May Newsletter 2010

Conflicting news  

We currently have news at two very different levels at the moment.

The headlines are consumed with the problems in Europe and a possible slowdown in China.  Particularly the Europe issue is having a big impact.  Financial markets bounce around each day depending on the direction of the sentiment at the time.

Underneath this there has been some excellent news.  The US is continuing to show signs of economic improvement and their company reporting season produced better than expected results.

This is because of how businesses in developed countries managed their way through the global recession. Many businesses were very proactive in cutting costs and adjusting to a difficult environment.  Now that the overall economic recovery is underway, companies are enjoying a strong rebound in profits.

Greece still in the headlines

This issue is not going away in a hurry.  Greece is in terrible shape. The impact has been remarkable for a country that represents less than half a percent of the world economy. You should also note that Portugal is even smaller.

It is an extreme case in terms of its public finances (refer to the chart), so far despite much fear, there is no sign of any flow-on to the debt of key advanced countries.

European authorities have provided a strong lifeline for troubled European countries. This, along with the stronger state of the global economy today, should help prevent the European public debt crisis from turning into a re-run of the global financial crisis.

While the problems in Europe are negative for the euro and share markets in Greece, Spain and Portugal, the European support package should help contribute to a resumption of the bull market in shares once the dust settles. Shares were due for a correction to some degree after the strength of the recovery.  At this stage it's too early to say that the correction is over.

Longer term, public debt problems are likely to remain a concern in the years ahead.  At one level there will be concerns such as those that surround Greece and at another level it will be the need to reduce debt and the impact that it has on economic growth.

Reminders

As the end of the financial year approaches there are a few reminders necessary.

• Co-contribution. Although this has again been watered down by the Government, it is still an excellent opportunity to add some value. Investing $1,000 of your after tax money can gain you $1,000 in your super from the Government. Of course conditions apply so contact us for guidance.
• Super contribution limits. These are very strict and apply to your contributions plus employer compulsory, additional and notional contributions. If in doubt check with us.
• Self employed? You should consider making a tax deductible contribution. It can save you tax and with markets undergoing a correction, it is a good time to invest.

Be wary of tax driven schemes

Our website has a blog article about the above.  It is the season when these schemes are aggressively promoted.  For more information please read the article.