Don't get caught in this financial storm + Why Japan's spooking markets

Hi everyone,

After being hit by a massive storm, it’s a relief to have the power back on at home. It’s been a wild week of weather, with storms across Brisbane and cyclones sweeping through the Top End.

It’s a good reminder to check your home and contents insurance is up to date.

In this newsletter:

• Inflation stays annoyingly strong.

• Storm season is a reminder to get your insurance sorted now.

• No matter what the economy does next year, property prices will rise.

• Why luxury property values are now rebounding.

• Vanishing: Fixed rate loans with a ‘4’ in front.

• Do you really need a credit card?

• The crypto crash - be warned.

• Why Japan is spooking global markets.

Inflation stays annoyingly strong

After the disappointing outcome from the September quarter CPI figures - which torpedoed any chance of an interest rate cut in the foreseeable future - the October monthly CPI on Wednesday has added to that disappointment.

October came in stronger than expected, at an annual 3.8 per cent for the headline figure and 3.3 per cent for the trimmed mean. So interest rates are on hold for an extended period but, if these CPI results keep disappointing, the next move in rates could be up.

Financial markets had been factoring in a 40 per cent chance of an interest rate cut in May… after the October CPI, that chance is down to just 8 per cent. There is now a 32 per cent chance of a rate hike by the end of next year.

While markets often discard the CPI for the first month of a new quarter as unreliable, October was the first month the Bureau of Statistics used a new, more comprehensive methodology, which is more reliable. The new full monthly CPI covers around 87 per cent of the CPI basket, compared with just 50 per cent previously.

Of the items measured, clothing and footwear prices jumped 2.2 per cent in October, while furnishings, household equipment and services were up 0.7 per cent. Electricity prices fell 10.2 per cent due to household subsidy payments in NSW, the ACT and Western Australia - but remain up 37 per cent over the year.

Storm season is a reminder to get your insurance sorted NOW

Welcome to the start of storm season. South East Queensland has really been battered by thunderstorms this week and we’ve seen the start of cyclones across the Top End.

I know the cost of living is still hitting the household budget of many Australians but don’t sacrifice your insurance cover to save money. There’s an old saying: “Insurance is a waste of money … until you need to make a claim”.

And don’t think you can skip insurance until you’re about to face a disaster. Insurance companies are on to that.

When disaster strikes, insurers often pause the sale of new policies. This prevents people from taking out cover only when the risk is high, without having any prior plans to be insured.

Embargoes typically come into effect when warnings are issued for fires, floods, or storms. Insurers may also impose a waiting period before claims can be made on new policies. So review your policy before it's too late.

If you already have cover in place, the good news is storm damage is usually included as standard in home and contents policies. But please review your policy carefully and understand what’s covered.

It’s also wise to take photos of your property and belongings. If you need to claim, having evidence that damage occurred during a weather event can help speed up the process.

A nationally representative survey by Compare the Market (CTM) revealed storm damage was the most common event leading to claims.

Of the 23.4 per cent of Australians who had claimed in the past five years, the survey found:

• One in five claims (20.6 per cent) related to storm damage.

• 8.8 per cent of claims were linked to floods.

• 17.6 per cent were related to water damage, including leaks and burst pipes.

• Theft was another leading source of claims with 17.6 per cent of claims linked to stolen goods.

And, while there’s no such thing as ‘flying trampoline cover,’ damage caused by flying objects during a storm is generally included under standard home and contents policies. Even if the flying object doesn’t belong to you, you’re still responsible for protecting your home and covering any damage it causes.

Also, don’t forget the fridge. If there’s a blackout and you lose perishable goods in your fridge, check whether your policy covers spoiled food - restocking can be costly, and some policies will cover you for that.

AND it always pays to compare. Insurances are a huge burden on family balance sheets. CTM research shows a family with a typical car and four-bedroom home could be spending upwards of $4,000 on policies each year.

But there are considerable discounts for people who choose to shop around. Quotes for home and contents cover at one Brisbane address varied as much as $2,857. I can think of a few better ways to spend that money!

