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Monday, 19 March 2012 16:29

The US housing sector turning the corner

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Starting with the bursting of the technology bubble in 2000, the fortunes of the US economy have waned.  Since then, the US has seen two recessions with the last being the worst since the 1930s, a rising trend in unemployment, the bursting of a corporate debt bubble with the tech wreck and the bursting of a housing debt bubble with the sub-prime mortgage crisis. So it’s little wonder  the US share market has been spinning its wheels  in a secular bear market. Some commentators even talk of a permanent decline for the US.

The high level of US public debt, ongoing private sector deleveraging,  less business friendly policies, demographic trends and the absence of extreme share market undervaluation suggest the secular bear market in US shares may not be over yet. That said, it would be dangerous to write the US off. Many did this in the 1970s only to see it roar back with vengeance in the 1980's and 90's .

More importantly, there are some signs of light at the end of the tunnel for the US in manufacturing, oil production and housing. This note takes a look at these sectors, focusing on the latter as housing was the original driver of the global financial crisis.

US manufacturing renaissance

Recently there have been numerous examples of companies setting up manufacturing plants or expanding production in the US over locations in Canada, Mexico, Japan or the emerging world. These include Maserati, Toyota, Honda, Nissan, Kia, Intel, Whirlpool and Caterpillar. In fact for the first time in over 35years, annual growth in manufacturing employment is exceeding employment growth elsewhere in the US economy. The key drivers of America’s manufacturing renaissance are restrained unit labour costs in manufacturing (which have been unchanged for the past 30 years), rising wages in emerging countries, the low US dollar (US$) after a decade long slump, and cheap energy prices helped  by surging natural gas supply. While it’s early days yet, America’s manufacturing renaissance has further to go.

Surging oil production

US natural gas supply has been surging for years resulting in low prices. More significantly, a few years ago US oil production quietly bottomed and is now on the rise again thanks to a surge in shale oil production. The US has huge reserves of shale oil and advances in fracking technology (by which shale kilometres below the surface is fractured  using explosives, allowing oil to be released and flow to the surface) and oil prices around US$100 per barrel are making it economic for these reserves to be tapped. Some even see the US becoming self sufficient in oil again in the decades ahead.

US housing bottoming

A collapse in the US housing sector was at the core of the sub- prime mortgage crisis in the US which subsequently morphed into the global financial  crisis. US house prices and housing construction surged into the middle of the last decade as lax lending standards underpinned a huge surge in home ownership. Boom turned to bust, starting around 2006 as housing supply started to surge and it became harder for sub-prime borrowers to refinance their loans. Foreclosures rose, made worse in turn  by rising unemployment as the whole process fed on itself. The subsequent slump has seen a 34% plunge in house prices. This has seen the volume of private residential investment collapse by about 60% from its peak in the mid 1990s, resulting in a huge  drag on US gross domestic product (GDP) growth.

Why the worst is likely over for US housing

There are good reasons to believe that the US housing market  is bottoming and starting to recover.

The first thing to note is that most  US housing indicators have stabilised. Home sales have been bouncing along a bottom since 2009. Housing starts  and permits to build new houses have been bottoming since late 2009. Furthermore, the National Association of Home Builder’s conditions index has now broken out on the upside, pointing to a rise in starts ahead.


Second, the number of vacant homes is now starting to fall sharply. Over time the equilibrium number of vacant homes has increased in line with the rising population. This is proxied by the long-term trend line in the next chart. It can be seen that the gap between the actual number of vacant homes and its long-term trend is now closing rapidly. Related to this, household formation is likely to rise sharply. Since 2006 it has been running well below that implied by population growth and has collapsed  from a record 2 million to around 700,000 last year. This reflects  tough economic conditions causing young people to stay at home  with their parents for longer and is likely to rebound as economic  conditions improve. If the number of vacant homes continues to decline at the same rate as the last couple of years and household formation picks up then  the overhang of housing will likely be gone by year end.

Third, the stock of unsold new homes has largely vanished.  It is now at its lowest level since the 1950s. This seems  more extreme when it is compared with the fact that the US population has more than doubled since then.

Fourth, while the US mortgage foreclosure rate remains high, the delinquency rate is slowing as are the number of new foreclosures, pointing  to a decline in foreclosures ahead.

