January 03, 2019 Edition.
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It is hard to know where to start. Increasingly you have to wonder if the Trump has ‘slipped his moorings’ with market turmoil, shutdowns, withdrawals and complaining of being ‘all alone in the Whitehouse’. It is just not getting better!
Brexit is ISQ this week.
In OZ we have the failed PM (Dutton) having a go at one real on who lasted a few years (Turnbull). Means it is a pretty slow news period! Barnaby is attacking Labor in the right-wing press and everyone else seems to be on holidays!
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Major Issues.
Credit gluttons will be the financial roadkill of 2019
As the Fed raises borrowing costs for the fourth time this year, patience, prudence and preservation of capital should take high priority.
Peter Warnes
Dec 21, 2018 10:16:00 AM
Introduction
I reiterate my recommendation in Forecast 2019 that cash should be a real asset class in 2019, not a balancing item in a portfolio. I will be comfortable with a higher cash holding, rather than be tempted to allocate it to a risky or overvalued investment. Patience, prudence and preservation of capital should have high priority.
A flattening yield curve is a reasonable forward indicator of market volatility. As it flattens the more anxious investors become about the outlook for economic growth. So, batten down for more volatility in 2019, perhaps beyond. The US 2-year (2.65%) and 5-year (2.62%) yields are marginally inverted at present and the one-year and 5-year yield are the same at 2.62%. Volatility is the new normal. Credit-reliant companies that have had a free ride on the coat tails of massive central bank easing over the past eight or nine years are likely to be the road kill of financial markets in 2019.
It has been well documented we are in the late stages of the current economic cycle, which was extended due to the prolonged rescue operations of the central banks in the aftermath of the GFC. The magnitude of the stimulus programs was unparalleled in both quantum and duration. Already in 2018 US corporates outlaid a record US$1 trillion in buybacks, easily exceeding the previous record of US$781bn in 2015. These purchases have supported US markets in 2018 helping them to record levels and this could be viewed as a misallocation of capital, at least in the short-term.
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Lenders crack down on off-the-plan buyers as property market tumbles
21 Dec 2018 — 11:00 PM
Developers and off-the-plan purchasers are being squeezed as lenders double down on credit by intensifying scrutiny of borrowers coming up for final loan assessments, despite having received conditional approval.
Conditions are tightening as homes bought off the plan at the peak of the real estate boom two or three years ago are coming up for completion in a market where values and rentals are falling in major cities.
Tough new lending conditions and falling property values mean more deals are being knocked back, forcing borrowers to find other lenders or face legal action and loss of deposits paid to developers.
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'Tis the season for Coalition MPs to contemplate life after politics
By Sean Kelly
23 December 2018 — 2:48pm
In the lead-up to the 2013 election, after six years in government, there was resignation in Labor ranks – quite literally. Julia Gillard, Simon Crean, Nicola Roxon, Greg Combet, Chris Evans, Stephen Smith, Craig Emerson, Peter Garrett, Martin Ferguson and Robert McClelland all announced they would not be staying on. There were others – I’ve listed only the former cabinet ministers.
The situation is not identical to that facing the Coalition in 2019, after six years in government, but it’s not so far off. On Tuesday, MPs will sit down with their families over the Christmas pav, and ask themselves whether they can really take more years of this – most of them in opposition. Some decisions might not be announced until after the election, but they will likely be made over the next weeks.
The decision might be personal. The outcome won’t be. Who retires and who sticks around will help determine who wins the god-almighty ideological fight that will consume the Liberals over the next three years, a battle that will be as important to the future of Australian politics as the performance of the Shorten government. My bet is on the moderates, who must now be realising just how ill-judged were their efforts to play nice with the party’s psycho-killer wing.
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PM urges voters to 'get shopping' as retailers sweat on last-minute sales
By Matt Bungard & Eryk Bagshaw
23 December 2018 — 3:38pm
The Morrison government has urged people to get out and shop in the final day before Christmas, as retailers sweat on a positive end to a torrid year and the Coalition banks on a big spending summer to drive its April budget.
