Markets
- ASX200 index – rose 1.5% in February.
- S&P500 index – rose 2.8% in February.
- Gold – dropped to $1,742.85.
- Iron Ore – rose $16 to US $174/ton.
- Oil – rose to US$66.13/bbl up $10.25 in the month of February.
- MSC1 World Developed Markets Index – rose 2.6%.
- MSC1 Emerging Markets World Index – rose 0.8% in USD terms.
Property
- Housing – National CoreLogic national dwelling prices surged 1.7% in February with houses gaining more than units again. Regional house prices outpacing capital city growth.
- Auction Clearance Rates – are above 80% in all states.
Economy
- Interest Rates – remained at 0.10% in February – the lowest on record.
- RBA – continues its $200 billion bond buying program.
- Retail Sales – December sales fell 4.1%.
- Bond Yield – Australian 10 year government bond yields rose from 1.09% in January to 1.88% in February.
- Bond Yield – US 10 year government bond yields rose from 1.09% in January to 1.46% in February.
- Bond Yield – New Zealand 10 year government bond yields rose from 0.5% in November 2020 to 2.0% in February. A massive increase.
- Exchange Rates – the Australian Dollar rose against the US Dollar to AUD77.4 cents.
- Business Conditions – lifted further to +14.2 in December.
- New Motor Vehicles – sales in January totalled 79,666. This is 11.1% above the number of car sales in January 2020. The Toyota Hilux has maintained its long reign as Australia’s best selling vehicle with the Ford Ranger the 2nd most popular with Toyota’s RAV4 coming in 3rd place.
- Employment – unemployment dropped to 6.4% in January.
- Consumer Confidence – The Westpac Melbourne Institute Consumer Confidence Index rebounded up 1.9% in February after falling 4.5% in January.
- Chicago Purchasing Managers Index (PMI) – fell 59.5 in February down from 63.8 in January indicating slower growth in the US economy.
Comment
Property Market
CoreLogic data released this week confirmed housing values grew last month at the fastest rate nationally in 17 years and more growth is expected.
The boom has come as listings remain at low levels while buyer demand, boosted by record low interest rates, has been surging.
CoreLogic head of research Tim Lawless said the mismatch between supply and demand was a central factor pushing prices higher.
“Although new listings are likely to track higher over coming months, if buyer demand continues to lift it’s likely overall advertised stock levels will remain low,” Mr Lawless said.
Buyers are likely confronting a sense of FOMO which limits their ability to negotiate.”
Vendor discounting rates were estimated at a record low of 2.6 per cent in February, and auction clearance rates have consistently been well above average at about 80 per cent, Mr Lawless added.
“Serious buyers would be well advised to have their financing pre-approved and be ready to act fast in order to secure a property under such tight supply conditions.”
Does your portfolio need bitcoin?
Bitcoin investors have been on a wild ride lately. After dropping about 74 per cent in 2018, the digital currency nearly doubled in price in 2019, and then nearly quadrupled during 2020. Trading volumes have also skyrocketed as individual investors have embraced cryptocurrencies through commission-free trading platforms such as Robinhood.
Originally conceived as a digital, encrypted alternative to traditional currencies controlled by central banks, bitcoin has also been attracting more interest from mainstream investors. For example, BlackRock recently added prospectus language giving three of its mutual funds the flexibility to invest in bitcoin futures. In late 2020, insurance provider MassMutual purchased $100 million in bitcoin in late 2020 for its investment portfolio.
But there are reasons to be skeptical. As a virtual asset that doesn’t generate cash flows, bitcoin has no intrinsic value. Its value depends largely on what people are willing to pay. When Guggenheim’s Scott Minerd was quoted in December 2020 claiming bitcoin could be worth as much as $400,000, bitcoin prices quickly escalated. But without a strong foundation to support an underlying value, asset prices can rapidly drop.
That’s exactly what happened in 2018, when the CMBI Bitcoin TR index dropped 74 per cent. More recently, bitcoin’s price shed nearly 30 per cent from its peak on Jan 8 until briefly dropping below $30,000 on Jan 27, 2021. Even intra-day pricing tends toward the extreme, with prices often swinging by double-digit percentages within the same trading day. These sharp price moves mean bitcoin owners must be prepared to “HODL”—hold on for dear life.
Bitcoin is often described as digital gold, but it hasn’t held up particularly well during periods of market crisis. In the fourth quarter of 2018, for example, bitcoin lost about 44 per cent of its value, compared with about 14 per cent for the broader market. When the novel coronavirus roiled the market from Feb 19 through March 23, 2020, bitcoin lost about 38 per cent, compared with 34.5 per cent for Morningstar’s US Market index. During weeks when the overall equity market posted negative total returns (over the period from August 2010 through the end of 2020), bitcoin notched positive results only about half of the time.
Bitcoin proponents often argue that limited supply should create a floor for bitcoin’s value. But while the supply of bitcoin itself is limited, there’s nothing preventing competing cryptocurrencies from emerging. There are already numerous bitcoin alternatives available, including Ethereum, Litecoin, Cardano, Bitcoin Cash, and Lumens, to name a few.
As such we consider Bitcoin a gamble not an investment. Accordingly, we are not recommending it to our clients.