Finally, housing affordability has reached a record level. While this has not been acted upon given the excess supply of housing and tough economic conditions, we are likely to see greater demand for houses as the excess supply dwindles and economic conditions improve.

Similarly, house price to income and house price to rent ratios have collapsed, pointing  to good value in US housing.

The improvement in US house price valuation measures stands in stark contrast to the still very overvalued Australian housing market…but that’s a different story. Note both the US and Australian charts use OECD data for consistency.

The bottom line is that the US housing market  appears to have bottomed with recovery in both activity and prices likely.

What a recovery in US housing would mean?

A recovery in US housing has several implications.

  • First, by reversing a significant drag on the US economy it should help perpetuate economic recovery.
  • Second, this is likely to be reinforced by a boost to US household weatlh as house prices stailise and recover.
  • Third, residential construction is a key user of raw materials like copper, therefore a recovery in US housing construction should boost global commodity demand.

Concluding  comments

While the secular bear market  in US shares that began 12 years ago may have further to go, there are a number of positives suggesting there is light at the end of the tunnel. In particular the US housing sector appears to be bottoming.  This is an important investment theme, but is difficult to play from Australia.  Magellan and Platinum Asset Management have their portfolios positioned with this information in mind.

Taken from an article written by Dr Shane Oliver, Head of Investment Strategy and Chief Economist - AMP

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591) (AFSL 232497)  makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator  of future performance. This document has been prepared for the purpose of providing general  information, without taking account of any particular investor’s objectives, financial  situation or needs.  An investor should, before  making  any investment decisions,  consider the appropriateness of the information  in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom  it is provided.






We recently provided advice to a young couple Rob and Simone who were both around 40.  They have two young children under the age of 10 and Rob has a daughter from a previous marriage who is now 20 and financially independent.

Rob was diagnosed with a terminal illness and given only a short time to live when he saw us and he wanted to ensure that his financial affairs were in the best condition they could be before his death.  Rob’s will simply left all of his assets to Simone but upon exploring the family structure it became clear that Rob’s adult daughter may seek to contest Rob’s estate which could prove costly and stressful (other than to lawyers).

This situation reinforced the need to be clear on ownership of assets when estate planning and yet we are constantly amazed at those who seek to undertake estate planning without regard for ownership.

Their assets consist of:

Asset                                                     Owner                                  Value

House                                                   Joint (Joint Tenants)       $600,000

Car                                                         Simone                                 $25,000

Superannuation                                  Rob                                        $650,000

(including insurance)

Shares                                                  Rob                                        $30,000

Unused Leave                                   Rob                                        $50,000 (after tax)

The key issue at stake was to limit the value of assets paid to the estate that could be subject to a legal contest.  We would add that prior to Rob’s ultimate death, his adult daughter openly discussed how she would like to use his superannuation monies to buy a house with her boyfriend, completely disregarding her father’s wishes.

Let’s examine what could potentially be paid into Rob’s estate and we begin by confirming that as their house is owned jointly as joint tenants, ownership will pass to Simone.  The only assets that could pass to Rob’s estate could be his superannuation, unused leave and his shares.

In order to restrict the assets paid to the estate, we ensured that Rob completed a binding death benefit nomination to his superannuation fund that directs the trustees of the fund to pay the superannuation benefit to Simone.  If this was not done, the decision about who to pay superannuation proceeds to, would be made by the trustee of the super fund.  In the event of a dispute between Simone and the adult daughter, this could lead to the trustee taking the view that they simply pay the superannuation to the estate and remove the possibility of being caught in the middle of a dispute.

Rob’s shares were sold and the proceeds paid to Simone.  The alternate course of action would have been to simply transfer ownership to Simone, but Rob wanted to sell the shares anyway.

This effectively meant that the only asset that was to be paid into Rob’s estate was his unused Leave entitlements.

Whether Rob was sufficiently insured is not for discussion in this article.  We are focussed solely on ensuring that the ownership of assets was such that they were not to be paid into Rob’s estate and subject to a legal contest.  With the exception of unused leave entitlements this has been done.

Effective Estate Planning is all about ensuring that your assets go to where you intend, in the most tax efficient manner and the most effective manner.  When planning your estate it is critical that your adviser consider the ownership of your assets in addition to your family structure.

Note: Advice contained in this article is general in nature and does not consider your particular situation or needs. If information contained is not appropriate to you at this stage please pass on to family and friends who may benefit. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.


