Warren Buffett – chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A) (NYSE: BRK.B) – is, without a doubt, one of the most followed investors in the world. And ‘one of’ is probably being conservative.

There are two events that every Buffett fan in the world has marked on their calendars: the annual general meeting of Berkshire Hathaway (which normally occurs in May). And, of course, the release of Warren Buffett’s annual letter to shareholders, which he has been publishing like clockwork since the 1960s.

Buffett’s annual letter hits the stands

One of those events has just happened. And since it’s not May just yet, you can probably guess which one. Yes, Mr Buffett published his annual letter to shareholders over the weekend and, as always, it makes for some interesting reading. Investors hoping for a bold prediction as to where the current share market is headed next might be a little disappointed. But there were plenty of interesting observations (and pithy anecdotes) to go around regardless.

One of the more pertinent of those is the following. Buffett only devoted a single paragraph to this discussion point, but it was arguably one of the more decisive statements in the letter. It goes like this:

And bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at year end – had fallen 94%from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.

Why the bond age is set for a whipping?

Bonds, as you may know, are investments that represent loans. In this case, loans to a government. They are a popular asset class that many investors see as an alternative to shares. That’s because they offer guaranteed income (remember, a dividend is never ‘guaranteed’), and (usually) lower volatility than shares.

You can access the government bond market on the share market, though exchange-traded funds (ETFs) like the Vanguard Australian Fixed Interest Index ETF (ASX: VAF).

But why is Buffett so adamant that those investing in bonds “face a bleak future”? Well, the value of bonds is inherently tied to interest rates. If interest rates fall, the value of existing government bonds rise, and vice versa. And interest rates around the world have spent the better part of a decade steadily falling. The official cash rate in Australia is currently 0.1%, the lowest level in history.

Foolish takeaway

So even though bonds have been a fantastic investment to have had over the past ten years, according to Buffett, there’s no longer much room for improvement. And if interest rates spend the next decade rising rather than staying flat, those holding bonds face a world of hurt. Put another way, there is arguably little chance bonds can keep rising in value, and a good chance they will fall. That’s why Buffet is so unequivocal in his condemnation of the future prospects of this asset class. 

More reading

• 3 key takeaways from Warren Buffett’s latest letter to shareholders
• Robinhood fires back at Berkshire Hathaway’s Charlie Munger over criticism

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), short March 2021 $225 calls on Berkshire Hathaway (B shares), and long January 2023 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a good number of tech companies on the Australian share market that have been growing at an above-average rate over the last few years.

And while the pandemic may have put a dampener on the growth of some of these companies, once the pandemic passes they look well-placed to resume their positive form.

Two ASX tech shares that could be fantastic buy and hold options are listed below. Here’s what you need to know about them:

Altium Limited (ASX: ALU)

Altium is the leading provider of printed circuit board (PCB) focused electronic design software. Its platform is the clear leader in the industry and counts many of the world’s largest companies as customers. This includes BAE Systems, Dell, Microsoft, and Tesla.

The good news for the company and its shareholders is that demand for its platform looks likely to increase materially in the coming decades. This is due to the artificial intelligence and internet of things booms. These are underpinning a proliferation of electronic products globally.

Analysts at UBS are positive on the company’s future. Last month they upgraded Altium’s shares to a buy rating with a $34.00 price target. This compares to the latest Altium share price of $26.97.

Xero Limited (ASX: XRO)

Xero is a provider of a cloud-based business and accounting solution. It is used by small to medium sized businesses around the world to handle a full suite of tasks. This includes accounting, payroll, and invoicing.

In addition to this, the company has been making bolt-on acquisitions to bolster its offering and looks likely to make more in the future. Late last year Xero raised US$700 million via a convertible notes offering.

Another big positive is its growing ecosystem of apps that work within its platform. Goldman Sachs believes that the company has a massive opportunity to monetise this and drive strong revenue growth over the coming decades.

In light of this, the broker has currently got a buy rating and $157.00 price target on its shares. This compares to the latest Xero share price of $122.53.

