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Four months can be a long time in investment markets and when we last wrote to you in this format, seemingly important issues have been completely overshadowed by a global pandemic that went from a minor breakout overseas on January 1 to shutting down our borders by March 20.

Financial Planning, Superannuation, Life InsuranceAustralian Financial Services Licence No. 222835

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Around the World in 80 DaysWhat started as a small story in the middle pages of the newspaper at beginning of the year, quickly morphed into the only story that continues to dominate newspapers, social media and conversations. Both bond and equity markets reacted in much the same way and provided significantly more volatility than we experienced during the Global Financial Crisis (GFC). While the GFC was complex, the COVID-19 crisis is far more impactful on our day-to-day lives and although we are not yet able to discuss it in the past tense, we are heartened by the collective actions of Governments around the world with some exceptions.

Share markets have responded extremely well and are significantly higher from the lows we saw in late March. We’ve devoted the middle pages to a history lesson on economics in times of crisis and the two differing views on how to stimulate an economy. While the Mark Twain quote ‘History does not repeat but it does rhyme’ does get a workout within the four walls at Planning Partners; more

than ever it is worthwhile perusing the crises of the past to better understand the current.

While the reviews were mixed, ‘The Stylus Council’ has returned given the sheer weight of differing opinions offered by the Planning Partners’ client base. Thankfully, we’ve moved on to the Greatest Female Lead Singers of all time, so this time Neil Diamond won’t be considered. ‘It’s a Fact Jack’ makes a return to equip you with more interesting facts in readiness for the return of the dinner party.

We hope you enjoy the latest edition of Prosperitas and look forward to assisting you whether that be on the phone, via video conferencing or even in the office when things revert to somewhat normality.

Martin R McIntosh Managing Director

Inside this issue >A Fiscal of Dollars

It’s a Fact, Jack! The Stylus Council

Prosperitas: Latin for prosperity & good fortuneI S S U E 2 8 J u l y 2 0 2 0

Prosperitas

A Fiscal of Dollars In a departure from the usual market commentary and where it may be headed in the short-term, we have instead decided to give a brief account of the Federal Government response to COVID-19 and the two economic levers that can be pulled, being fiscal (Keynesian) and monetary (Friedman) policies.

Prosperitas J u l y 2 0 2 02

in investment by businesses and boost consumer spending in order to stabilise overall demand. This would lead to an overall increase in economic activity and a reduction in unemployment. This was contrary to the approach at the time that included a reduction in welfare spending and raised taxes to “balance the books” which wouldn’t encourage people to spend their money, thereby leaving the economy floundering. Keynes view was that governments, if required, should undertake deficit spending, i.e. borrowing funds to make up for this shortfall in spending by the private sector and boost consumer spending.

Keynes theory became the dominant economic approach for decades until other economists, such as Milton Friedman, challenged the way the model represented the relationship between savings, investments and economic growth.

and will not change until a consumer’s expectations for their future earnings increase. Therefore any short-term or lumpy changes in income, be it an inheritance or a bonus, will be treated differently from a pay rise.

Where Keynes focused on fiscal policy and that governments should spend to smooth volatility in the business cycle. Friedman’s view was that governments through the use of monetary policy can increase economic stability and provide steady economic growth by gradually increasing the amount of money available in the economy.

As the availability for money in the system increases, overall demand for goods and services increases. An increase in demand encourages job creation, which reduces the unemployment rate and stimulates economic growth. In the long-term however, increased demand will eventually be greater than supply, causing the markets to be out of balance. The shortage caused by greater demand than supply will force prices to go up, leading to inflation.

Monetary policy is used to adjust interest rates which controls the supply of money in the economy. When interest rates are increased, there is an incentive for people to save rather than spend, thereby, reducing the money supply. Conversely, when interest rates are lowered, the cost of borrowing is less meaning people can borrow more and spend more, thereby stimulating the economy.

Monetary policy became one of the key levers that governments with a preference for a free market would use to control their economies, allowing the economy to function without the obstruction to competition of regulation and excessive taxes. As such, private enterprise is allowed to thrive; the market will then direct where an economy is headed with market participants finding an equilibrium of demand and supply.

English economist John Maynard Keynes developed his economic theory during the great depression of the 1930’s after observing the response from the governments of the time to revive a faltering economy through classical economic theory. Classical economic theory argues that the economy will adjust with regard to demand, supply, prices and valuations, and will eventually return to a state of equilibrium. Where demand in the economy fell, the demand in production and therefore jobs would bring a decline in prices and wages. This lowering of costs would therefore encourage employers to make capital investments and employ more people, stimulating employment and restoring economic growth; however, this didn’t necessarily happen during the Great Depression as output remained low and unemployment high.