No matter the economy ... your home will still go up in value

That’s the very comforting view from the annual Boom and Bust Report from SQM Research’s Louis Christopher for next year. This is one of the most eagerly awaited property reports of the year and longtime readers know I highly rate Louis and his forecasts.

I rate him because his forecasts are generally on the money. Just look at the report this time last year on the 2025 property market. It was spot on, if slightly conservative.

What I like about the Boom and Bust report is that, while it provides a base forecast, it considers a range of economic scenarios and how property will perform under each.

And in 2026, no matter the economic scenario, residential property value will rise across all capital cities.

Brisbane, Perth, Adelaide and Darwin housing prices are once again predicted to continue to record outperformance compared to our larger capital cities with the four cities tipped to record dwelling price rises of up to 16 per cent.

There are some really important assumptions to note, though:

• Population growth will likely moderate to about 390,000 people or 1.4 per cent because of cuts to immigration. This will translate into new demand for about 150,000 dwellings.

• Dwellings completions will rise to about 180,000 dwellings, creating a small surplus for the year of about 30,000 dwellings for next year.

• Interest rates will remain steady until mid-2026, followed by a 0.25 per cent rate cut or two.

• Employment growth will slow creating a further rise in unemployment to 5 per cent.

SQM’s base case scenario assumes a steady but sluggish economy for 2026. Even so, the momentum from the strong housing price growth recorded in the second half of 2025 is expected to carry through until at least mid-2026. From there, anticipated interest rate cuts in the second half of 2026 will ensure ongoing price growth.

If these rate cuts do not eventuate, the capital city property markets are still expected to rise in value, but at a slower pace of growth. The interest rate cuts of 2025 plus the First Homeowner’s Deposit Scheme will continue to encourage buyers into the housing market.

Luxury property is now starting to rebound

I’ve been talking about the federal government’s 5 per cent guarantee scheme and the impact it has been having on the low-to-middle-end of the property market, but it seems luxury property values are rebounding after a sluggish year or two.

New research from property giant Ray White indicates luxury property is starting to sell again and rise in value.

To put it in perspective, Sydney grew six per cent between 2024 and 2025 after growing just two per cent between 2023 and 2024 to finally reach a new peak luxury price of $4.5 million. Melbourne, on the other hand, is yet to reach its peak.

Luxury house prices in the Victorian capital grew five per cent between 2024 and 2025 after declining one per cent between 2023 and 2024 to end 2025 at $2.6 million.

All in all, according to Ray White, Sydney grew 35 per cent in the last five years while Melbourne grew just 17 per cent, modest compared to Brisbane (+77 per cent), Perth (+76 per cent), Adelaide (+73 per cent), Gold Coast (+72 per cent), and Sunshine Coast (+68 per cent).

This underperformance allowed the Sunshine Coast ($2.76M) and Gold Coast ($2.86M) to overtake Melbourne ($2.62M) as the second and third most expensive luxury markets. Meanwhile, Brisbane ($2.32M) and Perth ($2.30 million) are now just 12 per cent cheaper than Melbourne, compared to 43 per cent cheaper in 2020.

Ray White believes luxury buyers may just be beginning to rediscover the value of Sydney’s prestige waterfront streets and Melbourne’s leafy inner suburbs. Price discounts that drove buyers away from Sydney and into cheaper luxury enclaves of Southeast Queensland are not as significant anymore.

In 2020, Sydney was twice as expensive as the Gold Coast and Sunshine Coast. Now it’s 1.5x more expensive. Compared with Brisbane and Perth, the premium has narrowed from 2.5× to 1.9×. In other words: Sydney’s premium looks more justified than overpriced.

The case in Melbourne is more complex as broader economic challenges in the wake of its extended lockdowns, which cumulatively was the longest in the world, damaged its appeal to the exact buyers who could afford to look elsewhere.

Yet paradoxically, it's because of Melbourne's weakness that it might be the better luxury bet for 2026 in the eyes of Ray White. At only 17 per cent growth over five years, it significantly underperformed relative to its fundamentals as Australia's second-largest city.