More reading

• 2 compelling ASX shares to buy in March 2021
• 2 outstanding ASX growth shares to buy in March
• Why is the Xero (ASX:XRO) share price down 19% in 2021?
• 3 explosive ASX growth shares to buy next week
• 3 fantastic ASX shares to buy for strong returns

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium and Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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As I mentioned here earlier, the RBA will be meeting this afternoon to discuss the cash rate.

While there’s a chance it could cut rates to zero, Westpac Banking Corp (ASX: WBC) is tipping the central bank to make no changes and then keep rates on hold for some time to come.

Unfortunately, whichever way things go today, it seems inevitable that rates will be at ultra low levels for the foreseeable future.

With that in mind, if you’re an income investor, you might want to take a look at the dividend shares below. Here’s why they could be in the buy zone:

Sonic Healthcare Limited (ASX: SHL)

The first ASX dividend share to look at is Sonic Healthcare. It is a leading medical diagnostics company with operations across the world.

Sonic has been a very impressive performer during the pandemic thanks largely to strong demand for COVID-19 testing services. In fact, demand has been so strong, Sonic recently released its half year results and revealed a 33% increase in revenue to $4.4 billion and a whopping 166% increase in first half net profit to $678 million.

In response to this result, analysts at Citi put a buy rating and $37.50 price target on its shares. The broker is also forecasting dividends of $1.31 per share this year and then $1.40 per share in FY 2022.

Based on the latest Sonic share price of $31.85, this represents fully franked yields of 4.1% and 4.4%, respectively.

Wesfarmers Ltd (ASX: WES)

Another ASX dividend share to look at is Wesfarmers. As with Sonic, this conglomerate recently released its half year results and revealed strong revenue and profit growth.

For the six months ended 31 December, the company reported a 16.6% increase in revenue to $17,774 million and a 25.5% jump in net profit after tax to $1,414 million.

While the majority of Wesfarmers’ businesses performed positively during the half, the star of the show was its key Bunnings business. The hardware giant recorded an impressive 24.4% increase in revenue to $9,054 million.

Goldman Sachs was pleased with the result and appears to believe its growth can continue. The broker has a buy rating and $59.70 price target on its shares. It is also forecasting a fully franked full year dividend of $1.88 per share in FY 2021.

Based on the latest Wesfarmers share price of $50.73, this equates to a 3.7% yield.

More reading

• Top ASX shares to buy in March 2021
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• 2 outstanding ASX dividend shares to buy today
• Is the Harvey Norman (ASX:HVN) share price next to do a capital return cashback?
• Goldman Sachs upgraded these ASX 200 shares after outstanding results 

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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This afternoon the Reserve Bank of Australia is scheduled to hold its March Board meeting and make its Official Cash Rate announcement.

This will be its second meeting of the year. The first meeting in February saw the central bank keep rates on hold.

Will the RBA cut rates in March?

A rate cut to zero is certainly in play judging by the ASX 30 Day Interbank Cash Rate Futures.

On Monday, the March 2021 contract was trading at 99.965, which indicates a 69% probability of an interest rate decrease to zero at today’s meeting.

However, not everyone believes a cut is in play at today’s meeting.

According to the latest weekly economic report out of Westpac Banking Corp (ASX: WBC), its economics team are ruling out any action today.

What did Westpac say?

Westpac’s Chief Economist commented: “While we have seen extraordinary developments in bond markets over the last week, I do not think they will impact the Bank’s key messages. We expect there will be no change in the policy settings and that the conclusion from the February Statement by the Governor will be confirmed.”

The statement that Mr Evans is alluding to is as follows:

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

What is the bank expecting in the future?

In the economic note, Bill Evans concluded:

“The sharp increase in bond rates is reflecting an improving growth outlook rather than any expectation of an overshoot in inflation. Central banks are committed to patience and do not see significant risks of overshoot – the traditional pre-emptive approach to policy has been scaled back.

Markets are convinced that the RBA cannot extend its three year guidance on a stable cash rate beyond the middle of 2021.

Justifying that market expectation will require a significant lift in inflation and wages growth forecasts.

At present Westpac does not expect to see conditions sufficiently buoyant to support the necessary lift in the official forecasts. QE has been accepted by the Bank as a success; a more flexible approach to QE on an ongoing basis might be adopted when the current program expires in October.”

