Your money and the dropping Aussie $ + Check out this great new flying perk

Hi everyone,

Not a big week on the economic front but it has been interesting. American technology stocks are under a fair bit of scrutiny as they now have to justify their big sharemarket values with profits and revenues to match.

Amazon shares dropped 7 per cent overnight on sales figures which didn’t match their share value. This is indicative of the market expecting the so-called ‘Magnificent Seven’ US technology giants to live up to their promises.

In this week’s newsletter:

• Aussie consumers become master bargain hunters.

• Donald Trump is our new reality show!

• Good news: Housing affordability improves, but supply is still terrible and properties aren’t selling as quickly.

• How will the dropping Aussie dollar affect your investments?

• Lounge access for delayed flights - a new travel insurance perk.

• Look how Australia’s resource companies are dominating the world.

Aussie consumers become master bargain hunters

After retail sales rose 0.7 per cent in November with consumers loading up on Black Friday/Cyber Monday bargains, most economists expected the December figure to fall 0.7 per cent. They assumed we’d all have filled our Christmas stockings in November.

But pre-Christmas retail sales only fell 0.1 per cent in December. Retail sales were up 4.6 per cent on a year earlier to a record-high of $37.1 billion, running ahead of annual population growth and underpinned by strong jobs growth, personal income tax cuts and government energy subsidies. According to CommSec, it was the strongest annual growth rate since March 2023.

Across the major categories in December, retail spending rose the most for household goods (up 1.6 per cent), especially electrical and electronic goods (up 2.9 per cent). Spending fell the most for ‘other’ retailing (down 1.4 per cent), with ‘other’ recreational goods down 1.9 per cent.

Elsewhere, spending at department stores (up 0.4 per cent) and on food (up 0.1 per cent) increased in the month, while spending on clothing (down 1.8 per cent) and at cafes and restaurants (down 0.5 per cent) both declined. That’s why you’re seeing lots of cafes and clothing stores shutting down in your area.

In December, spending fell by the most in the Capital Territory and South Australia (both down 0.7 per cent), followed by Victoria (down 0.2 per cent), then Tasmania and the Northern Territory (both down 0.1 per cent). Spending rose in Western Australia (up 0.2 per cent) and New South Wales (up 0.1 per cent).

For the year, Western Australians were the nation’s biggest shoppers with retail sales up by a massive 6.3 per cent in the state, while Canberrans were the most frugal with spending in the ACT growing just 2.1 per cent.

Donald Trump ... our new reality show!

Forget Married At First Sight or Home and Away, the Donald Trump show has us all fascinated. What a ride. It is crazy, amusing, confronting and mad. But it is compulsive. We’ve never seen it before in politics.

Just to put it in perspective, the latest newsletter from Joe Hockey’s Bondi Partners Consultancy shared the below graph. It shows the Presidential Executive Orders signed in the first 100 days of a new Commander-in-Chief.

Trump’s only been in the job for three weeks and he’s up there with what Biden and Truman issued in 100 days.

In a recent newsletter, I wrote about the level of US Government debt that Trump is inheriting. The below graphic shows the plight of this debt as it grows to 2035.

By that stage, the annual interest bill will be more than double what it is now at US$1.8 trillion a year - almost double the defence spending expected in that year.

Increasing tariffs is one way to balance the budget with a bit more revenue … as long as it doesn’t happen to you.

Unlike Canada and Mexico, the US has had a massive trade surplus with Australia for decades. Over the 12 months to November, the US exported $49.6 billion worth of goods to Australia. In return, Australia sold only $22.4 billion in merchandise to American businesses, according to the Australian Bureau of Statistics.

The imbalance meant the US recorded a $27.2 billion trade surplus with Australia, despite recording a US$773.4 billion (AUD$1.24 trillion) deficit with the rest of the world.

Talking of US politics, one bloke that is grating on me at the moment is Tesla boss, Elon Musk. His antics are just getting under my skin.

And it seems I’m not alone. Have a look at his popularity rating among Americans in the below chart. He seemed to be pretty admired and loved back in 2016, but the more he has become involved in politics, the more he has annoyed Americans.

I can see where they’re coming from.

Good news! Housing affordability improves, as property values drop

It does make me laugh. When the residential property market is booming, all the media coverage is focused on the lack of affordability for first home buyers. My friends talk about how hard it is for their adult children to buy into the market and how the Bank of Mum and Dad is being tapped to help out.

But when property values fall, the media focus is firmly on the drop in value for your biggest asset and that it is turning to a buyer’s market. No mention that this is good news for first home buyers as housing affordability improves. My friends stop talking about their kids getting into the market and worry about the value of their property falling.

According to the latest figures from property research group, CoreLogic, three of the eight capital cities recorded a decline in home values in January. Melbourne recorded the sharpest drop (-0.6 per cent), followed by the ACT (-0.5 per cent) and Sydney (-0.4 per cent). Hobart home values stayed steady in January.

Brisbane and Perth continued to record growth in home values, but there has been a clear and steady loss of momentum in these markets - especially in the detached housing sector where value growth has noticeably eased.

