Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 401

Welcome to Firstlinks Edition 401

  •   31 March 2021
  • 4

Unless there is a remarkable economic recovery or a rapid burst of inflation, we will have low interest rates for a very long time. It's doubtful we will see short-term rates above 5% for at least a generation, maybe a lifetime. It's a weird thing to say for someone who spent his first decade in money markets with double-digit rates and a bank bill rate of 17.5% in 1990.

The Reserve Bank of Australia (RBA) has already promised the 3-year bond rate will remain at 0.1% until at least 2024, but there is limited scope to increase rates after that. Home buyers are not worrying as much about the prices they pay as the amount they can afford in repayments. What looks fine in the household budget at 1.75% is a severe strain at 3.75%. For our older readers who endured borrowing rates of 15% and more, anything below 5% would look like a dream, but the amounts borrowed these days supercharge the debts of 1990. (Source: RBA Chart Pack, March 2021).

Putting further doubt into any potential for rate rises was RBA Deputy Governor Debelle, who told a Senate Committee last week that there will be no rate increases until the unemployment rate falls "to a number in the low 4s or even in the high 3s". It is currently 5.8% but with an estimated 150,000 likely to lose their jobs with an end to JobKeeper last weekend. The RBA's rationale is that it wants more wages growth to achieve its inflation target of 2% to 3%.

As David Harrison, CEO of the Charter Hall Group, said last week:

"I cannot see a long-term rise in inflation. I talk to chief executives who occupy Charter Halls' $50 billion portfolio. No one I talk to predicts a wage breakout and technology will continue to be a wage deflator."

Notwithstanding, the trillions of dollars of economic stimulus injected by governments in the last year would normally signal too much money chasing too few goods, and therefore inflation, so it needs to be watched carefully.

High-profile experts on superannuation...

We had some great reactions to Bernard Salt's article last week, and we keep the big names coming.

One of the features at the COTA Policy Forum we previously reported on was the appearance of the three members of the Retirement Income Review together for the first time. Discussion clarified some of their thinking which is upending super policy. Dr Deborah Ralston said many retirees do not know how to manage their super:

“So what are people doing with their money? There are quite a number of people who get to retirement and, in the absence of any guidance or advice, they simply take the money out, pay a few bills and put it in a term deposit. Other people get to retirement and they think, ‘wow, I’ve got a little nest egg for emergencies’ so keep it in accumulation and they don’t even transfer it into an account-based pension. Others do transfer it, but almost invariably draw it down at the minimum rate because – and this is the thinking – we need to make it last.”

Dr Ralston is increasingly influential in the retirement income debate, so we are delighted that she is writing exclusively for Firstlinks in developing her thoughts on access to the equity in housing.

Similarly, Dr David Knox is highly respected in superannuation circles, and he presents a radical new idea to solve the intractable arguments about whether the Super Guarantee should increase from 9.5% to 12%. It balances current emergency needs with future living standards.

Still on super, Julie Steed provides an excellent summary of the threshold changes coming on 1 July 2021. I must admit I did not realise the changes, and therefore the opportunities, were so extensive.

And please forgive us if we use the shorthand to refer to Senator Jane Hume as the Minister for Superannuation when, in his scramble to address women's issues, Scott Morrison has now given her the title of Minister for Financial Services, Superannuation, the Digital Economy and Women’s Economic Security.

An Easter look at buns and funds

When companies don't make profits (sometimes called earnings), the stock market turns to other ratios because the Price to Earnings ratio (P/E) is infinite. The market needs something to justify the excess. Popular for growth stocks is Price-to-Sales. Think about that. There's no profit but the company is valued at at a price that is a high multiple of the revenue it receives, ignoring what it costs to make the revenue.

In the US, of the top 1,500 listed companies, over 200 do not make a profit, with a market capitalisation of over $2.5 trillion. That's by far the most for unprofitable companies ever. When we talk about market excesses, it's not really the FAANGs which are the issue. It's hundreds of other companies that will never justify their market value.

This week, we look at the dichotomy between the fund managers who look for companies with consistent earnings in predictable ways, and the growth managers who back the disrupters. Like selecting your hot cross buns, there is no single correct answer to which is best, as it depends on what suits your taste and appetite.

We highlight not only some respected fund managers with recent underperformance, but also Cathie Wood’s NYSE-listed Ark Innovation ETF, where the median Price-to-Sales ratio for her portfolio companies is 22 versus 2.5 for the overall stock market.

Then Edward Glyn delves into fund flow data to show that active funds are attracting far more support versus passive than is popularly believed, especially in Australia. We are either leading or lagging global trends.

Richard Dinham concludes his series on retirement with a look at five strategies which can be personalised based on risk appetite, capacity and needs.

If articles on sustainability have started to sound repetitive to you, as we must by now accept the implications of ESG on companies, then Robert Almeida and Robert Wilson bring a fresh perspective. It's not all a bed of roses in which all companies will happily flourish.

This week's White Paper from Western Asset Management (part of the Franklin Templeton group) focusses on the threat of inflation, which will not only have a significant impact on long bonds, but valuations in the stockmarket.

