Noel News 27 Jul 2021

“It’s okay to celebrate your wins, but remember, wins are milestones, not finish lines.”

Welcome to another newsletter
and to the start of another financial year.

As I write this, the Australian stock-market is at a record highs, and American stock markets are in a similar position. The top 20 performing Australian super funds returned over 18% to their members over the year, a result that nobody would have predicted 12 months ago. I also noticed in my daily diary that exactly two years ago the Australian stock-market was at a six year high.

The question that seems to be in everybody’s minds is “when will the big crash come?”. It’s a reasonable question when you think of the amazing 12 months we have enjoyed with our investments, but you need to keep in mind that nobody has the power to accurately forecast what markets will do. This is why you should go back to fundamentals and hang in there for the long term, as long as you your next 3 to 4 years planned expenditure is covered either by cash in the bank or by reliable income streams.

We human beings are the victims of our own nature. If markets are flat we are loath to invest in case they fall further, and if they are high we are reluctant to invest in case they crash. Just keep diversified, and hold your nerve.
There are many things to be optimistic about. It’s a reasonable expectation, that within three months the majority of those people who are prepared to be vaccinated, will have been vaccinated. Also, testing for Covid should be much quicker and simpler as testing products continue be improved.

If this is true the lockdowns which are hurting us so badly now should, hopefully, be a thing of the past. Furthermore, compulsory superannuation increased from 9.5% of salary to 10% recently which means even more money will continue to pour into our stock markets. Interest rates do appear to have stopped falling, but on most expectations any rises if and when they do occur will be fairly minor.

My good friend Don Gimbel is a fund manager from Chicago. He is now 80 years of age, and has been managing money since he was very young. This is his take on the next six months.

“The second half of 2021 will allow much of the World to return to work. In the U.S. we see a large part of the 7 million unemployed returning to their jobs or entering new ones. The leisure industry, which has been so hard hit will be a prime beneficiary of the economic recovery.

Part of the return to work will be the end of the temporary unemployment checks which have been paid over the last 18 months. The ‘new normal’ will be fascinating to watch.

A major question is will people use to working outside the office eagerly return to commuter trains and buses? If a percentage of workers stay at home, what does that say about the service industries in the business district?

Likewise, will shoppers accustomed to buying everything from food to clothing on the internet return to in-store shopping? That leads to the question of real estate values. So much to think about for investors in the next six months.

Lastly, weather patterns are obviously changing. I am not going to argue about the cause but I do know the ability to adapt to the changes will be part of our analysis going forward.

The old adage that markets climb a wall of worry is playing out now. There is a fine line between optimism and ignoring reality. Our optimism allows us to think positively about the future but also allows us to be realistic about the future. Our World seems to be on the edge of the abyss most of the time.

Our advice is, keep cool, look at fundamentals, and be patient. The first half has given us better returns than we had expected. We are realistically optimistic about the next six months. “

Intergenerational Report

Last month Treasury released the 2021 Intergenerational Report which purports to project an outlook for the economy and the Australian government budget over the next 40 years. The good news is that our population will continue to grow, albeit at a slower rate, which is positive news for both the property market and the share market.

The bad news is that there will be just 2.7 people aged between 15 and 64 for every person aged 65 and over. Within 40 years, the life expectancy of the average male will be 86.8 and for a female 89.3 years. The population will be almost 40 million and include more than 50,000 people aged over 100. In short there will be less taxpayers providing revenue to support an increasing number of retirees. This imbalance will get worse as the ratio of dependants to workers grows over time.

Our compulsory superannuation system continues to provide major support for the economy. At 31 March 2021 superannuation assets were running at around 157 per cent of GDP – this is projected to grow to around 244 per cent of GDP by 30 June 2061. The forecast is that almost 75% of those of funds will be held in the accumulation phase as the baby boomers die, and the large amounts currently held in pension phase are withdrawn and unable to be replaced due to the tightening of contributions.

The benefits of our unique superannuation system will really show value in the next 40 years. Even though people are living longer, and there are less people to pay the taxes to support the elderly, the total number of Australians of pensionable age is expected to double to over 8 million while the proportion of people of pensionable age is expected to decline in the same period. The other side of the coin is that expenditure on age care will be skyrocketing.

A budget surplus is many years in the future, which means there will not be the funds available to splash money around. A major problem is our taxation system. Currently, 61% of personal income tax is received from a mere 11% of Australians, leaving the bulk of taxpayers contributing very little. In addition, 87% of those aged 65 and over pay no tax whatsoever.

Think about a single-income couple with two children aged 14 and 16, where the primary breadwinner earns $80,000 a year. The income tax on this would be around $16,000, but the family’s contribution to the national coffers would be just $9000 after family payments of $8000 a year are taken into account. If we assume the cost of the full aged pension for a couple is $40,000 a year when healthcare concessions are factored in, it is obvious that it takes at least four such single-income families to support one pensioner couple.

A full review of our tax and welfare system is overdue with a total overhaul of the GST at the front of the agenda. But the adversarial nature of politics does not make for optimism. Right now, the federal government reminds me of a dysfunctional family. Dad and Mum (the two major parties) spend all their time abusing each other and promising the world to their constituents (us, the children) while well-meaning but inexperienced relations (the minor parties) add to the turmoil by telling the kids that their parents don’t know what they are talking about.

Until they all get their act together, and unite with a common goal to get our country’s finances in order, it will continue to be all talk but little action.


Magellan’s billionaire co-founder Hamish Douglass had his share of headlines last week when he slammed cryptocurrency markets as one of the greatest mass delusions in modern history, as part of a bigger warning that asset prices artificially inflated by government and central bank stimulus may face a day of reckoning.

