A message to our friends and clients in Melbourne
Last week I spent much time on the phone to clients and fellow business owners in Melbourne. The second lockdown they are experiencing is really taking its toll on their mental wellbeing. Especially hard hit are their younger workers, those in their 20s (post Uni but pre-kids) who should be enjoying life to the full, traveling and discovering themselves (before ‘growing up’ and settling down) but instead find themselves holed up in cramped city apartments, unable to leave. I don’t think we are talking enough about the mental health issues that lockdowns are causing. Here in Sydney, economic activity slowed noticeably once Melbourne’s second lockdown was announced. Our cafes and restaurants have emptied once again and large employers have told their staff not to even think about returning to work until well into the New Year.
I am so proud of the pragmatic and stoic way our staff have responded, despite many having real challenges to manage at home. Our office is now open for you to visit your adviser. We would love to see you at North Sydney but also fully understand if you would prefer to meet your adviser via a Zoom call.
If you are having a rough day, please do call us. If you are worried about your portfolio, your job or the mental health of you or your family, just call. We might not be able to help, but we promise to listen. We are here not just for the formal reviews – our service to our clients is to be available to you at all times and to listen to what you have to say.
Our Debt Problem
The world is awash in debt. Weak economy? No problem – just hand cash out. Rising budget deficit? No problem – just issue more debt. This causing rising interest rates? No problem – politely ask your friendly central bank to buy all the bonds issued to fund this deficit. This story is playing out not just here in Australia, but all over the world. No government today is willing to risk the wrath of its voters’ demands to ‘do something now!’ No politician has the nerve to question whether this is the right path. That this will leave our young ones saddled with higher taxes, high unemployment and weak economies is, well, someone else’s problem.
The chart below shows the level of US government debt (expressed as a percentage of the economy) since the Founding Fathers signed the Declaration of Independence. The first time that the federal authorities borrowed money was during the American Civil War in the 1860s. Debt peaked at 25% of GDP and then spent the next 50 years heading back to zero. The onset of World War I caused federal debt to rise once again to about 25% of the size of the economy. The second World War was far more expensive – debt peaked at 100% of GDP but quickly declined back to 25% by the end of the 1970s. On August 15th 1971, President Nixon took the momentous decision to take the US dollar off the Gold Standard at a price of $35 per ounce of gold. Since then, US debt has exploded. It’s currently about 80% of GDP, but is forecast to soar higher in the next few years. This doesn’t include state debt nor unfunded pension liabilities.
How long can this last? It’s impossible to know but end it will.
The Best Pension Systems in the World?
It has become fashionable of late for economists and politicians to knock Australia’s pension (superannuation) system as unfair, unsustainable and inadequate. The reality is somewhat different to the rhetoric. The graphic below from the 2019 Melbourne Mercer Global Pension Index highlights which countries are best equipped to support their older citizens, one in six of whom will be over the age of 65 by 2050. The authors marked each pension system according to three factors – adequacy (the base level of income), sustainability (the level of future committed funding from the government) and integrity (governance to protect pensioners). Of the 37 countries analysed, Australia ranked third with a score of 75, behind just Holland and Denmark. Our super may not be super, but it’s not bad!
Quarterly Markets Review
Earlier this week, we published our quarterly review of investment markets. Written by our Chief Investment Officer, Ashley Owen, you can find this publication here. As always, it’s a comprehensive analysis of the state of markets and a detailed explanation of why equity markets are holding up so (surprisingly) well. With the tidal wave of central bank monetary stimulus and with governments willing and able to fund huge deficits, we have moved our portfolios to neutral from slight underweights.