Noel News

Do not regret growing older.
It is a privilege denied to many.

Welcome to another newsletter
It was always going to be an election budget, and there were some good things in it. But the cash handouts are fiscal irresponsibility at its worst. Think about it: the Treasurer revealed that there would be a deficit of $78 billion in the forthcoming 12 months. This is money we, as a nation, have to borrow.

One of the first rules of good money management is to avoid bad debt, and use good debt. Bad debt is when we borrow for consumption, such as travel, clothing, or a wedding, and good debt is when we borrow for assets such as property and shares, which will provide lasting benefit. I have no problem whatsoever with government borrowing for roads, infrastructure and other items that have a long-term payback, but I see no point in cash handouts for the sole purpose of getting the government back into power.

Take the decision to cut petrol excise by 22c a litre. Petrol accounts for no more than 4% of most household budgets but it’s the one that is always in the news, and thanks to huge signs everywhere, is the  one commodity for which everyone knows the exact price. The price of petrol can generate strong emotions but there are ways to reduce the cost of it. The major motoring organisations have associations with petrol stations to provide a discount of between four and five cents a litre. And there are apps such as the 7 Eleven fuel app, which lets you lock in today’s fuel price for the next seven days with no penalty. We’ve been using it for years and have saved a bundle.

Where I live, it’s normal for petrol to fluctuate by 30c a litre or more over the cycle. So you can expect your 22c a litre discount to vanish in the next few cycles. Even though this measure has been announced as for six months only, the cost will be a staggering $3 billion – all borrowed. Think what you could do with $3 billion towards flood mitigation programs.
 
Then there is $1.5 billion used to give 6 million welfare recipients a once-only payment of $250. Let’s face it, that kind of money won’t change their lives one bit. Wouldn’t it be better to use that kind of money to provide better dental facilities or improve aged care?
 
These are just expensive band-aids. They won’t do anything to slow down inflation, which is the actual problem here. Despite the official figure of 3%, I am told the average rise in groceries and fruit and vegetables is nearer 10% – ignoring the current post-flood highs. A cash payment of $250 now, combined with six months of slightly less expensive petrol won’t do a thing to change it.

The big issue about to be felt by most Australians is interest rates. We are in a unique position where inflation is running at more than 5%, at least in the real world, and interest rates are at historic lows. It’s a virtual certainty that we’ll see at least an interest rate rise of a full 1% in the coming year. Thanks to low interest rates, and rapid housing price rises, the average mortgage in Australia is now a breathtaking $600,000. A rate rise of just 1% would add $6000 a year or $115 a week to the average family’s mortgage repayments. How will people cope with that?
 
There are also budget moves to help first homeowners, but the problem with all these schemes is that they drive up house prices by increasing the number of potential purchasers. And it gets worse – the government is encouraging single homebuyers to borrow on just a 2% deposit, with no mortgage insurance. In that scenario a person can buy a home costing $400,000, with starting equity of just  $8,000. Offering home loans to couples with just 5% deposit is bad enough, to entice single people to borrow with just 2% deposit is as bad as it gets.  At least a couple may have the income of one of them to fall back on if for some reason one of the breadwinners is unable to work. Single people don’t have that luxury.

Think what would happen if that house falls in value by just 10% – and this is not unknown, especially in some regional areas – they are $32,000 underwater. If they’re forced to sell the property because of rising interest rates they could be suffering a big capital loss. It won’t affect the lender, who is covered by the government’s own mortgage insurance scheme. So how does that help struggling homebuyers?
 
Let’s have some straight talk.  The global financial crisis was born when President Bill Clinton instructed mortgage lenders in America to reduce lending standards so that poorer people had a chance of home ownership.  Consequently, hundreds of thousands of Americans were lured into buying homes they couldn’t afford, and most of them lost what little they had.  That’s the last thing we want to happen in Australia.

How to sleep better

In a recent Noel News, I mentioned that my son James was interviewing the world’s leading sleep doctor, Dr Michael Breus.

Many of you submitted questions that Dr Breus has answered, and the episode has just gone live. It’s fantastic.

If you’re having trouble sleeping, or simply want the latest science-backed tips to sleeping better, you’ll love it.

The war in Ukraine

I’d like to share this episode of the Magellan In The Know podcast:

Episode 20: War in Europe
 
Russia’s invasion of Ukraine has sent geopolitical and economic shockwaves around the globe, creating new risks to the investment outlook. A combination of strong western government and corporate responses has drastic implications for commodities, food security and raises the possibility that NATO nations may be drawn into a wider conflict. But as Russia’s military fails to meet its objectives, what does a settlement look like, and what are the implications for a Russian president whose aspirations of a resurrected Russian empire appear to be collapsing?
 