It is believed that there is currently around $1.4 trillion in Australia in Cash and Bank Deposits in Australia as some investors have sought a safe haven.  This is more than the total value of assets currently held in the entire Australian Superannuation System.

For those seeking income from their investments however, the below chart shows the after tax income from investing $100,000 in 1995 into a basket of Australian Shares (blue bars) compared to investing into a cash deposit that returns the RBA cash rate which is currently 4.25% (red bar).

The green bar is the level of income received when the value of franking credits from Australian shares is included.  Franking credits from the tax already paid by a company before paying a dividend, which is effectively returned to the taxpayer through the tax system.  Effectively this means that with the company tax rate at 30%, a 5% fully franked dividend equates to around 7.1% in pre-tax income when those franking credits are included.  We have produced a video on our YouTube channel for those who wish to explore this aspect in more detail.

Click Image to enlarge


This chart clearly shows that for long term investors seeking income, that the after tax income from Australian Shares measured since 1995 is now providing around 3 times as much income compared to an investor who invested the same amount into a cash deposit.

Given that there are very juicy dividends on offer in the current investment environment such as Telstra paying 8.6% fully franked dividend (which is equal to more than 12% on a pre-tax basis), this is food for thought.


Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.  While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.  The information provided is current as at March 2012.


Monday, 20 February 2012 11:28

Italians & Tax

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  • On 30 December 30, 2011 80 tax officials launched a raid at Cortina D'Ampezzo.
  • They traced the owners of 133 luxury cars: 31.5% had declared incomes of less than 22k EUR + 12% between 22k and 50k
  • Another 118 were owned by companies: 16% had declared losses, 31% had declared income of under 31k
  • Spot checks carried out on hotels etc: one boutique (revenue 1.6m EUR), could not produce a single receipt
  • Black Economy estimated at 17.5% of GDP
  • National Debt of 120% of GDP
  • Primary fiscal surplus of 1.7%, aims to increase to 5% from 2013

Interesting statistics, one would assume correcting tax evasion would massively help Italy's National Debt problem.

These statistics are sourced from Hunter Hall

Thursday, 16 February 2012 14:37

Meet the Marriage Killer

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Ken Mac Dougall bit into the sandwich his wife had packed him for lunch and noticed something odd—a Post-it note tucked between the ham and the cheese. He pulled it out of his mouth, smoothed the crinkles and read what his wife had written: "Be in aisle 10 of Home Depot tonight at 6 p.m."

Mr. Mac Dougall was renovating the couple's Oak Ridge, N.J., kitchen, and his wife had been urging him to pick out the floor tiles. He felt he had plenty of time to do this task. She felt unheard.

"I thought the note was an ingenious and hysterical way to get his attention," says his wife, Janet Pfeiffer (whose occupation, interestingly enough, is a motivational speaker), recalling the incident which occurred several years ago. Her husband, a technician at a company that modifies vehicles for handicapped drivers, didn't really see it that way. "I don't need a reminder in the middle of my sandwich," he says.

Nagging—the interaction in which one person repeatedly makes a request, the other person repeatedly ignores it and both become increasingly annoyed—is an issue every couple will grapple with at some point. While the word itself can provoke chuckles and eye-rolling, the dynamic can potentially be as dangerous to a marriage as adultery or bad finances. Experts say it is exactly the type of toxic communication that can eventually sink a relationship.

 Why do we nag? "We have a perception that we won't get what we want from the other person, so we feel we need to keep asking in order to get it," says Scott Wetzler, a psychologist and vice chairman of the Department of Psychiatry and Behavioral Sciences at Montefiore Medical Center in New York. It is a vicious circle: The naggee tires of the badgering and starts to withhold, which makes the nagger nag more.

Personality contributes to the dynamic, Dr. Wetzler says. An extremely organized, obsessive or anxious person may not be able to refrain from giving reminders, especially if the partner is laid back and often does things at the last minute. Other people are naturally resistant—some might say lazy—and could bring out the nagger inanyone.

It is possible for husbands to nag, and wives to resent them for nagging. But women are more likely to nag, experts say, largely because they are conditioned to feel more responsible for managing home and family life. And they tend to be more sensitive to early signs of problems in a relationship. When women ask for something and don't get a response, they are quicker to realize something is wrong. The problem is that by asking repeatedly, they make things worse.

