In our last newsletter we discussed record low interest rates. Well, the RBA has again decreased to 0.75%. Where were we 10 years ago...3.25% and this was right after the GFC. Clearly as we have had no-recent economic shocks such low interest rates are quite possibly here for a while. It seems to be the new policy of central bankers.
Have a re-read of our last newsletter to get a few tips on living with low interest rates. Truely, if you have debt, now is a once in a lifetime change to make your dollar go further - make an effort to pay down your debt with extra weekly payments. Even if its $20 per week. We may have low interest rates for a while, so it's a great chance to set yourself up financially. The 'Smart money' is paying down debt.
Typically, stock markets don't like low interest rates. They are in ways correlated, low interest rates mean low returns. But with Trillions pumped into the global economy by the way of Quantitative Easing, commonly known as Printing Money, markets are doing quite well. But for how long?
Heres my view:
Firstly, economically the world is doing quite well. Driven by lowering unemployment rates, more people are earning a living, paying taxes and spending money. Stock markets like this.
Secondly: Families are in better shape financially than they were 10 years ago. People in general are more cautious about spending, making sure they can actually afford their purchases. So spending is not exuberant, meaning its sustainable and can continue. Again markets like this as its predictable.
I remember 10 years it was common for many people to spend a lot on holidays with no savings, funding it with their credit card only to pay off the credit card with their home loan! A terrible thing to do financially. Nowadays, that is very rare. Spending like that is not sustainable or predictable. So the market crash of 07-08 was understandable as it was based on a 'bubble' of exuberant spending funded by debt.
We have had quite good market returns for a while now and although there is always something that can derail that (President Trump comes to mind) Its our view that there are no big issues financially that concern us and we are cautiously optimistic.