Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Sunday, 1 January 2017

Was 2016 the worst year ever?

Supply bottleneck

With the explosive growth in the 'supply' of television and film stars in the 1960s and 1970s combined with the ubiquity of the internet, it was inevitable that there would plenty of celebrity deaths this year. 

This didn't stop there being a collective social media stampede to stake a claim on despondence and label 2016 as the so-called "worst year ever".

Politically there were some more surprising events, such as the 'Brexit referendum', Trump's election victory, and others. 

Globally there were far more serious and depressing events than any of the above, and individually many of us lost friends and family members.

Trump could prove to be a genuine disaster, and the year didn't finish brilliantly for Mariah Carey, but overall the case for 2016 being the worst year ever is flimsy. 

Shares finish strongly

That's all a bit too heavy for a personal finance blog (Mariah Carey excepted). 

In some brighter news Australian share markets bucked the trend to finish the last two months of the year on a high note.

In the end, Aussie shares (ASX 200) finished the year up by 7 per cent at 5665.80, meaning that with dividends included investors should have achieved a total return of about 11.5 per cent (closer to 13 per cent after accounting for franking credits). 

A balanced super fund should have achieved about a 7.2 per cent return over the year - hardly amazing, but much better than seemed likely at one stage - while the rolling 5-year return for a balanced portfolio is sitting at a respectable 9.4 per cent.

Dragging back the chart to the year 2000 to include all of the financial crisis period, an investment Australian shares has turned $10,000 into $38,820, while a balanced super fund should have achieved an end result of $28,290. 

Source: Super Ratings

If you're anything like me you'll see these superannuation returns as underwhelming, hence why so many of us opt to self-manage our super, and indeed our own investments. 

One of the benefits of Australia's superannuation rules is that it forces employees to save for their futures in a way that they wouldn't otherwise, and household wealth rose through a record $9 trillion in 2016.

This makes Australians the second wealthiest nation on earth in per capita terms, behind Switzerland.

Economy below trend

For all the hype, after all the dust has settled we'll probably find that the economy grew by about 2.3 per cent in 2016, some way below trend, and slower than the average of 2.7 per cent for the last decade. 

It wouldn't be a surprise to see something similar next year, as Australia works its way through to the end of the decline in resources construction.

2016 was a much slower year for employment growth, with 12 million Aussies now in full time or part time employment, up by only 0.7 per cent from a year earlier.

As such there were no further inroads into unemployment rate, which remains at 5.7 per cent, and wages growth was sluggish at only +1.9 per cent.

It wasn't all sluggish over the year, though. 

Figures due out in the next week will confirm that 2016 was a record year for new motor vehicle sales, while retail trade turnover rose by about 3.5 per cent to $25.6 billion, and consumer confidence was above average. 

Home values rose by 10.8 per cent in 2016, once again wiping the floor with share market returns, although just as with the wider economy most of that growth was experienced in Sydney and Melbourne.

Shock and ore

The really big surprise of the year was the rebound in commodity prices which saw national income rebound to reclaim new highs.

Accordingly we can expect to see a significant improvement in the international trade figures on Friday this week.

The latest of many rallies has been in gas prices, but Bloomberg's indices show coking coal up by a phenomenal 230 per cent, iron ore up by well over 80 per cent, and thermal coal up by more than 60 per cent.

Those are Australia major export commodities, but as China ramped up its infrastructure spending there were also substantial gains for zinc, copper, crude oil, nickel, and silver.

The main question now is how long elevated prices can hold up for. 

The wrap

Plenty of challenges abound as always, particularly if you don't live in one of the largest capital cities.

In fact, a detailed look at the national accounts show that while the economies of Sydney and Melbourne are growing strongly, many parts of Australia are recession hit

But with share markets and prices comfortably notching double digit gains, and national income, new car sales and household wealth surging to record highs, you're having a bubble if you think 2016 was the worst year ever.

I guess that's one of the things that happens if you go for 25 years without a recession: a lost sense of perspective.