Men are to blame, too, because they don't always give a clear answer. Sure, a husband might tune his wife out because he is annoyed; nagging can make him feel like a little boy being scolded by his mother. But many times he doesn't respond because he doesn't know the answer yet, or he knows the answer will disappoint her.

Nagging can become a prime contributor to divorce when couples start fighting about the nagging rather than talking about the issue at the root of the nagging, says Howard Markman, professor of psychology at the University of Denver and co-director of the Center for Marital and Family Studies. For 30 years, Dr. Markman has researched conflict and communication in relationships and offered relationship counseling and marriage seminars. He says that while all couples deal with nagging at some point, those who learn to reduce this type of negative communication will substantially increase their odds of staying together and keeping love alive. Couples who don't learn often fall out of love and split up.

Research that Dr. Markman published in 2010 in the Journal of Family Psychology indicates that couples who became unhappy five years into their marriage had a roughly 20% increase in negative communication patterns consistent with nagging, and a 12% decrease in positive communication. "Nagging is an enemy of love, if allowed to persist," Dr. Markman says.

The good news: Couples can learn to stop nagging. Early in their marriage, Ms. Pfeiffer, now 62, repeatedly reminded her husband about household tasks and became more demanding when he ignored her. "If I was asking him to take care of something that mattered to me and he was blowing me off, that made me feel like I didn't matter," she says.

Mr. Mac Dougall, 58, says the nagging made his muscles tense, he would become silent and his eyes would glaze over in a "thousand-yard stare." "Her requests conveyed some sort of urgency that I didn't think was needed," he says. "If I said I was going to get to it, I would definitely get to it."

Ms. Pfeiffer decided to soften her approach. She asked herself, "How can I speak in a way that is not threatening or offensive to him?" She began writing requests on Post-it notes, adding little smiley faces or hearts. Mr. Mac Dougall says he was initially peeved about the sandwich note but did show up at Home Depot that evening smiling.

Ms. Pfeiffer sometimes writes notes to him from the appliances that need to be fixed. "I really need your help," a recent plea began. "I am really backed up and in a lot of discomfort." It was signed "your faithful bathtub drain." "As long as I am not putting pressure on him, he seems to respond better," Ms. Pfeiffer says. Mr. Mac Dougall agrees. "The notes distract me from the face-to-face interaction," he says. "There's noannoying tone of voice or body posture. It's all out of the equation."

The first step in curbing the nagging cycle, experts say, is to admit that you are stuck in a bad pattern. You are fighting about fighting. You need to work to understand what makes the other person tick. Rather than lazy and unloving, is your husband overworked and tired? Is your wife really suggesting she doesn't trust you? Or is she just trying to keep track of too many chores?

Noreen Egurbide, 44, of Westlake Village, Calif., says she used to give her husband frequent reminders to take out the garbage, get the car serviced or pick up the kids from school. "I thought I was helping him," she says. Jose Egurbide, 47, often waited a while before doing what she asked. The couple would argue. Sometimes Ms. Egurbide would just do it herself.

A few years ago, they got insight into their nagging problem after taking a problem-solving assessment test, the Kolbe Assessment. Ms. Egurbide, a business coach, learned she is a strategic planner who gathers facts and organizes in advance. Herhusband, an attorney, learned that he is resistant to being boxed into a plan. Now, Ms. Egurbide says, "I don't take it personally when he doesn't respond." "There is a sense of recognition about what's happening," Mr. Egurbide says. "It's easier to accommodate each other."

Source: WSJ reporting

By: Elizabeth Bernstein

Thursday, 16 February 2012 10:18

Depression in Retirement

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Depression in Retirement

There are many stresses in life that may lead to depression, and growing old can be a key one. One very important for those suffering from depression is to know that it is not normal, and rarely will they come through it without professional help.

In older people, one trigger for depression is difficulty in the transition from a productive working life to retirement. For others, the loss of a spouse can progress from grief to depression.

As we age we experience many disappointments: the death or illness of friends and family, loss of mobility, uncertain financial security, medical bills and so on. These events can lead to depression.

Most people can overcome these obstacles, but for others they may be more significant and, especially if they are compounded, they may seem insurmountable. While a 'sadness' may pass following an event, depression is very deep-seated, and can leave you feeling down, unable to make decisions, with a general feeling of malaise. It affects you both physically and mentally.

