Some disconcerting statistics...

Equity markets fluctuate on a daily basis, and as a result investors can become very, if not short sighted, at least short term in their outlook. Fund managers on the other hand need to have both a short and longer term vision: Short term to make sure that their monthly performance, upon which the investor judges them, encourages inflows, and longer term to ensure that they are at least investing in the right direction.

In many ways at both Hedge Clippings and Australian Fund Monitors we are part of the problem, reporting as we do on each fund's monthly performance. As such we can be accused of adding to the short termism, although we would argue that we are also focused significantly on the longer term, and particularly longer term risks. This ties in with the regulator's requirement, where investors are warned that investment in a managed fund (unlike a share on the ASX which can be traded daily) should be looked at over a 3 to 5 year time frame.

So where are we going with all this? Well, yesterday Hedge Clippings went to a seminar which featured a presentation from the Hon. Bernie Ripoll, talking about the influence of technology in general, but also financial services, and on financial advice in particular. He also touched on one of our favourite subjects, namely the accelerating change in demographics, but more of that in moment.

When talking about technology, Bernie reminded his audience that it is 10 years since launch of the iPhone, at which time Steve Jobs said that there were three essential pieces of technology which he used frequently, namely his mobile phone, computer, and music player. With the release of the iPhone he only need one piece. This is not to promote Apple or the iPhone, but it is amazing how rapidly technology advances, and keep advancing. How could we contemplate our lives without one now - which with camera now included, makes four essential devices?

As far as financial services are concerned, technology has been slow to keep up with other industries or service sectors. Thanks to the dangers of money laundering and terrorism, purchasing a financial product has until recently ( excuse a small plug here for our Olivia123 online application system here) remained firmly in the pen and paper bucket. However one of the big advances, and buzzwords in financial services, at the current time is Robo Advice.

According to recent research by Investment Trends, 62% of financial advisers apparently believe that Robo Advice will not affect them. We beg to differ. Technology will increasingly affect every aspect of our lives, and financial services and advice will not be immune from change. It might not be pure push button, algorithmic, robo advice, but financial services, like all industries or sectors, will be revolutionised by technology, either resulting in better decisions, or driving down the cost.

As mentioned earlier, Bernie also brought up some interesting statistics on demographics and the ageing population. Whilst happy to criticise the current government (not surprisingly given his political persuasion) the reality is that governments of both parties have dropped the ball, lost the plot, call it what you will, when it comes to providing for the long term financial future of both individuals and the nation. They are not structuring superannuation, which in its original form was designed to reduce the drain on the public purse caused by people retiring and drawing a pension, for the long-term

Consider these uncomfortable statistics (especially if you still expect to be around for some time to come): According to Bernie's research:

• In 1975 there were 7.3 working people (PAYE taxpayers) in Australia for every person over the age of 65 (and therefore presumably eligible for a pension).
• As of 2017 this has dropped to 4.5 working people for every person over the age of 65.
• Fast forward to 2055, and it is estimated that there will be only 2.7 Australians working for every person over the age of 65.

The taxation burden on those 2.7 people will obviously be enormous, particularly if they are not encouraged to become self-supporting in their retirement in the meantime. We would argue that they shouldn't be encouraged to become self-supporting, wherever possible they should be forced to become self-supporting. Restricting the amount of money that Australian workers can put into their retirement simply to balance the short term budget doesn't make sense in the long-term,.

While talking about superannuation and demographics, a couple of other scary statistics:

• By 2055 is estimated there will be twice as many people over the age of 65 than there are today.
• There will be four times as many people over the age of 85 than there are today.
• By 2035 it is estimated there will be $9.5 trillion in superannuation, even though this will be insufficient to keep the majority of people in the manner to which they would like to be accustomed.

RBA puts the cat amongst the pigeons - and then tries to retrieve it.

Most news was pretty normal this week. The Greens lost another couple of senators as they tried to get their act together; The Donald continued his war of words with everyone (possibly with the exception of Mr Putin); and Tony Abbott continued to break his promise of no wrecking and no sniping.

However a couple of things put a rocket up the Aussie dollar, taking it towards the US$0.80 mark when most analysts were probably feeling comfortable that any currency risk was on the downside. Firstly Janet Yellen made some soothing remarks about the potential for rate rises in the US, which had the effect of softening the Greenback. And then the RBA decided to announce that the neutral rate for Australian interest rates should be 3.5%, which, given the current historically low rate of 1.5%, gave the markets a serious case of the jitters.

So much so that Deputy Governor of the RBA, Guy Debelle slipped a retraction, or explanation, into his speech to the CEDA Mid-Year Economic Update in Adelaide today, saying "no significance should be read into the fact that the neutral rate was discussed" and that "at most meetings the Board allocates some time to discussing a policy relevant issue in more detail, and on this occasion it was the neutral rate".

Hedge Clippings' guess is that henceforth the RBA will think twice before announcing all  the "policy relevant issues" they discuss at their meetings.

The simple fact is that the prospect of a 200 basis point rise in the official rate from the current level of 1.5% would have more than dampened the "animal spirits" that the Deputy Governor also referred to in his speech as one of the major drivers of economic growth, and therefore RBA's views on monetary policy. It might have solved the current property price problem, but would have created a property crisis of its own in its place.

For those with little to do on a Friday evening, there is a link to the speech here, and it actually makes interesting reading if you enjoy that kind of thing. Assuming it was written well ahead of time, we would imagine that the two sentences regarding the "neutral rate" were probably a late edit, or an addition following the market's reaction.