| Welcome to the first issue of the Select Wealth Management Dashboard Newsletter for 2018. I hope you had a magical Festive Season and that 2018 is a great year for you.
The year starts with a little milestone for me as I realise that this is the 100th edition of this newsletter. That's over 8 years' worth – where does the time go! You would think that after 8 years I would have learned to stop chasing the wind by doing predictions in January for the year ahead. It's a fool's game, and sure to end with egg on my face in 12 months' time. But it is also tradition (and a lot of fun too), so I'll have another crack and we can all reflect in a year's time (and have a little chuckle together if I'm way off the mark). Here goes: 1. I'll start with something that dominated the financial headlines in 2017, and that I think will do the same again in 2018 – Bitcoin. Bitcoin is the crypto-currency that has exploded in value over the past 12 months. By exploded, I mean that it went from US$891 per coin in Jan 2017 to US$16,800 per coin now. I'd be lying if I said that I fully understand the value of Bitcoin (I'm not sure anyone really does), but I think this year will be a critical year for its future. Bitcoin has attracted the interest of markets, the public and now the law makers. Central Banks and Governments around the world are grappling with how to deal with this. They may regulate or even potentially ban it. I expect that 2018 will see this bubble burst, and that the value falls significantly by year's end. 2. I predict that 2018 will see some more prominent headlines about Brexit again. Brexit dominated world headlines for months immediately after it occurred in June 2016, but then went quiet during 2017 as the mechanics of it slowly got under way. 2018 will see negotiations heat up and the winners and losers will become clearer. I still believe that there will be some pain here, and the losers (whoever they may be) will make some noise about it. 3. Inflation is an interesting one for me. The most current inflation reading for New Zealand is 1.9% per annum (September 2017). This is historically low, with the average since 2000 being 2.4% per annum, and the average between 1970 and 1990 as high as 11% per annum. Economists the world over have been grappling with why inflation hasn't increased in recent times (particularly given that we are at record low interest rates which usually stimulates inflation). But my view is that inflation will remain low for a while longer yet. This is because I believe that technology is forcing prices down. There are so many examples where technology has a direct impact on consumption or price. Think of services like Air B&B which has driven down the cost of holiday accommodation, Uber with Taxi fares, or Netflix with the cost of subscription TV. Cars are much more fuel efficient so the demand for petrol has fallen. TradeMe means that people recycle and buy cheaper second hand goods (as opposed to new goods). Online shopping in general has driven down the cost of most consumer goods – in particular clothing. So I think low inflation is here for a while longer. Look for a similar number (1.9%) by the end of the year. 4. That leads nicely into interest rates. Interest rates the world over are off their lows of the past few years, but still relatively low compared to long term averages. The New Zealand Official Cash Rate spent the whole of 2017 at 1.75%, while the FED rate in America moved from 0.50% to 1.25%. I imagine that the "normalisation" process in America will continue, and this rate will increase to about 2% by the end of the year (representing 3 rate hikes of 0.25% each). However, I can't see much movement in New Zealand's OCR – perhaps 1 increase leaving us at 2% also. 5. I've said it before, I'll say it again. I think the NZ$ will weaken (modestly) against major trading partners over the next 12 months – the exception being the British Pound which could go anywhere (refer Brexit). Most notably, I'll take a stab with a prediction of 67 cents against the US$ by years' end (currently at 72 cents). 6. I can't not make a mention of Trump... His Tax Reform Bill was signed into law on 22 December 2017 and is due to be enacted in February this year. It will see the corporate tax rate slashed from 35% to 21%. The rational is that the lower corporate tax rate will make America competitive relative to other countries and repatriate many companies (particularly manufacturing and services) back to America. Supports of the reform argue that this will create enough growth (and in turn more tax) to more than pay for itself. Detractors argue that the loss in tax revenue will see American debt increase by up to $2 trillion over the next 10 years. Time will tell who's got it right. Either way, it's a pretty bold role of the dice by Trump. This could either be the jewel in his crown of "Make America Great Again", or a nail in his coffin. I doubt we will know definitively which it is by the end of 2018, but we might have some indication by then. 7. My sporting prediction for the year – football world cup in Russia. Watch out for Germany and Spain. In terms of my beloved Phoenix, everyone has written them off this year (as had I a month ago). But I have this funny feeling in my waters. I think they may just pull a rabbit out of the hat and qualify for the play-offs this year – against all expectation. 8. Finally a prediction on the markets. Fact – "markets go up, and markets go down. We just don't know in which order". What we do know is that markets have been going up for a long time now, and every year that they go up means that they are 1 year closer to going down. That being said, I don't believe that 2018 will be the year that they go down. I think that we will see a correction of more than 10% at some point during the year, but we will still end the year modestly ahead of where we started. Well, now that I have poked my head well above the trenches, let's have a look at a list of the most common New Year's resolutions for 2018 for a bit of fun: ✓ Eat healthier ✓ Get more Exercise ✓ Save more money ✓ Focus on self-care (eg get more sleep, focus on appearance) ✓ Read more ✓ Make new friends ✓ Learn a new skill A curious bias towards personal health – which is a good thing. I saw an interesting quote from a leading researcher (Dr Sneh Khemka) which claims that "Lifestyle related diseases are 'In'; infectious diseases are 'out'". Our resolutions seem to suggest that we are trying to address this. Governments are taking notice of this too. In France, Emmanuel Macron's new government is banning Smart Phones in schools this year as a direct response to research which suggests young kids are suffering adverse health effects due to too much "screen time". And a good quote that sums up my investment philosophy. "Get rich slowly. It makes a great deal of sense to compound wealth steadily rather than going for bust. Wouldn't you rather be sure of a good result than hopeful of a great one?" Here are the numbers: |
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Finally, an update on our Giving Back Program. As you know, we have just completed a very successful campaign with the Wellington Free Ambulance (thanks again for all your support and referrals). For the first 6 months of 2018, we have decided to work with an individual again (as opposed to an organisation). We will be helping Warwick and his family (wife Jacquie and five year old son Lachie) raise money to get the treatment he desperately needs to treat his Multiple Sclerosis. MS is devastating. It robs sufferers of their energy and their health. The daily reality is fatigue and uncertainty. MS robs families of fun and a future. Lachie loves rugby. He'd love to play with his Dad in their backyard – but he can't. Warwick struggles to walk, much less run, so Lachie says, "Dad, you stand there. I'll run around you." It's hardly rugby! Lachie wants to know when his Dad's sore leg will get better. It's hard to tell him it's not that kind of sore leg. The best hope for Warwick is a Stem Cell Treatment that is available in Russia. Warwick has booked his trip and is headed away in May 2018 for his treatment. But the cost is significant – meaning the family are raising as much money as possible but will also have to take out a mortgage to cover the cost. Isaacs Financial Planning wants to help, and hopefully we can raise a meaningful amount to contribute to this worthy cause. We'll keep you posted with progress throughout the year, but in the meantime you can follow progress at www.mifinancialplanning.co.nz/giving-back.html . You can also make a donation directly to Warwick's cause if you want on his Give a Little page at givealittle.co.nz/cause/lets-send-warwick-to-russia-for-stem-cell-hsct . Thanks for taking the time to read this (rather lengthy) edition of our newsletter. I'll close by wishing you a fantastic 2018, and I look forward to seeing you soon. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.