Perth is now recording a slower rate of growth than Brisbane and Adelaide over the rolling quarter. In the June quarter of 2024, growth in Perth home values was 7.1 per cent, easing back to just 1 per cent growth in the three months to January.

Adelaide has shown a more resilient trend, although the pace of gains is slowing. Adelaide’s value growth has led the state capitals over the past six months with a 4.8 per cent gain. Annual growth in national home values has more than halved since moving through a cyclical peak over the 12 months ending February 2024 (9.7 per cent), slowing to 4.3 per cent in January.

CoreLogic’s national Home Value Index (HVI) is now down 0.3 per cent from the record highs recorded in October last year.

But potentially lower mortgage rates, a subsequent lift in borrowing capacity, as well as an under-supply of newly-built housing could be setting the foundations for a relatively shallow housing downturn, according to CoreLogic’s research guru, Tim Lawless.

Property supply is still falling short

Property is all about demand and supply, but Australia’s supply is terrible.

This is what CoreLogic is talking about when it points out that a shortage of new houses being built will put a floor under property values. There is unlikely to be any sort of property crash in the foreseeable future.

Despite a small uptick in building approvals over the month of December, Australia fell short by 68,606 homes of its annual 240,000 housing target in 2024.

According to the Australian Bureau of Statistics, there was a very slight increase (+0.7 per cent) in the volume of new home building approvals during December 2024.

This was the result of a 6 per cent increase in higher-density apartment dwelling approvals during the month. But detached house building approvals dropped by 2.8 per cent during December.

When looking at the yearly performance, 171,394 new homes received approval during 2024 overall, a modest gain (3.9 per cent) on the year before. This was driven by a 7 per cent gain in detached house approvals during 2024.

Currently, all states and territories have fallen short of their Housing Accord target. If building continues at this pace, the housing shortage will continue for some time.

The ultimate litmus test in property values

Everyone looks at the monthly property valuations to see if their biggest asset is appreciating or not. But I reckon how quickly properties are selling and how many listings are coming online are also key indicators.

That’s why I was interested in SQM Research’s latest listing report. With property values falling in Sydney and Melbourne, look at the big jump in new listings in both of these cities. It looks like homeowners may be trying to lock in profits at near the top of the market after a boom few years.

Meanwhile, Brisbane, Perth and Adelaide properties are still growing (albeit at a slower pace) and owners are happy to sit on their property and watch it appreciate.

But Sydney and Melbourne sellers are finding it harder to find a buyer quickly, with properties listed for longer than 180 days rising by 20 per cent.

While it seems any property which comes up for sale in Brisbane, Perth and Adelaide are snapped up quickly.

When the Aussie dollar drops, this is what it means for your money

The fall in the value of the Australian dollar is playing havoc with the cost of overseas holidays and buying of imported goods. Back in 2011, the Australian dollar was at parity with the US dollar - a dollar for a dollar.

Now it’s hovering around its lowest levels in years, decades even. If you’re an investor, this could have very real implications for your portfolio.

The Aussie dollar is compared most often against the US dollar, which is regarded as the ‘world’s trading currency’. The Greenback is usually the common payment currency in trade between different countries. If the US dollar goes up in value, the Aussie dollar will fall in value by comparison - even though nothing economic or financial may have happened here. So what does a weaker currency really mean for your money?

How a low Aussie dollar could impact your shares

A weaker Australian dollar isn’t necessarily all doom and gloom for the local sharemarket. In fact, some companies actually benefit when the dollar drops.

Take businesses that export goods - think mining giants like BHP and Rio Tinto, as well as agricultural producers. They get paid in foreign currencies like the US dollar, so when they convert those earnings back into Aussie dollars, they end up with more in their pockets.

Take the gold price, which at US$2,820 is up 773 per cent in the last year and at record highs. For an Australian gold miner that converts to $4,549 and, because the Australian dollar has fallen so much, is up 1,371 per cent in the last year.

That’s why commodity-driven sectors are big beneficiaries and tend to experience a bit of a surge when the dollar falls.

On the flip side, businesses that rely heavily on imports (like retailers that buy stock from overseas) get walloped with higher costs - think of those who are operating in manufacturing and technology, and even airlines that pay for fuel in US dollars.

It’s a mixed bag for investors, too. If your portfolio has strong exposure to exporters, you could see some serious gains. But if you're invested in companies that depend on imports, I reckon you need to be keeping a very close eye on how their profits could be impacted.

What it means for your international investments

Here’s where a weaker Aussie dollar can really work in your favour. If you’ve got investments in global markets, a falling local currency actually boosts your returns when their returns and values are converted back into AU dollars.

Let’s say you invested in a US stock like Apple when the exchange rate was US70 cents per AUD$1. Now that the dollar has fallen closer to US60 cents, the value of that investment has increased in Aussie dollar terms - even if the stock price hasn’t moved. This is why lots of investors hold international shares as a hedge against currency fluctuations. If you’ve already got exposure to overseas markets, you’re likely benefiting from the weaker dollar.