Keynes view was that just because wages were lower didn’t mean that employers would employ more staff to produce goods that weren’t going to be sold due to weak demand. Additionally, poor business conditions may cause companies to reduce capital investment and simply look to survive than take advantage of the lower costs to invest into further business assets. The fear that comes about during a depression then grows within investors and businesses, becoming self-fulfilling and leading to an extended period of low economic activity.

To counter this, Keynes proposed that governments should increase spending to make up for the shortfall

Keynesian Economics

Freidman’s Approach

Friedman’s initial work centred on the idea that a person’s spending and savings decisions are more heavily affected by permanent changes to income than changes that are viewed as short-term. We will spend money at a level that is consistent with our expected long-term average income. Your level of expected long-term income is then considered as the level of permanent income that can safely be spent. You will then only save if your current income is higher than what is anticipated to be your permanent income level.

The implications of this are that consumer spending is predictable

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Global Financial CrisisDuring the Global Financial Crisis (GFC) there was extreme stress in financial markets and the banking system between mid-2007 and early 2009 which was caused by a downturn in the US housing market. This was the catalyst for a financial crisis that spread from the United States to the rest of the world through a connected global financial system. Many banks around the world incurred large losses and relied heavily on government support to avoid bankruptcy.

The Australian Federal Government took a leaf out of Keynes economic theory and stepped in to support the local economy implementing various strategies to keep the economy ticking over and avoid a looming recession. The first phase of the Rudd government’s stimulus package in October 2008 included a one off payment to low and middle income families of $1,000 for each child, $1,400 to pensioners and $2,100 to pensioner couples, along with creating extra training opportunities during the period. The purpose of this was to put extra funding in the hands of the community so that they could spend this money, and thereby increase the consumer confidence necessary to drive the economy forward.

The Federal Government announced its second stimulus package in February 2009 and it was more than four

times larger than the first. Again, it included an immediate cash payment to ‘working families’ with school age children, farmers, single income families and those undergoing training of $950. On top of this the Federal Government allocated funding toward new infrastructure projects, such as the construction of schools, roads and railways.

During this period the Reserve Bank of Australia (RBA) also looked to assist the economy via the use of monetary policy by aggressively reducing the cash rate in September 2009 from 7.25% down to 3% by April 2009.

COVID-19This time around the RBA moved quickly to lower the cash rate from 0.75% down to 0.25% in March to assist the economy. However, given that the interest rate setting was already at an historical low, there was only so far that the RBA could go regarding rates and it remains to be seen what effect a decrease at this point would make.

The Australian Federal Government acted swiftly to reduce the spread of COVID-19 by restricting our movements which consequently shut down large sections of the Australian economy. Recognising the effect that these restriction would have, the Federal Government decided to again adopt Keynes theory by implementing fiscal policies that put

money in the hands of the people. These polices included 2 separate cash payments to social security, veteran and other income support recipients to manage the impact of the Coronavirus.

On top of this the JobKeeper program were implemented to provide a fortnightly payment of $1,500 per employee for businesses where their revenue was impacted by 30% or more for a six month period which is due to end on the 27th of September. Treasury estimates that around 3.5 million Australians will benefit from this support at a cost of approximately $60 billion. The JobKeeper program will allow affected businesses to retain the majority of their staff and once social distancing restrictions ease, they will hopefully be able to spring back to life quicker than if they had to rehire staff.

Australians looking for work also receive a temporary fortnightly increase of $550 on top of their existing entitlements to assist them meet their cost of living.

All of this combines to boost the funds available to Australian households assisting them to meet their needs and continue to spend to hopefully keep the economy ticking over in this difficult time.

As Mark Twain once said ‘History doesn’t repeat itself, but it often rhymes.’

It’s A Fact, Jack!1. Witty, verbal insults called flyting were popular in England & Scotland about 1,500 years before freestyle rap battles.2. Sandy Island is a non-existent island near New Caledonia. It appeared on maps from the late 1800’s, including on

Google Earth, and was officially undiscovered in 2012. 3. Former England cricket captain Alec Stewart was born on 8/4/63 and made 8,463 Test runs.4. The gender neutral term for a nephew or niece is ‘nibling’.5. Elizabeth Tower in London, popularly referred to as Big Ben, is leaning over so much it can now be seen with the naked eye. In 4,000

years it will be at the same angle as the tower in Pisa is now. Depending on your position, high noon may seem to be 1:05 or 10:55.6. The speed of a computer mouse is measured in Mickeys. 7. Capuchin monkeys were once used as jockeys in greyhound racing in the 1920’s and 1930’s. 8. A fear of long words is a genuinely recognised condition. Cruelly, the word to describe this condition is

‘hippopotomonstrosesquippedaliophobia’.9. While Barbie and Ken may be girlfriend and boyfriend in the doll universe, they are named after the inventor’s daughter and

son so arguably are siblings.10. The Barry Manilow hit “I Write the Songs” was not written by Barry Manilow11. AC/DC fans will be pleased to know there is a town in Norway called Hell. Until 1995, European Route E6 (which now by-passes

the town) was the highway to Hell, and every Sunday morning you can hear the chimes of Hell’s bells. Locals also reckon that Hell ain’t a bad place to be.

