Australian shares extended a monthly run of gains to eight months in May, the longest stretch in 14 years! The All-Ordinaries index closed the month 1.6% higher at 7,406.7 points. The Australian Dollar gained by 0.4%, with 1 Australian Dollar buying 77.49 US cents.
The Reserve Bank of Australia (RBA) held the official Cash Rate at 0.10% per annum in May. The RBA said in May that conditions to raise the cash rate from its current level of 0.10% per annum were unlikely to be in place “until 2024 at the earliest”.
While no change is expected to the Cash Rate when the RBA board meets again on Tuesday, interest rate markets will be observing the RBA statements to gauge their view on the economic outlook (and the future of its $200 billion bond buying program).
Global share markets were higher across the board in the month of May, with the United States Dow Jones index gaining by 1.9%, the London FTSE gaining by 0.8%, the Japan Nikkei 225 gaining by 0.2% and the Hong Kong Hang Seng Index gaining by 1.2% for the month.
In recent times, there has been lots of attention on Bitcoin and other cryptocurrencies. In the past year, Bitcoin exploded in value by around 450%, then all of a sudden, in the past six weeks, almost halved in value as shown in the chart below.
While it is obvious to say that cryptocurrencies have no underlying fundamentals (that is, no profit streams, rental income or interest payments that help support the value of assets such as shares, property and bonds), many argue that they have a role to play as an inflation hedge or a decentralised reserve currency.
Much like a pyramid scheme, those who got in early on Bitcoin have a huge financial incentive to draw in others by any means necessary. Consequently, some people have indeed managed to become incredibly rich from cryptocurrency.
In my view, buying into cryptocurrency should be considered akin to gambling and, like gambling, people get into it not just because they might make money, but also because it is entertaining. Similarly, they need to be prepared to lose what they are staking.
If we are to believe that Bitcoin is going to take over from the dollar one day, then we better be careful what we wish for….
One of the key reasons we experienced the shortest recessions in history last year was due in large part to the fact that the RBA cut interest rates (and provided accommodative monetary policy settings).
You need to look no further than the economic turmoil the European Union created last decade (with no ability to utilise targeted monetary policy settings to provide economic stimulus due to a common currency) to see the perils of a common currency.
For more information, please contact Ryan Love on 1300 856 338.
This article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives.