The Australian company reporting season is in full swing during February and March. Australian listed companies are reporting their half yearly results to the end of December 2008 and so far there have been not been the horror stories on earnings results that the media and the markets were expecting.
There does appear to be a trend in company performances. Those companies listed on the Australian market that are global players (e.g. News Corporation, Rio Tinto, BHP Billiton, Westfield Group) have produced very disappointing results for the six months ending 31st December 2008.
By contrast, companies such as JB Hi-fi, Coca-Cola Amatil and Qantas have produced pretty solid earnings results, primarily due to the fact that these companies predominately operate domestically and so are less exposed to the problems faced by overseas markets.
The question over the coming months is whether the effect in Australia of the global financial crisis will only be delayed or whether Australia will prove more resilient to the global credit crunch than other economies. If the later is true then Australian companies could prove to be havens from the international storm.
Unfortunately, shares are showing little signs of a rebound at the moment. The U.S. share market continues to drive the Australian and other share markets around the world.
It seems the only people that see opportunities to invest at the moment are the Chinese who are embarking on the shopping spree of a lifetime with the opportunity to pick up quality companies at bargain basement prices.
The U.S. share market has hit lows not seen since 1997, and the Australian share market is hovering around 2002 lows at the time of writing.
Despite the turmoil going on around the world, most Australians haven’t been directly impacted, except for perhaps through their superannuation savings. Interest rates are at record lows and petrol prices have been comparatively low meaning many Australians have more cash available than prior to the global financial crisis. Many are taking the opportunity to boost their savings, put more money on their mortgage or pay off other debts. If, however, we do slide into a recession, retrenchments will follow and that will be when the average household starts to feel the impact. It is important to note that the Australian economy is not currently in a recession although some stores and media have started using the term to promote sales and sell newspapers!
On Tuesday 3rd February, the Reserve bank cut interest rates by 1% to 3.25%, the lowest rate since 1960. In theory, the cut in the official cash rate should mean, among other things, reduced interest charges on home loans, credit cards and other debt. This is great news for consumers however, the last couple of rate cuts have shown us that the banks don’t always pass on the full cut to consumers, particularly on credit cards. By refinancing your mortgage, you can make sure you are getting the best deal on your home loan and perhaps even consolidate your other personal debts to take advantage of the lower interest rates available on residential mortgages.
Mortgage refinancing works by taking out a new loan on your property and using that money to pay out your previous loan. The benefits of refinancing can go beyond just lowering your interest payments but can mean extending the term of your loan and thus reducing your monthly payments, allowing you to pay off your mortgage faster and consolidating your debts, making them easier to manage.
There are, however, some issues to consider before you decide to refinance. Firstly, there can be costs involved in refinancing including early breakout, application and handling fees, mortgage insurance, government registration fees and valuation fees. You need to weigh up these costs against the benefits to determine if refinancing works for you. Secondly, consolidating your debts should be done as part of a debt-management strategy that ensures you are living within your means, particularly where your debts have become difficult to manage.
Kouteris Mortgage Services* (KMS) can provide advice and assistance on refinancing your mortgage. KMS operates under licence from Chocolate Homeloans Pty Ltd, an accredited lender and mortgage broker. We can review your loans and provide advice on whether refinancing would be of benefit to you and if so, the best products available that suit your specific needs. We will also liaise with the lender and assist you through the process.
With interest rates at record lows, now truly is a great time to review your loans. For more information on mortgage refinancing, please contact Chris on 1300 859 643.
*These services are not provided under the Aon Financial Planning and Protection Limited Licence
Going into business for yourself can be a difficult decision, but with the right advice, you can protect both your family and your business.
Graeme and Garry had worked together before when they decided to become business partners. The appeal of being their own boss and the lifestyle it offered were the key to making this decision. Together they bought a furniture franchise called Vast Interior. They both borrowed against their houses to invest in the franchise and so protecting their business and their families were crucial.
Kouteris Financial Services (KFS) worked with Graeme and Garry to consolidate their super and set up adequate Death and Total and Permanent Disablement (TPD) insurance cover. This was done in two stages- firstly through their superannuation funds to cover their personal debts and protect their families in the event of death or permanent injury. This is the most cost effective way to provide insurance cover for each of the partners’ dependants. Remember, insurance through super can only be paid to a dependant so this cover alone would not have provided any protection for the business.
