Tech bubble ready to pop + Trump's tariff flip

Hi everyone,

Hope you’re well.

It was a tumultuous week when it comes to financial markets. Sharemarkets tanked on fears technology stocks might be overvalued, and also that the US Federal Reserve may not cut interest rates in December. Plus Bitcoin has fallen off a cliff ...

In this newsletter:

• Wages rise but fall in real terms.

• What technology bubble? Nvidia results shoot the lights out, but it fails to soothe fears.

• The Tax Office is targeting holiday homes: What you need to know.

• Travel insurance 101: How to protect yourself on holidays.

• Life insurance premiums are falling.

• Why Donald Trump is flipping on his tariff policy.

• Where the Aussie economy sits in the world.

Wages rise ... but fall in real terms

Despite a fall in unemployment and a strong increase in job creation, this hasn’t had a huge impact on wages.

The Reserve Bank continues to remind us that wages can be a major driver of inflation but the latest figures show wage growth is bang on what the RBA is forecasting.

The Wage Price Index rose by 0.77 per cent in the September quarter - the slowest quarterly pace since the March quarter in 2024. It was slower than the previous quarter and lower than market forecasts.

Annual pay growth was steady at 3.41 per cent in the September quarter which, when taking into account inflation, meant real wages fell 0.43 per cent … although it’s up 0.24 per cent for the year.

Government jobs saw wage growth rise 0.88 per cent in the quarter - the strongest pace since June 2024. By contrast, private-sector wages increased by just 0.71 per cent, the slowest growth since June 2022. That’s a notable gap, and it helps explain the shortage of tradies and home-building workers, who are increasingly being lured into higher-paying government jobs.

So where were the big pay rises?

On an annualised basis, public administration and safety (+4.3 per cent), health care and social assistance (+3.8 per cent) and education and training (+3.6 per cent) led the way. Other sectors where capacity is more strained also grew strongly, including mining (+3.6 per cent), construction (+3.4 per cent) and real estate (+3.3 per cent). Wage growth was slowest in financial and insurance services (+2.5 per cent), retail trade (+2.8 per cent) and accommodation and food services (+2.9 per cent).

What technology bubble? Nvidia results fail to soothe fears

Financial markets have been decidedly jittery over the past few weeks with a lot of fund managers believing the surge in share prices of major US technology companies had become an AI bubble ready to burst.

I’ve talked about the rise of ’The Magnificent Seven’ tech stocks a lot over the last year and how they’ve driven the US sharemarket - and your superannuation fund returns. But the market fear is that values are so high now in these stocks that their actual financial performance can’t possibly justify the valuation.

Yesterday morning, the world’s biggest AI computer chip manufacturer, Nvidia, had a beautiful set of December quarter results, which beat market expectations.

Nvidia shares rose about 5 per cent after the company reported December quarter sales of US $65bn, beating market expectations of US $62bn. Revenue for the September quarter also exceeded forecasts, coming in at US $57.01bn compared with expectations of US $55.19bn. Data-centre revenue reached US $51.2bn, above the anticipated US $49.34bn.

The world’s most valuable publicly-listed company said the demand for its advanced AI data centre chips continued to surge and is up 62 per cent from the year-earlier quarter.

But then, this morning, Nvidia shares dropped 3 per cent as the US market continued to fall on fears that tech stocks are overvalued.

The Tax Office is targeting your holiday house

The Australian Tax Office (ATO) has announced a tightening of the rules when it comes to holiday homes, making sure they maximise income earned to justify any tax concessions.

From 1 July 2026, certain holiday homes may be treated by the ATO as ‘leisure facilities’, preventing owners from claiming deductions for interest, rates or maintenance, unless the holiday home is mainly rented out to generate income.

Holiday homes in popular seasonal areas such as ski lodges or beach houses which are not available for rental throughout peak seasons, will trigger ATO attention and may result in the denial of deductions.

Other triggers that will generate ATO interest may include:

• Limited attempts to rent out the property.

• Parts of the property being inaccessible for use by guests.

• Pricing the property well above market rate to drive interest away from the property.

• Renting the property to family or friends significantly below market rate.

So the bottom line is, make sure your property is genuinely available for rent, especially in peak season, advertise widely, set a fair market rent, and avoid restrictions that turn away guests, like ‘no children’, ‘no pets’ or requiring references for short stays.

Travel insurance 101: The cover you actually need for summer holidays

Planning a trip with friends, family or just yourself over summer? If you’ve booked your flights, you’ll be getting excited about new adventures, but before you start packing your bags, you need to do a little prep work to protect yourself.

That means looking into the value – and necessity – of travel insurance.

Start with the non-negotiables

If you’re splurging on flights, hotels and tours, don’t skimp on the safety net. Think of travel insurance as a line item, not an optional extra.

There should be a few non-negotiables on your list - you must seek out a policy with unlimited medical cover, including cover for medical evacuation if needed and millions of dollars of cover for personal liability.

If you want cancellation protection, look for cover that is equal to or more than the amount you spent or plan to spend on travel and accommodation, tours and other expenses.

And if you remove baggage cover, be honest about what you’re planning to pack. You’re choosing to pay out of pocket - from your own savings - to replace anything that’s lost or stolen. It’s essentially working out your risk appetite, based on what you’re willing to lose.

When to buy – and why timing matters

Australians love leaving insurance to the night before. Don’t.

Sarah Orr from Compare the Market advises, “As soon as you book your holiday and pay a deposit, that is when you need to buy travel insurance – no matter the destination.” That way you’re covered for anything that may happen between the time you book and actually start the holiday.

