February 2022 Update
We have now been Your Wealth Financial Services for eight months and are all happy in our new home at 37 St Georges Terrace. We bid farewell to Frank Ferrero who has ridden off into the sunset and we have welcomed new support staff.
We look forward to welcoming those of you who have not yet visited our new premises.
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World Financial Markets
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2022 has seen most markets in the red, with the NASDAQ (tech heavy) in the USA leading the falls
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The ASX entered correction territory on January 27 which means the market has fallen over 10% since January 4’s market high
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The correction didn’t last long as the ASX ALL ORDs is up almost 3% in the last three trading days and out of correction territory, for the time being at least.
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The falls need to be weighed against the remarkable upside in the index over the last few years.
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What has caused markets to be so volatile in 2022?
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Anticipation surrounding rising interest rates on the back of inflation that was fuelled beyond the supply chain shocks we have all heard about. US Fed Chairman, Jerome Powell, has recently confirmed there would be a series of rate rises that could begin as early as March
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Some investors positioning for Covid 19 pandemic to turn into an endemic as US case numbers have risen dramatically
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Quantitative easing slowing or ending with central banks tightening monetary policy
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On the eastern seaboard of Australia, businesses have not seen the much hoped economic spending by consumers as states opened up, only to be hit hard by the Omicron Covid variant. Basically, people are staying home and playing it safe
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The sell off is not a GFC and there are no real signs of recession in the USA. Interest rate movements always have a significant impact on market as central banks try to curtail inflation.
The message remains the same, stick to your risk profiles and the level of risk at which you are comfortable.
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ASX 2 year chart
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Interest Rates
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This week, the RBA kept rates at a record low 0.1% and formally ended its quantitative easing program. QE allows the RBA to effectively create money which is pumped into the economy through the purchase of assets such as government bonds.
Economists are predicting rate rises this year whilst the RBA has said the level of rate rises is dependant of wages growth.
Low interest rates have continued to feed into property markets. Housing prices rising so quickly is not good for the economy so expect rate rises and be prepared for them. After all, rates are the lowest in history and many of you will remember 18% mortgage rates in the 80’s.
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Conflicts
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If you’ve ever been interested to look up a list of ongoing conflicts, in a macabre way, it makes for fascinating reading. From insurgencies to civil unrest, drug wars to crises, conflict is a part of human nature.
Who is at odds?
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Russia v Ukraine with troops amassing at their border
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China v Taiwan as China continues to send jet fighters over Taiwan
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Internal conflicts from the US to Myanmar
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Serbia v Australia as the Serbs have just booted Rio out of the country in retaliation for Djokovic not getting a visa
It is always hoped that conflict does not escalate into war but there certainly has been increased use of the word war over the last 12 months.
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Cryptocurrency
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Some people swear by crypto whilst others couldn’t care less. The rather ridiculous volatility suggests it is not considered a currency but rather an asset that is incredibly difficult to value. Research provider Banyantree has kindly allowed us to add their recent presentation on cryptocurrencies to our website. Please note, the views in the presentation come from the authors and are not reflective of Your Wealth’s.
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Conclusion
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Only those who have bet against the market like seeing it fall but it important to weight this up against the recover since March 2020 when Covid 19 had the world spooked.
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On the lighter side of things, Elon Musk (Tesla) and Jeff Bezos Amazon) both lost around $30bn in a week! I suspect they will both be OK.
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