What will the RBA do in March?
Welcome back!
Well March is just around the corner and the next RBA meeting will decide on monetary policy for another month. Since September 2008 the RBA have cut rates by 400 basis points, what does March have in order for home owners, investors and the economy?
Glenn Stevens perhaps has one of the hardest jobs in Australia. Stevens has to decide if enough liquidity has been pumped into the local economy with recent interest rate cuts or if more is required to stimulate domestic demand.
The result by Harvey Norman and the halving of profit is an omen for the consumer hed Australian economy and an indication that things are likely to get much worse before they get better.
Consumer demand despite government stimulation before Christmas has failed to bounce post Christmas as households tighten belts with increasing job losses and negative sentiment affecting the economy.
The RBA boss has already indicated that he would like to sit back and assess the economy in light of all the recent economic stimulants announced by the government and any future rate cuts are unlikely to be as big as recent cuts.
I suspect we will see a cut of 50 basis points in March that will take us to a cash rate of 2.75%. Future cuts will likely continue to occur and could take us down to 2.00% in the coming months but Stevens will be monitoring the economy for worsening economic news before he pulls the trigger for big future cuts.
Wall Street hits lows of 1997
Wall Street fell overnight to a low last reached in April 1997 amid the worsening performance of the US economy.
On a seasonally adjusted basis the US GDP for October to Decelier fell by 6.2% annualised. The contraction in the US economy was far worst than first thought and reflects the pain occuring in the world’s largest economy. The decline in the GDP was the worst performance since 1982.
The Dow Jones slumped 1.66% to 7062.93 to take the loss for the week to in excess of 4% as the economy sees no end in sight to the gloom. Dragging the market lower was the performance of Citigroup and General Electric. The market also had its worst February in over 70 years as the market tumbled 12%.
How does compound interest work?
Compound interest has often been described as the eighth wonder of the world and when you see how it works you may consider it so.
It has often been described that if you had a plan to double your money you could refer to the rule of 72.
The rule of 72 refers to the amount of return on your money to actually double your return, it works on the term that if you reinvest your money it will double providing you hit 72% return on your investment.
Of course if you did this in a year or within several years it does not work but generally in excess of 4 to 5 years it will prove pretty accurate.
A good example is if you wanted to double your money in ten years then if you earned 7.2% per annum you would double your return.
A 7.2% per annum return in the past few years would have been perceived as very low but at the moment I am sure most investors would jump at the chance.
Next time you plan your investment return remember the rule of 72.