Starbucks to close in Australia

Slower growth and declining profits have forced American coffee giant - Starbucks - to announce that it would close the majority (61 out of 84) of its stores in Australia, and cut a number of international management roles as part of its realignment efforts. I think most true coffee lovers in Australia would not be too worried about this as they prefer their morning brew from the local cafe where the coffee is good and made by a real Barista, as opposed to a 20 yr old university kid. Will this spell the end of Starbucks in Australia? I think so and while it is unfortunate that a number of jobs will be lost because of this; Australia is better of without Starbucks and their overpriced beverages . What say you?

Property still better than shares & 5 tips to consider when investing in property

I am happy to introduce another expert contributor to Finance Viewpoint - Australian Mortgage Options managing director Robert Projeski. In this post he shares his views on why he thinks investing in property is still better than shares and provides 5 tips for investing in property. Feel free to leave a question if you have any property related comments or questions for Robert.

Property still better than shares

Following last year’s strong performance of the property market and the continuing volatility of the share market, many investors are choosing to stay or return to property investing despite the recent interest rate hike, suggests Robert Projeski, managing director of Australian Mortgage Options.

Housing approvals nationally are sitting 18% below the 2003 high and 3.4% below the long term average and investor finance at just $4.8bn for March 2008 making it a drop of 4.6% taking it to 18% below the 5 year average (2003 – 2008). [Westpac May residential report]

Despite the slowdown in demand, house prices are set to continue to increase in our capital cities with exceptions made only by Sydney, Perth, Hobart and Darwin. The decline largely due to mortgage stress and the affordability crisis brought about by increasing finance costs and the US sub-prime market impact.

“With Perth recording a drop of 0.5% on median house prices (average) and a stable level of housing approvals, suggesting further price growth and continuing rental demand, thus making it one of the locations to make your investing count in” suggests Mr Projeski.

With Sydney’s vacancy rates at just 1.6% it further suggests that the ‘Western City’ is a good place to put your money. However, when looking at investing in property it is essential to do your research and homework. Look at statistics, sales history, employment trends and other factors affecting the location you wish to invest in, before you make an offer of purchase.

As timing and the right price are the essential factors in buying well performing investment properties, it is paramount to not simply listen to friends, family or agents, but to do your own research, either through a professional or on your own, stresses Robert.

“We live in a time where one can easily access sales history, statistics and performance reports to decide on the best investment location and with finance options being more flexible than ever – purchasing worthwhile investment property has never been easier”, he added.

5 tips to consider when investing in property, which are worth considering if you looking to play the high rental yields current available in the Australian metro marketplaces.

1) Using property experts. Just because you have bought and sold a couple of houses with profit, does not mean you are an investment expert. Don’t listen to friends and family blindly – usually they have an opinion about investing, often despite that fact they are not doing it themselves. Property investing is too important an expenditure to take chances with – talk to property experts, investment advisors, finance brokers and study property reports before you make a decision.

2) Waiting for the price to come down. Property generally always goes up in value. It may plateau or slip back a few %, but across the board – prices are steadily claiming. So, if you wait until the prices from 10 years ago return, you will wait a long time. You are in most cases better off buying now rather then in 6 months, as often you will pay more down the track – effectively reducing your capital growth. Having said this, the best time to invest is when you are ready to do so. Sooner than later is usually best.

3) Emotional vs commercial decision.When selecting and deciding on an investment property – do yourself the favour of approaching this simply as a commercial decision based on figures, returns, vacancy rates etc, not what colour the walls are, whether you would want to live in it or that it is in easy reach so you can mow the lawns on a weekend. The more emotionally detached you are, the better it is. Investing is done from the head, a home is bought from the heart.

4) Old vs New.Unless you are a tradesman or have loads of time to spare to perform renovations, repairs and maintenance, you probably are better off buying a newer investment property. Apart from the work and expense, your depreciation schedule is more substantial on a new property than an older one. After all, it is all about letting your money do the work – work smarter - not harder.

