Extract from Our Investment Newsletter
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Greek Debt - should we be concerned?
The on-going Greek debt debacle has the potential to contribute further to a correction in shares. However, its unlikely to seriously threaten the global economic and share market recoveries. Greece is seen as an extreme case in terms of its public finances. The risks are better known than with sub-prime. Greece is very small and so far there is no sign of any flow-on to the debt of key advanced countries.
On Monday 3 May, the European and International Monetary Fund agreed to provide Greece with $145 billion over the next three years to help with its ongoing debt problems.
The graph below shows the budget deficits and public debt levels relative to GDP for OECD countries and key emerging countries.
This graph shows Greece, along with a few other countries, has an extreme budget deficit and public debt position relative to GDP. While investors are now fretting about the PIIGS economies (Portugal, Italy, Ireland, Greece and Spain) these countries are in better shape than Greece.
It is interesting to note where New Zealand and Australia sit on the graph. Both countries are in a relatively strong position.
Of the total Greek public debt 25% is held by Greek residents and the bulk of the rest is held by European financial institutions, notably France and Germany, the US has little exposure.
Greece is only 2.6% of Euro's GDP and Portugal is 1.8%. Despite the fact that Greece has been hitting the headlines since late last year, consumer confidence and business conditions in the Euro zone have been rising solidly as given by the graph below:
There is absolutely no sign of investor panic spreading to the US, UK, parts of Europe and Japan. In fact long term sovereign bond yields have fallen so far this year in the US, UK, Germany, France and Japan.
Warren Buffett on the US Economy
Warren Buffett on Monday the 3rd of May, at the annual Berkshire Hathaway meeting, commented that the US economy has begun to show real strength over the last couple of months, and consumers who can afford to, are spending more. Buffett said on CNBC, "The best jobs program in the world is demand, and demand is coming back".
Yes, he still has his marbles and is well respected. His support of Goldman Sachs, which his Berkshire fund invested $5 billion in nearly two years ago and is currently under investigation for fraud, resulted in the share price moving upwards by 3% shortly after his statement.
The US share market over the last 2 weeks has been quite volatile with a slight downward correction. The market rebounded in the first week of May on the back of positive economic reports which signalled that consumer spending and manufacturing are strengthening. Germany's approval of the bailout funds for Greece and Buffett's vote of confidence in Goldman Sachs also positively influenced the markets.
Manufacturing continues to show improvement as orders have been flowing to factories for months while companies rebuild depleted inventories.
New Zealand Superannuation
New Zealand Superannuation rates increased in April 2010 in line with the general wage increase and CPI.
The current NZ Super rates (as at 1 April 2010) after tax at rate "M" are:
| Qualifying as | Weekly rate | Annual rate |
|---|---|---|
| Single (living alone) | $318.12 | $16,542 |
| Single (sharing) | $293.65 | $15,270 |
| Married, civil union or de facto couple (both partners qualify) | $489.42 | $25,450 ($12,725 each) |
| Married, civil union or de facto couple (one partner qualifies)* | $465.48 | $24,205 ($12,102 each) |
| Married, civil union or de facto person (partner not included) | $244.71 | $12,725 |
Source: Ministry of Social Development. Effective 1 April 2010.
To be eligible for NZ Super you need to be aged 65 or over and a legal resident of New Zealand, having lived in New Zealand for ten years since the age of 20. Five of those years have to be since you turned age 50. There are some restrictions based on where you live after the age of 65, and you need to be aware that if you travel overseas for an extended period of time, it is a good idea to advise WINZ, so that you don’t get any of your NZ Superannuation payments clawed back.
In the future, it is likely that the age of eligibility for NZ Superannuation will be increased. Australia recently agreed to raise the entitlement age to 67 and it is likely that pressure will come on future NZ Governments to follow.
The May 2010 Budget is likely to raise the superannuation entitlements in line with the proposed increase in GST from 12.5% to 15%. It is proposed that marginal tax levels will be changed in the May 2010 budget. They will probably come into effect in October 2010, or April 2011.
NZ Super is taxable income. Under the tax rules introduced last year providing you earn less than $70,000 from earned income and investment income you can hold PIE investments and declare your PIR rate at 21%.
Investment News Updates
Previous Newsletter Topics
Investment Markets - is there still an opportunity?
Economies officially out of recession
State of the Share Markets - lessons learned
A Decade of Remarkable Change in the Ranking of Financial Institutions