The bank records the mortgage. The government records the first home buyer concession. The sales data records the purchase price.

What none of them necessarily records is the transfer from Mum and Dad. The family loan. The guarantee. Or the extra years spent at home while a deposit is saved.

That came to mind after a curious statistic appeared in the Victorian data recently: first home buyer participation grew faster than first home buyer lending.

There are several possible explanations for that gap, but it reflects something we’ve been witnessing for some time.

Family money moving between generations is hardly new. Parents have always helped children buy homes, raise families, get an education or get a business started.

What appears to be changing is the scale, timing and consequence of that help.

As housing has become harder to access and more wealth has accumulated with older Australians, family capital can increasingly influence when the next generation buys a home, starts a business or gets ahead — not simply what they inherit later.

Perhaps, then, the so-called Great Wealth Transfer isn’t one great transfer at all. Increasingly, it may arrive in instalments. And that changes the conversation.

Once significant family capital starts moving during life, the questions extend well beyond the transaction. Was it a gift or a loan? Does equal support mean fair support? What happens if one child needs help at 30 and another doesn’t? What happens when relationships change? And how should today’s assistance eventually sit alongside tomorrow’s inheritance?

These are precisely the kinds of questions that have occupied a considerable amount of our thinking at FinSec — because managing family wealth increasingly means understanding the family around the wealth, not simply the assets on a balance sheet.

We’ve also spent much of the past few weeks wrestling with something rather less philosophical: the CGT and trust announcements from the Federal Budget.

A generous thank you to Canberra – not for the extra tax but for keeping us relevant. But, fingers crossed, there may be a little more light at the end of the tunnel.

We are now considerably more accomplished at modelling business valuations, trust structures and tax consequences than any reasonable financial adviser should aspire to be.

At times it has felt like playing chess on three boards simultaneously — except every time you move a piece, someone changes the rules.

Still, working through real businesses, structures and numbers has left us a little more encouraged than when we began. The announcements remain significant, and there is still plenty we don’t know, particularly around how the valuation guidance will ultimately land. But for the first time in a while, we are beginning to see possible paths forward that don’t start and end with paying more tax.

Elsewhere in this month’s View, we look at how US support for Japan in defending the yen is about considerably more than currency; five charts reveal some surprisingly strong foundations beneath today’s expensive markets; and one innocent-looking statistic about population and land mass turned into a surprisingly entertaining exercise in perspective.

Curiosity has a habit of doing that.

It’s an eclectic View this month. Then again, that’s rather the point.

We hope you find something that makes you stop, think — and perhaps see something familiar a little differently.

Enjoy the read.

Profits in the US are exceptional. Earnings forecasts are being revised up, not down. And Australia’s major trading partners continue to grow.

So, no, this isn’t a market completely detached from reality.

But nor is everything quite as comfortable as the headline numbers suggest. Markets aren’t pricing perfection, but they are pricing a particularly favourable version of what comes next.

Here are five charts that explain why.

1. Prices are moving faster than profits

There are two ways share prices can rise: companies can make more money, or investors can become willing to pay more for the money they make.

Since January 2023, Japan has had rather a lot of the latter.

Japanese share prices have risen much faster than expected company earnings. Australia shows a milder version of the same pattern: prices are higher, while expected earnings remain below where they began.

Then there’s America.

US share prices have risen strongly, but earnings expectations have travelled with them. That’s an important distinction. A rising market is one thing. A rising market with rising profits underneath it is another.

Which brings us neatly to chart two.

2. In America, the profits are very real

Source: Charlie Bilello.

For all the debate about expensive US shares, American companies are doing something rather inconvenient for the bears.

They’re making an extraordinary amount of money.

The S&P 500’s estimated profit margin reached 16.9% in the June quarter — almost 17 cents of profit from every dollar of revenue and the highest level shown in our chart.

That goes some way towards explaining why US equities have continued to rise despite persistent concerns about valuations.

It doesn’t settle the argument. Exceptional margins invite competition, and a disproportionate amount of the strength remains concentrated among technology and AI-related businesses.

But this isn’t enthusiasm looking for earnings to catch up. The profits are already there.

The better question is how long they can stay this good.

Many investors have spent the past two years waiting for reality to catch up with exuberant AI-related expectations. Instead, reality has been surprisingly cooperative. The companies at the centre of the story have continued delivering extraordinary profits. Much of those profits are being reinvested into data centre infrastructure for future AI demand, so the real test will be whether this investment pays off quickly enough.

