roughly 2030 before I can report all clear to the expense account. My boys are great, one is a trainee train driver and the other an apprentice chef so hey things are looking up, love my boy’s great kids out there earning money thinking of their parents, apple of my eye. The girls not so much just thinking of themselves and getting high achievements I mean to say😊 

Onto the markets! As you have all seen since the beginning of the year the markets have turned volatile due to two simple reasons one being inflation the other being the war in the Ukraine. I think I did warn everyone back in November that some very smart analysts were talking a retraction in the market of up to 10 to 15% just because the 2021 market had overheated with the large gains for the year especially with Tech stocks or the FANG stocks as they have been dubbed by everyone. Come the beginning of the year we had the invasion which basically kicked off the market correction. The main reason was that the fear factor of the unknown scared many people to run to cash and the selloff of equities started. Once the war was underway and the European union stopping the oil; and gas supply there was a shock to the energy market and a barrel of oil increased $35 on the first night which pushed up the price of energy very quickly. Once energy was pushed up this added to inflationary pressure and hence inflation has risen very quickly. As we have all read inflation is running anywhere between 4-7% when they had forecast it to be the average 2.5%. Once the price of oil jumped, costs across the economic market increased and this put pressure on manufacturing costs as well as consumer spending, so it was a double edge sword by increasing prices and decreasing disposable income of households.

One main problem we have now is once inflation begins it takes a very long time to get it contained and the simplest way to curb the rise is the treasury starts interest rate rises. There is some interesting commentary from economist talking about transition inflation which talks about the energy prices blowing out the inflation numbers until the oil and gas prices decrease which then lowers all the costs again. Most are saying that once we get through the current period things will settle down and inflation will cool so the government needs to be careful not to use the current numbers as the long-term numbers as the increase in interest rates will add to the inflation numbers and household pain.

One of my biggest concerns now is that with the price of real estate at an all-time high and any movement in the interest rates is going to cause problems across our economy as consumer spending is tight already and any extra expense on interest rates or price increases will cause significant pain to household budgets. As we know that when recession starts the general mass of people have no spare money to add to the economic cycle. We know the baby boomers are all cashed up or have little debt, but the early Gen-X and Gen-Y are going to suffer with higher mortgage repayments especially those living in the cities with high house prices. I think Gen-Y being the younger people born between 1981-1994 and between 25 and 40 years of age with young families will be the hardest hit by interest rate rises. That generation is still on the way up through promotional rises as well, so the income is lower plus they are the ones with the youngest families and intermittent work for one of the partners who are the childcare givers. Things will get tough with rates rises. 

Now is a good time to talk about our accounts, including mine as things have become more volatile with many swings over the last 3 months. Luckily the Australian share prices have been the least volatile of the world markets due to our stocks rising a lot slower than most over 2021. The US market on the other hand rose 25% + over 2021 mainly due to the technology stocks that I mentioned before. Most of gain came with growth stock such as the technology that were highly leverages and increasing both the DOW and NASDAQ substantially. Once the war started in the Ukraine the VIX indicator started to rise (Volatility Index) and people started heading for safety and the selling started. Technology stocks got hit hardest and growth stocks in general were sold off quickly and international funds dropped about 15-20% very quickly. Overall funds have dropped on average about 15% since the war in the Ukraine started and at this stage have increased but are still under December 2021 balances in your accounts. Once again, we have been here before with various events that have occurred in recent years including the pandemic and who can forget the GFC and as we know funds will always recover in time to go back to an all-time high at some stage. The good news is most of you are aware of these events so nothing really scares most of you anymore. 

I hope most of you are still reading at this point as I know I tend to lose people once I talk about the markets and the ups and downs that occur when the economy gets stressed with various events that can make markets react. At this point in time many fund managers believe the market is oversold and it is a very good time for buying. My personal view is that we will have more volatility before we go forward and need the oil prices to calm down to ease the inflationary pressure before more interest rate rises. I am of the firm belief that this year most of our accounts will be in the positive but there is a little more volatility to get through before the end of the year. I have included all ordinary index up to date to show its history in recent times and the movements that are occurring.

Anyway, I have talked enough and if anyone has any problems, please call my office at any time so we can talk through the issues. Also don’t forget budgeting is important at these times to keep an idea of what you are spending so you have sufficient cashflow available to increase your account balances. Until next time happy investing

Yours Sincerely

Allan Butson