But just be conscious that if the Aussie dollar starts to improve its value, then the opposite occurs. That’s why a lot of investors will hedge their overseas investments to take away the currency risk - both good and bad.

How does it impact property?

You might not think the exchange rate has much to do with real estate, but a weaker dollar can have some surprising knock-on effects for the housing market.

For starters, foreign investors tend to see Australian property as a more attractive investment when the dollar is low. A cheaper Aussie dollar means overseas buyers get more bang for their currency buck. The result? Increased demand, especially in Sydney and Melbourne where international investors are already very active.

On the downside, building costs can rise when the Aussie dollar is weak. Plenty of construction materials and appliances are imported here, meaning property developers and renovators could be stung with higher prices. This might also slow down new housing developments and renovations, thereby tightening up supply in the market even further.

Don’t forget about your super

Your super fund is probably invested across a mix of local and international assets. Most super funds hold unhedged international investments, meaning any currency fluctuations will impact your returns. When the dollar drops, the value of these investments goes up in Aussie dollar terms. That’s why you might notice stronger performance in your super fund’s international shares when the dollar is weak.

But the impact will ultimately depend on how your super fund is structured. If you’re not sure, it’s worth checking your fund’s investment breakdown or speaking with your super provider.

The best ways to manage currency risk

So, the question you’ve been waiting to ask: How can I protect my investments from excessive currency risk? Try these strategies:

• Diversify your portfolio: I’ve said it before and I’ll keep saying it until I’m blue in the face. Holding a mix of Australian and international investments spreads out your risk. That way, when the dollar weakens, your overseas holdings can help balance out any local losses.

• Look into currency-hedged investments: Some international ETFs and managed funds have hedged options, which will give you a bit more protection against currency fluctuations. Just remember that while it can help keep volatility to a minimum, it can also limit your gains when the Aussie dollar is weak.

• Think long-term: Trying to time currency movements is next to impossible - even the experts get it wrong. If you’re investing for the long haul, focus on quality assets rather than short-term movements to the exchange rate.

There will always be winners and losers from a low Aussie dollar. Don’t panic about short-term currency moves. I think that if you keep an eye on these things and take the approach that this is all about the long term - not just the next few months and years - then you’ll be in a decent position to ride out any potential fluctuations and keep your investments on track.

Great insurance perk: Lounge access for delayed flights

Travellers stranded by delayed flights may be able to access reprieve at the airport lounge, thanks to a new travel insurance benefit from Huddle Insurance.

A new Smart Flight Delay feature from Huddle monitors departures in real-time, so customers can receive up to four passes for an airport lounge when a flight is delayed for an hour or more.

The perk provides access to over 1,400 airport lounges around the world.

Roughly 25 per cent of domestic flights by participating Australian airlines were delayed during October 2024, according to the Bureau of Infrastructure and Transport Research Economics.

Hamilton Island to Sydney was the least punctual domestic route, with the lowest percentage of on-time arrivals and the most delayed departures (46.2 per cent and 51.3 per cent, respectively).

More cancellations occurred on the Port Hedland to Perth route (7.3 per cent) followed by Townsville to Cairns (5.6 per cent) and Coffs Harbour to Sydney route (5.3 per cent).

Travel insurance isn’t just a ‘nice to have’, it is a must for anyone travelling and concerned with unexpected cancellations, illnesses, injury and lost luggage.

A lot of people take a chance with travel insurance because they don’t think anything will go wrong. The reality is, thousands of Australians are impacted by losses when travelling overseas and in Australia every year.

Innovative policies like this one are a great reminder that travel insurance can be beneficial, whether you have an accident or not. Gone are the days of sitting on the floor of a crammed terminal, getting hungry and stressed because of a delayed flight.

Huddle co-CEO Jonathan Buck said gaining lounge access was fast and easy, and there was no need for customers to lodge a claim.

The experts at Compare the Market have observed a notable rise in travel insurance quote searches following the recent volcanic eruption in Bali - that put holiday plans in a tailspin.

It is a good idea to get insurance sorted well in advance of a holiday to ensure that you have appropriate cover before disaster strikes.

As soon as something happens, it becomes a “known event” which means insurers may not cover losses if you don’t already have a policy in place at the time. Buying a policy which includes cancellation cover early means you get the most value from your purchase.

Australia’s resource companies dominate the world

We often talk about Australia’s biggest exports as iron ore and coal, and how the big resource companies dominate the Australian sharemarket.

But I reckon we lack a bit of perspective on just how big they are on a global scale. I’ve always said that I wish Australia’s iron ore, coal and natural gas mines and processing plants were in more accessible places, because average Australians would be stunned and proud if they were able to actually see them. They are enormous.

In the corporate world, it is a similar scenario.

Have a look at this table below which values the world’s biggest mining companies by region. Australia leads the globe with total market capitalisation of its resource stocks at US$353 billion ... that’s almost a quarter of the global resource sector.

Canada’s resource companies have a total valuation of US$343 billion, but the gap with Australia’s miners has been widening over recent years. America is at US$228 billion and China US$206 billion.

Have a great week, everyone.