Tuesday 7th June 2022

The RBA raised interest rates 0.5% today to a cash rate of 0.85%. Their stated goal is to reduce inflation to 2-3% long term. They did however say inflation may get worse before it gets better. 

Unless you’re living under a rock or off grid, inflation is running rampant. Things like cooking oil are up 40%, fruit and veggies up 10-50%, energy/gas are skyrocketing and the list goes on. The number one reason I invest is to protect my purchasing power against inflation. Inflation is a silent tax. I’m excited to be living through this, experiencing it and to see how it plays out. 

 

Saturday 11th June 2022

US inflation rose 8.6% in May 2022, the highest since 1981. This was higher than expected, not that consensus matters. 

Now I’m going to tell you something else that doesn’t matter - my opinion. I think it’s going to be a rocky period for assets, which to me signals opportunity. Plain and simple.  

 

Tuesday 14th June 2022

Overnight the S&P500 was down nearly 4% and the Nasdaq down close to 5% apparently on aggressive interest rates rise fears. The FED meets Tuesday and Wednesday this week (US time) to discuss interest rates. 

The ASX was down 5% within minutes of opening. Haven’t seen this type of movement since March 2020. That said, I don’t look often. The Australian newspaper had a headline ‘ASX dives in $108 billion wipeout’. If it bleeds it leads in the media as usual.  

What the media doesn’t tell us and something I still think about often is this. 

If I buy a single unit of VAS (Vanguard Australian Share fund) for example (not a recommendation). Today it’s around $84. I’m immediately a part owner of the 300 largest listed companies in Australia. About a third of them have business operations internationally. So that $84 I invested is working for me while I sleep at night too.  

Four times a year, that single unit of VAS will pay me a distribution from the profits of those 300 listed companies that pay dividends. A part of this distribution will also come with a tax credit (franking credit) meaning I pay less tax on this income.  

Now here’s the kicker. I do absolutely nothing. You read that correctly.  

What will happen over time is profits will be deposited into my bank account four times a year. I could be working, sleeping, holidaying, training, raising kids, reading, whatever. It doesn’t matter. This will happen with or without my focus. 

If these 300 companies add long term value to customers, the distributions of my single VAS holding will increase reflecting incrementally larger cash deposits into my bank account over the years. The value, in terms of the price of my VAS holding, may also increase reflective of the growing profits in aggregate of the underlying 300 companies. 

Some of the companies include the big four banks, CSL, Westfarmers, WHSP, Woolworths, Ramsey Health, BHP and Rio Tinto to name a few.

Now, the value of my single VAS holding can also go down as is happening today. As a net buyer of assets long term, this excites me because each dollar I invest now buys more assets. 

The way I see it is simple. When prices go up, I’m getting wealthier. When prices go down, I can buy more assets cheaper. It’s a win-win in my view.

I think about that often.   

In other news the crypto market is being hammered at the moment. Bitcoin at $22,000USD at I type and ETH down to $1,160USD. The crypto exchange platform Celsius recently forse any withdrawals. They said: 

“Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, swap and transfer between accounts. We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations”. 

Apparently this affects about 1.7 million people and $8 billion USD worth of funds, now frozen until further notice, with no ETA. 

Liquidity is one of the benefits of crypto currencies but not in this case! It’s not the underlying assets fault though. It’s the humans who run the exchange in this case. I have no idea who they are or what they’ve been doing. But one thing I am certain of is the Warren Buffet quote ‘when the tide goes out, we see who has been swimming naked’. It appears this company may have been doing some skinny dipping!

 

Thursday 16th June 2022

Cryto platform Coinbase and other similar platforms have not surprisingly started laying off staff. 

Overnight in the US the FED increased interest rates by 0.75% in an attempt to curb inflation.

 

Monday 20th June 2022

Two weeks since I mentioned it and food prices continue to increase as does petrol. I paid $2.46/litre yesterday.  

Two of my training partners have recently changed jobs. Both of them have nearly doubled their income from their change of jobs and their new positions offer more flexibility in terms of working from home and in the office. 

In this high inflation environment we’re all experiencing, they’ve done one of the best things anyone can do - increase their income faster than inflation is growing.  

Ben Carlson from the Animal Spirits podcast has a blog with interesting data. Turns out this is the 13th bear market since WW2 on S&P 500 with the average bear market dropped 32.7% with a time frame of 351 days.

https://awealthofcommonsense.com/2022/06/increase-your-exposure-to-humility-during-a-bear-market/

I feel this data has little to do with the current market because we've never had a decade of quantitate easing, interest rates at basically 0% followed by quantitive tightening in the USA. So it's safe to say I have no idea how or when this might turn around.

Tuesday 21 June 2022

Listened to the latest Stanford Brown podcast today with Ashley Owen. I’ve mentioned this podcast previously. What stood out to me was his thoughts around interest rates being about taking money out of your packet to slow the economy and his rational views on price versus value. The blueberry example was a solid choice. It was great listening.  

 

Tuesday 28th June 2022

Vanguard announced its quarterly estimated distributions today. xxx is a cracker at around $2.17 at first look. I'm guessing it’s got more to do with the BHP/Woodside merger (realising capital gains) than with actual bumper company earnings. Back to regular programming is my best guess for upcoming distributions. 

 

Thursday 30th June 2022

Things are getting interesting. Jerome Powell speaking in Europe overnight made comments around the biggest risk to the economy being inflation and he’ll raise interest rates in the US as much as needed to beat inflation. Time will tell how serious he is. You can read his comments for yourself here: https://www.financialstandard.com.au/news/inflation-a-greater-danger-than-recession-powell-179795721 

Finally, it’s the last day of the financial year here in Australia, so I updated my balance sheet as I do every quarter. I’ll just say numbers wise on the asset side of things has been a tough quarter but more importantly from a behavioural point of view it’s been smooth sailing. You know the saying ‘smooth seas never made a skilled sailor’.