If the rate-cut cycle delivers and confidence returns, the luxury buyers who fled Sydney and Melbourne may find themselves returning to markets that now offer better relative value than they've seen in years.

Vanishing: Fixed rates in the 4s

Speaking of interest rates, lenders are starting to reset their fixed rate home loans as confidence around future rate cuts dwindles. Fixed rates starting with ‘4’ are disappearing as banks bet on rates staying on hold for longer.

One of the country's lowest two-year fixed rates has come off the table. ME Bank will withdraw its two-year fixed offer of 4.99 per cent for Loan Valuation Ratios less than 80 per cent on Tuesday. The new adjusted rate will be 0.40 per cent higher, sitting at 5.39 per cent.

The RBA is unlikely to budge on rates until well into next year, but even then, the conditions would need to be right.

If Michele Bullock is Goldilocks, the three bears are inflation, employment and economic growth. They all need to be ‘just right’ for the Reserve Bank to move on rates, because it's such a fragile situation and one wrong step could scupper the progress we've made.

This week’s move from ME Bank is another sign of growing consensus. Our next rate cut could be a while off, and there's almost no chance of a cut in December.

It's disappointing news for borrowers hoping for some budget relief ahead of Christmas, but if you're savvy you might still be able to negotiate a rate cut of your own by refinancing.

If you've made some good progress paying down your loan, or your property value has gone up, there are still a few deals with a four in front available to borrowers with a loan-to-value ratio of 80 per cent or lower. When switching to a cheaper rate could help you free up hundreds, it's really a no-brainer to check and assess your situation every few years. Be choosy like Goldilocks and find value that's just right for you.

Do you need a credit card?

I tend to be wary of credit cards. The temptation to overspend is always there when you can access funds with just a tap of your card or phone. High interest rates and sneaky hooks - like minimum repayments or offers to lift your credit limit - can easily trip you up. And if you fall into the debt trap, climbing out only gets harder.

But when managed smartly, a credit card can also be a good thing.

When credit cards are useful

A credit card can be a handy financial tool - but only if you treat it as a way to manage your money, not to borrow on it.

Paying off your balance each month can help you build a good credit history. Lenders like to see reliable repayment behaviour, which can make securing a mortgage or other loans easier and cheaper. A home loan is what I call “good debt” - you’re borrowing to buy an appreciating (hopefully) asset you’ll eventually own.

Credit cards can also come in handy during emergencies, like a car repair or unexpected bill before payday, and helps smooth out cash flow. And if you shop online or travel often, they can offer extra protection against fraud or transaction failures that a debit card may not cover.

That said, if you’re using your credit card for everyday expenses or impulse buys, and find it hard to pay on the due date, that’s a red flag. If this is you, then a debit card might be a smarter option.

Debit cards vs credit cards

Debit cards are a great alternative if you prefer to spend only what you actually have.

They look and work much like a credit card, but draw money straight from your account. There’s no bill at the end of the month, no interest, and less temptation to overspend.

A debit card is also much smarter than using ‘buy now, pay later’ services, which often carry high costs. They’re also good if you’re not ready to manage a credit card responsibly - being honest about that is key to building better money habits.

The downside? Debit cards don’t generally build a credit history or offer big incentives or perks. Like anything, you’ll need to weigh these up.

Credit cards: the good and the bad

Here’s the big pros and cons of credit cards:

Pros:

• Build your credit history.

• Offer travel and purchase protection.

• Earn rewards or cashback.

• Provide a safety net for emergencies if you lack savings.

Cons:

• High interest if you don’t pay in full.

• Easy to overspend.

• Can damage your credit score if misused.

• Extra fees - annual, late payment, or foreign transaction charges.

If you’re disciplined about paying off your balance each month, a credit card can work for you, not against you, by improving your credit score. This is your ‘financial reputation’ and shows how well you manage debt.

Your money mindset and financial goals will determine which option suits you best.