Clinical depression is a psychological problem that should not be ignored, but treated as soon as possible with counseling or psychotherapy.

While most older people are content with their lives, as many as three percent of over-65s experience clinical depression. On the bright side however, around 80 percent of them can be successfully treated with psychotherapy. For some medication gives excellent results.

There are several types of clinical depression:

1. Dysthmyia - a type of depression that may persist for a long time before diagnosis.

2. Reactive depression - which occurs after a major loss or in response to a serious life event.

3. Major depression - this serious form of the illness renders the sufferer almost incapable of carrying on everyday life. A person may experience this once in their life, or it may recur. Counseling and medication are often used in combination in this instance.

4. Bipolar - this often referred to as manic-depressive illness and manifests itself as severe mood swings, alternating from extreme highs to lows. Bipolar disorder usually first appears when a person is in their twenties but may not be diagnosed until as late as their fifties.

Some symptoms of depression

If you suspect the following symptoms of yourself or a loved one, you should consult a health professional with your concerns and request an evaluation.

· A persistent sad or anxious mood

· Loss of energy and Loss of pleasure in previously enjoyed activities

· Sleeping and eating problems

· Uncharacteristic feeling of pessimism

· Feelings of helplessness, worthlessness or guilt

· Unpredictable and excessive crying

· Fractiousness and irritability

· Excessive grief that extends beyond three months

· Extremely 'low' periods followed by excessive 'highs'

· Racing thoughts and fat speech

· Decreased need for sleep

Getting help

The most difficult part of getting help for sufferers is the person themselves. People with depression often believe that it will go away in time, that they can manage it, or that they are too old to change. Others believe there is a stigma attached to having what is essentially a mental illness.

The truth is that it is highly treatable problem and dramatic improvements can be seen in a matter of weeks. Antidepressant medication, psychotherapy, or a combination of the two are the usual methods of treatment, depending on the severity and nature of the illness.

Family doctors, clinics and family medical centers can provide diagnosis and treatment for depression, but a consultation with a psychologist should also form part of the treatment process.

Do remember that feeling depressed, especially in your retirement, is not normal and that any pessimistic or 'empty' feelings that persist for more than a few weeks should be investigated by a health professional.

By Kerry Finch

Article Source:

Tuesday, 07 February 2012 17:13

Comedy - Financial Counseling Commercial

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Here is a 1 min video showing a commercial for Financial Counselling in the UK.

Very amusing.



Estate planning is not just about executing wills and distributing assets upon an individual’s death, it should also include the possibility of mental or legal incapacity during a person’s lifetime.

If you lose the capacity to make decisions without an enduring power of attorney or guardianship appointment in place, control of decisions over your property, medical treatment and lifestyle may be handled by an unsuitable or unsatisfactory person. Alternatively, such control may have to be determined by a state or territory tribunal.

A power of attorney is an important, practical and useful legal solution that not only provides peace of mind, it can also avoid costly and complex legal problems. It is a legal document that allows a person, company or body corporate to appoint an agent to act on their behalf. The person delegating the power is known as the principal (or sometimes donor or grantor) and the person receiving the power is known as the attorney (or donee, grantee or even agent). The relationship between the principal and attorney is that of principal and agent.

As with wills and intestacy law, legislation governing powers of attorney is state and territory based, and each jurisdiction has its own act. This can present a problem where a power of attorney granted in one state may not give the attorney the power to act in another jurisdiction (or restricts those powers).

Once an unlimited power of attorney is granted, the attorney – and it can be more than one person – has the exclusive power to act in the capacity of the principal. Therefore, the attorney can enter into contracts, buy and sell property and make other decisions regarding the principal’s financial affairs and property. Powers of attorney can be quite broad or very restrictive in what powers are given to the attorney.

A power of attorney does have some exclusions. For instance:

•     a principal cannot instruct a attorney to do anything illegal

•      an attorney does not have the power, on behalf of the principal, to prepare a will, to vote in an election or referendum, or consent to marriage, and

•      once nominated, the attorneys cannot appoint someone else to assume their powers or responsibilities, unless this has been specified in the power of attorney.

There are two main types of power of attorney available in all states and territories:

•      general powers of attorney, and

•      enduring powers of attorney.