In light of this, Westpac continues to forecast the cash rate remaining on hold at 0.1% for as far out as its forecasts go – December 2022. But it could be even longer than that.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
• Smash term deposits with these high yield ASX dividend shares
• ASX 200 Weekly Wrap: ASX lower despite bumper dividends
• Top brokers name 3 ASX shares to buy next week

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The A2 Milk Company Ltd (ASX: A2M) share price was well and truly out of form in February.

The infant formula and fresh milk company’s shares lost 16% of their value. This compares to a 1% gain by the benchmark S&P/ASX 200 Index (ASX: XJO).

This latest decline means the a2 Milk share price is now down by almost 50% over the last six months.

Why is the a2 Milk share price sinking?

The a2 Milk share price has come under significant pressure in recent months due to a sudden and shocking deterioration in its performance.

This has been driven largely by COVID-19 pressures, though there are concerns that structural issues could now be impacting its performance.

In respect to COVID-19, after initially benefiting from stock piling at the height of the pandemic, a2 Milk has now seen demand fall off a cliff. This is particularly the case in the daigou channel.

With no international travel, Chinese daigou sellers are not coming to Australia and sending products back to the mainland for profit. This was a lucrative channel for a2 Milk and their absence is being felt.

Management isn’t doing itself any favours either. Not only did a whole range of executives sell down their holdings before these impacts were understood by the market, but they have twice failed to accurately ascertain just how long the daigou recovery will take.

Both have weighed heavily on the a2 Milk share price.

Downgrading the downgraded guidance

Last month when a2 Milk released its half year results, it was forced to downgrade the (downgraded) guidance it provided just two months earlier. It commented:

“The pace of recovery in the daigou/reseller channel and in the CBEC channel has been slower than previously anticipated and the Company now expects revenue to be at the lower end of the previous guidance range.”

“A lower EBITDA margin range is now expected due to lower revenue, higher brand investment, longer daigou/reseller support, movements in foreign currency and adverse channel mix relative to what was anticipated in December.”

The company’s new guidance implies an EBITDA range of NZ$336 million to NZ$364 million for FY 2021. This will be down 34% to 39% from FY 2020’s EBITDA of NZ$549.7 million.

Where next for the a2 Milk share price?

Brokers appear largely divided on where the a2 Milk share price is going from here.

Analysts at Citi have a sell rating and expect it to fall a further 19% to $7.15. Whereas analysts at Morgans have an add rating and have tipped it to rise 17% to $10.40.

Macquarie is sitting on the fence with a neutral rating and $9.75 price target.

More reading

• ASX shares on watch: Chinese investment in Australia has dropped 61%
• Where to next for the A2 Milk (ASX:A2M) share price?
• Top brokers name 3 ASX shares to sell next week
• Do brokers think the A2 Milk (ASX:A2M) share price is a buy or sell?
• 3 ways A2 Milk (ASX:A2M) is planning a share price recovery

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post The a2 Milk (ASX:A2M) share price is down 50% in 6 months: Time to buy? appeared first on The Motley Fool Australia.

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+It has been reported by the Australian National University (ANU) that Chinese investment in Australia dropped by 61% in 2020. Does this mean that some ASX shares are on watch?

The investment decline is the lowest number in six years. The ANU database covering Chinese investments in Australia showed there had been a total of A$1 billion invested over the year, split between 20 different investments. To put that into perspective, there were 111 Chinese investments made in 2016.

But the 2020 decline was also after a 47% fall in 2019.

According to the reporting, the three sectors where China still spent big was real estate, mining and manufacturing.

What’s happening?

There are a number of different factors that could be at play.

For starters, there has been a number of tariffs and restrictions put Australian goods over the last year as part of troubling diplomatic issues between the two countries.

Those goods include an 80% tariff on Australian barley. There have been beef and lamb restrictions. Australian wine producers face tariffs of up to 200%. Australian cotton customers have been told to stop buying Australian cotton, with the potential for tariffs as high as 40%. Australian lobsters have been banned from China. Australian timber is another sector that’s suffering. Australian coal is also being targeted.

But, it’s not as though every Aussie export to China is suffering. Just look at how much iron ore that BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG) is selling, at a high iron ore price as well.

Another factor that may be affecting things is that Australia currently has a much stricter foreign investment policy at the moment.

