Tell the RBA to Shove It…Invest Without Taking Big Risks

By MoneyMorning.com.au

In yesterday’s Money Morning, our old pal Murray Dawes wrote:


‘Look out for a sharp sell-off in the S+P 500 once it snaps beneath the 1390-1400 area, which is currently providing strong support. It will only take one nasty night to break through and then we will see a distinct shift in momentum.’

Last night, the US S&P 500 index fell 2.37% to 1,394.53.

In other words, the US market is sitting bang in the middle of Murray’s key technical level. Of course, it doesn’t mean the market will keep falling from here.

But it does mean you need to pay close attention to where the market is heading next…especially if you’ve ignored our advice to trim your stock portfolio.

We can only hope you didn’t follow the Reserve Bank of Australia’s (RBA) stock market advice

While Murray warned you to look out for a post-US election sell-off, the front page of yesterday’s Australian Financial Review headlined, ‘Upgrade to shares, RBA tells savers’.

The AFR went on:


‘The Reserve Bank of Australia has signalled that interest rates are so low investors should shun low-earning term deposits in favour of riskier assets such as new housing and shares.’

That’s right, that’s just what risk-averse investors should do. Take money from a perceived low-risk investment (term deposits) and stick the cash in investments at the other end of the investment risk spectrum (shares and – oh brother – new housing).

The AFR quotes from Tuesday’s RBA statement. Here’s what the statement says:


‘Interest rates for borrowers have declined to be clearly below their medium-term averages and savers are facing increased incentives to look for assets with higher returns.’

The RBA should know all about lower interest rates. After all, it’s the RBA that has systematically cut the interest rates.

And now, after wreaking havoc on retirement savings, the RBA (who’s staff, like most government workers, benefit from defined benefit pensions rather than defined contribution pensions) is telling investors to suck it up and shop around for better returns.

In other words, these guys don’t have to worry about the value of their investments heading into retirement. They just have to make sure they can climb to the top of the greasy pole, to get on the highest pay band. Why? Because the way to calculate defined benefit pensions is on the number of years of employment and (here’s the key) the final year’s salary.

Naturally, if they can improve their retirement fund by sucking up to the boss rather than trying to make sound investment decisions, you can see why public servants do whatever they’re told and are always keen to impress their bosses.

That’s why the RBA doesn’t care about devaluing the dollar. Public employees don’t have to worry about inflation eating away at their savings because their final year salary determines their pension…which will always keep pace with inflation.

RBA Starts the Printing Press


Back in July, RBA governor Glenn Stevens told attendees at a luncheon:


‘We might find that, in an extreme case, the Reserve Bank – along with other central banks – would need to step in with domestic currency liquidity, in lieu of market funding. The vulnerability to this possibility is less than it was four years ago; our capacity to respond is undiminished and, if not actually unlimited, is not subject to any limit that seems likely to bind.’

In central banker gobbledygook that means the RBA is ready to print money if it needs to.

Well, based on a report in yesterday’s Age, it seems the need has arrived:

‘A surge in foreign deposits with the Reserve Bank has sparked claims it may be printing money, in an attempt to take the heat out of the Australian dollar…

‘[UBS strategist Gareth Berry] said these trends suggested the bank was effectively “printing” new Aussie dollars and supplying them to foreign central banks, which were then keeping the Aussie dollars on deposit at the RBA.

‘This would satisfy foreign central banks’ demand for Aussie dollars without forcing them to buy currency on the open foreign exchange market, where the dollar’s value is set.’

It’s easy for the RBA to tell investors to take more risks when they’re forcing down rates. It’s easy for the RBA to tell investors to take more risks when their own savings are unaffected by lower interest rates.

But for you as a regular investor…someone who doesn’t have psychotic dreams of reaching the top rungs of government and bureaucracy…you do have to think about your investments and your returns.

Money for Life


As we’ve told readers of our new free eletter, Pursuit of Happiness, you can take a few simple steps today to boost your retirement savings…and it won’t cost you a fortune…nor will it mean sacrificing your current living standards.

But we’re not the only one helping savers to fight against central bank and government market fiddling. Our old pal, Nick Hubble (you’ll have seen his name in this eletter from time to time) has his own take on saving for retirement.

He’s labelled it the Three Emerging ‘Money Trends’. In it he explains ‘how making a few small adjustments now can make a huge difference to your quality of life in retirement.’

In short, if you don’t have the luxury of a taxpayer-funded defined benefit pension plan you should look at Nick’s ‘Money Trends’ report today…before central bankers cause even more damage to your savings.

Cheers,
Kris

From the Port Phillip Publishing Library

Special Report: After the Bust

Daily Reckoning:
Using the Habit of Optimism to Find Great Investment Opportunities

Money Morning:
Forget the US Election, This Stock Market Event is the One to Watch For

Pursuit of Happiness:
How Are You Wasting Your Valuable Time?

Australian Small-Cap Investigator:
What Are Small-Cap Stocks?


Tell the RBA to Shove It…Invest Without Taking Big Risks

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