General powers of attorney

A general power of attorney can be set up to give the attorney the authority:

•      to do just one thing,

•      to do a restricted range of things, or

•      to allow the attorney to make any financial or legal decisions on the principal’s behalf.

A general power of attorney with limited powers is usually granted to cover a specific event for a fixed period of time. For example Sam, who intends to travel overseas, may want to make a general power of attorney, and the person (or organisation) appointed as attorney can make financial decisions on his behalf while he is away. This could include selling shares or property or signing a legal agreement. The general power of attorney would normally be revoked after Sam returned.

 General powers of attorney remain valid only while the principal has mental capacity. If the principal becomes mentally incapacitated and therefore legally incompetent, the power of attorney ceases to be active.

Enduring powers of attorney

An enduring power of attorney is more important for estate planning purposes. These appointments can help people plan for the future when they have lost the power to make rational decisions – in other words – to understand consequences, take responsibility and weigh up risks and benefits.

Unfortunately, nobody knows when illness or injury will strike and whether this event will impact on mental capacity. With the prevalence of motor vehicle and other accidents along with Australia’s increasingly ageing population combined with the impact of Alzheimer’s, dementia and other diseases, it is clear that enduring powers of attorney will become even more important in the future.

Enduring powers of attorney may apply to financial, medical and lifestyle decisions. It all depends on the jurisdiction. All Australian states and territories have enduring powers of attorney for financial matters. The legislation in each jurisdiction varies significantly when it comes to medical and lifestyle decisions. In South Australia and Victoria a person can appoint a medical attorney. In New South Wales, Queensland, Tasmania and

Western Australia a person can appoint an enduring guardian who can make certain medical decisions on behalf of that person. The Northern Territory currently has no medical powers of attorney or guardianships, but an Office of Adult Guardianship and the Public Guardian that can appoint guardians after a person has lost legal capacity.

All jurisdictions in Australia now recognise valid Advance Care Directives, which document a person’s decisions about future medical, surgical and dental treatment and other health care.

Who can make a power of attorney i.e. the principal?

In general, a principal must be 18 years of age and legally competent. In other words, the principal understands the nature and effect of the power of attorney, in terms of what the attorney can do when the attorney can make decisions and what kind of decisions, and the impact of this decision making.

Who should be appointed as the attorney?

Firstly, in some jurisdictions, the attorney must be at least 18 years of age. This a requirement if the attorney is required to sign contracts, for instance. The one standard requirement is the attorney must be legally competent. In choosing an attorney for an enduring power of attorney, some points need to be considered. This person is being given considerable power and the choice should not be made lightly.

People often appoint relatives, a close friend or an independent person such as an accountant, lawyer or doctor as the attorney. You can also appoint a trustee company, but there will invariably be fees associated with this. You don’t usually pay a relative a friend to be an attorney, but a professional person would normally charge for this as for any service. An attorney should be a person whom you trust and who understands the decisions you would be likely to make in certain circumstances.

Will the person be available when needed?

An enduring power of attorney may not be exercised for many years, so an older person may not be the right choice. Don’t make assumptions. It may be difficult for a family member or close friend to be objective about making decisions, particularly where a medical enduring power of attorney (or power of enduring guardianship) is available. On the other hand, it may be prudent to appoint an adult daughter, for instance, who is prepared to look after an elderly parent in her own home, where not setting up a power of attorney may lead a state tribunal to place that person in a nursing home to preserve family harmony, if another adult child thought that nursing home care would be better.

Check that the person you want to appoint is happy to be an attorney. There is no point selecting someone who does not want to take on this role. Check whether you can appoint more than one attorney. In most jurisdictions, you can appoint more than one and they can act either:

•      jointly, where both attorneys must agree for the decision to be valid

•      severally, where either attorney may make a decision independently of the other, and/or

•      as a substitute or alternative attorney (who can make a decision if the original attorney is unavailable or no longer able to perform this role).

When can an enduring power of attorney be revoked?

In most states and territories an enduring power of attorney can be revoked upon:

•      the death of the principal or the attorney

•      revocation revoked by the principal, or by a later enduring power of attorney

•      the legal incapacity of the attorney

•      the retirement of the attorney (in some jurisdictions this can only be done with the leave of the Supreme Court)

•      the bankruptcy of the attorney and (sometimes) principal, or

•      the order of a Supreme Court judge.

