Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 298

Cuffelinks Firstlinks Edition 298

  •   22 March 2019
  •      
  •   

The Reserve Bank has not moved the cash rate since 3 August 2016, which suggests its website might be struggling for a bit of action. But the cash rate is not the only policy tool in its kit bag, as it can opine on almost anything. In recent weeks, two issues have caught widespread attention. 

In the first, a Reserve Bank paper on Australian housing fessed up that:

"We find that low interest rates (partly reflecting lower world rates) explain much of the rapid growth in housing prices and construction over the past few years. Another demand factor, high immigration, helps explain the tight housing market and rapid growth in rents in the late 2000s."

It's almost an admission that the reductions in the cash rate, twice in 2015 and twice in 2016, were steps too far. The FOMO pushed up residential property prices until the mid-2017 peak, which is now inflicting pain as recent buyers fall into negative equity or struggle to settle amid falling prices. There's also less cash rate firepower to stimulate the economy as it slows.

The timing on the second paper, this one on climate change, appears spot on, catching a mood perfectly. It feels like a tipping point when politicians such as Tony Abbott (who reversed his call for Australia to leave the Paris Accord) and Peter Dutton (who refused to support the government building a coal-fired power station) change their tune just before an election, realising that most voters have accepted the dominant science. One of the Reserve Bank charts shows wind and solar are finally competitive sources of electricity, promising a strong future for solar when combined with storage capacity. It's a good story in this land of sunshine.    

 

 
The latest Essential Vision poll shows the majority of Coalition voters and those over 55 believe climate change is caused by human activity, with young people leading the way in their views.  
 


For investors, including those who reject the climate change science, it's time to recognise the impact on portfolios. On the weekend, the AFR reported the first chair in 2008 of the UK Climate Change Committee, Lord Adair Turner, now saying:

"It's so embarrassing. I mean, we knew the price of wind and solar was coming down but we thought it might come down at, you know, 20% a decade or something like that. Solar has come down by 90% or so, wind has come down by 70%."  

Two articles this week look at ESG investing. Use the Have Your Say section for comments.

Moving on from the franking credit debate, we look at Labor policies on negative gearing and capital gains. Noel Whittaker reports on a housing policy roundtable he attended, and he is especially concerned about the price impact when a 'new' property becomes 'established'. However, Richard Holden argues negative gearing creates intergenerational inequality and financial instability. The debate highlights how investors should watch the interlink between policies, as switching to assets without franking might generate more capital gains which might be taxed at a higher rate than in the past.

On investing, Oscar Oberg sees better growth prospects in offshore markets as Australia slows, and Ilan Israelstan reports on ETF research showing changes in investor and asset composition. Pablo Berrutti and Mark Nieuwoudt explain new moves in ESG principles

The big news in asset management this week was Brookfield taking a majority stake in Howard Marks' Oakfield Capital, so it's instructive that Jonathan Rochford reviews the latest Marks book on market cycles. Did Marks pick the top of the value cycle for his firm?

I met with Nobel Laureate, Robert Merton, a few years ago, and he espoused the merits of reverse mortgages as part of the retirement income solution. Most Australian banks have exited the product, and Joshua Funder makes the case for a revival of home equity access

We recently ran a 'face off' on the use of government bonds in all portfolios, and Warren Bird has a short reply as a referee after judging both cases.

This week's White Paper from Vanguard examines How Australia Saves. It includes great insights into super defaults among millions of Australians. Plus we have the monthly report from BetaShares on ETF trends after a record month for growth. Also, many new LICs are coming this year, especially with an income focus, although the Bell Potter report below suggests their total returns have lagged the broad market in 2019 due to discounts to NTA widening. 


Graham Hand, Managing Editor

 

For a PDF version of this week’s newsletter articles, click here.

 


 


 

Leave a Comment:

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.