Thursday 29 October 2020

Has the other shoe finally dropped?

It looks like the US stock market might have finally woken up to the fact that Covid-19 isn't going to "go away real soon" and that simply ignoring it and refusing the "shutter the economy" doesn't mean that life can go on as normal (with minimal economic impact). The reality is that if you enforce strict lock-downs and close high risk businesses when there is a surge in cases, you get an immediate economic hit, but you have a chance to get the spread under control and loosen the controls within a few weeks (or months). But if you let "business as usual" continue during a surge in Covid-19 cases, the health situation will eventually become so dire (with hospitals reaching capacity and deaths increasing rapidly) that people decide for themselves to stay home and "shelter in place". The end result is still a big hit to economic activity, but you get their with an out-of-control pandemic and it takes a lot longer to get things under control.

It looks like the US stock market has woken up to this reality and realized that an effective vaccine might still be months away, and even then it will take many more months for enough people to get vaccinated for the pandemic to be brought under control. So the US economy is likely to suffer for a prolonged period (no "V-shaped recovery") which makes the stock market performance since March "irrational".

The ASX200 is currently down by about 11% compared to the start of 2020, whereas the S&P500 is currently about 5% higher. The Australian market usually goes down where there is significant weakness in the US stock market, so we may see a good buying opportunity in the Australian stock market in coming months if the US market finally 'capitulates' to the pandemic's economic impact.

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Saturday 24 October 2020

Betting on the US election

It's quite surreal watching the US Presidential election campaign from afar - the disconnect between much of what the US President says and the reality of the terrible loss of life being experienced due to Covid-19 in the US does not seem to be reflected in the voting intentions showing up in US opinion polls. One would think that in this sort of situation a sitting President would be much further behind than the ~8% the polls suggest. There must be a huge number of voters that simply vote Democrat or Republican regardless of who the candidate is or the current economic/health situation or the candidates policy details (not that US Presidential elections appear to give much weight to actual policy platform details).

The voter intention polls got the outcome of the last election very wrong, so the current poll numbers need to be treated with caution, but I still find it hard to believe that Trump can claw his way back into contention this late in the campaign, especially as a large portion of US voters have already cast their ballot via pre-polling. So I decided I'd place a small wager ($10) on Biden to win the 2020 Election, and I also put another $5 bet on Biden getting between 49-52% of the popular vote, and another $5 on him achieving between 52-55% of the popular vote.

We'll see how it turns out, but I'm guessing there might be a small 'shy Trumper' effect that reduces the actual popular vote for Biden down to about 51-53% in the final wash-up.

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Friday 23 October 2020

The new Australia Vanguard online access really, really sucks!

I've been a Vanguard customer for decades, and currently have both personal investment and our SMSF investments in some Vanguard Index Funds.

Up until this week, we have perfectly good online access to our accounts, able to access transaction history, daily unit prices, and pdf copies of statements etc.

Then they forced all existing retail customers onto their new 'personal' platform, and closed the existing funds to new investments. So, after wasting time 'activating' my new SMSF login using a customised link they sent us, and having to provide three different types of ID details (even though we are existing account holders and provided ID when we opened the accounts, and already had online access via their old platform), it turned out that I'll also have to provide a certified copy of one of the IDs!

Given Covid-19 I'm not going to queue up somewhere to get a photocopy of my ID and then get it certified by a JP (I'm a JP but aren't allowed to certify copies of my own documents - go figure). So I've sent in a jpg of my new digital driver licence (which in NSW the police are happy enough to take as ID - they simply scan the QR code). Authorised businesses can also go online to check the details for a drivers licence number, but Vanguard obviously hasn't bothered to do that (they did have some ID checking built in to the account activation process, but it apparently didn't work - probably because they ask for your name in one screen (where I entered my full name) and then ask separately for middle and surname (and there was no option to 'go back', so it probably failed the automated ID checking process. And no option to try again, or fix typos etc.

The new website is also a total waste of space - the unit price data is harder to navigate to than in the old website, and the whole thing seems to have just been 'dumbed down' to make it mobile phone friendly (and doesn't display well on  laptop). Modern website design autodetects whether the user is browsing using a phone or larger screen, and automatically send appropriate html for the device.

The new system also has only replace having to send in faxes (or mail) for investment instructions (eg. switch from one fund into another) with the ability to send forms electronically via their 'secure message' system once you log in to your account. Most modern financial product websites allow you do transact securely online once you have logged in - eg. switch fund options using an online tool, NOT still requiring investors to fill in forms and send them in to be processed!

Overall, the new Vanguard website and personal investor fund is highly disappointing, and a real pain for existing investors to switch to and activate...

Not surprisingly the new website is displaying a message that they are taking 5 or more days to respond to queries and have long delays on phone enquiries - apparently a lot of their customers aren't happy with the migration.

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Tuesday 13 October 2020

The sexist double standard applied to female politicians

It's been a few years since Australia had its first Female PM, Julia Gillard. While I generally prefer have a Liberal government to a Labor government (for policy reasons), there was nothing particularly bad about Julia Gillard as a PM. But it was amazing the amount of criticism that was simply rampant sexism (eg. rather than "Dump Gillard" we had protestors waving "Ditch the Witch" placards).

The latest example of the double standard often applied to female politicians is the criticism of the NSW Premier Gladys Berejiklian (who is female and single) for having a 'close personal relationship' with a former NSW politician who was found to be abusing his position for (attempted) financial gain, and was dumped and left politics in 2018 after a previous ICAC investigation. There is no evidence (yet) that the NSW PM acted improperly on a professional level, just that she had a relationship with someone known to be 'shady'.

