Michael's Musings Facebook Posts - Latest Financial Musings

Welcome to Michael’s Musings Facebook page feed. Here, you’ll find all our latest posts, thoughts, and updates on financial planning, current trends, and practical advice.

297

Michael's Musings

Musings on money and finance, from a Financial Planner based in East Perth, Western Australia. Nothing on this Facebook account is to be considered personal financial advice.

Michael’s Musings

3 weeks ago

Some folk think my last post on interest rates was a tad too negative. So to cheer everyone up, i’ll post below a link to Government Debt, to show just how positive I can be.No.. Really.. it’s not as dire as that. But the trajectory is not a positive one. Higher interest rates on ever-higher debt is not a sustainable trajectory.But there is a positive side of all of this – and that is in employment. More people are finding employment and unemployment remains at historically low levels – even in the face of continuing record levels of immigration. When central bankers talk about bringing economies back into ‘balance’ to improve productivity and tackle inflation, what they usually mean is higher levels of unemployment, with the people who are left working doing far more work and generally for the same pay. Ergo, higher productivity. This is sort-of what Elon Musk is proposing for the USA economy, but he’s expressing it in nicer words.In Australia, our Reserve Bank is taking a more gentle approach – one that attempts to retain employment gains while dampening demand to bring the economy supply and demand back into order.Our Government has made the RBA’s job a little harder because they’ve employed more people into ‘lower productivity’ roles such as care workers and government employee positions that do not necessarily provide as much ‘grunt’ for productivity as employment in private enterprise. Plus the Government has provided for some serious lifts in wages for some government workers. Again, this is beneficial for the care and other sectors of the economy and for employment generally. But it does make the RBA’s job harder.In recent times, some commentators have argued that the RBA should have raised interest rates more aggressively to curb demand and control inflation. However, the RBA has emphasized the importance of preserving employment gains while addressing inflation. For instance, Deputy Governor Andrew Hauser noted that the RBA is "data-dependent" but not "data-obsessed," indicating a readiness to respond to economic shifts while considering the broader impact on employment. ReutersGovernor Michele Bullock has also highlighted the RBA’s commitment to balancing its dual objectives. She stated that the Board is "looking to strike an appropriate balance between the RBA’s inflation and full employment objectives," acknowledging the complexities involved in managing both goals simultaneously. Reserve Bank of AustraliaThis approach aligns with the RBA’s mandate to support economic prosperity by ensuring both price stability and full employment. While some advocate for more aggressive rate hikes to control inflation, the RBA’s measured strategy reflects its commitment to sustaining employment gains alongside its inflation targets.Whether that strategy plays out successfully will to some extent be reliant on workers accepting that inflation is temporary and not permanently high. If workers’ inflation expectations are too high then there is room for a ‘wage spiral’ that causes inflation to settle at a level permanently higher than the RBA’s 2-3% band.In the meanwhile, higher rates than many borrowers would prefer, does at least allow for more people to keep their jobs, and that can help more money move through an economy to foster growth and development and opportunity. … See MoreSee Less

Australia: outstanding government bonds 2024 | Statista

www.statista.com

As of June 2024, the total outstanding value of debt securities issued by the Australian government amounted to almost 907 billion Australian dollars.