Every potential foreign investment is meant to be looked at by Australia’s Foreign Investment Review Board (FIRB) so that Australian assets aren’t sold at heavily discounted prices during a period of heavy economic disruption. There are also rules that allow the treasurer to stop deals after they’ve been signed. They also have to pass a national security test.

Which ASX shares does this affect?

It’s hard to say precisely which ASX shares would be affected when it relates to deals that potentially haven’t happened.

It is true that Bega Cheese Ltd (ASX: BGA) benefited when the Chinese Mengniu deal to try to buy Lion Dairy and Drinks didn’t go through, leaving the acquisition of that business to Bega Cheese instead. Bega can now focus on more of the value-add parts of the dairy chain.

Other ASX shares are certainly suffering in this environment of lacklustre Chinese demand. Treasury Wine Estates Ltd (ASX: TWE) has taken a big hit to its earnings and share price.

Whilst not an Australian company, ASX business A2 Milk Company Ltd (ASX: A2M) is suffering from lower levels of demand for products. Synlait Milk Ltd (ASX: SM1) is indirectly suffering from that too.

Time will tell whether the investment decline, tariffs and restrictions will be lifted later this year or whether the disruption and frosty relations are here to stay between China and Australia.

More reading

• The a2 Milk (ASX:A2M) share price is down 50% in 6 months: Time to buy?
• ASX 200 recovers strongly, Austal floats higher, Fortescue drops
• Where to next for the A2 Milk (ASX:A2M) share price?
• Why Fortescue, Genworth, Limeade, & Northern Star shares are sinking
• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk and Treasury Wine Estates Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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On Monday the S&P/ASX 200 Index (ASX: XJO) was back on form and charged notably higher. The benchmark index jumped 1.75% to 6,789.6 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to rise again

It looks set to be another positive day for the Australian share market on Tuesday. According to the latest SPI futures, the ASX 200 is poised to open the day 53 points or 0.8% higher this morning. This follows a fantastic start to the week on Wall Street, which in late trade sees the Dow Jones up 2.15%, the S&P 500 up 2.4%, and the Nasdaq index trading 2.6% higher.

Reserve Bank meeting

The Reserve Bank of Australia is meeting this afternoon to discuss the cash rate. According to the latest cash rate futures, the market is current pricing in a 69% probability of a rate cut to zero. However, according to the most recent Westpac Banking Corp (ASX: WBC) weekly economic report, its team doesn’t expect the central bank to make a move despite the recent developments in the bond market.

Oil prices weaken further

Energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) could come under pressure today after oil prices weakened. According to Bloomberg, the WTI crude oil price is down 1.9% to US$60.32 a barrel and the Brent crude oil price has fallen 1.45% to US$63.50 a barrel.

Gold price edges lower

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) will be on watch after the gold price edged lower. According to CNBC, the spot gold price is down a further 0.3% to US$1,723.70 an ounce. This appears to have been driven by increasing risk appetite.

Mesoblast shares to return

The Mesoblast limited (ASX: MSB) share price is due to return from its trading halt this morning. The biotech company requested the halt last Friday so that it could raise funds to keep its operations going. No details have been released, other than that the company “has commenced a proposed equity-based private placement to a targeted industry investor to fund operations.”

More reading

• ASX 200 recovers strongly, Austal floats higher, Fortescue drops
• These are the latest ASX shares to be hit by broker downgrades
• Why Fortescue, Genworth, Limeade, & Northern Star shares are sinking
• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• These are the 10 most shorted shares on the ASX

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) rose by 1.75% today to 6,790 points.

Australian blue chip shares recovered a lot of the ground lost on Friday after the selloff.

Here are some of the highlights from today:

Austal Ltd (ASX: ASB)

After taking a bit of a pounding last week, the Austal share price roared higher today by 8.4% after announcing a contract win.

It announced that Austal USA has been awarded a US$235 million contract by the US Navy for the detailed design and construction of the 15^th expeditionary fast transport (EPF) vessel.

Austal USA has delivered twelve EPFs to the US Navy since 2012 on schedule and under budget, from the company’s Alabama shipyard.