And finally, because most readers do not return to check the prior week's comments, we are introducing a new feature: Comment of the Week. Here we share feedback from one of our readers, Roy Taylor, on a life well lived, in response to Bernard Salt's article:

"I'm 77 and worked 3 hours before school and after school from the age of 10, left school at 15 and never ever worried about getting a job worked full time 60 plus hours a week until 70 and I still do relief work in my industry. Unfortunately there are too many whiners in our country, get off your arse and get out there and into it. I have owned a number of houses during my time, never got interest rates as cheap as now, in the 60s rates were at 6%, I paid 17% in the 80s for home, paid 23% for bank bills for business at that time and I got through ok, bit of hard work never killed anyone. Too many people worry about things that they have no control over, the weather, the planet will give you what it wants to give, not what you want it to do. Just get out there and give life a go, it's the only one you ever get, be happy mind your own business, get married have kids, get divorced get married again buy cars, boats, aeroplanes, drink eat laugh with your friends, just enjoy life, and all of the ups and downs because you will get plenty and you will be dead before you know it."

Graham Hand, Managing Editor

Latest updates

PDF version of the Firstlinks Newsletter

ASX Listed Bond and Hybrid rate sheet from NAB/nabtrade

Latest LIC (LMI) Monthly Review from Independent Investment Research

Indicative Listed Investment Company (LIC) NTA Report from Bell Potter

Plus updates and announcements on the Sponsor Noticeboard on our website


April 05, 2021

Roy Taylor and D.R. Watts, I am in awe of you both, and can only ponder "Did I do enough? Did I make a big enough contribution?" I quit my career at 65, mainly for the benefit of the young people in the organization. Our city was in the economic doldrums, and by me working on would only deprive young people and fathers and mothers of young children of work and the opportunity to improve their lot, and prosper. I'd had a good run, had acquired enough wealth for my wife and I to live comfortably, independent of outside assistance, and most of all both of us still enjoyed good health. I didn't retire. I changed career to home maintenance, landscaper and gardener just of our own property, but most of all because of my mistrust of financial planners, I became a Fund manager of our own SMSF. I'm almost 70 and was able to acquire our nest egg by study and hard work. At one stage working a full time job and two part time jobs, when unemployment was supposedly sky high. Why was I able to find work? As someone who'd worked their way around Australia said to me back then "The only job you can't find is the one you don't want". My wife's time was spent on home duties for the purpose of raising our two children. We had cause recently to visit a Social Security centre, if only to change our postal address at Medicare. It gave me the creeps, seeing able bodied people lining up for their "entitlement", including one women trying for a disability pension and her daughter a carer's allowance. Thankfully, they both got the short shift. I pray that I'll never become dependant.

April 01, 2021

Sadly the sage reflections will fall upon stony ground, particularly among the woke crowd who still believe they are entitled to .........well anything and everything.

April 01, 2021

Mr Taylors comments are well received. Like him I worked full time all my life, retired at 80, as a self funded retiree, and despite my friends comments " winging Pom" ,dairy farmer, council worker CSIRO, school teacher, concrete contractor, bread carter, factory manager, I have enjoyed life, getting my 60 minutes of distance run from every hour, and now at 88 am trying to divest myself from some of the charity offices I took on when I retired so that I can devote more time to my great grandchildren.
Life is what you make it, no one or government owes you a living, if you do not want to work do not expect to eat, and above all enjoy life, it is the only game in town.

April 01, 2021

Thanks for sharing!


Leave a Comment:


Most viewed in recent weeks

House prices surge but falls are common and coming

We tend to forget that house prices often fall. Direct lending controls are more effective than rate rises because macroprudential limits affect the volume of money for housing leaving business rates untouched.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

100 Aussies: five charts on who earns, pays and owns

Any policy decision needs to recognise who is affected by a change. It pays to check the data on who pays taxes, who owns assets and who earns the income to ensure an equitable and efficient outcome.

Three good comments from the pension asset test article

With articles on the pensions assets test read about 40,000 times, 3,500 survey responses and thousands of comments, there was a lot of great reader participation. A few comments added extra insights.

The sorry saga of housing affordability and ownership

It is hard to think of any area of widespread public concern where the same policies have been pursued for so long, in the face of such incontrovertible evidence that they have failed to achieve their objectives.

Two strong themes and companies that will benefit

There are reasons to believe inflation will stay under control, and although we may see a slowing in the global economy, two companies should benefit from the themes of 'Stable Compounders' and 'Structural Winners'.

Latest Updates


Stop treating the family home as a retirement sacred cow

The way home ownership relates to retirement income is rated a 'D', as in Distortion, Decumulation and Denial. For many, their home is their largest asset but it's least likely to be used for retirement income.


Hey boomer, first home buyers and all the fuss

What is APRA worried about? Most mortgagees can easily absorb increases in interest rates without posing a systemic threat to the banking system. Housing lending is a relatively risk-free activity for banks.


Residential Property Survey Q3 2021

Housing market sentiment has eased from record highs and confidence has ticked down as house price rises slow. Construction costs overtook lack of development sites as the biggest impediment for new housing.

Investment strategies

Personal finance is 80% personal and 20% finance

Understanding your own biases and behaviours is even more important than learning about markets. Overcome four major cognitive biases that may be sabotaging your investing and recognise them in others.

Where do stockmarket returns come from over time?

Cash flow statements differ from income statements and balance sheets, and every company must balance payments to investors versus investing into the business. Cash flows drive the value of the business.

Fixed interest

How to invest in the ‘reopening of Australia’ in bonds

As Sydney and Melbourne emerge from lockdown, there are some reopening trades in the Australian credit market which 'sophisticated' investors should consider as part of their fixed income portfolios.


10 trends reshaping the future of emerging markets

Demand for air travel, China’s growing middle-class population, Brazil’s digital payments take-up, Indian IPOs, and increased urbanisation are just some of the trends being seen in emerging economies.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.