Sluggish household consumption figures have been the dumbbell weighing down Australia's economic growth over the past year, as consumers shut their wallets thanks to the triple threat of low wage growth, falling house prices and rising energy costs.
The lack of spending has an impact not just on individual shops, but also the government's revenue – revising down GST collections by $5.8 billion over four years in December's mid-year economic update.
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Australian troops to stay in Middle East despite US pullout: Morrison
By Eryk Bagshaw
23 December 2018 — 5:17pm
Australian troops will remain in the Middle East despite US President Donald Trump announcing the withdrawal of thousands of soldiers from Syria and Afghanistan in a move that has shocked his Western allies and forced the sudden resignation of his Defence Secretary, Jim Mattis.
Prime Minister Scott Morrison said Australia's presence "will remain" in the region, where more than 600 troops continue to conduct operations and train local troops in Iraq and Afghanistan.
"We have to be conscious of the potential for a resilient and a resurgent [Islamic State]," he said. "We're in regular dialogue, we're engaging with the US about what their plans are and to ensure there can be some alignment with both their thinking and planning."
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How to get more bang from your bucks: go on more holidays
By Ross Gittins
24 December 2018 — 12:00am
They say people who think money doesn’t buy happiness just don’t know where to shop. Sorry to have left it so late in your preparations for Christmas and summer, but on this score I have breaking news.
It’s a funny thing that, though economists hold consumption to be the “soul end and purpose” of all economic activity, it’s not a subject that greatly interests them. They’ll help you maximise how much you’ve got to spend, but they’ll give you no help in deciding how to spend it in a way that yields the most happiness – or, as they prefer to say, “satisfaction”.
No, for advice on how to get the biggest bang from your bucks, the experts are social psychologists.
For the past 15 years, their prevailing wisdom has been that spending on experiences – from an overseas holiday to a trip to the movies – yields more happiness than buying more stuff.
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We’re ready for a fresh al-Qa’ida threat: ScoMo
- 12:00AM December 24, 2018
Scott Morrison says Australia is working to counter the renewed dangers posed by Islamic terrorism, amid reports of a fresh al-Qa’ida threat to commercial jets and fears the US could spark an Islamic State resurgence through its withdrawal from key Middle East hot spots.
The Prime Minister said Australia was not complacent about the potential for a resurgence by al-Qa’ida, which the British government has warned is developing new technology — including miniaturised bombs and drones — to bring down passenger jets.
“Whether it’s al-Qa’ida, or whether it’s Daesh, or whether it’s Jemaah Islamiah, or any of the other radical extremist, violent Islamic groups that would seek to do Australia harm, our government can always be relied upon,” Mr Morrison said.
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The world will pay for not dealing with debt
By Satyajit Das
24 December 2018 — 11:59am
Markets, to paraphrase Nobel prize-winning economist Thomas Schelling, often forget that they keep forgetting. That's especially true when it comes to the intractable challenges posed by global debt.
Since 2008, governments around the world have looked for relatively painless ways to lower high debt levels, a central cause of the last crisis. Cutting interest rates to zero or below made borrowing easier to service. Quantitative easing and central bank support made it easier to buy debt. Engineered increases in asset prices raised collateral values, reducing pressure on distressed borrowers and banks.
All these policies, however, avoided the need to deleverage. In fact, they actually increased borrowing, especially demand for risky debt, as income-starved investors looked farther and farther afield for returns. Since 2007, global debt has increased from $US167 trillion ($237 trillion) ($US113 trillion excluding financial institutions) to $US247 trillion ($US187 trillion excluding financial institutions). Total debt levels are 320 per cent of global GDP, an increase of around 40 per cent over the last decade.
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What's got oil so spooked? It's the economy, stupid
By Julian Lee
24 December 2018 — 11:26am
It wasn't meant to be like this.
Not only are oil prices down nearly 40 per cent since early October, they're below where they were when the OPEC+ group of producers began their first round of output cuts in January 2017.
There are two main factors behind this pessimism. The first stems from an undue scepticism about the group's willingness to trim output. The second follows from a negative view about the global outlook that is subject to change – and if it does, a sharp rebound is in store.