Austal CEO Paddy Gregg said the new contract was a clear demonstration of confidence by the US Navy in the versatile EPF platform, designed by Austal Australia and manufactured by Austal USA. Mr Gregg said:

The EPF has become a real success story, delivering a fast, flexible and versatile capability to the US Navy. The EPF has made a real difference to military operations and other humanitarian and disaster relief missions over many years now, and this additional vessel contract reflects the continuing confidence in the unique high-speed platform.

This latest EPF will expand the medical facilities on-board, further enhancing the proven operational capabilities of the ship, which has been used for various medical missions in the Pacific, South East Asia and Western Africa.

Austal also announced that Austal Philippines has delivered Hull 419, a 109 metre high-speed catamaran ferry to Fjord Line of Norway.

It was the best performer in the ASX 200.

Fortescue Metals Group Ltd (ASX: FMG)

The Fortescue share price ended the day lower after going ex-dividend to pay its large interim dividend to shareholders.

According to the ASX, it ended the day lower by almost 6%.

Fortescue decided to pay a dividend of $1.47 per share to investors, which wasn’t too far off twice the size of last year’s interim dividend for investors.

Freedom Foods Group Ltd (ASX: FNP)

Although it’s still in a trading halt, Freedom Foods announced its FY21 half-year result today.

It said that continuing operations revenue was up 15% to $291.4 million. Continuing operations adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 182% to $21.7 million.

Continuing operations net profit after tax (NPAT) grew by 70% to a loss of $15.2 million.

The company also reported that it generated positive cash flow from operations before financing costs and non-recurring adjustments of $4.4 million, which was $30.5 million higher than the prior corresponding period.

The divestment of the cereals and snacks business is on target for completion in March 2021. Progress continues to be made on its recapitalisation plan, with lenders and the majority shareholder so far giving their preliminary support.

Shares will remain in voluntary suspension until release of the full details, which is anticipated to be in the middle of March.

Genworth Mortgage Insurance Australi Ltd (ASX: GMA)

Genworth announced that Genworth Financial has entered into an underwriting agreement (sale agreement) in relation to the sale of all of GFI’s shares in the company (around 52% of the issued shares).

After the sale is completed, GFI will no longer own any shares of the company.

The Genworth share price fell 6.2% today. 

More reading

• These are the latest ASX shares to be hit by broker downgrades
• Why Fortescue, Genworth, Limeade, & Northern Star shares are sinking
• Why Afterpay, Austal, Reece, & Service Stream shares are racing higher
• ASX 200 up 1.5%: Afterpay & Zip jump, Fortescue tumbles
• Why the Fortescue (ASX:FMG) share price is sinking 6% today

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited. The Motley Fool Australia has recommended Freedom Foods Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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It’s not popular – or a great strategy to get followers on social media – to be non-partisan.

Still, that’s what we choose to be at The Motley Fool. We’ll give credit where it’s due, but also criticism where it’s warranted.

Frank and fearless.

We did it in 2013 when we campaigned hard against the then-Liberal/National government’s plan to water down investor protections (the so-called Future of Financial Advice rollbacks).

Oh, and the sky didn’t fall in, as was predicted by those who desperately wanted those investor protections removed. They couldn’t have had an ulterior motive, could they?

We did it again, three years ago this month, when we called out Labor’s greatly flawed policy on franking credits, suggesting it was a poorly thought through, unfair and distorting policy. I’m not sure if it was poorly designed, cynical, or both… but it was poor policy, and we said so.

And we’re doing it again, today.

This time, we’re putting the blowtorch back on the Liberal/National Party government, and their equally flawed proposition of encouraging people to torch their retirement to buy a house.

The proposal, being put forward most forcefully by Liberal Party MP, Tim Wilson, is a slogan-heavy “Home First, Super Second”.

It seems to be a fig leaf to stop the planned increase in Super from 9.5% to 12% of wages/salary over the next few years. And a stalking horse to weaken the greatest part of Super – its compulsory nature and its inaccessibility until retirement.

The slogan is, in the way of things these days, something that sounds plausible, even desirable – which, I assume, is exactly what Mr Wilson wants.

Of course, in my opinion, it doesn’t even get to first base as a policy.

Housing, and for many, owning rather than renting, is a deeply human desire, and a worthy goal. On that, Tim Wilson and I agree.