View on Facebook

Michael’s Musings

3 weeks ago

Interest rates. So many people tell me that interest rates are "coming down". Asset consultants, fund managers, media commentators. I don’t understand how so many people can continually pin their hopes on something they have no control over. Interest rates may fall or rise or move somewhere around where they are now. I don’t think they are going to fall anywhere near as quickly or as far as a lot of folk seem to think they will. Here’s my take.Interest rates are not coming down any time soon. If you are waiting for this to happen, try another strategy.One of the great indicators of what’s happening in interest rates is to look at the cost of borrowing for the Federal Government. After all, the Federal Government is the ‘safest’ and most ‘bankable’ borrower in the country. What do you think is happening to the cost of government borrowings right now?The chart below illustrates the cost of 10-year debt for the government. Think of it as the interest rate that the government needs to pay to get people to invest in Government Bonds. The chart isn’t pretty.At a time when government debt is soaring, and when no-one is intending to reign in that profligate spending, it’s hard to see why interest rates should fall. People far more qualified and informed than me have told me that interest rates have to fall, because there is so much debt in the country/world that this factor alone will constrain expenditure and cap any rise in interest rates. I hope they are correct, but I’m not going to make that assumption. As a financial planner, I’m going to add this as one of a number of possible outcomes.Back to interest rates, and a super-quick recap..1. Australian’s home mortgages tend to be variable rate. If the economy sinks, our Reserve Bank (RBA) can manipulate short-term rates lower. That’s a handy buffer for those with a mortgage.2. The RBA aims to keep interest rates ‘neutral’, where the stuff produced and imported is just-right for the what people are wanting to buy. That is, they try to balance supply-and-demand. Logically, the RBA cannot predict the future which means they will generally be wrong with their judgements (but don’t tell anyone that because it seems the idea is we are supposed to accept that they can tell the future). 3. Supply and demand are tricky to get right when immigration is the highest on record. Australia is a nation built on immigration. But it seems that a succession of governments have failed to do a good job of navigating that immigration to better balance supplying the needs of the existing community as well as those new folk. That extra ‘demand’ creates a bit of tension in economies. That tension is good in some ways but can be tricky in others – things like the cost of living, and maintaining living standards, and interest rates.4. A MichaelsMusings reading of the current state of affairs, is one of massive transition. You know the list – energy transition (not working); Boomer retirement transition; climate change and global tipping-point transition; just-in-time to just-in-case transition; deglobalisation transition; geopolitical power transition; technology and Artificial Intelligence transition; post-pandemic reality transition; arguably a monetary transition (just ask any Bitcoin acolyte)… the list goes on. And on. It’s not exactly a stable state of affairs.5. Periods of strong transitions create opportunity and vibrancy and excitement and employment prospects. They also create enormous job loss and insecurity; a tightening of the win-lose outcomes for businesses and people trying to create careers in those businesses; and massive redundancy. In other words, the risk/reward equation goes through the roof.When you mix all of this hotchpotch of observations from this aged Financial Planner, the result you are looking at is a higher cost of capital. Those with money want more surety, and in the midst of heightened uncertainty, they want a higher return for their hard-earned (sometimes) cash.These periods of transition can be enormously profitable. Just think of the more obvious transitions that might come to mind and the redundancy they created.. Beta vs VHS (the lower quality VHS won. Who’d have guessed that?); DVD to streaming services (what’s a DVD, you ask?) Sailing ships to steam (it didn’t happen overnight, but within an incredibly short period of time, sailing ships became worthless and were left to rot or moved to scrap); MySpace to Facebook (a lot of people will ask "who is MySpace"? And there is your redundancy). Ai is likely to accelerate the rate of change for most of these transitions. But Ai isn’t just Ai – there will be winners and losers in this race, too. More losers and more winners, with less options for those in the middle.If you’ve read this far, thank-you. Now let’s get back to interest rates.Looking at the 10-year Government Bond yield chart, you can see that each time the rate falls, it edges back up again. Michael’s version of this is that it is not just standard "market volatility" and uncertainty. I think it’s a vast body of folk who are trying to ‘wish’ those rates down, back to where they’ve been for quite a while. Interest rates have been lower for a long time now. Back in May of 2003 those 10-year rates were about where they are now. That sort of timeframe is a lot of people’s entire working lives. Dinosaurs like yours truly, remember when interest rates were dramatically higher. Current rates seem about average when you take a long enough timeframe.Interest rates are tricky little blighters. Up, down or sideways, they are the grist to the daily mill of our lives. __________________________I hope you’ve enjoyed my musing on interest rates. When reading this or any of my notes, remember the Great Disclaimer..The Great DisclaimerNothing in this post of on this site is to be taken as personal financial advice. It is nothing of the sort. These are my musings on all things financial. I’m human, and therefore prone to not knowing the future (thanks for nothing, Nietzsche). If you read my musings and decide to take some sort of action with your finances or accounts, please understand that you do so of your own choice. I am not responsible for that choice. You are. Even if I know you. My comments here do not take into account your personal circumstances or needs or objectives or wants or dislikes or assets or liabilities or income or expenditure or provisional versions of any of these wonderful financial terms. These musings are of a general and factual nature. Quite a lot of them may not even be factual. They’re just opinions. Guesstimates, if you want.If you want me to be responsible for your actions then simply sign a Client Services Agreement, pay my fee and let’s sit down for a full financial planning discussion. Otherwise, I disclaim any responsibility for errors, omissions or inadequacies of my musings and my notes. … See MoreSee Less