The recent Russian-brokered deal to cut around 1.2 million barrels a day from global supply in January should have put a floor under prices. Their drop suggests traders don't believe the cuts will be implemented.
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Australia on track to miss Paris emissions targets by huge margin
By James Fernyhough
Updated 21 Dec 2018 — 6:06 PM, first published at 12:08 PM
Australia is on track to miss its Paris greenhouse gas emissions reduction targets by 19 percentage points, a slight improvement on 2017 projections but still drastically short of its commitments, new government figures reveal.
Under the Paris agreement, Australia has committed by 2030 to reduce greenhouse gas emissions by 26 per cent to 28 per cent on 2005 levels. The latest projections, released on Friday morning by the Department of the Environment and Energy, show Australia is on track to reduce its emissions by just 7 per cent on 2005 levels by 2030.
For the 26 per cent reduction to be met, Australia's net greenhouse gas emissions would need to be no more than 4800 megatonnes of carbon dioxide or equivalent greenhouse gases (Mt CO²-e) by 2030. On current projections the nation's emissions will be 5487 Mt CO²-e by 2030, 687 MtC0²-e short of the target.
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RBA'S Michele Bullock discusses the country's housing woes
By Karen Maley
22 Dec 2018 — 11:00 PM
Michele Bullock could be excused for feeling the pressure as jeremiads about the Australian property market swirl all around her.
But when she sits down with The Australian Financial Review for a wide-ranging interview about the country's housing market, the woman who heads the Reserve Bank's financial stability area is disarmingly warm, direct and engaging. There's no sign of tetchiness or defensiveness when she discusses the doomsday predictions that the downturn in the housing market will plunge the entire Australian economy into recession.
Instead, Bullock observes how worries about the property market have undergone a 180-degree turn in a remarkably short time.
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An optimist's guide to investments in 2019
By Andrew McAuley
26 Dec 2018 — 12:00 AM
It's natural at this time of the year for investors to stick their heads up above the parapet, reflect on the wins and losses of 2018 and start mapping out expectations for the coming year. With markets taking on a distinctively bearish tone since September, it is all too easy to focus on the negatives.
There will be many espousing the end of the equities boom and forecasts of continued doom and gloom in global markets. In early September I wrote we were approaching the peak for equities as indicated by the bond market. Since then shares in developed markets have fallen by more than 10 per cent, which is the accepted definition of a correction. But I also said we were actually mildly positive for 2019. We maintain that view, which is now underpinned by better value in equities. So what needs to go right for our view to prevail? We have identified six key factors which may extend the global cycle next year.
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'Extremely disappointed': Australia lashes Japan's decision to restart commercial whaling
By Fergus Hunter & Steve Jacobs
Updated26 December 2018 — 4:00pmfirst published at 1:48pm
The Australian government has condemned Japan's "regrettable" decision to withdraw from the International Whaling Commission and resume commercial whaling.
The Japanese government's withdrawal from the global body, announced on Wednesday, will see commercial hunts in the country's territorial and economic waters start in July 2019.
Announcing the decision, Chief Cabinet Secretary Yoshihide Suga also said Japan would end its so-called "scientific" hunts in the Southern Ocean, operations that have for years caused tension between Tokyo and Canberra.
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The volatile outlook for 2019 is a reflection of Trump's America
By Stephen Bartholomeusz
27 December 2018 — 12:36pm
Despite the dramatic Boxing Day bounce in the US, the closing months of 2018 have been stressful for investors accustomed to a market environment that had been remarkably calm within a bullmarket that began in March 2009. The intense volatility seen since September may, however, be a foretaste for what’s to come.
The surge in the Dow Jones Index – more than 1000 points – was the single biggest one-day move in its history and the 4.96 per cent rise in the S&P 500 its largest gain since the post-crisis market bottomed in March 2009.
The US market has, however, fallen 15.8 per cent since the start of the year (it was down 19.8 per cent before Wednesday 4.96 per cent spike) while the Australian market is trading about 13.5 per cent lower than it began the year.
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Tyranny of distance: The renewable power disconnect
By Cole Latimer
27 December 2018 — 12:00am
The renewable energy boom may be going to waste because the best place to put wind and solar is too far away to connect to the grid.
