Has Australia’s Luck Run Out?

Short Summary:
Has Australia's luck run out?

Full Report:
Australia’s Economy is a House of Cards – Matt Barrie – Medium

 

Bad nodroG, you will frighten all the rabbits with links like that.
Might go get my Alfoil hat.

 

LOL.

Well markets can have bad times as well as good. No one knows the future so just trying to dish out some toughening up therapy in preparation for potentially future gloomy times. Call it exposure therapy (no flashing please ) so perhaps the less experienced have a better chance of keeping a level head in bad times.

I was thinking of starting a “Sharemarket Doom And Gloom” thread for these types of articles.

Where’s @oracle? I thought these articles might interest him. Hope you didn’t take offence at my comments last week’s on Tech stocks. It was a tough week.

I do sleep a little better having some exposure to International equities in our portfolio though.

Be afraid, very afraid:

 

The house of cards article has already been posted.

I think there are at least 4 doom and gloom threads on PC.

Just a sign of the times, when we start to hear some negative reporting then market sentiment starts to change would you believe. It does not help that auction clearance rates are trending down.

Business as usual for me, seen it all before.

MTR

 

Market cycles!!!

 

Sorry I rarely venture outside the Other Assets section of the forum as all the talk about property makes me feel faint.

I hadn’t seen a Doom and Gloom thread in this section of the forum and it’s the most important area of course. And I’m not one to be biased.

 

The report was suggesting structural change rather than just the usual cyclical events. And I’m not suggesting I agree with it all as I just post stuff to challenge our views.

Having been through the 87 market crash and others since cyclical events are of lesser concern to me. For the experienced they’re easier to deal with but I’m looking more at protecting our retirement cash flow against structural change and country specific risk.

Also it’s possible at some stage the mess created by the astronomical debt binge in recent decades will need to be sorted. This may not be pretty and take an awfully long time to play out. That’s when cash flow will become king and growth fueled by negative cash flow will become a horror story for those who have leveraged excessively in any asset class.



Mawhawhawhahaha

 

Has Australia really been that lucky? I mean we have the debt but where is our economic growth? What is the value of the ASX vs 10 years ago?

The headline that Australia has not had a Recession for 26 years is interesting and all, but besides Sydney and Melbourne property, the Australian economy is not exactly booming.

 

Price is only half the story. Asx 200 accumulation index is well above levels 10 years ago.

S&P/ASX 200 Accumulated Index (AXJOA) - Investing.com AU

 

Or maybe it’s the case that many investors / the younger population here have never really known what a recession and / or being an unlucky country feels like!

 

Yes. I knocked this chart up some months ago showing the price vs Accumulation (including dividends) indexes. It has gotten higher since. And note that these don’t take into account the substantial benefit of franking credits! One is kidding themselves if they think Australia overall has been through seriously tough times in the last 26 years.

 

There has been undeniable credit growth History - Australian Debt Clock, with most being attributed to household Australian household debt breaks new records | The New Daily.

This household credit growth has come against declining income growth http://www.smh.com.au/business/the-...es-have-grown-since-2008-20170919-gyk983.html

To claim that all the credit growth does not have any economic growth to show for it, makes the situation worse not better, because debt still has to be paid.

Like @Nodrog has said the charts are showing structural changes, nothing cyclic. A cycle involves some elements of periodicity, sequence, repeatibility even if they are stochastic. When was the last time in cycle (if there is any) when similar conditions (debt to GDP ratios, incomes, inflated house prices, interest rates) existed ?

 

reading that article was like being told that the Emperor wasn't wearing any clothes.

 

"

Or other people saying look how lucky we have been... we have built up a mountain of debt but don't have real economic growth to show for it. Some might not describe that as lucky.

 

I don't know if Australia is 'lucky' or not, but it sure beats many other parts of the world. I'm more than content to make my lot here. Through the ups and through the downs, I'm grateful for this place.

 

Yes, this is true. Australia is lucky compared to many places.

 

Yes of course it is a lucky country in a lot of ways. But I think we may be talking about different things. It’s Australia’s economic future going forward which the report suggests may not be as rosy as in recent decades. So perhaps some additional risk management and extra care with leverage might be sensible at some stage. Like all Insurance we hope it’s never needed but better to be safe than sorry.

I was highlighting the fact that it’s been the best part of three decades since a large portion of the population here have ever experienced a recession. Therefore not if but when a recession strikes it will be a huge shock to many. Taking on significant leverage to gear into property and other assets assuming that future growth will be a repeat of nearly the last three decades could come with greater risk than perhaps in the past.

All this is hypothetical of course but as a retiree in particular I take into account various possibilities (outside of Armageddon) and manage risk accordingly to give us the best chance of surviving recessions / depressions. Owning a home, being debt free and focusing on cash flow, given a Great Depression scenario, is nearing the worst case scenario I plan for. Accumulators have more time on their side and greater options of course.

I didn’t mean for the report to be taken out of context in suggesting Australia isn’t a good place to live. But as investors it’s so easy to manage the risks discussed in the report with perhaps even a better finiancial outcome so why not consider some of these options?

 

Good post @Nodrog. I guess I am not as optimistic about Australia's economic performance in the last few years. In any case, with headlines like this one, it is a good reminder to all investors that recessions do happen:

Australia now holds the record for a country not having a recession — 26 years

Australia has just broken a world record for economic growth

The reality is the economy is struggling and likely to get worse:

“The real issue is that consumption is still pretty soft even though the saving rate fell ... and (capital expenditure) was flat, still not doing anything.

“That’s really important for the Australian economy so the domestic drivers of growth in Australia are still pretty underwhelming.”​

 

Hi @Nodrog ,

I wasn't meaning to imply you were taking anything out of context and I agree you bring up some very good points. My coments were merely a general remark about my overall sentient towards Australia as a place to do business, given that we may face tougher times and challenges ahead .

I do for the most part also believe we create our own luck. Many ppl post gfc in the states found opportunities to make money and did well while others were fixated on the economy. I tend to always be a half glass full type person. Works for me.

 

You speak the truth sir, I am seeing amongst clients some CRAZY leverage stories particularly amongst the youth who have only seen a highly anomalous bull run in property over 10 years and the post GFC semi-recovery in stocks and think unlimited leverage is the only game in town.

Currently it's time to batten down the cash flow hatch. Rising interest rate environment is coming. It will be slow but it IS coming. So is mortgage stress but that's another story.