Superannuation Raiding Party Being Formed II

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What a fragile thing economic confidence is. Investors are just starting to get the feel of rising stock prices again, like putting on an old pair of comfortable jeans you’ve found in the bottom of the hamper. Perhaps they should be laundered first, though.

But this is a stock market rally you must handle with care. Last week’s close on the Dow saw that psychologically important index erase its losses for the year. After being down as much as 25% in mid-March, the Dow-led last week by soaring energy stocks-has lifted into the black again. So where to now?

Well, confidence cannot repair a balance sheet. Only reducing debt over time can do that. But there is a whole raft of data this week that will tell us if the economy truly has turned the corner. We reckon it has, but that there’s another sharper corner ahead. Buckle up. And maybe slow down.

In the U.S., manufacturing data comes out this week. Industrial production in the world’s largest economy has fallen sixteen out of the last seventeen months. Many economists will tell you it can’t get worse. Unless, that is, the U.S. (like a lot of the Western world) is in a long decline in which the entire economy becomes less productive. If that’d the case, what difference does a month make?

For financial markets-especially credit markets-the bigger number will probably be U.S. housing starts. For some odd reason, there are a lot of people who think builders are going to start building again even though U.S. housing inventories are ample (and mortgage rates are rising, reducing demand anyway.)

But it’s a wacky world out there. For instance, the Commonwealth Bank raised the interest rate on its variable rate mortgage loans over the weekend 5.74%. It says it may raise its fixed rate too. And other banks may well follow. This is probably not what the government expected when it engineered a 0.5% increase in first quarter GDP.

However there’s a growing gap between the RBA’s cash rate of 3% and what Aussie banks are paying to borrow in the whole sale market. In other words, whether its inflation fears or anticipating a recovery, interest rates are moving up. The banks are simply adjusting to what the futures markets are already predicting.

This unwelcome development for housing finance makes tomorrow’s release of the notes from the last RBA morning that much more interesting. If the RBA doesn’t show an easing bias-if instead it confirms the inflation fears-it’s going to be hard to blame the banks for hiking up rates now (even though unemployment is still rising and the rate rises are especially bad for the Aussie housing market).

When you add it all up-just the appearances and hunches and sentiment-we get the feeling that the momentum in stocks may carry indexes higher by another 3-5%, and then a correction. If you’re sitting on gains from the last few months, you may want to pay special attention to the analysis below from Swarm Trader Gabriel Andre.

In a Friday update, the Swarm Trader showed in a chart what we’d only suspected. Namely, to be on the watch for a correction. “There is very little doubt,” he wrote to subscribers, “that the Index will reach the level of 4,200 points soon, probably next week. This target is just a bit more than 3% higher than today’s closing price. Because of the technical resistance (valid since November 2007) and because of overbought indicators, a correction is likely to quickly follow. In a first time, the level of 3,900 points may be the first intermediary support.”

Technical Resistance on the ASX/200 at 4,200

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What happens after that? Who knows? We’ll keep you posted on Gabriel’s research. He’s lately been applying it to finding entry and exit points for stocks listed on the ASX/200. Meanwhile, his technical indicators continue to producer shorter-term trading opportunities as well. He’s a busy man.

Did we really mean to say the government is trying to steal your superannuation savings by making a deal with the fund industry? Well, sort of. Super assets represent a huge pool of capital that manages to generate fee income for an entire industry. The government also sees that money as a source of funding for its infrastructure and other plans.

It’s important to remember that Super is a tax scheme too. Even though the contributions are compulsory, you don’t have to channel it all into stocks. In fact, based on some of the long-term trends we profiled last week, we think investors will have to start thinking about other ways to make, grow, and keep income in the coming years. The stock market will not be enough.

We asked Kris Sayce-who’s been leading up the research into more income and safety in your super-what he thought of last’ week’s news. His reply is below. Stay tuned for more on this subject in the coming weeks.

Kris writes that, “There will be a new ‘Super Govt Aged Pension’ that will allow you to give-up your existing super balance in return for defined benefit based on the existing balance plus any future super contributions you make. You’ll still pay the 9% super guarantee except it will have to go to a special government fund – perhaps they could call it the Future Fund… except that name’s already taken!