That doesn’t settle the debate. It does explain why it remains such a debate.

3. The usual script has been reversed

Source: Truist Wealth IAG; FactSet; Macrobond; S&P Dow Jones

Wall Street analysts have a fairly dependable annual tradition.

Start optimistic. Gradually lower earnings forecasts as reality intrudes. Then congratulate companies when they clear the newly lowered bar.

This time, someone forgot the script.

The long-run pattern is clear in the chart. Since 2000, earnings expectations have typically been revised lower as the year progresses. That is the purple line drifting down the page.

The 2026 line does the opposite. Forecasts weakened early, then turned sharply higher. By the latest reading, analysts are not trimming expectations; they are upgrading them. Early estimates for 2027 are moving higher too.

That’s unusual — and it makes some of the strength in US markets considerably easier to understand. Companies aren’t simply beating expectations; expectations themselves are having to catch up.

There is, of course, a catch.

Every upgrade makes today’s price easier to justify. It also makes tomorrow’s hurdle a little higher.

For now, companies keep clearing it.

4. Australia still has friends in useful places

Source: ABS; CEIC Data; Consensus Economics; IMF; LSEG; RBA.

Australia’s economy may feel a little lacklustre from inside Australia. Fortunately, we don’t only sell things to ourselves.

Our major trading partners are expected to grow at a little above 3% a year through to 2028.

China is the obvious example. Growth above 4% sounds pedestrian beside the double-digit rates that once powered Australia’s resources boom. But percentages can be deceptive: 4% growth in today’s vastly larger Chinese economy creates considerably more economic activity than the same rate would have decades ago.

And our economic relationships now extend well beyond China.

For Australia, reasonably healthy growth among the countries that buy what we dig up, grow, build and increasingly provide remains a useful tailwind — particularly while households and businesses are absorbing higher costs at home.

In uncertain times, it helps to have friends in useful places.

5. The economy looks different depending on your age

Source: CBA.

We often talk about “the Australian household” as though 27 million people share one bank account.

This chart is a useful corrective.

Savings growth is around zero for Australians aged 20-24 and 35-44, and negative among 25-34 year-olds. Older Australians, meanwhile, are still adding to their savings, with the strongest growth among those aged 65 and over.

None of this should be particularly mysterious.

Your 30s and early 40s tend to coincide rather inconveniently with mortgages, children and the expensive business of building a life. Later decades are more likely to come with accumulated assets, lower debt and — after years of earning next to nothing — meaningful returns on cash savings again.

But there’s another difference worth considering.

The generations aren’t simply at different stages of saving. They’re at different stages of owning.

Younger Australians are still trying to accumulate the assets from which future wealth will grow. Older Australians are much more likely to already own them.

That helps resolve an apparent contradiction in Australia’s household data. Collectively, Australians hold enormous wealth and substantial financial buffers. But averages don’t tell us who owns the buffer.

The economy can therefore look remarkably resilient from 30,000 feet while feeling anything but resilient around the kitchen table.

Our view:

Taken together, the five charts tell a more nuanced story than either “markets are expensive” or “everything is fine”.

Today’s market strength has genuine foundations: exceptional corporate profits, rising earnings forecasts and continued global growth. But that strength is doing a lot of work in particular places: among certain companies, in markets where prices have sometimes moved faster than earnings, and in households where resilience depends heavily on income, debt, age and asset ownership.

That last point is not a generational scorecard.

Different generations are also at different stages of life. Younger Australians are often starting careers later, forming families later, buying assets later and carrying larger entry costs when they do. Older Australians are more likely to have accumulated assets over time, benefited from compounding and, in many cases, reduced debt. Longevity also changes the equation: wealth may need to last longer, even where the balance sheet looks strong.

It is a timing issue. People are starting careers, families and asset ownership at different stages, while longer lives mean accumulated wealth also needs to last longer. The same economy can therefore look resilient from one stage of life and far less forgiving from another.

None of this tells us a market turn is imminent. It does tell us not to build a portfolio, or a financial plan, that depends on today’s most favourable conditions continuing indefinitely.

Markets don’t need everything to go right.

But at today’s prices, they may need quite a lot to keep going right.

For the first time since 1998, the United States joined Japan in buying yen to support the Japanese currency.

The move was extraordinary. Its limited staying power was more revealing.

Two of the world’s largest governments could interrupt the yen’s decline. They couldn’t remove the forces behind it.

