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Newsletter 33

16 Dec 2021

🎄Merry Christmas and Happy New Year🎉

We thank you for your support in 2021.

It has been another challenging year for all of us, especially with lock downs brought on by COVID-19.  

We have been communicating with you about our views on the global outlook during these uncertain times and the changes we see occurring in the global economy. After 40 years of deflation (as reflected in falling interest rates), the world is entering a new world with inflationary pressures and where all asset prices, e.g., bonds, property, and equities are at record highs while interest rates are close to zero. The latest US CPI showed an annual inflation rate of 6.8%.

It is important to remember that it is real returns that matter. A Real Rate of Return is calculated by deducting inflation. So, if the inflation rate is 3% and interest rate is 5%, then the Real Rate of Return is 2%. Over the last 40 years interest rates were higher than inflation. This situation has been turned on its head where inflation in Australia is now 3% and Cash Rate (interest rate) is 0.10%. This means the Real Rate of Return is  (2.9%), i.e., a negative return. With the Australian dollar recently falling in value against the US dollar inflationary pressures will increase, as imports will cost more.

Because of our concerns about stagflation, (i.e., rising prices and limited or no economic growth because of high debt levels) and real negative returns, we have been rebalancing portfolios. The aim being to protect your wealth from loss of purchasing power brought about by inflation.

In mid to late January 2022 your portfolios will be receiving dividends, so we will likely be in touch in February regarding re-investment.

As in previous years, the office will be closed from Friday 17 December (last day) and will re-open on Monday 10 January 2022, although we are contactable via email and we will be checking phone messages.

We look forward to your support in 2022 and wish a very happy, fun and safe holiday period.

Merry Christmas and Happy New Year!

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