October 2022 'Once you understand the Way broadly you can see it in all things" - Miyamoto Musashi
Tuesday 4th October 2022
The ASX is flying up today. The RBA upped interest rates 0.25% this month to 2.60% and the ASX jumped another 1% after the announcement. It finished up over 3% for the day.
Who’d have thought?
Wednesday 5th October 2022
Overnight the S&P 500 was up over 3%. A pretty strong start to October.
The Sequence of Return Risk (SORR) for people who’ve retired in the last year or two relying on investment income has heightened. If you’re not aware of SORR it’s worth learning about and being aware of.
Friday 7th October 2022
I saw a Bloomberg chart showing the depth and duration of bear markets in the US since 2000. The covid crash was the quick one, down -35% in 23 days and 103 days to recover. And we all know what happened next.
The Dot Com crash was -51 over 638 days and took 1165 days to recover.
The GFC ended down -58% over 352 days and took 1009 days to recover.
I’m wondering if people are suffering from a recency bias relating to the covid crash, thinking this market will have a similar recovery trajectory. I doubt it. During covid governments cut interest rates to 0.1%. The RBA bought $231 billion in bonds and paid out around $90 billion in Jobkeeper support due to shutting down much of the economy. Now interest rates are rising, inflation is at 30 year highs and we have no government bond buying in place.
This current drawdown has been going on for around a year now and while anything is possible, in my view it’s unlikely we’ll have a 103 day recovery. While the past year hasn’t been great for recent retirees due to SORR it has been for disciplined accumulators dollar cost averaging into the market thus far.
Saturday 8th October 2022
Listened to a thought provoking podcast relating to scrapping Superannuation, an alternative view public housing and the corruption in Australian politics. The super section was particularly educational. Especially being that Superannuation's initial purpose for introduction was as a tool to minimise inflation/spending here in Australia. You can check it out here: https://podcasts.apple.com/au/podcast/aussie-firebug/id1080237514?i=1000581839033
Monday 10th October 2022
Employment data came in higher than expected in the US late last week meaning interest rates are likely to continue rising.
One of the goals central banks have when increasing interest rates is to increase unemployment. So far, in Australia it’s not working. Our unemployment rate is as low as it’s been. To me this is another indicator interest rates will continue climbing. What all you’ve got is a hammer, everything looks like a nail…
On the topic of interest rates I read this article in the Australian in relation to Mortgage bonds. Apparently institutions have collectively bought around $10 trillion dollars of mortgage bonds.
I quote:
”These bonds have been structured in such a way that when interest rates are stable there are good returns. When rates are falling the bonds yield spectacular profits. But on the flip side rising interest rates cause very large losses and those losses are sitting on institutional books”.
As rates continue to rise, pressure on institutions must also rise. I have no idea if this is a frog in boiling water situation or much of a muchness. What I do wonder is the collective recency bias of the last 30 years of decreasing interest rates. We are in a different environment by this fact alone and the next 30 years may not look like the last 30 years.
I don’t say this with any real insight into the future because I have no idea. It’s simply a bias I’ve noticed talking to people and wonder what role it might play. We’ll all know come 2052!
Friday 14th October 2022
Core US inflation (which does not include volatile food and energy prices) jumped to 6.6% in the year to September. The highest since 1982 and up from 6.3% in August. What does this mean? Inflation is still rising and US interest rates will also likely continue to rise.
This poses a problem for us here in Australia as our bank’s borrowing costs will increase. Banks will either absorb these increased costs (unlikely) or pass them on to mortgage holders (likely) irrespective of the RBA actions.
Plus if the RBA doesn’t increase our interest rates in line with US interest rates our dollar will continue to fall and set about its own cascade of events.
Tuesday 18th October 2022
It’s a good day to analyse DRP’s because VAS (Vanguard Australian Shares fund) just allocated theirs today so it's a relevant and current example.
VAS DRP price of $80.3959/unit.
VAS units are currently priced on the open market at $84.05/unit (at the time of writing).
That’s a nice gain for everyone who DRP’d VAS this quarter. Of course sometimes it goes the other way.
Either-way, I do look at it each quarter, but don’t lose any sleep over it because the main thing is to keep the main thing the main thing. And the main thing for me is being a net buyer of passive assets, getting out of the way so compounding can do its thing while owning the entire market.
Why is this important? On average the Aussie sharemarket has returned around 9% for 100+ years. Now keep in mind this is not a linear return. There’s a lot of variability to these returns. History has demonstrated that being in the market long enough should generate these returns, but there are no guarantees.
Now this from Noel Whittaker’s newsletter today and I quote: “spare a special thought for the ordinary American - over the last 41 years the total increase in their take-home pay after adjustment for inflation has been just 6.9% - that’s not 6.9% per year it’s a total of 6.9% over 41 years”.
An unskilled employee's wages rarely grow at the rate of a good business owner's profits. By owning the market I receive these profits and get the incredible value - to me at least - of getting them passively.
What a time to be alive.
Wednesday 26th October 2022
The Australian budget was broadcast last night by the new government’s Treasurer. You can check out this website https://budget.gov.au/index.htm for the details. The bottom line for me was a pretty simple one. Australia spent a lot of money during covid and will now unsuccessfully attempt to bring the budget back into the black of the next few years.
In good news, Elon Musk now owns social media platform Twitter. Of course this will annoy some people, but personally I feel this is a wonderful thing. The censorship we’ve all been exposed to the past few years has been criminal, especially around mainstream media and social media platforms. Put simply, if you’re not astounded you haven't been paying attention.
Fingers crossed he’ll do what he said he’d do. I’m looking forward to watching it unfold.
Monday 31st October 2022
A solid jump in the US market today up nearly 4%. It’s a good reminder on the challenge of market timing, with the S&P 500 up over 8% and the ASX up close to 7% in October alone. Who’d have thought?
Personally, my solution for the current state of rising inflation, increasing interest rates, geopolitical challenges, and the midterm elections coming up in the US next week is just keep buying.
I have zero control or influence on what the market or economy does. However I have full control over my behaviour, actions and the fees I pay. Controlling the controllable's is where it’s at for me.
At the time of recording this episode the RBA has increased interest rates another 0.25% in November, the FED increased rates another 0.75% in the US and I’ve seen Twitter for the first time fact checking the fact checkers successfully. About time! It’s already getting interesting and it’s only November 3rd.
I hope you have a fantastic month and thank you for listening!