And that’s why this story matters well beyond Japan.

This isn’t principally a currency story. It’s a story about what happens when the country that supplied the world with cheap capital for decades begins demanding a return again.

The world’s great supplier of cheap capital

For nearly three decades, Japanese interest rates sat close to zero — and, at times, below it.

That created an unusual problem for a nation with enormous pools of savings: there wasn’t much money to be made from money at home.

So Japanese banks, insurers, pension funds and households looked elsewhere.

Japan became one of the world’s great exporters of capital, helping finance governments, businesses and markets well beyond its borders.

Cheap Japanese money also fuelled the famous yen carry trade. Investors could borrow cheaply in yen and put the proceeds to work in higher-returning assets elsewhere.

For years, the maths was compelling. With US interest rates well above those in Japan, American assets were an obvious destination.

But there was a consequence. Money flowing out of Japan also put downward pressure on the yen.

Eventually, what was a cheap currency becomes expensive. Japan imports much of what it consumes, particularly energy, and a weaker yen raises those costs at home.

That gives Japan a clear reason to defend its currency.

The more interesting question is why America helped.

When Japan’s problem becomes America’s

Japan is the largest foreign holder of US Treasury securities.

That’s an important detail.

One way Japan can raise the dollars required to support the yen is by drawing on its enormous portfolio of foreign assets. If that involves selling significant quantities of US Treasuries, it creates another problem entirely.

America needs buyers for its debt.

But, what happens when their major buyer becomes the seller? Treasury prices fall and yields rise. And, because higher Treasury yields don’t remain conveniently contained in the bond market: they influence borrowing costs across mortgages, businesses, governments and asset valuations.

Suddenly, a Japanese currency problem has the potential to become an American funding problem.

US support for Japan can therefore be viewed in two ways.

It helped an important ally defend its currency.

It may also have helped reduce the risk that Japan would defend the yen by selling the very American debt Washington needs global investors to keep buying.

And that brings us to the bigger story.

Japan has somewhere else to put its money

For decades, Japanese investors looked offshore partly because the alternative at home wasn’t particularly appealing.

That is changing.

Japanese interest rates are rising. Government bond yields have climbed to levels that would have seemed extraordinary only a few years ago. For the first time in a generation, Japanese savers can earn a meaningful return without necessarily sending their capital overseas.

That doesn’t mean Japanese investors suddenly sell everything they own in New York, London or Sydney and bring the money home.

They don’t need to.

Capital rarely needs to stampede to change prices. The marginal buyer simply needs a better alternative.

Imagine a Japanese institution deciding where to allocate its next billion dollars.
For years, earning almost nothing at home made the decision to invest offshore relatively easy.

If Japanese government bonds now offer a credible return, the calculation changes. An overseas borrower may simply have to offer more to remain attractive.

Multiply that decision across banks, insurers, pension funds and investors and something important starts to happen: the world’s capital becomes more expensive.

The return of the cost of capital

Japan is the most fascinating example, but it isn’t alone.

Global government bond yields have climbed back to levels not seen since before the ultra-low-rate era. Governments are carrying enormous debts. Businesses need capital. Infrastructure and defence spending require funding. The energy transition requires it too.

There are plenty of people asking for money.

The people supplying it are rediscovering that they can demand something in return.

That matters because the post-GFC investment world conditioned us to think about the cost of money principally through central banks.

Will the RBA cut?

Will the Federal Reserve raise?

What will the Bank of Japan do next?

Those questions are still relevant. But increasingly, central banks aren’t the only ones setting the price.

The world’s savers get a vote too.

Why this matters here

Australia can feel a long way from a battle over the yen and US Treasuries.

Our capital markets don’t agree.

Australian banks borrow in global markets. So do businesses. Governments issue debt into markets where they compete with borrowers around the world. Investment portfolios price assets relative to the returns available elsewhere.

That means the global cost of money can move even when the RBA does nothing.

For a household, it can eventually appear in borrowing rates. For a business owner, it can change the cost of financing expansion or the valuation a buyer is willing to pay. For an investor, higher bond yields change the relative attractiveness of shares, property and other assets.

And for retirees, there is another side to the equation: after years in which defensive assets offered very little income, being paid properly to lend money again isn’t necessarily bad news.

The cost of capital is somebody’s cost.

It is also somebody else’s return.

Our view

This isn’t a forecast of a Japanese currency crisis, nor are we predicting a sudden withdrawal of Japanese money from global markets.