Douglas said it is inevitable crypto crashes to zero when other speculative bubbles eventually run their course and blow up. He wrote:

“Cryptocurrencies are one of the greatest irrationalities I’ve seen in a very, very, long period of time because of the cult-like following it has behind it and the scale that is behind it. There are millions and millions of people participating. Some of the people they’ve never invested before and the only bandwagon they’ve ever got on is the cryptocurrency bandwagon and it’s almost like a religion.”

Over the past year Bitcoin has jumped 235% while its main rival Ethereum has increased 164 times in five years to US $1 910 per coin. This means the two top crypto currency is have a combined market capitalisation of $1.5 trillion despite having no intrinsic value.

“I can’t tell you when that will happen by the way. It could happen shortly, it could happen quite some time into the future … I think when we look back in 20 years it will be the case study of the irrationality.”

Mr Douglass said he expected to be widely attacked for his views on crypto, but did not care.

Pension Changes

The latest six-monthly age pension adjustments have taken place – effective from 1 July. The main changes are a slight increase in the levels at which both the asset test and the income test starts to taper. The maximum pension for a single person remains at $952.70 a fortnight, and for a couple $718.10 a fortnight each.

Up-to-date pension calculators are on my website and detailed pension charts can be downloaded from there as well.

The lower asset limits are now $270,500 for a single pensioner and for a couple $405,000. Once these levels are exceeded the pension tapers until it reaches the upper cut off point where no pension is payable. The base income threshold is $320 a fortnight for a couple and $180 fortnight for a single.

The cut-off point for a homeowner couple has gone up to $884,000 and for a single pensioner $588,250.  For non-homeowners the numbers are $1,100,500 and $804,750 respectively. The income test cut-off points are now $83,002 per annum for a couple and $54,220 for a single.

If one partner is eligible, and the other is under pensionable age, the eligible partner receives half the couple’s pension. For example, a 67 year old with a 57 year old partner could qualify for 50% of the couple’s pension.

You are tested under both an assets and an income test, and Centrelink applies the test that gives you the least pension. Consider a homeowner couple with assessable income of $800 a fortnight and assessable assets of $740,000. Their pension under the income test would be $598.10 fortnight each – under the assets test $215.60. Therefore, they would qualify for an age pension of $ $215.60 a fortnight each.

The value of your assets does not include your family home, while your chattels such as furniture, car and boat are valued at second hand value, not replacement value. This puts a figure of $5,000 on most people’s furniture.

The income test is not relevant if you are asset tested. For example, a single person with assets of $540,000 and receiving a pension of $144.20 fortnight could earn have assessable income of $45,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

If you are at the higher end of the asset test scale seek advice about the new lifetime pension products that are becoming available due to government urging. For example, a 70-year-old couple may have $900,000 of assessable assets and accordingly be over the assets test cut-off point. If they invested $300,000 of their superannuation in a QSuper lifetime pension they may be able to receive a pension of just over $20,000 a year indexed for both of their lives, plus the age pension of just over $8000 a year. This would boost their income by $28,000 a year, and still leave them. with $600,000 of assessable assets.

The rules are prima facie simple, but there is devil in the detail. If a member of a couple has not reached pensionable age it’s prudent, if appropriate, to keep as much of the superannuation in the younger person’s name because then it is exempt from assessment by Centrelink. However, the moment that fund is moved to pension mode, it’s assessable irrespective of the age of the member.

Furthermore, a debt against an investment asset is not deducted from the asset value, unless the mortgage is held against the investment asset. It is not uncommon for people to have a large mortgage secured by their house, for an investment property – in that case Centrelink assess the gross value of the property and do not deduct the loan.

Health Matters

In a previous newsletter I mentioned some of the great e-books put out by Harvard Health Publications.

Their latest book is a full-colour 57 page publication Living Better Living Longer is full of great stuff and covers a wide range of material covering health, diet, exercise as well as the legal stuff.

It’s available at the usual price of $US18 but a loyal reader Murray emailed me to say that if you use the promo code SAVE25 you get 25% off. It worked a treat when I downloaded my copy. The price came down to $US13.50.

Find it here or view a list of their other Special Health Reports here.

And finally…

In a small American town, a band of squirrels had become quite a problem. The Presbyterian Church called a meeting to decide what to do about this squirrel infestation and after much prayer and consideration, concluded that squirrels were predestined to be there, they shouldn’t interfere with God’s divine will.

At the Baptist Church, the squirrels had taken an interest in the Baptistery. The deacons met and decided to put a waterslide on the Baptistery let the squirrels drown themselves. The squirrels liked the ride and unfortunately knew instinctively how to swim, so twice as many squirrels showed up the following week.

The Lutheran Church decided they were not in a position to harm any of God’s creatures, so they trapped their squirrels and set them free near the Baptist Church. Two weeks later they were back after the Baptist took down the waterslide.

The Episcopalians tried a much more unique strategy by setting out bowls of whiskey around the church in an effort to kill the squirrels with alcohol poisoning. They sadly learned how much damage abandoned squirrels can do when drunk.

But the Catholic Church came up with a more creative strategy. They baptised all the squirrels and made them members of the church. Now they only see them at Christmas and Easter.

Not much was heard from the Jewish synagogue. They took the first squirrel and circumcised him. Haven’t had a squirrel since!

I hope you have enjoyed the latest edition of Noel News.

Thanks for all your kind comments. Please continue to send feedback through; it’s always appreciated and helps us to improve the newsletter.

And don’t forget you’ll get much more regular communications from me if you follow me on twitter – @NoelWhittaker.

Noel Whittaker