Secondly, we set up separate Death & TPD and Trauma policies outside superannuation to protect the business debts in case something happened to one, or both, of the partners. These policies are owned by the partners and can only be paid to the other partner.
In addition, Garry and Graeme needed to consider protecting their income in the event that they were temporarily unable to work due to illness or injury. Normally self employed people have to prove their last 12 months earnings before being eligible for income protection however, at KFS we were able to negotiate with the insurer to provide them with this valuable cover straight away based on expected earnings.
A further benefit to the partners is that some of their insurance (that relating to generating an income), is tax deductible – e.g. income protection insurance.
Both Graeme and Garry are now sleeping easy at night knowing that if anything were to happen to either of them, their business and their families are protected. For more information on insurance for small business, please contact us on 1300 859 643.
Vast Interior Castle Hill, one of Sydney’s largest showrooms of exotic homewares and furniture, offers well built rustic furniture and specialises in showing how to decorate your home with unique personality pieces along with good quality hardwood everyday living furniture.
Vast Interior are socially responsible and conscious about the environment focusing on recycled and plantation timbers.
Graeme and Garry’s Vast Interior store can be found at:
3/23 Victoria Ave, Castle Hill NSW 2154 (right next door to Spotlight)
Phone 029899 6611 Fax 029899 2133
Email castlehill@vastinterior.com.au Website www.vastinterior.com.au
*Garry and Graeme have kindly given KFS permission to use their story for this newsletter. KFS will never disclose client details without express permission from the client.
Trauma insurance is a lump sum benefit paid when a specified medical event occurs. Some examples of events that are covered include cancer, heart attack, stroke, benign tumours, loss of limbs, dementia, Alzheimer’s disease, rheumatoid arthritis and severe burns. Accidents and illness that can happen to even the healthiest people.
It is a relatively new insurance product that came about as a result of improvements in medical science that meant people were surviving illness and accidents much more frequently than in the past. We have also seen increases in the number of people diagnosed with cancer, in fact, cancer has been the leading cause of death in Australia over the past six years with 39,000 people estimated to die from it each year. Cardiovascular disease continues to be one of Australia’s largest health problems. It kills 1 Australian every 10 minutes and prevents 1.4 million people living a full life because of disability caused by the disease*. The fact that we are living longer and have an ageing population also means we are seeing more cases of dementia and Alzheimer’s disease.
Trauma insurance, or Crisis Recovery as it is also known, provides a lump sum benefit of up to $2million that can help you pay for medical bills and treatment, replace lost income (for the insured as well as the carer), home care, rehabilitation and any other expenses you may incur during this time. Some providers also offer optional extras such as Child Cover and cover for additional events. It can be linked to your other insurance policies or be set up on its own, depending on your personal circumstances. Trauma differs from income protection in that it is a lump sum rather than ongoing payments, there is no waiting period and no ongoing health evidence required. It also differs from Total & Permanent Disablement in that you do not need to be permanently disabled or absent from work in order to receive the benefit.
And although each type of insurance cover protects you in different circumstances, they should be complementary to ensure you and your family are adequately protected. For more information on Trauma cover or to review your existing insurance arrangements, please call us on 1300 859 643.
*AIG Life, “Why it’s worth considering crisis cover”
...are funds that use complex investment tools to “hedge their bets” on the share market. Most hedge funds follow a particular investment strategy. The most popular strategies are:
1. Short Selling: a short seller borrows stocks that they believe are overvalued and sells them on. When the price (hopefully) falls, they buy the stocks back at a lower price and return them to the lender. A simple example of short-selling is where a fund may buy shares in a particular company for $10. To offset the risk that the share price will fall (or to profit from such a fall), hedge funds may also buy the option to purchase shares at a later date for $5. If the share price falls to, say, $8, the fund can then buy at $5 but sell at $8, thus making a $3 profit, even though the share price has actually fallen.
2. Global Macro: Global Macro funds operate a strategy similar to that used by short-sellers but they focus on global trends rather than movements in particular stocks.
3. Event Driven: Event Driven funds try to profit from one-off events, such as mergers and acquisitions or bankruptcies. For example, if one company decides to buy another, it will usually offer to pay more than the current market price for the shares.
Hedge funds are extremely risky and should only be considered by investors with the assistance of a qualified financial planner.