By MoneyMorning.com.au
Look out. The central planners have their eyes on your retirement cash.
The latest ruse? To give the Australian Tax Office (ATO) the job of collecting the compulsory superannuation guarantee.
In a moment we’ll explain why this is the next step in the nationalisation of your retirement savings. But first…
Last night at 3:57pm Central European Time, ratings agency Standard & Poor’s sent clients the following message:
France had received a credit downgrade.
Shortly after, S&P made the following statement:
“As a result of a technical error, a message was automatically disseminated today to some subscribers of S&P’s Global Credit Portal suggesting that France’s credit rating had been changed. This is not the case: the ratings on Republic of France remain ‘AAA/A-1+’ with a stable outlook, and this incident is not related to any ratings surveillance activity. We are investigating the cause of the error.”
No downgrade after all. Or not officially anyway…
The only error was that S&P released the downgrade. Our guess is it was supposed to be an internal alert for S&P analysts. And that somehow – whether it was a fat finger or some other error – S&P released the internal alert to subscribers.
Think about it. France is the largest foreign holder of Italian debt. As Bloomberg News notes:
“As the world’s biggest foreign holders of Italian public and private borrowings – with $416 billion of such debt at the end of June – French lenders face collateral damage that sent Italy’s bond yields to euro-era records.”
Remember how bond prices work. When the yield rises, bond prices go down. And when bond prices fall, holders of those bonds see the value of those assets fall – in the same way the value of your share portfolio falls when share prices go down.
That’s bad news for French banks, which hold $416 billion of Italian debt.
With Italian bond prices falling, that puts pressure on French banks’ capital.
It partly explains why the share prices for two of France’s biggest banks, Credit Agricole SA [EPA: ACA] and BNP Paribas SA [EPA: BNP] have dropped 57.97% and 42.96% respectively this past year:
Not only that, note the following one-month chart of French two-year bond yields:
It shows over the past few days yields had already started rising on French debt (indicating the market wants a bigger return due to a perceived bigger risk of buying French debt). The red square indicates where the yield traded to last night.
So even after S&P issued an update saying it hadn’t downgraded French debt, investors weren’t convinced. They still want a higher interest rate due to the French exposure to Italian debt.
In other words, the market speaks and – as usual – the ratings agencies respond days, weeks or months later. This time a ratings agency was on the ball. But realising that’s not how things work, it quickly retracted the downgrade.
Of course, as others have noted, France is still a long way from Italian bond yields. But then again, as recently as seven months ago, two-year Italian bonds yielded 2.39%. Today they yield 6.4%.
In short, things can move quickly in the bond market. So keep your eye on France. Europe’s debt problems aren’t over by a long shot.
But on to something equally worrying… perhaps more worrying, if like most Australians you’re trying to save for retirement…
In his weekly column for Yahoo! Finance, our old pal Michael Pascoe writes:
“I’m happy to praise the Council of Small Business of Australia (COSBOA) policy to have the superannuation guarantee collected by the Tax Office as part of the income tax system.”
We’ve lost count how many times we’ve warned your retirement savings are under threat from government expropriation. That day – it seems – gets closer.
Look, we get where COSBOA is coming from. It’s speaking up for the small business owners weighed down by stupid government red tape. So it makes sense they’d back any plan to get rid of a burden where they can.
But that doesn’t stop it being troubling. Because it’s only a small step from the ATO collecting super, to bureaucrats deciding it would be much easier to lump super payments in with tax payments… and before you know it, there goes your retirement savings.
The ATO is already responsible for regulating self-managed super funds (SMSF). So again, it’s not hard to see the government giving the ATO the power to collect super.
But it gets worse. The cheerleaders aren’t just pushing for the government to take over the collection of your retirement savings. But the propaganda is underway to convince investors that investing in illiquid infrastructure assets is a good idea.
Funnily enough, those are the assets the government wants you to invest in.
As we said at the top, it’s another troubling development in what we see as the inevitable push towards the re-nationalisation of retirement savings.
We’ll have more on this next week. Including the flaw in the research backing illiquid infrastructure assets…
Cheers.
Kris.
P.S. If you haven’t seen it yet, don’t forget to check out Slipstream Trader, Murray Dawes’ latest free weekly video update. You can click here to get the Slipstream Trader YouTube channel now.
In the latest episode Murray talks about the market’s key levels of price support and resistance. And how what’s happening now has a familiar ring to it.
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From the Archives…
Your Retirement Savings – The Day the Government Began to Raid Them
2011-11-04 – Kris Sayce
Fed Up With Inflation…
2011-11-03 – Kris Sayce
All for Gold… But is There Gold For All?
2011-11-02 – Dr. Alex Cowie
Why Australia Needs More Losers
2011-11-01 – Kris Sayce
Qantas – A Grounded Investment?
2011-10-31 – Dan Denning
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