| Welcome to the November issue of the Select Wealth Management Dashboard Newsletter. The end of the year is nearly upon us, and I always find this time of year a mad rush to the finish line. It’s almost time to start thinking about ordering the Christmas ham or turkey already!
The biggest talking point over the past 30 days has been the US mid-term elections. These elections have had a lot of air-time, and you would most likely have seen or heard a news headline regarding the matter. I have always found the American political system quite complicated, and there are many intricacies that you would need to study to get a full handle on it. But the basic concept is that you have a Senate (also known as the “Upper House”), and a House of Representatives (also known as the “Lower House”). These 2 arms of government are responsible for passing all proposed legislation. The key is that both the Senate and the House, along with the President have to pass any particular bill before it can be enacted into law. Leading into the midterm election, President Trump (a Republican) was supported by a Republican Senate and House of Representatives. This put the Republican Party in a very powerful position as it controlled all 3 votes required to pass law – the House, Senate and President. But the midterm elections have resulted in a change in makeup of this power. The Republicans retained the Senate (in fact took a larger majority), but lost the House of Representatives to the Democratic Party. This means that it will be more difficult for President Trump and his Republican Party to enact laws, as he will need to get the support of the Democratic House now. (I can hear the sighs of relief echo around the room as people read this…). Whilst this is a really good check and balance and avoids unilateral power (you need both parties to agree on anything before it can be enacted into law), you can also see how it could result in gridlock and very little being done. There are not too many issues where opposition parties share a common view, so it’s unlikely that too much legislation will be enacted over the next 2 years. In a weird way, this almost plays into President Trump’s hand and might strengthen his position for the next election. You can hear him campaigning “Look at how much we got done in our first 2 years’ when we had the House and the Senate, and how little we got done in the last 2 once the Democrats got involved”. Time will tell, but I think that Trump winning another 4 years in the next election might not be too silly a bet… For now, I imagine the markets will interpret this result as fairly neutral. The fact that there will most likely be very little legislative change over the next 2 years provides some direction and certainty for the market – it’s unlikely that there will be any left field changes that could affect businesses or employees – positively or negatively. The other major political development at the moment is the looming Brexit deadline. As I write, Prime Minister May is presenting her final proposed Brexit deal to cabinet for approval. It is unclear at this stage if the proposed deal will be accepted or not. Most reports suggest that the deal does not favour Britain, and that most ministers have expressed concern or simply rejected the deal already. On this basis, Prime Minister May’s days could be numbered. Either way, it is very difficult to see a good outcome for Britain in the short term here. Their options seem to be either a bad deal, or no deal – neither particularly appealing. I have always felt that this was going to be a nasty divorce – the EU needed to make an example of Britain to avoid other member states considering leaving too. Perhaps this is coming to fruition now. From a market perspective, I believe that this will be contained only to the London Stock Exchange and businesses operating out of the UK. I don’t imagine either outcome will affect broader markets – this has long since been “priced in”. The wildcard is the Pound Sterling though. It’s difficult to pick just how this reacts to the eventual outcome – if at all. So plenty of political activity over the past month. Aside from this, the Australian Reserve Bank, New Zealand Reserve Bank and American Federal Reserve all met in the last 30 days, and in all cases left their cash rates unchanged. In New Zealand, the Reserve Bank Governor (Adrian Orr) said that he expected the Official Cash Rate in New Zealand to remain at the current 1.75% throughout 2019 and into 2020. On the back of this statement, you can now get a one year mortgage for 3.95% (special conditions apply). Pause for a moment and think about just how cheap this money is – you can get a mortgage for 3.95%. Ten years ago this same mortgage cost you 10%. In the late 80s and early 90s it cost you 15%. Now it costs 3.95%! The biggest risk with this is that people perceive it to be a good time to borrow money – it’s so cheap right? Wrong! It’s the best time to pay back money – not borrow it. Think of how much quicker you can repay your debt at 3.95% as opposed to 10%. The risk is that people borrow as much as their incomes allow them to borrow at 3.95%, and then when interest rates increase (which at some point they will), they can’t afford to service the debt. In terms of the markets, the calendar month of October saw a severe downturn in most share markets – ranging between 10% and 20%. So far November has clawed back some of those losses, but there is still a fair amount of volatility. Currency markets have also been very volatile with the NZ$ strengthening against most of its trading partners by as much as 6% against the Euro, 5% against the GBP and 4% against the US$. This seems an appropriate time to remind you that “timing the market” is almost impossible. It requires you to be right twice – when to sell out, and again when to buy back in. Most people don’t get even one of these right – let alone both. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, there is good news and bad. The bad news is that most account balances have fallen since 30 September given the significant sell off in the share markets in the month of October. However, the good news is that our Select Wealth Management portfolios have generally held up very well under the stress, and have performed materially better than the broader markets. It might sound crazy, but we have earned our fee more while your account balance has gone down than we do when it goes up. It’s easy to make money when markets are going up. It’s harder to minimise losses when markets are going down. Finally, a quick update on our Giving Back program. As you may recall, we are working with Te Omanga Hospice for the second half of the year. I am pleased to confirm that we are just about at our target of $2,500, so will be able to make a meaningful donation to Te Omanga to put towards their rebuild. Thank you so much to those of you who have sent referrals of friends, family and colleagues – we really appreciate it. It is your referrals that make a donation to such a great cause possible. You can follow progress at www.mifinancialplanning.co.nz/giving-back.html . Until next time, keep warm and well. 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.