As with all important legal documents there are certain other formalities to be observed with powers of attorney, which again differ according to the jurisdiction, including: who can and cannot witness, when the document needs to be registered, and whether an attorney needs to formally accept the appointment.

With regard to powers of attorney executed in other states or territories, most jurisdictions have now passed legislation recognising these powers of attorney, to the extent that the powers they give do not contradict the local relevant

Important information

This information was prepared by The Colonial Mutual Life Assurance Society Limited ABN 12 004 021 809 (CML).  Any taxation information, social security information or examples are of general nature only and should not be regarded as specific advice. It is based on the continuation of present laws and rulings and their interpretation as at the issue date of this article. CommInsure is a registered business name of CMLA.

Friday, 27 January 2012 13:17

Global Economy - A Little Less Scary

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The past few weeks have been interesting. Sovereign rating downgrades in Europe have intensified. The World Bank and now the International Monetary Fund (IMF) have slashed their growth forecasts for this year and warned of the risk of a global downturn worse than that associated with the global financial crisis. Yet share markets and other  risk trades  have almost said “ho-hum”. So what’s going on? Our take is the markets are telling us that a lot of the bad news has already been factored in. The ratings downgrades were flagged back in early December and the World Bank/IMF growth forecasts downgrades have only just caught up to private sector economists.1

This is not to say we are out of the woods, or that volatility will disappear. But it does seem the risk of a global financial meltdown has receded  somewhat and that the global economic  recovery appears to be continuing.

Europe – reduced risk of a financial blow-up Europe is on track for a mild recession  but the risk of a financial blow-up resulting in a deep recession  seems  to have receded  a bit. The provision of cheap US dollar funding by the US Federal Reserve and very cheap euro funding for three years by the ECB under  its long-term refinancing operations appears to have substantially reduced the risk of a liquidity crisis causing banking  collapses. It has also reduced pressure  on European banks to sell bonds in troubled countries.

We would have preferred the ECB to have directly stepped up its buying of bonds in troubled countries, but its back door approach has nevertheless seen a sharp expansion in the ECB’s balance sheet. In other  words, it appears to have embarked on quantitative easing, albeit it wouldn’t admit  it.

Reflecting this, bond yields in Spain, Italy and France and spreads to Germany – which were surging towards the end last year – have settled down. Similarly, European  bank stock prices appear to have stabilised.

This is not to say Europe is no longer a source of risk. It still is – it’s doubtful that even with the proposed debt restructuring Greece’s public debt is on a sustainable path, fiscal austerity is still bearing  down on growth across Europe, more ratings downgrades are likely and monetary conditions are still too tight. But the risk of a meltdown appears to have receded. What’s more European business conditions indicators have picked up in the last two months.

In November, we referred to three scenarios  for Europe:

1.  Muddle through – i.e. a continuation of the last few years of occasional  crises temporarily settled by last minute bare minimum policy responses.

2.  Blow up – in which a financial crisis and deep recession  see a break-up of the euro.

3.  Aggressive ECB monetisation – with quantitative easing  heading off economic calamity, albeit not quickly enough to prevent a mild recession.

Recent action by the ECB appears to have reduced the chance of the ‘Blow up’ scenario (probably to around 25%). The costs of leaving the euro for countries like Greece (which would include a likely banking  crisis as Greek citizens rushed to secure their current bank deposits,  which are all in euros, and default on its public debt anyway) still exceed the likely benefits, so it still looks like the euro will hang together. Overall, the most likely scenario  appears to be some combination of ‘Muddle through’ but with more aggressive ECB action preventing it from spiralling into a ‘Blow up’.


The US – no double dip (again)

During the September quarter a big concern was that the US economy would ‘double dip’ back into recession. This, along with escalating worries about Europe and the loss of America’s AAA sovereign rating, combined to produce sharp falls in share markets.  Since then, US economic data has turned around and surprised on the upside:

>   Retail sales growth has hung in around 7% year-on-year despite a sharp fall in consumer confidence

>   Jobs growth has picked up

>   Housing-related indicators have stabilised and in some cases started to improve, and

>   Gross domestic product (GDP) growth has picked up pace again after a mid-year softening.

Earlier concerns about a 1.5% to 2% of GDP fiscal contraction in 2012 dragging growth down have faded as Congress has agreed to extend payroll tax cuts and expanded unemployment benefits for another two months, with a good chance they will be extended for the full year.