5) Managing the Property Yourself. Unless you are rather experienced in this area and have access to the industry tools to ensure you do end up with the best tenants possible – don’t do it yourself. Firstly, if you do select a ‘lemon’ for a tenant, this can easily turn into a lengthy process in front of the tenancy tribunal, with loss of rent, loss of access to the property, presentation costs etc. Once again, you want to work smarter not harder. So, get a good property manager to look after your investment. The percentage you pay them should outweigh any losses through your own tenant mismanagement and peace of mind is worth a lot!

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The "Last Lecture" Professor - Randy Pausch - passes away

Randy Pausch, 47, famous for his remarkable taped speech known as the “last lecture” which was a sensation throughout the web last year passed away on Friday. His last lecture at Carnegie Mellon, where he was a professor, was inspirational in it's life lessons, but the most remarkable aspect was that he knew he had terminal pancreatic cancer before he gave the speech. Instead of focusing on the negatives he looked at achieving what he hadn't and what was important in life (family). In the lecture, he spoke of overcoming the obstacles that may seem insurmountable. If you haven't seen the last lecture, I urge you to spend the time (about 75 minutes) to watch it. For those of us who are going through tough times, this provides much needed inspiration.



Jim, from Blueprint for Financial Prosperity and a former Carnegie Mellon alumni published a copy of the official letter from the university on the professor's death and I thought the following line was the most striking:

Perhaps the greatest lesson, however, Randy taught us all was how to live, even in the face of great challenges, and how to follow our passion. While Randy’s greatest passion was clearly his family, he did not shy from sharing his passion for his work as a professor, for his students, and for Carnegie Mellon. We will miss Randy, but we will carry the memory of him and all that he did to make Carnegie Mellon a better university and each of us who knew him a better person.

What are your thoughts?
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The rising price of oil and market outlook vidcast

A few weeks ago I indicated that the rising price of oil was based more on speculation rather than supply and demand. I also pointed to the price of oil peaking this year, with prices likely to fall over the next one to two years to around $70 a barrel. In the last two weeks the US government has introduced plans to reduce the speculation on oil prices, which has subsequently seen the price of oil fall. While it is still too early to confirm whether oil has peaked, the signs are very encouraging. If it does start to move down I don’t believe it will be a swift retreat, rather I expect it will be steady decline over the next 12 months.

So what can we expect in the market?

Last week the All Ordinaries index fell to a low of 4880 on Wednesday 16 July, and has since risen strongly to reach a high of 5209.60 as of Wednesday 23rd July. Whilst the fall was close to my target of 4800, I am not convinced that the fall is over. My current expectation is that the current move up will last between one to four weeks before it finds any resistance, although in my opinion the longer the upward move the better.

For the market to prove it is bullish again, we need to see it hold above 4880 points. While it will fall away to test the recent low, the move down needs to be short lived. Currently the medium term direction of the market is uncertain, as it is still possible it could fall away to trade around 4300 points, which is the next support level on the All Ordinaries Index.

Remember, until the market proves it is bullish, we need to assume that it will continue to be bearish. Given that the market has yet to prove it is bullish, is it is far safer to sit and watch it unfold before making any decisions. Once the market confirms it is bullish there will be many opportunities to profit in top blue chip shares during the remainder of the year. Right now I encourage investors to sit tight.

Dale Gillham Vidcast (Streaming video clip) of Market Outlook




This report is from Dale Gillham , chief analyst of share investment company Wealth Within

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You must read this article if debt is any part of your life....

"The collection agencies call at least 20 times a day. For a little quiet, Diane McLeod stashes her phone in the dishwasher"

I first read about this article in the I will teach you to be rich blog via a link I was sent and adapted it here for my audience. It is from the New York Times and is about the American debt problem shown through a woman named Diane McLeod who got into hundreds of thousands of dollars in debt from a seemingly secure position. It's remarkable series of articles because it includes a rich set of multimedia features that let you understand how many Americans get into so much debt — and also allows you to compare yourself to others. I know it is American focused, but I think it is applicable to any one in the world who got in to debt, is in debt and how to get out. This multimedia article, part of a series, is worth spending the time to read through. It covers:

> An overview article: Given a Shovel, Americans Dig Deeper Into Debt. This is the story of Diane McLeod and how she got into debt.
> A interactive timeline of debt from the 1920s until now. I have shown a screenshot of the 2000's below. You can look at every decade in the feature.
> A haunting video of Diane McLeod. Just watch her attitude and how her debt affects her.
> 1000+ comments at last count. Clearly a lot of people have something to say.
> A tool that lets you compare how much debt you have with others like you. Just use the exchange rate and see how you compare to most Americans ($1 Australian = $0.97US. So if you are earning $100,000 Aussie dollars, it is equivalent to $97,000 US dollars)

I highly recommend you read and see the entire piece (it should take you about 15 to 30 minutes). Whether you are financially secure or not, you will learn something new. Click here to see the NY times article. Also check out the above blog, which has more comments on this article.