“The other level will be to make the ‘default’ funds for fund managers one which includes ‘infrastructure’ funds. This would be easy as all funds have a range of minimum and maximum levels for specific investments. Another way will be to increase the super guarantee from 9% to 15%… the unions and super industry are in favour of this, plus it wouldn’t be a tough sell to the electorate as very few people consider this as being a tax, which it would become, even more of as your ability to have control over your super is diminished.

Hmm. Higher compulsory contributions with less control of your money. Sounds like something you’d want to avoid or at least plan for, doesn’t it?

“Finally,” writes Kris, “the tax and regulatory rules for SMSF will be made so onerous that it will be unattractive for people to open an SMSF. I read something recently that stated SMSF investors needed more ‘education’ on how to run their fund, etc… In other words it will mean increased costs for accounting, auditing, training, reporting, and legal.

“Before and after these changes I expect an increase in the number of audits by the ATO on SMSF that will comprise a scare campaign -‘Look at these investors, they’ve been fined $X for not do this, or they’ve gone to jail for doing that – do you really want to risk it? Why not take out a Super Govt Aged Pension instead?’ There will be very little resistance to these changes especially now when the market is low and when the public is becoming more and more indoctrinated into receiving government support!”

O brave new world with such wealth-stealing in it. What should an investor or a free man do? More on that tomorrow.

Dan Denning
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. Look we need to nationalise public super, it actually is money largely tax depreciated and Govt clearly has vested interest. But all State & Local Govt super as well needs to be pooled as well this can be the source of rebuilding our nation with pension bonds, up to 30 years as well current fully funded Fed pension liabilities, we should not be selling bonds overseas unless we have no choice.

    If we trust the world with our super money it will vaporise, we should fire sale overseas super assets immediately. History has shown that Aus is the end user of default corporation business, look at HIH.

    Super at the moment is just one big ‘cake and arse party’ the spivs running the super are superfluous to need (nice play on words).

    Fed Govt would have to guarantee with legislation not maintain cash reserves which currently I believe we only have 20% it needs to be more and if the pension bonds issued would not be permitted to be touched ie the Govt issue bonds are held by an independent body, and even here not to much should be issued by the treasury for cash to the Feds, maybe 50% that would give the Feds a couple of hundred billion to put into govt owned industries and infrastruscture such as navy patrol boats, BUT NOT RUN BY GOVT

    But the main point is that world credit is going to dry up and we need to keep interest rates down. This is the only way.

    Charles Norville
    June 16, 2009
    Reply
  2. Charles…really?

    Trust the Gov. to manage your super?

    And not completely waste it on stupid things? (Bailout anyone? More Navy boats? How about 20,000 more?)

    The more things that are controlled by Gov, the more problems we will have. The Gov. simply does not know how to spend money well. Surely we can’t give them even more?

    Although it concerns me that some ASX companies may benefit hugely from super investment – what if you take that away?

    Personally I don’t like the idea of super anyway. People should learn to manage their own retirement, and for those that don’t, the Gov can provide some sort of pension. The Gov could take super as ‘Tax’ and make it’s own Sovereign Wealth Fund to fund the future pensions.

    But…again, we’re back at the point of Gov. being incompetent with money. No fund is going to last more than a few election cycles.

    So you can’t win really…just try to lose less than everyone else.

    Reply
  3. Surprise surprise surprise! This comes as absolutely no shock to me. As I have said before we will end up having a “balance” in A government fund account which entitles you to a certain pension when you retire. No more lump sums buddy because there will be no money in the account to cover it. With respect to SMSF I will use an expression beloved by the NRA – “you can have my SMSF when you pry it from my cold dead fingers.” oh wait – that is the intention dam!

    Reply
  4. In reality it wont be very hard to take out the SMSF. All they need to do is to pick some arbitrary number – say 8% returns PA – and require that the SMSF demonstrate that they match or exceed this figure over a certain time period. If they don’t they get wound up and the cash goes into the Government fund, after all they will point out that to allow these funds to lose money or go below this rate will only result in the government having to pick up the slack when that person retires with insufficient funds. A load of rubbish I know but that is what I see coming.

    Reply
  5. Gabriel’s analysis of the XJO or whatever it is, the image is not working.