More fundamentally, the US appears to be starting to enjoy somewhat of a manufacturing renaissance (in stark contrast to Australia!).  there are numberous anecdotes of global companies moving manufacturning to the US including Electrolux, Siemens, Maserati and Honda (which chose to build a new ‘super car’ in Ohio rather than in Japan). Furthermore, General Motors is now the world’s top selling car maker again. Could a decade-long fall in the US dollar and very strong productivity growth be sowing the seeds of a long-term turnaround in America’s fortunes?


China – so far so good

Chinese economic growth has slowed to 8.9%, but there is no sign of a hard landing. Export growth has slowed sharply but so too has import growth and in any case net exports have not been a contributor to growth in recent years. Moreover, retail sales growth has held up well and fixed asset investment has slowed only slightly.

Furthermore, falling inflation (from 6.5% in July to 4.1% in December) and a cooling property market, evident by falling prices in 52 of 70 major cities in December, and falls in sales and dwelling starts  provide authorities with the ability to ease the economic policy brakes. And there is plenty of scope to ease.   Large banks are currently required to keep a record high 21% of their assets in reserve, the key one-year lending rate is at 6.6%, the budget deficit was just 1.1% of GDP last year and net public debt is around zero once foreign exchange reserves of US$3 trillion and other assets are allowed for.

After doubling between October 2008 and August 2009 on global financial crisis related stimulus and a growth recovery, Chinese shares fell 38% to the low early this month as investors feared tightening policy would result in a hard landing.  With Chinese price to earnings multiples having fallen back to bear market lows and policy starting to ease again, decent gains are in prospect over the next few years.


Global growth

The next chart highlights the improvement recently in global economic indicators. Manufacturing conditions in most  major countries were in decline into the September quarter, but in recent months have either stabilised or started to improve.

What does this mean for investors?

None of this is to say it will be smooth sailing going forward. Europe’s problems are a long way from being solved, uncertainty remains regarding fiscal policy in the US, Chinese authorities will need to ease soon to ensure a soft landing and the Reserve Bank in Australia also needs to cut more. On top of this, after a solid start to the year shares are getting a bit short-term overbought, some short- term sentiment measures are a bit elevated and the hot and cold pattern of US data releases warns we may soon see a cold patch. So shares are vulnerable to a short-term setback (with February often a soft month in contrast to the seasonal strength seen in January).

However the improved global economic outlook and reduced tail risks regarding Europe suggests 2012 should be a better year for shares and other risk assets.  This is also supported by the fact that shares are starting the year well below year ago levels.

Signposts investors should watch  include: the size of any share market  setback  in the seasonally weak month of February; bond yields in Italy, Spain and France; the US ISM manufacturing conditions index; and Chinese money supply growth.

Dr Shane Oliver, Head of Investment Strategy and Chief Economist

AMP Capital Investors





1 Our global growth forecast for 2012 is 3%, which compares to the IMF’s new forecast of 3.25% and the World Bank’s new forecast of 3.4% (if purchasing power parity weights are used to combine  countries).


Note: Advice contained in this articler is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser.  While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding.  The information provided is current as at January 2012.





Friday, 27 January 2012 08:56

Australian Shares, what next for 2012

Written by

With memories of 2008 and talk of a lost decade, many investors have questioned their views on long term investing. But earlier generations of investors faced similar worries – and today’s headlines echo the past with stories about government spending, inflation, oil prices, economic stagnation and high unemployment. And as this information aims to show, those investors who were patient prevailed in difficult times.

While not attempting to predict the future, history has had an interesting habit of repeating itself.

We reflect on the Australian Share market which has just endured two consecutive years of negative performance, and note that it has never experienced three consecutive years of negative returns in the last 100 years. Only 4 times in history has the Australian Share Market had negative returns in two consecutive years.

We now highlight those times, and in particular draw attention to the year following those two consecutive years of negative returns.

1929 -3.6%
1930 -28.1%
1931 +20.0%

1951 -3.3%
1952 -11.8%
1953 +14.8%

1973 -23.3%
1974 -26.9%
1975 +62.9%

1981 -12.9%
1982 -13.9%
1983 +66.8%

Information courtesy of AXA Australia – sourced from the All Ordinaries Accumulation Index




Note: Advice contained in this articler is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at January 2012.