Well Hello ……. Finally some common sense perhaps! February 28, 2011

RESERVE Bank board member Warwick McKibbin has warned that Australia is being caught up in a global bubble that could hit us much harder than the global financial crisis and expose the weaknesses of Labor’s economic settings.

Professor McKibbin told The Australian the bubble in global commodity prices and property markets in Asia threatened to dwarf the US housing market bubble that led to the GFC in 2008. He warned that the inevitable bursting of the bubble would reverse the surge in Australia’s record high terms of trade, push down the dollar and leave the Reserve Bank struggling to fight off rising global inflation pressures.

“This is shaping to be much bigger than 2004 to 2007,” he said in comparing the new excess of global liquidity with the global financial bubble that led to the worst global financial crisis since the 1930s. “This cycle is even bigger.”

Professor McKibbin suggested the surge in global liquidity fuelled by US monetary expansion had echoes of the early 1970s surge in food, mining and energy prices that led to global “stagflation”, or the combination of high inflation and high unemployment.

The Reserve Bank meets tomorrow and is expected to keep official interest rates on hold following a week in which political instability in North Africa and the Middle East has pushed oil to more than $US100 ($98) a barrel.

An internationally renowned macroeconomist at the Australian National University, Professor McKibbin has been a Reserve Bank board member since 2001. He is not expected to be reappointed by Wayne Swan when his second term ends in July following his criticisms of Labor’s budget stimulus spending and now its flood levy.

Yet if it proves correct, Professor McKibbin’s warning would pose a dilemma for the Reserve Bank over whether to jack up interest rates in response to global inflation pressures just as our export prices start to fall.

Professor McKibbin said the bursting of the new global bubble would severely test the Gillard government’s budget settings and its reregulation of the job market. “We have not tested these changes that have come under the Rudd-Gillard era,” he said.

“We are about to.”

His analysis suggests much of the surge in mining, energy and food prices is being driven by the near zero official interest rates and so-called quantitative easing of credit conditions in the US and Europe in the wake of the GFC.

The Reserve Bank’s commodity price index has jumped 49 per cent in the past year that includes a recent 9 per cent jump driven by a surge in food prices.

Reserve Bank governor Glenn Stevens last week noted strong demand from China and India had fuelled the surge in Australia’s terms of trade — the ratio of the prices we get for exports compared to the prices we pay for imports — to their highest sustained level for at least 140 years.

This was producing the biggest mining development boom in a century.

But Professor McKibbin suggested that perhaps 40 per cent of this terms of trade surge was being driven by US and European monetary expansion, which is feeding generalised inflation pressures.

“That is why inflation is taking off all over the world,” he told The Australian.

“It is already out of the bag. As interest rates go up, a whole bunch of assets and balance sheets will get crunched, so I am not optimistic.”

Professor McKibben said Australia should have been generating budget surpluses to direct into a sovereign wealth fund as the terms of trade has surged to record highs. And should have been deregulating the job market to help the economy digest the looming terms of trade reversal.

We thank the Australian Newspaper for their contribution to RetireCare Blog!

Life has become way too serious ……. time to start smiling February 22, 2011

Morning All,

The simple act of smiling does far more than just make you look friendly – it can change your life and the lives of those around you. Here are 10 reasons why you should flash your pearly whites more often:

1. It boosts your immune system

Smiling changes the chemistry in your body. Numerous medical studies have found smiling to lower heart rate, steady breathing and relax the body, which results in a stronger immune system.

2. It changes your mood

Psychologists have found if you grin for 60 seconds, no matter how fake or forced it feels, it releases serotonin which tricks the body into making you feel happy again.

3. It lowers your blood pressure

As you smile, endorphins go up and blood pressure comes down. Those who have monitored their blood pressure both before and after smiling show a measurable difference.

4. It gives you a natural high

Rethink saying thank you with chocolates. According to The British Dental Health Foundation, a loving smile can produce the same emotional response as eating 2,000 chocolate bars!

5. It melts hearts

Several studies have found that a long-onset smile (0.5s onset) is seen as more authentic and flirtatious, and is perceived as more attractive, trustworthy and less dominant.

6. You’ll be remembered

Flash those pearly whites in your next interview. If you are smiling, you are three times more likely to be remembered than a person who is displaying negative or neutral features.

7. Smile your way to success

People who smile are more likely to get a promotion. Numerous studies have found a smile plays an important part in the physical attractiveness stereotype. Furthermore, psychological research has shown that attractive people are perceived as more successful, intelligent, and friendly.

