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Thursday, 16 February 2012 14:37

Meet the Marriage Killer

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


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


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


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

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.

Saturday, 17 December 2011 10:44

Show leadership and stop “Bank Bashing”

It is truly disturbing to read daily political statements from our leaders on all sides of politics bashing banks for the sake of political gain.  Even the unions have joined this lunacy recently, but then again, none of these players are necessarily known for their intellectual athleticism.

Michael Chaney, one of Australia’s most respected businessmen has said that our leaders should educate people about the banking system, rather than use it for political mileage.  We agree.

Our political leaders would have you believe that banks are gouging borrowers by not passing on interest rate cuts.  The easiest way to determine if this was the case is to examine the banks net interest margins.  The net interest margin is simply the difference between what the banks pay to obtain funding and the rate charged to customers.

Below is a chart showing the net interest margin of the major and regional banks over the past decade.

This chart shows that margins now are significantly lower than they were 10 years ago and that the major bank margins have only been restored to levels seen before the Global Financial Crisis.  There is no evidence to be seen here of bank gouging.

Yes, bank profits in absolute terms are larger than they were before, but so are their businesses.  Just imagine how absurd it would be to criticise a builder for making more money because he built 10 houses a year, rather than 6.

Let’s also consider some of the benefits of a strong banking system to the community which include:

Finally, the table below, sourced prior to the GFC shows the profitability of Australia’s banks compared to other Western countries.


Australia has not experienced a bank failure in the modern era (banking collapse defined as an event where ordinary depositors lose their money).  Therefore we need to look overseas at how things can go terribly wrong when banking systems become stressed.

We find it interesting that many of the countries in the table above that harboured banks with low profit margins before the GFC find themselves at the centre of the Euro Debt Crisis today, which is likely to result in the lowering of living standards for the general population in those countries for years to come.

Canberra and the union movement should celebrate our strong banking system and the benefits that it brings to our community.  The media should expose those attempting smear the banking system for political gain as “lightweights”.

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 December 2011.  The views expressed in this article are personal views of Mark Draper and are not necessarily the views of the dealer group.




Wednesday, 30 November 2011 15:57

The Threat From Europe - How Big


In late October there seemed to be room for optimism that Europe was going to head off a worst case blow-up and that a “comprehensive” plan would be in place by the November G20 leaders’ forum. However, political blow-ups in Greece and Italy put paid to any respite. The G20 leaders’ forum came up with nothing, and Europe has yet to implement much of what it announced in late October. As a result, the European crisis continues to worsen, with investors now bailing out of core countries. What does it all mean for the global economy and risk assets?

Contagion on steroids

The past few weeks have seen the European crisis enter a more dangerous phase. It has moved beyond peripheral countries and now seriously affecting Italy and Spain, where bond yields are at levels that prompted bailouts in Ireland and Portugal. Furthermore it is now threatening France, Belgium, the Netherlands, Austria and Finland, and even Germany as indicated by a failed bund auction.

Italian and now Spanish bond yields at bailout levels, France catching up

The basic concern relates to high debt levels, but the weighted average 10-year bond yield in Europe is now 5.4%, versus a US 10-year bond yield of just 1.9%, despite the fact US public fi nances are comparably worse. The US 2011 budget defi cit and gross public debt are equal to 10% and 101% of GDP respectively, compared to 4% and 90% in the Eurozone. Clearly something else is at play. Speculative contagion working against non-German Eurozone bonds is a part of this. The unintended consequences of policy action are also playing a role:

  • fi scal austerity, in the absence of monetary easing, is adding to the economic downturn, making investors sceptical that debt will be reduced;

by the US Fed under QE2.
Three scenarios for Europe

Leading indicators are pointing to recession in Europe. The
question is now how deep and fi nancially disruptive it will be.
Business conditions in Europe pointing to recession

Put simply, there are three possible scenarios for Europe.

  • Muddle through: the cycle of ‘revolt, response, and respite’ continues to repeat, with periodic interventions that never go far enough but are enough to avoid a major blow-up. This is what Europe has been going through over the last 18 months, but it’s questionable it can continue this way with core countries now being affected.
  • Blow-up: the crisis comes to a head with a deep recession – Eurozone GDP falling 5-10% in 2012 – and a fi nancial crisis rivalling the GFC. This would be bad for growth assets – shares, commodities, the Australian dollar (A$) and euro.
  • Aggressive ECB monetisation: the ECB fi nally realises the crisis is threatening deep recession and price defl ation and so moves to undertake aggressive quantitative easing to push down bond yields and head off economic calamity. This would probably be too late to head off a mild recession, and there would still be a lot of mopping up to do, but it would at least head off the ‘blow-up’ scenario. This would be positive for growth assets, albeit with the usual bit of base building.

