You are no doubt aware that balanced superannuation funds showed their largest monthly loss in June since superannuation became compulsory in 1992. Balanced funds lost, on average, 6.39% in June.
The average being what it is, some did better, some did worse. The question now is whether a year’s worth of negative super returns will lead more people to explore the option of a self managed superannuation. There are already 378,000 self managed superannuation funds in Australia with 730,000 members, according to the Australian Tax Office.
To be honest, as an American, we know very little about Australian Superannuation. The whole idea of retirement is a Prussian concept courtesy of Bismarck that we don’t expect to survive the next thirty years. Nonetheless, we’ve been studying up, asking around, and shaking the trees, though.
At a basic level, Aussies are beginning to ask a simple question: can I manage my money better than a fund manager who charges a fee of 1.5% to 3% regardless of how my fund does? When markets go up, no one complains about performance. You hardly notice the fee when the share market itself is growing at double digits.
Also, the Super industry-which would very much like you to stay in actively managed funds-says that Super averages a negative return once every seven years. The sample size of this performance data is statistically very small, since Super’s only been up and running since 1992. In other words, there’s no real proof that investing for the long-term in shares is the way to secure your retirement.
So who is the best person so manage your super? Well, a doctor can help your manage your health. A mechanic can help you manage your car. And maybe a priest (shaman/rabbi/ imam/ psychologist, bar tender) can help you manage your soul. But when it comes to your own money, we reckon no one is going to care about it as much as you.
By the way, if you have thoughts or ideas on self-managed super, drop us a line at firstname.lastname@example.org You’ll be hearing more from us on it in the future.
Is it really possible the RBA will signal its intention to lower rates in September when it meets tomorrow? Well sure. Anything is possible. Look at Keanu Reeves’ career. A string of lay-off announcements in the labour market and the weakest retail sales figure in six years may give the Bank evidence that consumer demand has slowed.
But so what? Has inflation slowed? Are prices rising less fast? Is money supply growing less fast? Those are the real important questions. Australia, like America, is now on stagflation alert. You can have slowing growth in the real economy (even recession) AND rising prices.
If you accept the premise that it was excess consumer demand driving inflation, then sure, lowering rates once consumer demand is logically consistent (if economically irrelevant). But if you accept the premise that inflation in Australia has its origins in money supply (not consumer demand), then the Reserve Bank will not pay attention to demand…but to its own open market operations.
In any case, it’s far from certain that the RBA will cut in September. A lot can happen in a month. It will be interesting to read the notes from the meeting to see what the Bank has to say for itself. If it looks like a rate cut is on the way, the share market will like it. Don’t expect bank credit to get much cheaper though.
It’s just four days to go until the Olympics begin. Was it just your editor, or did the travelling outfits of Aussie athletes look like prison jumpsuits, with those black and white stripes? Also worth watching…how China shows itself off to the world, and whether anyone wants to spoil the party.
It’s appropriate that the games are in China right now. The government their wants to use the games to show off China’s emergence on the world stage, something the Chinese people can be justly proud of. However the government itself is going to have a tough time showing off China while keeping protests out of the public and out of the headlines. Look here! Don’t look!
In terms of symbols though, it looks to us like Adam Smith’s invisible hand of market forces is giving way to the visible fist of State power in economic life. Globalisation has dispensed all of its advantages (lower prices in the developed world for manufactured goods, higher wages in the developing world.) Now come the disadvantages.
There’s a backlash growing. People all over the world aren’t so sure they want their uncompetitive industries exposed to foreign competition. After all, look what it did to General Motors in the U.S. Couple that with the bear market in credit-really the end of Age of Financialisation-and you have a growing sense of hostility toward trade and free markets.
This should make for some excellent buying opportunities in the share market over the next six months.
Speaking of economic and psychological cycles, we had a look at the Art Deco exhibit at the National Gallery of Victoria this weekend. What a great show. It was combination of industrial design, architecture, fashion, and advertising from the period between the World Wars.
Not that we know much about art, but we liked the clean lines, symmetry, and neo classical references in a lot of the Art Deco work. But as the name itself suggests, it was a period that focused on decoration more than function. But it certainly is aesthetically pleasing compared to a lot of the garbage you see in architecture and advertising today.
You also get a sense of optimism from looking at the buildings and advertisements. It was an exciting age, where new technologies like the radio, electricity, commercial aviation, massive ocean liners, and impressive sky scrapers captured the public imagination.
It’s also worth noting how commodities-intensive this kind of styling was. It used aluminium, stainless steel, glass and other metals. If there’s ever a nouveau Art Deco phase, it should be good for base metals prices.
The Daily Reckoning Australia