| Welcome to the September issue of the Select Wealth Management Dashboard Newsletter. The past 30 days have seen the anniversary of some fairly significant events, so in this month’s newsletter I want to look at these in a bit more detail.
The first of the notable anniversaries was 9/11. I find it difficult to reconcile that this event occurred 17 years ago. I can vividly remember waking up that morning and hearing the news, turning on the television and then watching with horror as the second plane hit the South Tower. In many ways it seems like yesterday to me. But 17 years have passed. That means that there is a whole generation of kids now who have grown up having not lived through that event. They will never have the association of anger, fear, disbelief and loss that their parent’s generation suffered – and in many cases still harbour. When I reflect on this event, it casts some light and understanding on some of the international politics you see around the world at the moment. The rise of Nationalism and populist politics - Trump, Brexit, Giuseppe Conte, trade wars – could possibly be attributed in some part to this (and similar) events. The pendulum of International politics seems to have swung extremely to the left or right, with very few voters left in the “moderate centre”. Supporters of Brexit or Trump are passionate supporters, and those opposed are passionate opposition. Significant events like 9/11 create deep wounds that take generations to heal. Perhaps the new generation voters coming through will have a more moderated view of the world and move back towards the centre. The second of the major anniversaries was the collapse of Lehman Brothers. On 15 September 2008 (10 years ago), Lehman Brothers Bank made history by becoming the largest ever bankruptcy. At the time, Lehman Brothers held $600 billion in assets – mainly mortgages against property in America. However, their poor lending practices coupled with significant falls in property values resulted in the bank going bust. This remains the largest ever bankruptcy in history by some margin. The second largest company ever to go bust (Washington Mutual) was less than half the size of Lehman brothers. This really was a monumental moment, and anyone who worked in the banking, finance or investment services sector will remember this event clearly. I would like to think that the wounds from this event are still fresh enough that the current group of bankers remember that poor lending and credit practices result in bad endings. I believe that these lessons have not been forgotten – yet. The third anniversary is not so much an anniversary, but it is a day that people will commemorate in the future. On 29 September, the current “bull market” in the S&P 500 became the longest running bull market in history. What is a bull market I hear you ask? Well, a bull markets is defined as a rally that at no point is derailed by a 20% decline. On 29 September, the S&P500 (American share market) had rallied 3,453 days without falling in value by more than 20%. There are some interesting observations about this bull market to me though. Firstly, it was preceded by the Global Financial Crisis which resulted in a period of 13 years of no return from the S&P500 – the longest ever period without return from this market. This really was a significant event (refer Lehman Brothers) also known as “the great recession”. So it is unsurprising that a reversion to the norm might take a bit longer than usual… Secondly, the S&P500 came close to falling by 20% on several occasions during this bull market. It fell by 17% in 2011, by 15% in 2010, 14% in 2015 and 10% as recently as February this year. So the fact that it is the longest bull markets is a bit of a technicality. Another 3% fall in 2011 (which is really insignificant in the scheme of things), and we wouldn’t be having this conversation. Also, whilst it is the longest in duration, it is not the biggest ever bull market. The S&P500 has rallied just over 300% in this current bull market cycle, whereas the largest ever bull market rally was 495% (DOW Jones from 1921 to 1929). The annual growth rate of this bull market has been modest relative to previous bull markets too. The growth rate through this cycle has been 16.7% per annum, compared to the average of previous bull markets of 19.04% per annum. In fact, the growth rate of 16.7% through this cycle is not wildly dissimilar to the average return of the S&P500 since inception (including all bull and bear markets) of 12.25% per annum. So in many ways this has been a relatively “slow and steady” bull market by historic standards. There seem to have been several headlines in the mainstream media about a pending market crash (more than usual anyway – there are always headlines). I imagine this might have something to do with the fact that we are in the longest ever bull market - predicting a crash is an easy topic and gets plenty of attention. But it is important not to get too caught up in “headline investing” – it inevitably results in poor outcomes. Here is a sample of random headlines I picked from the past decade along with the actual outcomes that followed:
As you can see, “headline investing” can be a dangerous game. In terms of the markets over the past 30 days, there has been significant activity. Of particular interest to me is the divergence between markets. Some markets were up very strongly (New Zealand up 4.8% and America up 3.2%), whereas other sold off aggressively (Hong Kong down 5.7% and London down 4.3%). It’s a similar story with currencies where the NZ$ weakened significantly against the Euro and GBP, but strengthened against the AUD$. This emphasises the importance of a diversified portfolio – having a broad exposure to many markets, currencies and assets will smooth the ride when there are periods of divergence like this. It is also worth noting that since the Reserve Bank of New Zealand came out with a statement about interest rates likely to stay lower for longer, mortgage and deposit rates have both fallen – particularly 3, 4 and 5 year rates. The carded rate for a 5 year term deposit is now a meagre 3.8% before tax, and you can get a 3 year fixed rate mortgage for under 5%. Despite the low mortgage rates, the average house price in New Zealand has now fallen for the third month in a row according to QV. Coincidentally, there was an article published in the Financial Times on 17 August with the headline “New Zealand bans foreigners from buying homes”, and this was the fourth most read article for that day. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, the 30 September quarter is drawing to an end, so you will be receiving your quarterly performance report early next month. Keep an eye out for those. 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 report that after a slow start to the campaign, we are back on track and I am confident that we will reach our target of $2,500 by the end of the year. As always, thank you 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.