If there’s a natural disaster and other serious issues which occur during that time, they quickly become issues called ‘known events’, which insurers won’t cover after the fact. So if a volcano starts to erupt just before you leave on holiday, you can’t then go and get insurance cover because the insurer will claim it’s a ‘known event’.

“This is a great reason to buy cover as soon as you book or pay your deposit – to ensure you’re covered for any events that occur in the lead up to departure day,” says Sarah.

One more reality check: “Cancellation cover only applies to unforeseen events. If you change your mind and no longer want to travel, you won’t be covered.”

The claim killers you can avoid

Most denied claims are frustratingly preventable.

Sarah’s blunt advice is to guard your gear. Be careful where you leave your bag! Luggage left unattended in public places will not be covered. If you leave your bags with other bags in a hotel foyer while a tour group has breakfast, they won’t be covered if they’re stolen. If you leave your bag on a park bench and wander off to take photos, you will not be covered.

Medical disclosures matter too: “It’s crucial to tell your insurer about any medical conditions you have when you purchase a policy,” Sarah says. “If your existing medical condition complicates other medical issues or injuries, you may not be covered or you may only be partially covered.”

‘Free’ credit-card cover versus paying for a standalone policy

Lots of credit cards will dangle complimentary travel insurance in front of your face. Sometimes it’s fine for simple trips, but usually it’s just not quite right. “If it sounds too good to be true, it probably is!” Sarah advises.

Travel insurance that’s included at ‘no added cost’ with your credit card may not provide the cover you need. Always compare and check the limits and exclusions to make sure you have the cover you need. Standalone travel insurance normally isn’t that expensive in the context of holiday planning.

How claims actually work

The golden rule is to call early, not after the fact.

“Always call your insurance provider as soon as possible if you suffer a loss,” Sarah says. “If you pay for medical bills or authorise treatment without seeking approval, and you simply hope to claim back later, you may be disappointed.”

Documentation is a must as well: “Simply keeping a credit card receipt will often be insufficient and your claim will be delayed. The more you can share with your emergency service provider at the time of the loss, the faster your claim will be assessed and processed.”

COVID, unrest and ‘Do not travel’

Policies have shifted since the pandemic. Historically, pandemics have been excluded. Since mid- to late-2020, most insurers now provide cover for COVID-19, however the exclusion for pandemics is still in place. Some will only provide cover for medical expenses while others will cover cancellation fees.

Government advisories are non-negotiable as well: Insurers will not provide cover if your destination has a Smartraveller.gov.au travel warning of ‘Do not travel’. Natural disasters are often included, but sometimes as an optional extra. And with protests and strikes popping up all over the world, be precise and speak to your insurer as soon as possible.

Summer holidays should be about relaxation, not financial heartache. So, the smart move is to buy travel insurance early, aim for unlimited medical and evacuation, check any liability limits and tweak cancellation cover to match the real dollars at risk.

This is how you’ll keep the sand between your toes and the stress off your bank balance.

Life insurance premiums are falling

With general insurance premiums skyrocketing over the last few years, it’s nice to see life insurance premiums falling.

According to Rainmaker Information, there was a significant reduction in direct income protection premiums from 2024, with average premiums for 30-day and 90-day waiting periods falling by 12 per cent and 13 per cent respectively. However, direct trauma premiums increased by 7 per cent since 2024, after remaining mostly steady over the previous two years.

Price reductions were also seen in the advised life insurance market - that is products purchased through a financial adviser. Interestingly, the Rainmaker study found that life insurance products bought through advisers were 29 per cent cheaper than purchasing directly from a life company. Trauma insurance premiums were 13 per cent cheaper through advisers, and income protection premiums showed a 35 per cent difference.

Why Donald Trump is changing his tariff policy

Last week, media headlines spruiked a major win for our cattle farmers with President Trump reducing the tariff on Australian beef exports. It seemed a strange move considering he was very vocal about US cattle farmers being taken advantage of when he introduced the tariff increase.

It now seems that this move is one of many backflips all in the name of cost of living. The US administration is also dropping tariffs on a range of products from Argentina, Ecuador, El Salvador, and Guatemala. Gone are the tariffs on tea, fruit juice, cocoa, bananas, tropical fruit, and tomatoes.

The problem is that when Trump first introduced the tariffs, he claimed US consumers wouldn’t have to pay more. Remember his weird explanation that the countries of origin would pay the tariffs and not American consumers?

The reality has been what every economist predicted … the price of a coffee in the US has jumped 20 per cent this year. According to analysis from Bondi Partners, coffee has become for the Trump administration what eggs were for the Biden administration - a symbol of the cost-of-living crisis that has weighed on Americans' acceptance of Trump’s tariffs, and their appraisal of Trump’s performance.

Corporate layoffs are at a 22-year high. Consumer sentiment is at near record lows. A beef hamburger costs 15 per cent more than it did this time last year, a cup of coffee costs 20 per cent more - rising more than any other goods or service tracked by the government. And despite Trump’s pledge to halve energy, household electricity costs are up sharply this year... driven, in part, by the growth in energy-guzzling AI data centres.

The share of Americans who describe themselves as middle class has dropped from 85 per cent 10 years ago to just 54 per cent today. Over 40 per cent of Americans now consider themselves lower or working class.

With mid-term elections scheduled for next year, expect more unravelling of tariffs to bring down the cost of living.

Where the Australian economy sits in the world order

It's always good to have a bit of perspective on where Australia sits in the global $US124 trillion economy.

While valued at just $US1.9 trillion, we sit behind the major economies of Europe and Asia. But have a look at GDP output per capita in the image below - we rank right up there amongst the top:

Have a great week, everyone.