Australia has seen a major transition of its energy sector as it moves away from traditional coal and gas-fired power to include more wind, solar and hydro power but the existing network has not evolved to keep pace and consumers could bear the costs.
The large number of new renewables means many are either unable to connect to the grid due to the sudden congestion from excess power being generated at the same time or just a complete lack of transmission to push the power into the grid.
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Warren Buffett says there are only 2 things you need to do when shares fall
By Tanza Loudenback
28 Dec 2018 — 8:12 AM
While the Dow and S&P 500 are both on track for the worst losses in a decade, as Business Insider's Callum Burroughs reported, it's important to remember the oft-repeated advice of Warren Buffett: "Be fearful when others are greedy and greedy only when others are fearful."
As MoneyTalksNews reported, Buffett, the billionaire investor and founder of Berkshire Hathaway, reiterated some of his best advice for sustaining wealth during a bear market in his 2016 letter to shareholders: stay in the market and buy at a bargain.
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Wall Street's epic rally is not how sharemarket ride ends
By Vesna Poljak
Updated 27 Dec 2018 — 6:27 PM, first published at 6:15 PM
President Donald Trump's Plunge Protection Team didn't have to do a thing.
A sensational rally on Wall Street sparked by the President's assurance that the chairman of the Federal Reserve's job is safe, and Amazon's declaration of successful holiday sales, was enough to save the S&P 500 from crossing into a bear market.
The Dow Jones Industrial Average staged a record rally in points terms, advancing 1086 points or 4.98 per cent, and the S&P 500 116 points or 4.96 per cent on Wednesday. The Nasdaq rose almost 6 per cent in a strong session by FAANG stocks: Amazon added almost 10 per cent despite its vague market statement, Facebook and Netflix more than 8 per cent, Apple 7 per cent, and Alphabet 6 per cent.
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Back to brute force politics as Washington quits the field
Updated 27 Dec 2018 — 6:13 PM, first published at 5:15 PM
In a year of political upheaval, domestic and international, there were fewer more troubling images than that at the G20 in Argentina when two tyrants, Russia's Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, openly smiled, laughed and greeted each other with a high five.
It was a moment that symbolised a complete lack of global moral leadership created by the creeping economic, diplomatic and military withdrawal by the United States under the increasingly unhinged "leadership" of Donald Trump, the man Kim Beazley once so aptly described as a narcissistic buffoon.
The mocking defiance in Buenos Aires in early December demonstrated that you could murder journalists and critics, invade your neighbour, shoot down a civilian airliner, back a regime that used chemical weapons, or poison your enemies, perceived or otherwise, on foreign soil – without any real consequence.
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Scott Morrison will have to dig deep next year
27 Dec 2018 — 11:45 PM
A seven-point gap in the opinion polls, and dependent on seven cross-benchers to stay alive for a day in Parliament: Scott Morrison faces re-election in a few months with depleted stocks of everything, except ironically of money.
A strong economy has delivered 1.2 million jobs since the Coalition took office, and the end of a decade of deficits is in sight. In the last six months, a windfall company tax take has delivered another $31 billion to the government's coffers. But Mr Morrison now has to turn cash into votes, when few governments have much track record of doing that wisely. On top of new spending promises over the last six months, the government has flagged in the Mid-Year Economic and Fiscal Update another $9.2 billion in tax cuts ahead of the election.
Even then, Mr Morrison still has to politically out-pledge Labor's war chest of twice the size, because the Coalition will not increase taxes while Labor will strip what it needs from property investors and retirees. Then Australia might face a year of political transition at the same time as the world economy slows, its synchronised recovery long over. That's not the same as living with the anxiety of Brexit on March 29 next year, or waiting for the next bombshell from the White House. But Australia no longer has a budget buffer to deal with what global shocks may come. And at home, a government of either stripe will have to steer through more falls in house prices, a more politically sensitive market than ever when household debt is at record highs.
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Treacherous path to election could erase memento Morrison
By Shane Wright
28 December 2018 — 12:00am
To be erased from the collective memory of ancient Rome was a punishment as terrible as death.
