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Good Franking Credits News

FYI | Apr 17 2019

By Peter Switzer, Switzer Super Report

The best news I’ve heard in recent weeks (and I’ve unearthed a few good’uns I can assure you) was that the Centre Alliance Party should hold the balance of power in the next Senate and they’d oppose Bill Shorten’s unfair policy on tax refunds linked to franking credits for retirees not receiving a pension.

Before addressing your franking credits investment strategy, let me run through the good news vibes that all investors should be happy about. I’ll list these positive views for stocks below:

  • Chinese economic data is on the improve in many areas. Last week we saw consumer prices rise by a big 2.3% over the year to March, up from 1.5% in the year to February. Exports in the first nine days of March surged 39.9%, compared to the same period last year, which might be a good early indicator that the economy is on the rise again, following some strategic stimulation.
  • US banks have reported better than expected with this reporting season. Some experts are thinking the overall results could come in positive rather than the expected negative showing that has been tipped.
  • The CEO of the world’s biggest bank, Jamie Dimon of J.P. Morgan Chase says it’s not crazy to rule out a recession for three years! “It [economic growth] could go on for years,” he added. “There’s no law that says it has to stop. We do make lists, and look at all the other things: geopolitical issues, lower liquidity. There may be a confluence of events that somehow causes a recession, but it may not be in 2019, 2020, 2021.”
  • A nice market signal happened over the weekend, with the S&P 500 index passing through the 2900 level, which is seen as a point of psychological resistance. The S&P ended the week at 2907, for a weekly gain of 0.5%. The next target traders are watching is the closing high of 2930 on the S&P. The all-time high was an intraday 2940, reached on Sept. 21. (CNBC)
  • The New York Times (not a pro-Trump organization) came out with this over the weekend: “Treasury Secretary Steven Mnuchin said on Saturday that he believed the United States and China were nearing the final stage of trade negotiations, moving closer to what he said would be the biggest change in the economic relationship between the countries in 40 years.”
  • While the International Monetary Fund cut its growth figure for the world economy from 3.6% to 3.3% for 2019, the G-20 meeting of Finance Ministers and Treasurers has given the thumbs up to the second-half of this year.

This is how Associated Press reported the conclusions from the meeting of the top 20 countries’ finance ministers: “Global finance leaders gathered from the spring meetings of the International Monetary Fund and the World Bank agree that the global economy has lost momentum this year. But they expect growth to pick up in the second half of 2019, as central bankers ease up on interest rates.”

  • The Brexit problematical ‘can’ has been kicked down the road to as late as October, which should be good for helping a better exit strategy to emerge.
  • The delay of the US-China trade deal could help us because if the news comes out around May 18 — the date of our Federal Election — there could be a relief post-election boost joining in with a “no trade war” leg up for Wall Street.
  • It comes as US economic data is on the improve. “Jobs data was strong. Everybody was really negative on the economy, and now we’re getting pleasant surprises,” said Marc Chandler, Bannockburn Global Forex chief market strategist. The economy added 196,000 jobs in March, bringing the monthly average to 180,000 over the past three months, even with February’s shockingly low 33,000 payrolls. Chandler said industrial production and other data should show an improved trend over last month. (CNBC)

On franking credits, the best play is to do nothing. The AFR’s Phil Coorey argues that the Centre Alliance Party (the old Nick Xenophon team) opposes Bill’s franking credits policy for self-funded retirees, though they could opt for a cap.

Franking credits and potential tax refunds have been a big influence on how we selected stocks for our portfolios when we were seeking income. But as someone who has a dividend growth fund, I know there are other stocks than the ones we all instantly go for, which collectively could help make up for any loss of franking credits, if Bill gets his way.

If the policy becomes law, that will be our key task to find the investments that deliver good income returns that currently are being ignored because of the attractiveness of stocks that bring franking credits to the table.

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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