Ultimately, we think the ECB will capitulate and become the ‘lender of last resort’ but it may require more pain in markets beforehand. While we have been expecting a mild Eurozone recession, the risk of a blow-up and deep recession is rising as the crisis spreads into core countries, fi scal austerity intensifi es, economic confi dence continues to slide and social unrest increases. Even Germany appears headed for recession.
Europe and global growth
There are three channels by which the recession in Europe will affect the rest of the world, including Asia and Australia. These are via trade, the global fi nancial system and confi dence. The Eurozone absorbs around 25% of US exports, less than 20% of Chinese exports and less than 10% of Australian exports. Rough estimates suggest a 1% fall in Eurozone GDP would knock just 0.1% off US GDP, 0.4% off OECD growth (including the direct effect of the Eurozone contraction), 0.1% off Chinese growth and less than 0.1% off Australian growth via trade impacts alone.

If the Eurozone contracted 5% in a ‘Blow-up’ scenario, it would knock roughly 0.6% off US growth, 2% off OECD growth, 0.5% off Chinese growth and 0.4% off Australian growth.

  • Eurozone banks appear to be selling bonds in order to meet heightened capital ratio requirements;
  • the haircut on Greek debt has led to a reassessment of the risks of holding all Eurozone government bonds;
  • talk of providing fi rst loss insurance on new bonds has reduced the value of existing bonds; and
  • investors have realised credit default swap insurance on bonds may be of little value if it doesn’t pay out in response to ‘voluntary’ debt restructuring.

So the crisis has spread from smaller economies with Greece, Portugal and Ireland accounting for only 6% of Eurozone GDP and 8% of its debt, through to Italy and Spain (which account for 28% of its GDP and 32% of its debt), and now to France, which alone accounts for 20% of Eurozone GDP and its debt. Emerging pressure on German bund yields is particularly concerning. See the next table.
Eurozone debt and GDP compared

Much of the current turmoil could have been avoided if the ECB had acted earlier and erected a fi rewall around otherwise solvent countries such as Spain and Italy. This would have involved the ECB threatening to buy unlimited quantities of bonds in threatened countries in order to ward off speculative attacks on bond markets, and running much easier monetary policy (cutting interest rates to near zero and quantitative easing) to provide an offset to fi scal austerity. Despite suggestions to the contrary, there is no legal barrier to the ECB buying bonds or undertaking quantitative easing. The ECB Statute prevents it from buying bonds directly from governments, but there is nothing preventing it from buying them in the secondary market and it has already undertaken quantitative easing during the GFC. Rather, a desire to force economic reforms on troubled countries, avoid moral hazard, misplaced fears about infl ation and political squabbling have brought Europe and the world to a dangerous place. The ECB has been buying bonds, but only on a very limited basis. Since last May it has bought €195 billion (US$263 billion) worth of bonds but this has been sterilised by the sale of short-term debt and compares with a massive US$600 billion worth of debt purchases

However, these fi gures are likely to understate the impact. Firstly, European banks are shrinking their balance sheets in order to strengthen their capital ratios. A lot of this will come out of their foreign operations. The Bank Credit Analyst estimates that a 10% shrinkage of Eurozone banks’ US$25 trillion in loans could pull US$1.2 trillion of debt out of the global economy, equivalent to 2% of world GDP. Of course this doesn’t mean a 2% contraction in global GDP (as corporates can rely on record cash holdings) but the impact is still negative. While Asia and Latin America are self suffi cient in terms of funding (being net global creditors), they will still be affected as Eurozone banks play a big role in trade fi nance.
Secondly, the fi nancial effects of a major Eurozone bank failing, the impact on the cost of funding as credit markets tighten and the loss of wealth associated with share market falls, as well as a fall in the value of the euro, would have a dampening impact on global growth and Eurozone sourced profi ts.
Finally, there is the impact that the ongoing European debt crisis is having on consumer and business confi dence. Confi dence levels are clearly depressed globally, but so far there has been a mixed impact on actual spending – e.g. retail sales have held up in the US, but obviously the impact could rise if the European crisis continues to worsen.

Our overall assessment is a mild recession in Europe would dampen global growth but would not cause a global recession. But a ‘Blow-up’ scenario with a 5-10% Eurozone contraction and signifi cant fi nancial dislocation would threaten a return to global recession.
What about Australia?
While Australia has a small trade exposure to Europe, it’s still vulnerable via the impact on major trading partners in Asia and via fi nancial and confi dence linkages. While a mild recession in Europe would only have a minor impact on Australia and leave it on track for 3% or so growth next year, a deep Eurozone recession would be a big threat. That said, our assessment remains that Australia should be able to avoid a recession under this scenario given plenty of scope to cut interest rates and provide further fi scal stimulus. A lower A$ would provide a buffer, corporate
gearing is low, household saving is high and mining investment is likely to remain strong. In other words, 2012 growth would be confi ned to the 1-2% range, but should avoid recession.


