HEWISON Financial news, our views AND other issues Issue 37 ~ September 2011
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uarterly THIS ISSUE • Economic & market update • From the CEO’s Desk • Long Term Investing
• Principles for successful SMSFs • Hewison live website launches • Save the date
Understanding the terms we use Consumer Price Index (C.P.I) Measures the national inflation rate. The index is measured quarterly (December, March, June and September quarters) and reflects changes in prices (up or down) of a fixed “basket” or list of goods and services. Austerity Measures An official action taken by a government in order to reduce the amount of money that it spends or the amount that people spend. Default The failure to promptly pay interest or principal when due. Default occurs when a debtor is unable to meet the legal obligation of debt repayment. Borrowers may default when they are unable to make the required payment or are unwilling to honour the debt. Salary Sacrifice Rather than paying income tax on salary and receiving what is left as an income, a person can contribute part of their pre-tax salary to their superannuation fund where the most tax they pay is 15%.
Economic & market update Story by Simon Curtain Private Client Adviser Image by Billy Alexander
Europe Fears of a Greek default continue to plague the market. It seems that every other day there is a bad news story emanating from Greece, which in turn drives European, and world markets lower. Greece has advised that it intends to persevere with the planned austerity measures and has already put in place a number of new taxes to raise revenue and reduce its budget deficit. It remains to be seen if this will be enough. The market is pricing in a high chance of a Greek default. The question remains as to whether or not a default, if it occurs, will be orderly or disorderly. While an orderly default would result in Greek debt repayments being pushed back decades, a disorderly default could mean that much of this debt is never repaid. This would have serious flow on effects to other members of the European Union as they hold large exposures to Greek debt. While some of the larger European Economies have provided support for Greece there is still a long way to go before this issue is resolved.
America America continues to struggle through the current economic climate. The country is holding around US$14 Trillion of public debt and President Obama has revealed a number of plans to get their debt level under control. President Obama plans to stimulate jobs
through a series of targeted tax cuts and incentives and has appealed to his parliamentary colleagues to bury their differences and support the package for the good of the country. While there is little doubt that the US will emerge from the current situation, as in Europe, there is still a lot of work to be done in the years ahead.
Asia While Europe and America are struggling, the Asian continent continues to prosper with solid economic growth across the board. Inflationary pressures still persist, in particular food price inflation, but Asian Central Banks are well equipped to tackle the situation and are not afraid to raise interest rates to keep a lid on inflation.
Australia Australia’s unemployment rate increased slightly to 5.1 per cent in August. The Reserve Bank of Australia (RBA) is keeping a close eye on the unemployment rate, as well as the inflation rate, which is currently hovering around the 3 per cent mark. Both of these indicators point to an interest rate cut in the coming months. While some sectors of the economy would welcome a rate cut (manufacturing, retail, households) the RBA are mindful of keeping the resource boom under control. We are of the view that rates will remain on hold into the New Year.