The participants are former US Deputy Assistant Secretary of Defence for Russia, Ukraine and Eurasia Evelyn Farkas, and former Deputy Director of the CIA Michael Morell dissect and shed light on the situation with Magellan’s Head of Macro and Portfolio Manager Arvid Streimann. 

This is just a brilliant podcast and I can’t think of any better people to be giving their views on the situation. 

Scammers

Scammers are more active than ever, and their techniques are getting smarter and more personalised. It’s rare for a day to pass in which I don’t get a call from “Amazon”, but I’ve never heard what they want to say, because I immediately hang up. And if you try to call back the number the phone call appeared to come from, a recorded message says that the number does not exist.

Last week I got an indication of how clever they are becoming. A close friend told me that her mother, Enid, had received a call from “Amazon” to tell her that there had been a purchase of an iPhone 11 for $900 on her account, which she needed to approve. Enid denied the purchase, so they told her they were transferring the call to the “Australian Cyber Fraud Department”. The next person she spoke to told Enid that she was a victim of cyber crime, but luckily they had caught it in time, and she could help him catch the scammers. All she needed to do was open her computer and log on to a website.
 
Like most seniors, Enid is very trusting. She opened the website, still on the phone, but unbeknown to her it installed a program that gave the scammer access to her computer. He then instructed her to check her online bank account, which enabled him to see the balance, and gave him all the information he needed to operate on the account. Her screen then went black, and he showed her a screenshot of her bank account showing $15,000 had been deposited. It had not really been deposited, but the scammers are getting so sophisticated they can manipulate a photo of your bank account to make it look as though transactions have actually happened.
 
He then claimed the scammer must still be online, and that to help catch them, Enid needed to go to her local branch and withdraw $15,000 in cash. Of course, being a law-abiding person, she was keen to help. He kept her on the phone even while she was driving to the bank, and stressed she should tell nobody about any of this. When she questioned the amount, saying the bank wouldn’t let her take out that much cash, he told her to tell them it was to buy a car.
 
Enid fell for it, but she was getting very stressed, so fortunately she called in at her daughter’s house to ask her to come to the bank with her. When her daughter, my friend, found out what was happening, she grabbed her mum’s phone and asked the caller who he was. When challenged like this, he simply hung up. Enid immediately rang the bank and discovered that her daily limit of $2500 had already been transferred out of her account. Apparently, there is a slim chance this can be recovered. Luckily, Enid and her daughter were able to prevent the larger cash withdrawal from happening, and the bank also promptly blocked internet banking to prevent any further withdrawals. Later, Enid also discovered a request had been sent from her internet banking account to increase the daily limit.
 
Enid is an intelligent woman, but the scammers have this down to a fine art. The only defence is to be aware of it. Never accept phone calls from people you don’t know.
 
And there was still one more expense: the family had to pay $130 to get Enid’s computer completely cleaned of malware. All in all, it was a very expensive morning.

And finally – some thoughts on politicians

We hang the petty thieves and appoint the great ones to public office.
– Aesop, Greek slave & fable author

Those who are too smart to engage in politics are punished by being governed by those who are dumber.
– Plato, ancient Greek Philosopher

Politicians are the same all over. They promise to build a bridge even where there is no river.
– Nikita Khrushchev, Russian Soviet politician

Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel.
– John Quinton, American actor/writer

Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other.
– Oscar Ameringer, “the Mark Twain of American Socialism.”

The Democrats are the party that says government will make you smarter, taller, richer, and remove the crabgrass on your lawn.
AND
The Republicans are the party that says government doesn’t work and then they get elected and prove it.
– P.J. O’Rourke, American comedian and writer.

I offered my opponents a deal: “if they stop telling lies about me, I will stop telling the truth about them”.
– Adlai Stevenson, campaign speech, 1952..

A politician is a fellow who will lay down your life for his country.
– Texas Guinan. 19th century American businessman

I have come to the conclusion that politics is too serious a matter to be left to the politicians.
– Charles de Gaulle, French general & politician

Instead of giving a politician the keys to the city, it might be better to change the locks.
– Doug Larson (English middle-distance runner who won gold medals at the 1924 Olympic Games in Paris , 1902-1981)

The problem with political jokes is they get elected.
– Variously attributed to Will Rogers and George Bernard Shaw

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