Yes, in an ideal world politicians would only have relationships with persons of impeccable character, and would immediately dump anyone that they found had the slightest character flaw. But is this really expected of male politicians? No. So why expect female politicians to apply higher standards to what are, after all, private considerations regarding who they have a relationship with.

It may yet turn out that the NSW Premier acted improperly (eg. gave Darryl Maguire information or support in his dodgy business dealings) and has to exit politics, but so far it appears that she has done nothing wrong herself. The days of the worth of a female professional being at all affected by who their partner is should be long gone. Gladys is doing a great job as NSW Premier during the Covid-19 pandemic, and who she is (or isn't) dating should be irrelevant.

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Sunday 11 October 2020

Are the 2020 Budget tax cuts 'fair'?

Some people (such as the welfare lobby) have argued that the tax cuts brought forward as an economic stimulus measure in this year's Australia budget are 'unfair' as the largest benefit is received by those on higher income levels, and there is no benefit to those on low or no income (such as the unemployed).

Of course the fundamental reason for the unemployed and low income workers getting no benefit from this tranche of tax cuts is that you can't benefit from a tax cut if you already pay no tax!

But looking at the criticism that these tax cuts provide the biggest benefit to those on higher incomes, one has to look at the cuts not just in dollar terms, but as a percentage change in the amount of tax paid:

Taxable Income        FY2018                    FY2021                     Change in Tax

                              $ amnt  % change     $ amnt  % change     $ amnt  % change

$40,000                   $4,947     12%         $3,887      10%         -$1,060     -21.4%

$60,000                   $12,147   20%         $9,987      17%         -$2,160     -17.8%

$80,000                   $19,147   24%         $16,987    21%         -$2,160     -11.3%

$100,000                 $26,632   27%         $24,187    24%         -$2,445     -9.2%

$120,000                 $34,432   29%         $31,687    26%         -$2,745     -8.0%

$140,000                 $42,232   30%         $39,667    28%         -$2,565     -6.1%

$160,000                 $50,032   31%         $47,467    30%         -$2,565     -5.1%

$180,000                 $57,832   32%         $55,267    31%         -$2,565     -4.4%

$200,000                 $67,232   34%         $64,667    32%         -$2,565     -3.8%

This shows that the biggest percentage reduction in tax burden is flowing to those on lower incomes.

Overall, it seems a bit churlish on those already paying a lot less tax than they receive in benefits (e.g. free schooling, medicare, NDIS, JobSeeker etc. etc.) to complain that those who foot the bill for their benefits will be getting a small reduction in the amount of tax they pay.

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Thursday 8 October 2020

How the budget provides business stimulus at no cost (over time)

With Covid-19 having dumped Australia into its first recession in decades, this week's Federal budget went to great pains to provide massive amounts of stimulus to business in order to protect as many jobs as possible, and to provide the means for businesses to survive and grow the economy (as soon as a Covid-19 vaccine becomes widely available and things such as immigration, tourism and foreign students can start to recover). Two of the key strategies in the budget to support and stimulate business were the carry backwards of business losses (i.e. rather than having to record business losses this year and deduct them against future profits (if the company services), businesses will be able to offset losses this year against previous year's business income, and get a tax refund of previous taxes paid), and to be able to immediately 'write off' business expenses (rather than apply the normal depreciation rates, which make the expense a deduction over the working life of the item). The SMH has a good article providing some more details about these budget measures.

What is especially smart about providing business with immediate assistance via these budget measures is that although they provide an immediate cash flow boost to business in this financial year (when its needed most), they will actually not cost the government much over time. The reason being that unlike government expenditure on stimulus measures such as business grants, increases JobSeeker payments, or building vast tracts of public housing, these measures are being paid for from money that the government would have had to pay back to business anyhow - just in future tax years under normal circumstances.

So, rather than business losses this FY reducing tax takes in future years, the government is refunding immediately some tax collected in previous years. But as those losses will have been used up this year, future business tax revenue will increase by this same amount. They are simply moving tax revenue and refunds from one financial year (or years) into another. No net tax cost to the government - just adjusting its timing.

And rather than business expenses this year reducing business taxes over several years, the expense will reduce tax liability this financial year in one hit. But the net deduction over the life of the item will remain unchanged.

Overall, a very clever way to provide extra immediate cash flow benefits to businesses this financial year without building it costing the government anything over the long term! Basically businesses will end up with more cash flow to stay in operation and employing people this year, but will pay it back in future years.

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Friday 2 October 2020

Poetic Justice - POTUS and FLOTUS have COVID-19

In an ironic twist to US Presidential election campaigning, Pres. Trump has announced that he and Melania have tested positive to Covid-19, most likely being infected by Trump's close aide Hope Hicks. He'll be in quarantine for a couple of weeks, and might miss the next scheduled Presidential 'debate'.

One can only hope that he does what his doctors recommend, and doesn't self -medicate with hydroxycholoroquine or injects himself with bleach!

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Thursday 1 October 2020

Net Worth: SEP 2020

My monthly Net Worth calculation has been updated in NetWorthShare as at the end of September. The stock markets got a bit wobbly, which adversely affected my NW. Our estimated house price showed a modest rise, despite the overall Sydney real estate market starting to show weakness. The extent and duration of any decrease in the value of my real estate assets will depend on how long immigration and the economy remains impacted by Covid-19. If a safe and effective vaccine for Covid-19 becomes widely available during early 2021, things may start to pick up by the middle of next year. My net worth figure decreased by $11,805 (-0.44%) overall, to $2,641,515.

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