Tips when choosing a credit card

If you’re thinking about getting a credit card ... for the right reasons, not to fund everyday spending ... don’t rush into the first flashy offer. Extra rewards, instant approvals, or high credit limits are often designed to lure you in. Don’t take the bait.

Start by checking the interest rate, or Annual Percentage Rate (APR). This shows what you’ll pay if you carry a balance.

For example, if you leave $1,000 unpaid on a credit card with an 18 per cent interest rate, you’d be charged about $180 in interest over a year. But because it’s compounded monthly, you’d actually owe closer to $1,195 after 12 months. It’s always best to pay off the full balance, but it helps to know the cost if you don’t.

Next, check any annual fees. Some cards charge for extras like travel insurance or cashback. Only pay for benefits you’ll actually use; otherwise, a no-fee card is usually smarter.

Look closely at the rewards system. Cashback, points, or frequent flyer miles are only worthwhile if they fit your lifestyle. Earning flight miles is useless if you rarely travel, and supermarket rewards don’t help if you shop at local markets.

Finally, think about your credit limit. A high limit can be tempting, but it also makes it easier to overspend. Starting small keeps things manageable while you learn to use your card responsibly.

At the end of the day, the best credit card is the one that fits your habits and lifestyle - not the one being sold to you through slick advertising.

So do you really need a credit card?

It depends.

Without a clear understanding of how compounding interest works, a credit card can easily become a debt trap.

But if you can pay it off in full each month and stay disciplined, a credit card can help you build a solid credit rating - opening doors to better financial opportunities. It can also save you money through rewards and purchase protections.

Just remember, while ‘plastic money’ might not feel real, it comes with very real world consequences. Depending on how it’s managed, these can sometimes be good.

The crypto crash

I still get asked all the time: “Do you invest in crypto?”

The answer remains an emphatic no.

Cryptocurrencies are unregulated, unpredictable, and dominated by major players who are often unaccountable. Proponents once promoted crypto as a decentralised currency, immune to the influence of governments and banks.

As the current crash shows, that’s clearly not the case.

If you’re looking to invest in crypto, only invest what you’re prepared to lose - and please, be extremely vigilant of scams. If you ever see a cryptocurrency fund with my name on it, run for the hills, because I would never endorse it.

Why Japan is spooking global financial markets

Bond markets are something many everyday investors find complicated and, frankly, a bit boring. But for institutional and professional investors, they are anything but.

Bond markets act as the canary in the coal mine for the global economy and financial system.

It was the bond market that signalled the Global Financial Crisis even as sharemarkets were still booming.

So when Japan’s 30-year bond yield hit 3.41 per cent this week, many professional investors heard the canary singing.

Japan’s government debt is 230 per cent of its GDP (the size of its economy). It's the most indebted nation in history. For decades, Japan’s economy has survived because they have been borrowing at basically 0 per cent interest rates.

Not anymore.

Japan’s core inflation is running at 3 per cent, government bond yields are spiking to levels not seen since 1999, and it is now forced to spend 2 per cent of GDP on defence - that’s nearly 9 trillion yen annually.

The Bank of Japan has been faced with either raising rates and triggering a debt collapse, or keeping rates low and watching inflation destroy savings. They chose the latter.

So, banks and fund managers around the world have been borrowing in Japan at 0 per cent interest rates and investing elsewhere - earning a much higher rate. It was a no brainer.

That was until borrowing rates started to rise... like they are now. When Japan’s system breaks, money moves. Fast.

Remember how the Nikkei dropped 12.4 per cent in a single day and the Nasdaq fell 13 per cent in July last year? This was all because of fears of rising Japanese interest rates.

Japan’s government pays interest on $9 trillion in debt, so every 0.5 per cent rise in rates costs an extra $45 billion a year. At current yields, interest payments will consume a massive 10 per cent of all tax revenue - that is huge.

The next Bank of Japan meeting is scheduled for 18-19 December, and markets are pricing in a 50/50 chance of another 0.25 per cent rate hike. If they do raise rates, expect markets to turn jittery. If they don’t, inflation will pick up again and the problem will worsen.

The ripple effects around the globe could be enormous.