What are your thoughts on it? I thought it hit a number of key points and challenges we or some we know faces. Sometimes without realizing it.
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Analysing Market Trends

When analysing the market, it is important to always review the historical patterns to assist in forming a view of what may occur in the future. It is a well known fact that the All Ordinaries has a history of making a major low approximately every 4 years, and with the last 4 year low occurring in March 2003, it is obvious that we are well over due for the current 4 year low.

The longest period in history for the 4 year low to unfold on our market is 64 months between July 1982 and Nov 1987 and currently the market has been unfolding for 61 months since March 2003. Given that the average length of the 4 year low is around 50 months, it is evident that the low could occur at any time. While the opportunities will be plentiful when the low is confirmed, investors will need to exercise caution by only investing in large companies that generally lead market recoveries.

So what can we expect in the market?

This week the market continued to sustain its downward trend falling to a low of 4880 on Wednesday 16 July, which is now the 8th successive week that the market has fallen. While it is rare for the market to fall for such a sustained period I still believe it will rebound over the next one or two weeks.

Given the level at which the market fell to this week, it is also possible that we may see an end to the current fall and the market return to being bullish, however, only time will tell. Given that anything is possible in the current market conditions, it is important that investors protect their capital in preparation for the next bull run, which I do not believe is too far away. I expect the market to find support around 4800 points although if it falls through this level it could fall to the next support level of around 4300 points.

This report is from Dale Gillham , chief analyst of share investment company Wealth Within

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Tips on successfully buying a house

I had recently published a post on a friends first hand experience of buying a house in Sydney. Based on that article, here are his key learning points about the home buying journey. Given I may be looking for a house to buy soon, these are very useful tips:

• Know where you want to live and why. Key factors include, family, transport, lifestyle, schools and work. When schooling takes up 5 out of the 7 days a week for 13 years of your children’s life this is a huge factor.
• House or unit/town house and why. Houses give you more room and flexibility but it comes at a cost of a lot more maintenance and is generally more expensive with purchase price and rates.
• Set a range, probably about $50,000 plus or minus of your budget.
• Know the market. The single biggest factor in making sure you don’t get ripped off. Go to auctions, open homes and look at places out side your range. The few hours each week could save you $20,000-$30,000. At high interest rates that is a lot of money to save at the back end.
• Be patient. There were a couple of places we liked but had to let them go due to the price being out of our range. I know that if you miss out on a place you had set your heart on there will be another come along. It is amazing. Try to ride out the emotion as much as possible. My wife didn’t do this well after the first place we missed out on. It hurt her for a good few weeks, but then came along another place, and it sparked our interest.
• Ask the agent why the vendor is selling. Also if they have a place to go to. In our case they had not purchased a place and were looking at their options. The reason I say this is that if the vendor has no where to go and you are not in a huge rush you can ask for a delayed settlement. We delayed ours by 2 weeks, bringing the settlement out to 8 weeks. It gave us another pay run into our savings accounts, plus it meant we had a bit more time to sell our unit. Every week that you have locked in a price but don’t have to cough up the balance is a huge saving on your mortgage.

Do you have any more to add to the above list?

$55 a day for parking in Sydney!

The economist brings us a comparison of parking costs across the world, as shown in the graphic below. Can you believe Sydney is the second most expensive city in the world (after London) for parking. I remember parking in Sydney a couple of years ago and $55 (or $800 monthly) was way more than I paid. Probably only a few places (Centre Point, Australia Square, Opera house) had parking that expensive and only in peak hours. What do you think?