A comfortable retirement, without worrying about food, heating, housing or transport, is – and I presume Tim would agree with me – also a deeply worthy goal.

So, I guess we have to choose, right????

I hope you’re scratching your head, right now.

I mean, should we really have to choose?

I wouldn’t have thought so.

Actually, let me be clearer: In a country like Australia, of course not.

The fiction of a ‘choice’ is political spin. And, as spin goes, it’s good. Tim Wilson has a knack for it.

See, here’s what happens. By seizing the initiative, you get to (try to) frame the question:

“Well, what is it? Do you want Super or Housing?”

I mean, you can’t shelter from the rain under Super, right? It can’t keep the wind out.

And just like that, you’ve fallen for the political spin.

Because here’s my question for Tim Wilson:

“Your question seems to presume that without using Super, housing is out of reach for some/many Australians. And your question seems to assert that such an outcome is a bad thing. So, Tim… given those presumptions, what else is your government doing to help people into housing?”

Because if Tim Wilson and the government are so deeply concerned about access to housing, I’m sure there must be a multi-agency, multi-pronged approach to solving the problem, right?

Task forces. Programs. Industry working groups. Investment in affordable housing. 

There must be some modelling, somewhere, that says Super is the best (only?) way to fix housing affordability.

There must be some modelling, somewhere, that says the significant cost to those people’s retirement is the only way we can make housing accessible.

There must be some modelling, somewhere, that says the previously bipartisan support for utilising Super to fund retirement and reduce the pressure on future budgets was dead wrong.

Right?

I mean, you wouldn’t propose it otherwise, would you?

Would you???

Especially right on the back of having encouraged tens of thousands of us to raid Super for (all too often) jetskis and flat-screen tellies during the COVID recession…

I’m desperately trying not to be cynical.

But I’m seeing a pattern here, and it’s scary.

See, here’s the thing about Super: it’s designed to save us from ourselves. Yes, you read that right.

The Treasurer continues to run the line that opponents “… don’t trust you to make your own financial decisions with your own money…”

So, it’s tough love time: Treasurer, we, as a society, suck at exactly that. And I think you know that.

To my readers; I’m sorry if you’re the exception. I’m sorry if you have an ideological objection.

But. It’s. True.

Compare Australia against any country with a voluntary retirement savings approach.

Or Australia, post-Super, with Australia before the scheme was introduced.

It’s chalk and cheese.

Behavioural psychologists have known for years that we are terrible at making long term decisions.

It’s just not in our evolutionary DNA.

I mean, God, credit cards wouldn’t exist if we were actually good at this stuff!

Nor, other than for emergencies, would personal loans.

And the whole buy now, pay later sector is Australia going to the shops and yelling “YOLO!” as we rush the counters with the apps open on our phones.

And then there’s lotto, pokies… the list goes on. 

So, we need ‘pre-commitment devices’.

Like, oh, I don’t know… Superannuation.

Makes sense, right? 

I’ve been asked, “But why would the government want to gut Super and have us retire poorer?”.

Frankly, I don’t know, for sure. I know some have an ideological obsession with non-profit Industry Funds, often heavily influenced by trade unions. Others are ideologically libertarian and hate Super’s compulsory nature. And yet others are probably being opportunistic, hoping that raiding Super would unleash a short-term bump in economic activity and property price gains… and know they won’t be around in 20 or 30 years when it’s time to pay the piper.)

Frankly, though, I don’t really care why.

And I have no interest in getting caught up in political games, other than to point out the spin that is diverting attention from the real issues.

And here they are, again:

First, Super is one of the greatest parts of our financial system, providing most Australians with a more comfortable retirement than would be provided by the pension.

Second, Super relieves a lot of pressure on the Federal budget, especially in the coming years as the population continues to age and healthcare costs continue to soar.

Third, Super allows a relatively small investment, now, to compound cost-free to provide a lot more, later.

It’s not perfect, but it’s pretty bloody good.

We should want only the prospect of a fundamentally unavoidable disaster to push us off that path to a well-funded, responsible retirement.

And housing ain’t it.

Not because it’s not important. Far from it.

But because it’s too important to let pollies tell us that we have a false choice: between Super and housing.