The destruction or reworking of statues and memorials was one way a senior Roman could have their imprint on society removed.
Sometimes it is as if the Australian government is engaged in its own form of damnatio memoriae.
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Anonymity no protection for tweeting public servants, High Court told
By Doug Dingwall
27 December 2018 — 12:00am
Anonymity gives public servants no protection from sacking for making political comments, the federal government has told the High Court.
Attorney-General Christian Porter has rejected arguments from a former Immigration Department worker, who says the government wrongly gagged her free speech by dismissing her in 2013 over anonymous anti-government tweets.
The federal government's lawyers, in a reply last week to Michaela Banerji's submissions, said the potential for public servants to be traced as the source of political comments and damage their workplace's non-partisan reputation gave reason enough for punishment.
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Coalition needs a miracle to win next federal election
The Coalition and Scott Morrison are set for an election wipe-out. These are the MPs who could lose their jobs in the looming bloodbath.
The news just keeps getting worse for Scott Morrison as new analysis shows the Coalition is failing to win back voters.
Ever since Mr Morrison took over as Prime Minister after Malcolm Turnbull was dumped, poll after poll shows voters turning away from the Liberal and National parties.
The latest Newspoll analysis prepared for The Australian and published yesterday shows the government is on track to lose 24 seats across Australia.
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The biggest porky pies: How fake news has shaped our history
By Julia Baird
29 December 2018 — 12:00am
It’s strangely appropriate that Donald Trump, the man who made popular the concept of #fakenews, this week asked a little kid if she still believed in Santa Claus. (Spoiler alert!) He then added; “Because at seven, that’s marginal, right?”
Happily, Collman Lloyd from South Carolina did not know what the word marginal meant, and politely replied, “Yes, sir.”
Collman and her siblings left out chocolate milk and sugar cookies for Santa, which vanished by morning, after Santa’s epic 24-hour cross-continental binge. You can imagine her parents rushing to clear the cookies, carefully leaving crumbs or, as I used to do, dusting icing sugar over boots to make “snowy” footprints.
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The cost of talking budget in an election lead up
By Crispin Hull
29 December 2018 — 12:00am
The first few months of 2019 will be a dangerous time economically in Australia. A Government on the ropes will be out to buy votes and an Opposition sacred of blowing it at the last minute will be almost forced to match every bribe.
And economically it is a bad time to pour money into voters’ pockets because the economy is going along reasonably well and does not need any stimulus.
A further difficulty is that any new spending in the form of tax breaks will be very difficult to reverse. Once you give voters lollies, it is very hard to take them away.
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Australian voters have every reason to be cynical
By Ebony Bennett
29 December 2018 — 12:00am
The summer period comes with many different traditions. For our family Christmas, breakfast is the main event with everyone gathering together for platters of fruit, Christmas ham, fried eggs, croissants, juice and sparkling wine and secret santa. It’s political fights with my dad. It’s trips to the beach, prawn sandwiches on the veranda as the sun sets, it’s a time for recharging your batteries and reflecting on the year that’s been before looking ahead to the year to come.
Every year, most people I know feel like they’ve just managed to scrape through until they get a break at Christmas. This year it feels like government barely scraped through.
Traditionally, I argue with my dad about politics and policy at Christmas but this year neither of us could muster the enthusiasm for a debate on anything. Politics this year is too exhausting, too stupid, too depressing. Dad, who admired Malcolm Turnbull, cannot fathom why the Liberal party knifed him in August and has now switched off politics almost entirely – he’s not alone judging by the polls since then.
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Meet the people who control your power
By Cole Latimer
28 December 2018 — 12:27pm
A blackout hits, the lights go out and everything screeches to a halt: How does the city recover?
In a bunker hidden away in a non-descript western Sydney suburb, a group of workers spring into action redirecting power to where it is needed most. The lights come back on.
This room is the nerve centre for Australia's electricity, and powers every aspect of your life.
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Where did it all go wrong for markets - and what is next?
By Tom Rees
28 December 2018 — 1:42pm
In 2018 there has been no place to hide for investors. A tumultuous year has seen bubbles burst, volatility make a long-awaited return, the record bull run face its greatest threat and trillions wiped off plunging assets.