    Thanks
    tim

    Reply
  6. I lived for some years in Germany and came to understand that the only thing that had kept their rentenversicherung scheme running was the fact that at that time German men would retire and then promptly die. No lump sums there and the wife would then get a reduced pension paid out of a principal that would end its days returned to the treasury. The trouble since then has been that German men, post the Adenauer years, have been getting increasingly less bound up in the idea of killing themselves at the work chaingang, urlaub has started to be a meaningfull part of life, and they aren’t jumping into the coffin quickly enough. Hence greedy bloated public sector tsars will push for global retirement ages to climb and the end of the lump sum as Don says.

    Reply
  7. Yes, it’s a Norville idea, Charles. Every post in this particular forum convinces me to _take it now_ and buy tangibles. As the man said: “Keep yer grubby hands off my tangibles!”

    Biker Pete
    June 16, 2009
    Reply
  8. Sorry about that guys. I’ve fixed the image and it’s now working.

    Happy reading,

    James

    James Zhang
    June 16, 2009
    Reply
  9. Has the GFC affected rural Australia? Here’s one old cocky’s take on it:

    It all started back in 1966 when we changed from pounds to dollars. That doubled me bloody overdraft. Then they brought in kilograms instead of pounds. Me bloody wool clip dropped by half!
    After that, they changed rain to millimetres and we haven’t had an inch of rain since.
    If that wasn’t enough, they brought in Celsius, and it never got over 40 degrees…. no wonder me bloody wheat won’t grow. Then they changed acres to hectares, and I ended up with only half the land I had.

    By this time I’d had enough and decided to sell out. I put the property in the agent’s hand and then they changed miles to kilometres. Now I’m too far out of town for anybody to buy the bloody place…

    Biker Pete
    June 16, 2009
    Reply
  10. There’s is this plaque in IOUSA or The Corporation doco, something like “don’t steal from the Government….they don’t like competition’ and sure Govt have stuffed things, they give you these little pencils to ‘us slaves with a vote’, on voting day to mark the X’s in boxes, that’s so we can’t stab a pollie in the neck if they dare show up at a polling booth.

    But we indeed need to guarantee a safe and reasonable retirement to those Aus that have worked hard, pensions should vary according to the input of super….pollies, judges etc should not get special privileges, the max pension for anyone should be say $100k indexed.

    Currently Aus is the end user in world financial scams we risk loosing at least 80% of our super due to the corruption in world fiance, current Fed pensions will barely be funded, essentially they will be unfunded and dependant on borrowings……the NSW Govt is going to have about $30b in unfunded super liabilities, they are going to have to borrow the money for Govt retirees.

    Giving the Govt money to do shit, is a problem for sure, but DR is telling us that the world cannot lend to every nation the money they want. The Feds are worried that the Chinese and co are not going to buy our lovely bonds….of course what money they lend us will be in $US…toilet paper futures….

    We actually need to defend this country we currently have a defence force that defends the interests of the US & co – large ships and submarines (which can’t dive). We need to build lots of patrol boats because they require less manning per boat…are borders are literally porous. We need to arm those patrol boats with missiles and have platforms for helicopters….

    Forget ANZUS, check out what NZ thinks of defence. Aus has the highest energy materials per capita ratio in the world, yet we lack the ability to domesticate consumption, we have debt stimulated consumption, that’s nuts.

    Our real level of unemployed and underemployed is about 18%…but if we use the same bs statistical data the reason for our apparent low unemployment is because we have an urban service industry economy + the rocks and crops, there simply were not a lot of workers in factories like in US, EU, China, Japan and so on. That is why we can survive so well in short down turns, sorry we are not a Miracle economy.

    We are lead to believe that China, as the lead example can domesticate its economy with workers on less than $100USmth, sure lets join the fairies at the bottom of the garden. Here’s the news the Chinese Govt cannot subsidise such a massive work force to buy all their white goods, electronics, clothing and other shit we did not even need ourselves, the US is dramatically changing its consumptive practices.

    Choice: Defend this country with our own wealth super, or suffer the consequence of the terra nullius of an energy materials per capita that other nations will take from us….we probably don’t have the ability to do to much so maybe we should negotiate that the Commonwealth be relegated to say Qld and NSW and give up the rest of Aus to the Japanese and Chinese….

    Its been thought of before remember the ‘Brisbane Line’ in WW2?

    Charles Norville
    June 17, 2009
    Reply

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