8. You’ll look younger

Smiling is a natural facelift! It plumps up the cells in your skin and gives you a radiant glow. In fact, a study conducted by Orbit Complete found that 69 per cent of people find women more attractive when they smile than when they are wearing makeup.

9. And live longer

When you are smiling, it’s difficult not to be positive. And a positive attitude has been shown to increase life expectancy. Researchers at Columbia University found happier people were less likely to develop heart problems.

10. A quote to smile about

“A smile costs nothing, but creates much. It enriches those who receive, without impoverishing those who give. It happens in a flash and the memory of it sometimes lasts forever.” – Dale Carnegie, How to Win Friends and Influence People.

Enjoy your day

Luke Eres

Lessons in Life ……. from a 90 year old master! February 16, 2011

Morning All,

I hope that today’s post finds you well.

I came across this little gem via email and in truth it has a lot of relevance to life in general and I thought that it would be great to share it with you all. Enjoy

This was rritten by a REALLY smart 90 year old. This is something we should all read at least once a week!!!!!
Written by Regina Brett, 90 years old, of the Plain Dealer, Cleveland ,Ohio.

“To celebrate growing older, I once wrote the 45 lessons life taught me.

It is the most requested column I’ve ever written. My odometer rolled over to 90 in August, so here is the column once more”:

1. Life isn’t fair, but it’s still good.
2. When in doubt, just take the next small step.
3. Life is too short to waste time hating anyone.
4. Your job won’t take care of you when you are sick. Your friends and parents will. Stay in touch.
5. Pay off your credit cards every month.
6. You don’t have to win every argument. Agree to disagree.
7. Cry with someone. It’s more healing than crying alone.
8. It’s OK to get angry with God. He can take it.
9. Save for retirement starting with your first pay cheque.
10. When it comes to chocolate, resistance is futile.
11. Make peace with your past so it won’t screw up the present.
12. It’s OK to let your children see you cry.
13. Don’t compare your life to others. You have no idea what their journey is all about.
14. If a relationship has to be a secret, you shouldn’t be in it.
15. Everything can change in the blink of an eye. But don’t worry; God never blinks.
16. Take a deep breath. It calms the mind.
17. Get rid of anything that isn’t useful, beautiful or joyful.
18. Whatever doesn’t kill you really does make you stronger.
19. It’s never too late to have a happy childhood. But the second one is up to you and no one else.
20. When it comes to going after what you love in life, don’t take no for an answer.
21. Burn the candles, use the nice sheets, wear the fancy lingerie.
Don’t save it for a special occasion. Today is special.
22. Over prepare, then go with the flow.
23. Be eccentric now. Don’t wait for old age to wear purple.
24. The most important sex organ is the brain.
25. No one is in charge of your happiness but you.

26. Frame every so called disaster with these words “In five years, will this matter ?’
27. Always choose life.
28. Forgive everyone everything.
29. What other people think of you is none of your business.
30. Time heals almost everything. Give time time.
31. However good or bad a situation is, it will change.
32. Don’t take yourself so seriously. No one else does.
33. Believe in miracles.
34. God loves you because of who God is, not because of anything you did or didn’t do.
35. Don’t audit life. Show up and make the most of it now.
36. Growing old beats the alternative — dying young.
37. Your children get only one childhood.
38. All that truly matters in the end is that you loved.
39. Get outside every day. Miracles are waiting everywhere.
40. If we all threw our problems in a pile and saw everyone else’s, we’d grab ours back.
41. Envy is a waste of time. You already have all you need.
42. The best is yet to come…
43. No matter how you feel, get up, dress up and show up.
44. Yield.
45. Life isn’t tied with a bow, but it’s still a gift.”

Fair to say that this young chap speaks a lot of sense. I reckon we should vote him as our next Prime Minister.

A wonderful day to all

Luke

Bad news for Renters ….. More rises are on the way February 14, 2011

RENTS are set to rise a solid 7 per cent this year, boosting returns for property investors.

During the last three months of 2010, rents in Australian capital cities increased by 1.4 per cent; they rose 4.2 per cent during the year.

Rents in regional markets did not change during the quarter, rising just 2.9 per cent throughout the year.

Melbourne’s median weekly advertised rental rate for houses was recorded at $360 a week; for units it was $350.

Rental rates increased by 2.9 per cent for houses in Melbourne during the final quarter of 2010 – beating the national average and taking the annual growth figure to 2.9 per cent.

Rental rates for units increased by 1.4 per cent during the quarter and by 6.1 per cent for the year.

Three-bedroom house rents performed better than four-bedroom properties during the year and quarter.

The median weekly advertised rent for a three-bedroom house is $350, with a four-bedroom $7 more.

During the final quarter of 2010, rents on three-bedroom houses rose 2.9 per cent, compared with no growth in four-bedroom rents.

On an annual basis, three-bedroom rents have well and truly outpaced that of four-bedroom rents (6.1 per cent vs 1.2 per cent).

One-bedroom units have average rents of $295 a week. Two bedrooms are averaging an extra $55.

Neither recorded a rent increase during the last quarter; but two-bedroom rents rose 6.1 per cent during the past year, compared with 5.4 per cent for one-bedders.

With interest rates already at levels above average, and the expectation that they will increase further during 2011, the prospects of renters moving into home ownership is likely to deteriorate further.

The latest ABS housing finance data shows that last November Victorian first-home buyers totalled 16.3 per cent of all owner-occupier purchasers – the lowest proportion of first-home buyers since May 2004.

Higher interest rates coupled with continuing strong population growth in Victoria – and, more specifically, Melbourne – suggests there is a likelihood of increasing competition for rental stock.

Nationally, we are forecasting rental growth of about 7 per cent this year, in line with the average annual growth during the past five years. We expect a similar result for Melbourne.
While we expect rents to increase during 2011, RP Data anticipates limited home value growth.

We expect the growth in rental rates, coupled with likely wage growth due to a tight employment market, will make ownership a more viable option – especially if capital growth lags behind inflation, which would reduce home values in real terms.

Cameron Kusher is senior research analyst at rpdata.com

Thursday Morning Funny February 10, 2011

Morning All,

Life has become a little to serious as of late and in an effort to tone it down a little here is a cracker of a gag which relates specifically to our politicians.

Julia Gillard was visiting a Sydney primary school and the class was in the middle of a discussion related to words and their meanings.
The teacher asked Ms Gillard if she would like to lead the discussion on the word ‘Tragedy’.

So our illustrious leader asked the class for an example of a ‘Tragedy’.

A little boy stood up and offered: ‘If my best friend, who lives on a farm, is playin’ in the field and a tractor runs over him and kills him, that would be a tragedy.’

‘Incorrect,’ said Gillard. ‘That would be an accident.’

A little girl raised her hand: ‘If a school bus carrying fifty children drove over a cliff, killing everybody inside, that would be a tragedy.’

‘I’m afraid not’,explained Gillard, ‘that’s what we would refer to as a great loss’.

The room went silent. No other children volunteered. Gillard searched the room.

‘Isn’t there someone here who can give me an example of a tragedy?’

Finally, at the back of the room, little Johnny raised his hand and said:

‘If a plane carrying you and Mr. Rudd and Mr. Swan and Mr. Garrett was struck by a ‘friendly fire’ missile & blown to smithereens, that would be a tragedy.’

‘Fantastic’ exclaimed Gillard, ‘and can you tell me why that would be a tragedy?’

‘Well’, said Johnny, ‘it has to be a tragedy, because it certainly wouldn’t be a great loss, and it probably wouldn’t be an accident either!’

Have a great day!

Luke

Globally things are looking good …… fingers crossed February 7, 2011

Thank you to Trevor Greetham, Asset Allocation Director at Fidelity for his contribution today

The word “decoupling” may rebound into prominence in 2011 because a divergence in the performance of developed and developing economies is my base case for the global economy this year. While the stress in the eurozone poses a downside risk to stock markets, for once since the global financial crisis struck, upside risks are also credible. The recent strong run of US retail sales data raises the possibility of a synchronised global upswing. Commodities and selected emerging equity markets look set to do well either way.

The outlook for developed economies is less than rosy because many of their housing markets are weak, the rebuilding of depleted inventories is largely completed, austerity measures are kicking in and credit availability is still scant. The possibility, however, remains open that US monetary policy will be further loosened because the US core CPI (below 1%) is at its lowest level since at least the 1950s. If central banks in developed economies persist with asset-buying programs this stimulus will find its way into emerging markets, where growth has not been credit-constrained. We could expect a year like 2007-08 – when decoupling was last spoken about a lot – during which developed stock markets stagnate while emerging markets thrive.

The key risk to confidence would come from a deepening of the crisis in the eurozone, an economy larger than that of the US. I am cautious as the European Central Bank appears unwilling to conduct a formidable asset-buying program or engage in the competitive devaluation that may be necessary to boost growth in peripheral countries. Spain will be the key to a more positive outcome. The country’s economy is too big to rescue with ease. Spain, however, is a major manufacturer whose exporters would benefit from improved global demand. Signs of a recovery in Spanish growth would provide a boost to confidence for the entire region.

There are reasons to be hopeful that growth in developed economies could accelerate in 2011. Global stock prices moved sideways for the 12 months to August 2010 as earnings caught up with prices and the market factored in a peak in lead indicators. Now it feels like we have passed a trough in the industrial mini-cycle. The US Federal Reserve’s asset-buying program has boosted global liquidity, the OECD leading indicator and stocks – all good signs.

Commodities either way

A strong recovery in the developed economies, though, could create the conditions for a correction in the emerging markets. A synchronised recovery could mean aggressive tightening to counter inflation in China and India, for example. In this scenario, we would favour emerging markets with commodity exports and floating currencies, such as those of Latin America. Developed equities could outperform emerging markets in aggregate given the ample spare capacity in their economies.

Commodities seem likely to do well if weak US growth leads to further Fed liquidity injections. They are also likely to perform well if the US recovers, as demand will remain strong for some time even if emerging-market governments tighten policy. In the feeble US economy scenario, gold will probably do best as investors use the metal to hedge inflation risks in the emerging markets and fears of currency debasement in the developed world. Industrial metals would probably do best if global growth picks up in a synchronised way.

Government bonds are our least favourite asset class for 2011. Once a strong global growth trajectory is established, bond yields are likely to rise from low levels, exposing investors to capital losses they are not accustomed to. This may have already started to happen in December.

As the global economic cycle is likely to remain short and asset prices volatile, it will be important to maintain a well-diversified portfolio in 2011 – and to be flexible in terms of asset allocation, taking advantage of the tactical opportunities that will undoubtedly arise as the many policy actions announced in the second half of 2010 take effect.

I think 2010 can be defined in terms of two significant influences on markets: the eurozone sovereign debt crisis and the Federal Reserve’s monetary response to disinflationary pressures. My feeling is that commodity-driven inflation will probably define 2011 and that some governments will tighten policy rapidly to head off inflation. If developed economies can get consumer spending onto a firmer footing then, as there is ample spare capacity in their economies, there is good reason to be optimistic that a multi-year recovery is underway.

Interest Rates pressures could see to arise sooner than you may think February 7, 2011

Morning All,

THE acceleration of the mining boom and further pressure on the labour market on the back of the massive rebuild needed in flood-ravaged Queensland could put pressure on the Reserve Bank to raise the official cash rate sooner than expected.

Citi chief economist Paul Brennan said the Reserve Bank’s forecast in its quarterly review, released last week, that the unemployment rate would fall only “very incrementally” and that inflation would pick up only gradually, implied that official interest rates would not need to rise significantly over the next 12 months.

The RBA forecast that while the Queensland flood damage would slow economic growth to 2.75 per cent this year, it expected the combination of rebuilding and the mining boom to lift growth to 4.25 per cent next financial year and 4 per cent the year after. The bank also said that employment would continue to grow rapidly and unemployment would fall from 5 per cent to 4.5 per cent by 2013, The Australian reports.

But Mr Brennan said there were risks that the RBA’s forecasts of above-trend economic growth would lead to a faster tightening in the labour market and more inflation pressure than its official forecasts would suggest. “We continue to expect more tightening than currently priced by markets will be required to ensure that the large change in relative prices driven by the commodity boom doesn’t spill over into a deterioration in inflation expectations,” he said.

“We also suspect the RBA is underestimating the inflation pressure created by the flood rebuild against this backdrop of a mining and energy investment boom.” The RBA last week held the official cash rate at 4.75 per cent and foreshadowed interest rates would remain on hold for the next few months, with inflation under control.

The expected $8 billion rebuild of Queensland after the devastating January floods, which was added to last week with the damage caused by Cyclone Yasi, had financial markets expecting rates to remain steady for most of the year.

But last week’s update by the bank has fuelled expectations of a rate rise as early as May.

“With the next leg of the resources boom bearing down quickly, the RBA will have its hands full to keep the change in relative prices from seeping into a broader based deterioration in inflation expectations,” Mr Brennan said.

He added that he expected 100 basis points of tightening this year, backloaded into the second half. The bank warned in its update last week the economy could be facing a re-run of the conditions that preceded the GFC.

Bidding you all a wonderful day

Luke