We should be holding our politicians to account. We should demand more. And demand better.

I agree with Tim Wilson that access to housing is one of the most important issues for young (and not-so-young) people, today.

But if he’s serious, I want to see why Super is the only (and/or the best) solution available.

Don’t hold your breath.

Spoiler: It’s not. Adding Super-fuel to the house price fire is only going to push prices higher. Housing policy is a topic for another day, but it’s important to address the fallacy that putting more demand into the market will make housing more affordable.

It won’t.

Oh, and up to 500,000 of us completely wiped out our Super last year when the ‘Early Access’ scheme was in place. So that’s half a million of us who can’t use it for housing.

Gee, it looks like a policy designed to wreck Super, doesn’t it?

I don’t want to cast aspersions on Mr Wilson or his supporters. I don’t want to assign motives or make allegations.

(And he and I were on the same side on the franking thing, so I certainly have nothing against him, personally.)

Instead, let me go back to the issues.

And let me be very clear:  It is a mistake of monumental proportions for him or his government to further undermine Superannuation, particularly almost 30 years into the scheme where the full benefits are only now beginning to show.

I’m glad he’s worried about housing affordability. My young blokes will absolutely benefit from any improvement on that score

But there is no ‘death or glory’ choice to make, here. It is not a question of “Houses or Super”, any more than it’s “Houses or Healthcare” or “Houses or Law & Order”. 

There are a dozen different things Tim Wilson and the Federal Government can do to improve access to affordable housing. None of them needs to be a mortgage on our retirements.

Please, join me in asking Mr Wilson to find a better way.

#HandsOffSuper

Fool on!

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Motley Fool contributor Scott Phillips has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The Coles Group Ltd (ASX: COL) share price has not been a good show for investors of late. Although Coles shares were up 1.11% at the close of trading today, the company is still down more than 15% since mid-February.

That’s a hefty drop for an ASX blue chip in just 2 weeks. Coles shares are now down around 20% since making a new all-time high back in August.

So why are investors selling out of Coles of late?

Coles earnings disappoint

Well, the company’s half-year earnings report seems to be the reason. Coles did happen to deliver its earnings on 17 February, around the time investors started hitting the sell button on masse. On the surface, there really wasn’t a lot to dislike in this earnings report. Revenues were up 8%, earnings rose by 12.1% and net profits were up 14.5%.

But investors weren’t thrilled when Coles warned that, “sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22”.

Having said that, a bright spot for investors was Coles’ dividend. Management decided to bump up Coles’ interim shareholder payout by another 10% to 33 cents per share, fully franked.

That came on top of the grocer’s last final dividend of 27.5 cents per share (also fully franked). If we put those two dividends together, we get an annual payout of 60.5 cents per share. On the current Coles share price, that would give us a yield of 3.92%, or 5.6% grossed-up with the full franking.

That’s not a bad yield by current ASX blue-chip standards. But it looks especially good against Coles’ arch-rival Woolworths Group Ltd (ASX: WOW).

Grocery dividend wars

When Woolies reported its own earnings results on 24 February, it also announced a dividend increase for its interim payout. Shareholders will get a 53 cents per share interim dividend (full franked), up a nice 15% from last year’s 47 cents per share interim payout. If we take Woolworths’ new interim dividend with its last final dividend, we get an annual figure of $1.01 per share. On the current Woolworths share price, that would result in a yield of 2.51%, or 3.59% grossed-up.

Of course, you can probably blame the market itself here. On the current share prices, the market is pricing Woolworths at a more expensive level than Coles. Woolworths is right now boasting a price-to-earnings (P/E) ratio of 35.87. Coles, in contrast, is being priced with a P/E of just 19.69.

If Coles and Woolworths were being priced equally for the same dollar of earnings, the result would be dramatically different. But if its and buts were candy and nuts, we’d all have a merry Christmas, as the saying goes.

The fact is that right now, Coles is offering a grossed-up yield of 5.6%, whilst Woolies is putting forward 3.59%. And that’s the tea.

More reading

• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings
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• The Bubs (ASX:BUB) share price is rising today on solid results
• Is the Woolworths (ASX:WOW) share price in the buy zone after its results?

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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