So where does all this leave investors?
Unfortunately the outlook for investment markets remains uncertain in the short term. While there is great long-term value to be found in share markets – with Australian shares offering a higher cash fl ow than bank term deposits – further falls in the short term are likely. So for short-term investors it remains a time to stay cautious.
Watch the ECB – if it announces unlimited bond buying and quantitative easing it would be a very positive sign, particularly with shares cheap and most investors bearish.
Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital Investors

Protect your biggest asset: your ability to earn

If your lifestyle is dependent on your ability to work, an extended period of absence through illness or injury could be devastating to you and those who are dependent on you.

Income protection insurance replaces your income up to the insured benefit amount of the policy. Most commonly the maximum cover is 75% of earnings (after business expenses, but before tax)

The waiting period can vary; it can be as short as 14 days or as long as two years or more. It is important to remember that benefit payments usually do not start immediately; a waiting period will apply during which no benefit is payable.

The maximum period of time that payments continue is called the benefit period. A range of benefit periods are available — some as short as one year, with the longest continuing through to age 65. Once benefits start, payments are usually made monthly in arrears.

Tax effectiveness - Premiums for income protection policies have the benefit of being fully tax deductible – a good way to protect yourself and reduce tax.

What are the alternatives? - Is this the insurance you have to have? It’s up to you of course, but consider some of the alternatives……….

Family assistance - You could rely on family or friends to help you but they’re likely to have their own financial obligations, and this may needlessly strain your relationship.

Savings - You could use savings in the short term to support yourself, but problems arise if your savings are not readily accessible or your incapacity is long term. You are also spending money that you’ve worked hard to save over an extended period of time.
Employer - You may be a valuable employee but your employer is unlikely to be able to continue paying you and find, train and pay your replacement.

Benefits - Workers’ compensation may help if your injury or illness is work related. Or social security may be available, if you meet the means tested eligibility criteria. In both cases, the benefit levels are unlikely to meet your needs.


Note: Advice contained in this flyer 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.

For more information on Income Protection Insurance or to arrange a no-cost, no-obligation first consultation, please contact: GEM Capital on Ph:8273 3222

What are the chances of being prevented from working as a result of a sickness or injury? More than 60% of Australians will be disabled for more than 1 month during their working life. More than 15% will be disabled for more than 3 months during their working life. Source: Institute of Actuaries Table IAD 1989-93 and ALT 90-92

What are Essential Fatty Acids and why are they so important in our diet?

Essential Fatty acids (EFAs) are the “good fats” and are necessary fats that humans cannot synthesize, and must be obtained through diet. There are 2 families of EFAs: Omega 3 and Omega 6.

Western diets are deficient in omega-3 fatty acids, and have excessive amounts of omega-6 fatty acids compared with the diet on which human beings evolved and their genetic patterns were established.

Good fats compete with “bad fats”, so it’s important to minimize the intake of cholesterol (animal fat) while consuming enough good fats. Also good fats raise your HDL or “good cholesterol” one of the jobs of your good cholesterol is to grab your “bad cholesterol” (LDL), and escort it to the liver where it is broken down and excreted. In other words these good fats attack some of the damage done by the bad fats. This is very important in an age when so many people in the Western world are struggling to get their cholesterol down, and fight heart disease and obesity.

EFAs support the cardiovascular, reproductive, immune, and nervous systems. The human body needs EFAs to manufacture and repair cell membranes, enabling the cells to obtain optimum nutrition and expel harmful waste products. A primary function of EFAs is the production of prostaglandins, which regulate body functions such as heart rate, blood pressure, blood clotting, fertility, conception, and play a role in immune function by regulating inflammation and encouraging the body to fight infection EFA deficiency and Omega 6/3 imbalance is linked with serious health conditions such as heart attacks cancer, insulin resistance, asthma, lupus, schizophrenia, depression, accelerated aging, stroke, diabetes, arthritis, ADHD, and alzheimer’s disease, among others.

What foods provide omega-3 fatty acids?

Salmon, flax seeds and walnuts are excellent sources of omega-3 fatty acids. Very good sources include scallops, chia seeds, cauliflower, spinach, pumpkin seeds, brazil nuts, avocado, cabbage, cloves and mustard seeds. Good sources include halibut, shrimp, cod, tuna, soybeans, tofu, kale, collard greens, and Brussels sprouts.

It is important to note the EFAs are perishable, they deteriorate rapidly when exposed to light, air and heat so freshness is important.

There are many EFA supplements available including fish oil, flaxseed oil, cod liver oil etc, for more information consult your health professional.

This information is for general educational purposes only and does not replace individualized diagnosis and care.
Donald Rudin, MD, and Clara Felix. Omega-3 Oils; A practical Guide. US: Avery, 1996.
Andrew L. Stoll, MD. The Omega-3 Connection. New York: Fireside, 2001.

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