Darkest hour is just before dawn

There is an old saying that the darkest hour is just before dawn and this is, at times, a very appropriate phrase when referring to the share market. In October 1997 experts were predicting a global meltdown as a result of the Asia crisis, yet our market rose 40% over the next two years. The same situation arose following the tech wreck in 2000, yet our market rose over 18% the following year.

Following the September 11 crisis, experts where once again predicting doom and gloom for the world economies, but our market only fell around 6% over the next 18 months into March 2003. Since then, we have had the biggest bull market in history therefore the pull back in the previous 12 months is a natural process whereby the market is simply adjusting to more realistic levels. Since the Asia crisis our market has risen nearly 130%, despite three major events that were predicted to have enormous impact on our economy. The question that remains then, is it time to buy? Not yet but it is getting pretty dark, so be prepared.

So what can we expect in the market for the week ahead?

Over the past seven weeks the market has been in a sustained down move, with the All Ordinaries falling to a low of 4999 on Thursday 10 July. The last time our market fell for a prolonged period was the eight-week fall into the March 2003 low. Given this it is highly likely that our market will rebound over the next one or two weeks.

While it is possible the rebound will signal an end to the current market fall, I believe it is likely to be short lived as I am expecting the market to fall away one more time to exhaust the current downtrend to eventually find support around 4800 points. While I would urge investors to remain patient, I believe it is time to get ready to take advantage of the next bullish move, which will occur in the not too distant future. As I have indicated previously, I still expect the second half of this year to produce good profits for those who are patient.

This report is from Dale Gillham , chief analyst of share investment company Wealth Within

Did you get a 19% pay rise?

The Sydney Morning Herald reported that "Prime Minister Kevin Rudd's senior management team received an 18.9 per cent pay rise. That is an extra $1400 a week, and takes the three top earners to almost $490,000 a year"

The article goes on to say

"Under the former prime minister, secretaries were on remuneration packages worth between $384,420 and $410,890. He then handed out bonuses of 5 per cent for secretaries assessed as performing satisfactorily, 10 per cent for superior performance, 15 per cent for outstanding and 20 per cent for exemplary performance. After freezing MPs' pay and urging unions to show wage restraint, the Prime Minister has [done an about face] and given a big rise to secretaries of the 19 federal government departments. The packages of the secretaries in departments rise from $384,420 to $490,000 on average "

How fair do you think this is? Given inflationary pressures and a worsening economy for ordinary Australian's, I think this pay rise is ridiculous and over the top. With private sector companies looking to cut jobs over the coming year, perhaps it is best to get a lucrative job with the government. Never thought I would say lucrative and government job in the same sentence.

An overview of Capital Gains Tax

This edited article has been provided to Finance ViewPoint by Raj Kuckreja CA, of Kuckreja Accounting and Taxation Services Pty Ltd (Phone: 02-9708-6978). The information in this article is general in nature and DOES not represent individual financial or taxation advice. Liability limited by a scheme approved under the Professional Standards Legislation

Capital gains are the profits that an investor realizes when he or she sells a capital asset (eg a Stock holding) for a price that is higher than the purchase price plus transaction costs. Capital gains taxes are only triggered when an asset is sold, not while it is held by the investor. Hence smart investing should factor in the capital gains tax implications to legally minimize the taxes you pay and maximise your take home profits. Some major assets like the family home (the primary residence), are exempt from capital gains. The focus of this article though is on capital gains tax in relation to equities.

Capital Gains Tax is NOT a stand-alone tax with a fixed rate. Any taxable capital gain made in a financial year is added to your taxable income. Tax is paid at your marginal tax rates; hence capital gains tax rate varies depending on your other taxable income. Because it is variable and dependent on other income, effective forward planning can minimise your end of your tax liability.

At this time of the year you should be reviewing your investments and determining the following:
1. How much capital gains /capital losses have already been recognised during the year
2. Are there any assets with capital losses or gains that you will be better of recognising this financial year rather than future financial year?