An unnatural calm on markets has been pushed aside by worries that the economic cycle is about to turn as central banks shut off the stimulus taps and trade tensions show no sign of abating.
Copper, oil, emerging-market equities, Chinese stocks and US tech giants all entered a bear market this year - a fall of more than 20 per cent from an index's 52-week high - while 93 per cent of all assets lost value in dollar terms in 2018, a record according to Deutsche Bank.
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Labor will hit shares ‘at worst possible time’: Josh Frydenberg
- 12:00AM December 28, 2018
Josh Frydenberg has seized on global share volatility after US stocks staged a stunning recovery, warning that Labor’s $55.7 billion plan to scrap cash refunds for excess franking credits would hit the Australian economy at the “worst possible time”.
Bill Shorten has pledged a Labor government would stop super funds and individuals from receiving cash payments if their dividend imputation credits exceed their total tax liabilities, warning that the refunds are unsustainable and will soon cost the budget $8bn a year.
The largest rally in US equities since 2009 — in which investors defied a rout that, just days ago, had left the S&P 500 index within a few points of a bear market — yesterday drove the biggest single-day lift in the Australian sharemarket since November 2016.
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Automated trading magnifies the madness
- By Gregory Zuckerman and Rachael Levy
- 12:00AM December 28, 2018
Behind the swift market slide of 2018 is an underlying new reality: roughly 85 per cent of all trading is on autopilot — controlled by machines, models, or passive investing formulas, creating an unprecedented trading herd that moves in unison and is blazingly fast.
That market has grown up during the long bull run, and hasn’t until now been seriously tested by a prolonged downturn.
Since peaking in late September, the S&P 500 index was down 19.8 per cent, before jumping 5 per cent on Boxing Day. The S&P is now down 9 per cent in December alone. It isn’t just stocks. Benchmark Brent crude oil stood above $US85 a barrel in October, and yesterday was trading near $US54.
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Election year preview: The seven issues that will decide who wins
The election is just months away and we already know how both sides will fight it. These are the issues that will decide who wins.
We have, rather mercifully, reached the end of the political year.
It started with the news of Barnaby Joyce’s affair, and finished with his fellow Nationals MP Andrew Broad embroiled in a sordid “sugar baby” scandal.
In between those rather inauspicious bookends, the Liberals knifed yet another prime minister.
But next year could be even more dramatic, with the election looming in May.
Earlier this month, Labor’s national conference and the government’s Mid-Year Economic and Fiscal Outlook (MYEFO) foreshadowed each side’s strategy.
These are the issues that will dominate the first five months of the year — and ultimately decide who wins.
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Superannuation funds’ $450m low-balance fee hit
- 12:00AM December 29, 2018
Four million Australians are paying a total of $450 million a year in unnecessary duplicate superannuation fees because funds are refusing to reunite inactive and low balance accounts with their owners.
Federal government legislation, first announced in the May budget but which stalled in the Senate following a fierce lobbying campaign by super funds, unions and life insurance companies, is aimed at consolidating these lost accounts so members are not paying more than one set of management fees.
Under the proposed legislation, the Australian Taxation Office would take ownership of inactive funds with balances below $6000 and “proactively reunite” people with their savings by using data-matching technology.
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Cash the best asset class in 2018 as equities, commodities slumped
Updated 28 Dec 2018 — 3:48 PM, first published at 27 Dec 2018 — 11:00 PM
Investors who held on to cash and bonds have been rewarded in 2018 as global equities and commodities slumped against a backdrop of market volatility, geopolitical concerns and economic slowdown.
Despite the RBA's cash rate remaining at record low levels, cash was still a standout in a year of broad-based underperformance across the board, with the small returns offered by interest payments and term deposits outpacing other asset classes.
"I can't think of many asset classes that beat cash this year," says Perpetual's head of investment strategy Matt Sherwood.
"In 2018, global growth hit a seven-year high but global risk returns were at a seven-year low. It's been a very challenging year but cash has done very well, as it always has done in a downturn."
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