12. And for the thermodynamic fans, you’ll be pleased to know that every winter, as the temperature dips to minus 25 degrees, Hell indeed freezes over.

Ground Floor, 971 Burke Road, Camberwell VIC 3124

PO Box 8192 Camberwell North VIC 3124

T 03 9830 0366 F 03 9830 7028advice@planningpartners.com.auwww.planningpartners.com.au

This information does not take into account the objectives, financial situation or needs of any person. Before making an investment decision, you should consider, with the assistance of your financial adviser, whether it is appropriate in light of your particular objectives, financial situation and needs.

Planning Partners Pty Ltd. Australian Financial Services and Credit Licence No. 222835ABN: 64 090 069 239

Prosperitas J u l y 2 0 2 04

The Stylus Council Greatest Female Lead SingersSister Rosetta Tharpe (numerous) The Godmother of Rock n Roll arguably influenced more artists than anyone else. Johnny Cash & Little Richard’s favourite singer, Tharpe was a major influence on Tina Turner, Elvis, Aretha, Keith Richards and Eric Clapton (to name just a few). Dylan described her as “powerful force of nature”, Hendrix wanted to be able to play guitar like her, while Chuck Berry said his career was “one long Sister Rosetta Tharpe impersonation”. Now that’s some serious name-dropping.

Tina Turner (Ike & Tina Turner Revue) Born Anna Mae Bullock in 1939, this dynamic US born singer with Swiss roots commenced her career in 1958 under the stage name “Little Ann”. But it was when she met and married Ike and changed her name that Tina became unrivalled as a front woman as part of the hardest rocking soul/gospel band in the world. Just listen to her version of “I’ve Been Loving You Too Long”.

Ann & Nancy Wilson (Heart) Sister act Ann and Nancy Wilson formed the nucleus of Seattle based band ‘Heart’ who had a string of hits in the 1970’s (including the “borrowed” riff from fellow rockers Nazareth which was to introduce THE signature sound of ‘Barracuda’).

Older sibling Ann was credited with the main vocals but without Nancy’s shredding guitar sound and visceral presence on stage while singing backup vocals, it is unlikely the band would have been the success it was.

Patti Smith (Patti Smith Group). Alt country singer/songwriter Ryan Adams threatened to punch a journalist if he were to compare him in any way to Canadian soft rocker Bryan Adams. When a journo interviewed Patti Smith some years earlier and asked if she had any similar traits to pop/country singer Patty Smythe, the Punk Poet Laureate did not even bother with a threat: she just slapped the reporter clean across her face.

Chrissy Amphlett (The Divinyls) Described by one writer as “tough, tender and terrifying”, Geelong local Amphlett oozed rock n roll. And Johnette Napolitano, herself a great voice upfront of Concrete Blonde, when asked whose voice she would kill to have, said ‘without hesitation Chrissy Amphlett of The Divinyls’.

Adalita (Magic Dirt) The epitome of rock chick chic, our second Geelong product Adalita, the feisty frontwoman

of Magic Dirt, commands the stage with her tattoos and heavy kohl eyes. Unlike a third Geelong product, Corio whisky, her vocals have aged well from her rough grunge days to a smooth, smoky sound without losing any of her intensity.

Debbie Harry (Blondie) If ‘G-rated’ Agnetha and Frida from ABBA got teenage boys misty-eyed in 1974, it was the Arrival of Debbie Harry who turned up the meaning of ‘fan adoration’ to 11 with Blondie’s self-titled album debut in 1977.

Stevie Nicks (Fleetwood Mac) To get Lindsey Buckingham to join his band, Mick Fleetwood agreed to take Stevie Nicks as part of the deal. Rhiannon and Landslide quickly established her as the face and voice of the band, while long lace dresses and billowy sleeves became a fashion style.

Janis Joplin (Big Brother & The Holding Company) Overdosed at the age of 27, Janis not only lived rock n roll, she died it too.

Honourable Mentions

Siouxsie Sioux, Kim Gordon, Delores O’Riordan, Martha Davis, and Chrissie Hynde.