TW3 – No FOMO Under ScoMo

Market Wrap

Generally speaking, the Australian market is “dumb” in the sense that it tends to blindly follow global markets. That was not the case this week however, as the Australian market rallied whilst global markets softened. The local market reached a near 12-month high in response to the Coalition election victory on Monday, mostly thanks to a remarkable rally in the major banks, each of which gained >5% within the first 10 minutes of trading.

image

Global investors weren’t as cheery this week, as trade war and Brexit woes weighed down on investor sentiment. Renewed hostility in trade war negotiations has led to pessimism regarding economic growth, driving US bond yields to their lowest levels since 2017. US Treasury Secretary Steven Mnunchin indicated that no meetings had been scheduled to resume the trade talks, dashing hopes of a speedy resolution. The dumpster fire that is the Brexit negotiations is expected to have yet another twist this week, with British PM Theresa May expected to announce her resignation within the next 24 hours.

Finance 101 – Probability vs Possibility

Clickbait <noun> (klik-ˌbāt): something (such as a headline) designed to make readers want to click on a hyperlink, especially when the link leads to content of dubious value or interest.

Financial papers make most of their money by selling advertising space. The more internet traffic they can generate, the more valuable their advertising space becomes. The easiest way to achieve this result is to use outrageous headlines to goad readers into clicking the article.

The headline below is a classic example of clickbait. In the article, Australian hedge fund star John Hempton claimed that houses in the outer suburbs of Newcastle could fall by up to 85%. You also could win the lottery tomorrow, you could even win it twice! Since there are an inconceivable amount of possible future outcomes in life, we should focus on what’s probable rather than what’s remotely possible.

image

Having a healthy dose of scepticism also helps in our personal lives. Any time you hear “can”, “could”, or “may”, remember that you are now talking about what’s possible rather than what’s probable. Take for example these 7 “scientifically proven” benefits of Vitamin C supplements. Do they sound very conclusive to you?

image

But don’t take our word for it! It is scientifically proven that reading TW3 regularly mayresult in higher levels of intelligence, attractiveness and life satisfaction!

Stanford Brown Election Breakdown

Get our breakdown of what the Coalition’s election victory means for your Super and your property in this month’s instalment of Stanford Brown’s Market Insights Podcast! Coverage of the election starts halfway through the 16th minute of the podcast, and we are joined by our first guest on the Market Insights, Stanford Brown’s technical and compliance superstar Diana Chan!

Click the image below to listen!

image

One of the major talking points from the election was how the pollsters got it so wrong. Here’s our favourite take on the matter (albeit from an American!)

image

No PM since Howard has completed a full term in office, with consistent underperformance in the polls prompting their demise. Let’s see if ScoMo can buck the trend!

No More Hard Labor For Property?

Despite the gloomy prognostications of clickbaity articles, a growing number of analysts and pundits are predicting that the housing downturn is primed to end given three key developments:

  1. Labor’s election defeat – A key driver of negative sentiment amongst property investors was Labor’s plan to curtail negative gearing and reduce CGT concessions. The Coalition’s election victory means that these tax benefits will remain for the near future.
  2. ScoMo’s first home buyer deposit scheme – Although yet to be enacted into legislation, the Coalition’s plan to support first-home buyers will help boost sentiment, particularly for investors in apartments as many first-home buyers cannot afford houses.
  3. Revisions to serviceability assessments – The downturn in property prices has largely been driven by tighter lending practices by the major banks. APRA announced midweek that it would be revising its serviceability requirements for banks. Under the current arrangements, banks are required to show that borrowers can service their mortgages if rates were to rise to 7%. Now, APRA will allow banks to determine the interest rate used to test serviceability. This has major implications for lending. A person who could borrow $1m under a 7.25% serviceability requirement can borrow $1.23m under a 6.25% serviceability requirement, a 23% increase in borrowing power!

Uber Profits For Angel Investors

As we covered in last week’s Market Wrap, Uber has had an unremarkable start to life as a publicly listed company. Much ink has been spilled on how Uber is a perfect example of why investing in IPOs is fraught with danger. Although Uber may not be a good investment today, we can’t say the same about Uber in 2010! The initial investors in Uber have earned more than 496,000% as of last week!

image

Don’t Be Willy-Nilly!

As we’ve previously covered, judges are granted a large amount of discretion when determining the intentions of those who have passed away with no formal will in place. Two years ago, the Queensland Supreme Court determined that an unsent text messagesigned off with “my will :)” constituted a legally binding will. Another case in NSW saw the Supreme Court decide that notes dictated in hospital (which were not witnessed nor signed by the deceased) constituted a legally binding will.

If you don’t want your estate to be subject to lengthy litigation and the whims of the judicial system, it is best to have a comprehensive will in place. You should review your will at least every three years, or whenever your circumstances change significantly. Please contact your adviser if you’d like to review your will.

Name That Line!

Lawrie wanted $180 for ergonomic chairs! Somebody please give him a call and tell him he’s dreaming!

image

But what’s this classic Arnie line?

image

Tweet of the Week

Where can we find one of these?!?!

image

Video of the Week

Here’s Miles “Smiles” Taylor, who has cerebral palsy, deadlifting twice his bodyweight (a common benchmark for strength). His slogan “I have cerebral palsy, cerebral palsy doesn’t have me”

Some weekend motivation for all of us!

Jonathan Hoyle, CEO & Nicholas Stotz, Investment Analyst

Stanford Brown

View More Articles

Join the Stanford Brown Family

Subscribe to our mailing list to receive the latest news and updates from our team. You will also recieve a free copy of our whitepaper 'The Ten Golden Rules of Investing.'

Successful. Thank you for joining Stanford Brown's mailing list.