Keep in mind the Contract dates (NOT Settlement dates) are the important dates for determining which financial year a gain is taxed and if an asset has been held for more than twelve months. Here is a walk through on how capital gains and associated taxes are figured:

CGT Example

Assume you purchased BHP Shares in September 2004 for $10,000 and sold them in May 08 for $60,000*. As you have held the shares for at least 12 months and one day – only half of the gain will be taxable under Australian tax law. i.e. (60,000 – 10,000) x 50% = $25,000. The actual tax you pay on the $25,000 will be depended on an individual's marginal tax rate. If you are earning over $150,000 (in 2008 financial year), that will mean 46.5% of half the gain. $25,000 x 46.5% = $11,625.00

*Note : Transaction costs for buying and selling the shares can be added to your cost base as well and will reduce your tax liability, so make sure you keep a track of these.

Assume you also owned Zinifex (ZFX) shares and purchased them in 2006 for $60,000 and today they are worth $40,000. Before financial year you can consider selling these shares. This will recognise a capital loss of $20,000. The sale contract must be before 30 June for the capital loss to be recognised.

A CAPITAL LOSS is not a tax deduction. It can only be used to reduce your capital gains. The $20,000 capital loss will reduce the gain on BHP shares. It is important to understand the net capital gain will be:

$50000 (Gain on BHP Shares) - $20,000 (Loss on Zinifex) = $30,000 x 50% = $15,000

That is the loss reduces the total gain FIRST and the CGT long term holding discount (50%) comes second.

However by recognising the capital loss before financial year you have effectively reduced your taxable income by $10,000. This reduces the tax payable by $4,650 if you are in the top marginal tax rate.

Selling for Tax Purposes and the Wash Rule

Often the question then comes up you want to reduce your tax bill and sell Zinifex shares, but you still think it is a good investment. Can you sell the shares and repurchase, for the sole reason to recognise the capital loss? In the past this was common practice. However the ATO seems to be clamping down on this practice in recent times. They have been actively issuing rulings and alerts warning people that if there is a "Wash Sale" - A scheme of buying and selling shares with the sole purpose to obtain a tax benefit - they will ignore the tax effect of such transactions and charge penalties.

The net result is you need to sell down Zinifex and either (a) not re-purchase OR (b) make the reason for selling and buying back is not about tax. For example you need to obtain and document advice justifying reason for selling Zinifex because it is not longer a good investment, and if you want to re-purchase shares in the future obtain and document advice as to why you have changed your mind. By documenting your financial advice for buying / selling and not holding the shares for an appropriate time – the sole reason for the sale and re-purchase may no longer be taxation – rather financial.

In summary

Capital gains tax planning is only one part of the puzzle and must fit in with overall tax and superannuation planning, but remember to always seek advice when it comes to taxation. More often than not the advice will more than pay for itself.

This is a very high level overview and I did not look into many issues such as methods of utilising capital losses, capital gains for collectables, small businesses capital gains, capital assets purchased before 1999 and adjustments for gains on properties. Leave a comment if you would like me to look into these or any other related tax topics.

Related tax articles and links:

1. Ten useful tax deductions
2. Investment Property and taxes
3. Ten Tips for Using Your Tax Refund
4. 2007/8 Tax Brackets
5. Should you hire an accountant
6. Australian Taxation office website.

My Investment in Apple's 3G iPhone Australian and Global launch

Telstra announced that they will be offering the iPhone 3G in Australia, with the launch scheduled for July 11. Optus and Vodafone will also launch their iPhone offerings at the same time. I have been using the older iPhone model for a few months (officially only sold in the US, though it was cracked and sold worldwide) and really think it is one of the best smart phones out there. The new 3G version with improved features, should be a big hit and really help the bottom line of Apple as it will be distributed internationally across multiple carriers. The new iPhone, includes fast 3G wireless technology, maps with GPS, support for enterprise features like Microsoft Exchange, and the new Apple Store access. Like the original iPhone, it combines three products in one—a revolutionary phone, a wide-screen iPod, and a breakthrough Internet device with rich HTML email and full web browsing. As some pundits are saying the "iPhone 3G. It redefines what a mobile phone can do—again."

With the above in mind and the ongoing growth in sales of Apple's other products (laptops, iPod products and iTunes store sales), I really believe Apple's future is strong. This led me to making a big investment in their stock ($16,000) and I believe that in the long term this should double. You can read more about this investment and reader comments at my US focused investment blog - savingtoinvest.com. I am currently down on my investment (thanks to falling markets last week), but still firmly believe in the long term future for the company. You'll see what I mean if you end up buying or using the iPhone.