Photo

View on Facebook

Michael’s Musings

4 weeks ago

No rate change on Melbourne Cup day. As you would expect, given there is no action being taken to reduce inflationary pressures…For those who love to read more.. … See MoreSee Less

In Brief: Statement on Monetary Policy – November 2024

www.rba.gov.au

In Brief: Statement on Monetary Policy – November 2024

View on Facebook

Michael’s Musings

2 months ago

Learning about economics in 6 minutes 22 seconds.In recent times my musings on financial markets hints at a move towards higher government intervention in markets. And that leads me to muse on the question : "Are greater levels of government involvement in markets a good thing or a bad thing?" Is a larger government deficit even important? Some folk have moved towards the idea that government deficits don’t matter. Higher regulation can help ‘steer’ private enterprise and curb the potential excesses of a capitalist economy. But how does anyone know where the ideal mix is? Where does government control or regulations kill entrepreneurship and innovation? When does a company move from providing a community service to profiteering?Much has been made in recent times of markets having a "soft landing". A hard landing is inevitably a recession while a soft landing is a gradual move towards a balance of demand and supply within an economy, without triggering the awful recessionary outcomes of increased unemployment and failed businesses. Most market watchers appear to believe the USA has achieved a soft landing. To my mind, the result has yet to fully play out. And a good deal of the result will depend on the extent to which governments get involved in markets – setting prices; regulating more industries and favouring this or that sector or business.Much of this argument boils down to the musings of two great Economists – John Maynard Keynes and Friedrich Hayek. The former agitated for government intervention while the latter favoured ‘free markets’. You could read much and still learn little when trying to sort out the respective arguments. So I’ve provided a link to a YouTube clip that does a wonderful job of highlighting the differences between these two very different ways of managing an economy. … See MoreSee Less

Fear the Boom and Bust: Keynes vs. Hayek – The Original Economics Rap Battle!

youtu.be

Subscribe to our channel: www.youtube.com/user/econstoriesIf you enjoyed this video, you should watch this one next: youtu.be/Mq2iQAsJAhIProduc…

Video

View on Facebook

Michael’s Musings

2 months ago

📊 RBA Keeps Cash Rate at 4.35%: What This Means for YouToday, the Reserve Bank of Australia decided to leave the cash rate unchanged at 4.35%. This comes as inflation, while easing from its peak in 2022, remains stubbornly high at 3.9% (trimmed mean), with no signs of returning to the 2–3% target range until at least 2026.So what does this mean for everyday Australians?🔹 Persistent Inflation: Despite higher interest rates cooling the economy, inflation is proving difficult to fully control. The RBA’s decision signals that we may be in for more uncertainty before we see a real decrease in the cost of living.🔹 Household Budgets Under Pressure: With wage growth slowing and real disposable incomes still lower, many households will continue to feel the pinch. For those with variable-rate loans, now is a good time to review your budget and factor in higher repayments if interest rates rise further.🔹 A Slow Economic Recovery: The economy is growing slower than expected. If you’re in discretionary retail or hospitality, you may already be seeing this in slower sales. However, the labour market remains tight, with unemployment steady at 4.2%.🔹 International Factors: The RBA is keeping a close eye on international developments, especially in China and other key markets. This could impact the Australian dollar and commodities, which in turn, affect our economy.🛠️ What You Can Do:Homeowners: Consider asking for a review of your loan interest rates or consolidating debt to manage future uncertainty.Investors: Be cautious, especially if you’re looking at sectors highly affected by inflation or slow consumer demand.Savers: You might benefit from higher deposit rates, so shop around for the best interest rates on savings accounts.As always, it’s important to stay informed and adapt your financial strategy in response to these ongoing changes. I’ll keep you posted on further updates from the RBA and how these might affect you and your family.Feel free to comment below if you have any questions about how this impacts your finances!#RBA #InterestRates #Inflation #FinancialPlanning #BudgetTips #MichaelsMusings … See MoreSee Less

Statement by the Reserve Bank Board: Monetary Policy Decision | Media Releases

www.rba.gov.au

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.

View on Facebook