The structural shift is more subtle — and potentially more important.

Capital is becoming more contested.

Governments want affordable finance. Businesses want capital to grow. Savers want to be properly compensated for providing it. And asset markets spent much of the past decade becoming accustomed to money being plentiful and cheap.

Those interests no longer align as comfortably as they once did.

For investors, that argues for something rather less dramatic than trying to predict the next move in the yen. It means paying attention to what you own, what you paid for it, how much debt sits underneath it and whether your portfolio genuinely has more than one way to produce a return.

Because the defining question of the last decade was often: What will central banks do next?

The question for the decade ahead may increasingly be: What return will the world’s savers demand.

The percentage of the world’s land mass on which roughly a quarter of humanity lives.

This month’s Stats Interesting began with a number that seemed almost too surprising to be true.

25% of the world’s population lives on just 3% of its land mass.

Naturally, that led to a simple question:
What does 3% of the world’s land actually look like?

Several maps and calculations later, the statistic became even stranger. The countries clustered around the Indian subcontinent, together with the Indonesian archipelago, account for more than two billion people. By one visual comparison, that population sits within a land area roughly comparable to the eastern half of Australia.

The fun of statistics like this isn’t really the statistic itself.

It’s what happens when you change the lens.

Maps give visual importance to land. Population gives visual importance to people. The two have very different ideas about what matters.

And occasionally, understanding where people actually live can matter well beyond geography. Population shapes housing demand, infrastructure needs, energy consumption, labour markets and, ultimately, economic growth.

That does not mean every populous country becomes an investment success story. Institutions, governance, education, infrastructure and policy still matter enormously.

But it is a useful reminder that opportunity does not always sit where the map looks largest.

Or it can simply send you down a fascinating rabbit hole…

Congress, Passive Investing and a Rather Crowded Index

Owning the market used to sound like the ultimate act of diversification. But what happens when “the market” starts meaning a very large bet on a very small group of companies? Capital Group recently took that question to Congress, and the answer is more interesting than active versus passive. It asks whether the cheapest-looking option is always the lowest-cost one.

Read our take

It Is Not Only a Widow Tax

A low-income year is not always clever planning. Sometimes it is parental leave, caring responsibilities, part-time work or retirement. The proposed CGT design may tax the gain without understanding the life event around it. That is why this is not only a widow tax..

Read our take

Scams Don’t Need You to Be Careless

The victims are not always who people imagine. Sophisticated scams catch experienced professionals, younger clients and people who are perfectly comfortable with technology. If something has gone wrong, the next few minutes matter. Stop the money. Secure access. Tell someone

Read our take

The Spreadsheet Says We’re Winning. So Why Doesn’t It Feel Like It?

We are richer than a generation ago. We live longer, travel further, own more and can communicate instantly. Yet happiness has not followed the same neat upward line. Perhaps money is very good at creating choices, but far less reliable at telling us what to do with them.

Read our take

This is Terafab, a proposed chip manufacturing facility backed by Tesla, SpaceX and Intel.

For scale, Apple Park, Apple’s circular headquarters in Cupertino, is roughly 460 metres across. Using that as the reference point, Terafab appears to be roughly 10 kilometres long and more than a kilometre wide.

The result looks less like a factory and more like somebody accidentally designed a city.

Just when we think we’ve grasped the scale of the AI buildout, another project arrives and resets the benchmark.

Source: Peter Diamandis

“The father buys, the son builds, the grandchild sells and his son begs”

An old Scottish proverb on the challenge of preserving success across generations. Remarkably current for something several hundred years old.

1. We don’t know whether this image slightly exaggerates the terrain or not.What we do know is that it gave us a newfound appreciation for just how much of Australia’s east coast is shaped by the Great Dividing Range, and perhaps even a little more appreciation for Blaxland, Wentworth and Lawson finding their way across the Blue Mountains in 1813.

Spource: X

2. Friday Funny

The stick never changed. The personal branding did.

3. Vale Bill Evans

There are economists you read, and there are economists you make a point of listening to.

Bill Evans was firmly in the second category.

Across FinSec, we rarely missed an opportunity to hear him speak, whether through webinars, presentations or client events. His views helped shape many of our own, not because he chased headlines, but because he had a rare ability to bring simplicity to the complex

What we valued most was his consistency. Through booms, busts, crises and recoveries, Bill remained thoughtful, measured and willing to explain not just what was happening, but why it mattered.

Vale Bill Evans, and thank you for the thinking.

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