There is a Lot Falling

  • Clifford Bennett, Chief Economist at ACY

  • 29.11.2021 04:00 pm
  • #stocks

WSJ story. Link:

Good afternoon,

A very good friend asked me what they should be buying?

They have been doing very well in property but have not been involved in stocks. My reply was a cutting through to what really matters for all of us right now.

This is not personal advice. Just an economic view expressed. Based on global fundamentals and fast-moving developments regarding Covid, the likely impact upon government policies, global travel and general consumer behaviour moving forward.

You should buy Gold.

Hold Australian Property. Maybe do not buy more.

You should minimise your risk exposure to the Stock market.

If you must look at the stock market, then only to sell things.

You are most likely in a great position now. Suggest do not take extra risk. The big boom in stocks, crypto, etc is completely finished.

As I said a week or two ago:

If very wealthy, immediately take 90% of risk off the board.

If wealthy, 50%.

Holding cash could see your relative net-worth skyrocket.

If yet to be wealthy, get extremely aggressive as the individual trader will have maximum advantage over large institutions in the style of market action now descending on us all.

Stock markets will probably crash again, Monday. This is not a 'buying opportunity'.

Property Australia wide: People will still be leaving Sydney and Melbourne, with some even moving overseas. As unfortunately, they see a greater tyranny of distance in the years ahead, and a few do not like the direction Australia is taking in general. The South-east Queensland economy and property market have had a different construct to everywhere else. Increasingly, however, the new hard line approach of Queensland will begin to slow migration from the other states. Then we have skyrocketing interest rates early, and certainly by year-end 2022. This, in the context of a below trend GDP profile.

If in the Real Estate industry, expect a very slow 2022, but possibly a return to 2021 volumes or near to, during 2023/24. As stressed large investment portfolio holders are forced to sell by ever higher interest rates and a somewhat dormant price environment.

My Australian dollar forecast remains 65 cents, perhaps 58 cents. Previously on ausbiz, at .7745, I forecast a move to 70 cents. Australia is already headed for a disaster that few are yet able to perceive. This means, appropriate RBA and government policy responses will be dangerously delayed. Both our trade and domestic economy outlooks are already diminished.

The new Omnicron variant could be worse than anything yet, and possibly existing vaccine resistant.

Testing of vaccines are already underway, but we will not know the results for a few weeks. Everything else is conjecture. Meanwhile, in Australia, Delta is now absolutely everywhere, wherever you go in NSW and Victoria, and vaccines are already beginning to wear off. The vaccinated, with false confidence, have spread it everywhere. This could prove problematic in the weeks and months ahead.

The good news on Covid generally, is that we are all approaching some degree of herd immunity, possibly to a sufficient extent by the end of 2022. This is because vaccination has softened the impact during the herd immunity build period. As vaccines wear off, hopefully natural herd immunity will take hold. See, I am an optimist.

The global economy, well it was already slowing again before the news of the South African variant.

China, Japan, manufacturing/industrial production are in contraction.

Consumer confidence in Europe is falling sharply, and in the USA actually collapsing to new pandemic lows.

Inflation is at a 31 year high in the US and is here to stay. Due, as I have said for months, to 'freedom of pricing', as well as real supply chain disruption issues.

The world has basically been in a profiteering phase for the past 18 months.

This will now begin to create enormous problems for economies to maintain consumption levels.

Central banks elsewhere, are already raising interest rates. The Federal Reserve and RBA are already terribly late in their response to inflation and relatively normal rates of economic activity. Crisis settings have been entirely inappropriate for at least 6-9 months now. This is how slow in particular the RBA has been. The RBA Governor may well be smiling all the time, but the economy is not.

Due to their blinding failures to date, the RBA will be forced to be quite aggressive in raising rates once they start. In an effort to make up for having got everything economic basically wrong over the past year.

Australia's political outlook is important from an economic and market perspective. PM Morrison will lose the Federal election absolutely. Only Queensland saved him last time, because of the ALP's aggressive policy proposals toward the coal mining industry. Anthony Albanese to walk into power this time. A good guy actually, I went to Sydney University with him, but it means none of the real reform the economy so badly needs will be likely in his coming 2-3 terms in office. That said, the biggest reforms were from Hawke and Keating, Howard too, so there may be a chance of positive surprises on his shift.

For my friend, the question, how is the farm project going, was appropriate. Maybe, that is what we all need? From speaking to some of you, that is already achieved. Well done.

Hopefully, I have cheered up your Sunday afternoon? As great market corrections are the places of true financial empire building.

Forecasting this crash, New York Monday close.

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