At the moment the Australian market is like a bouncing rubber ball. The height of the bounces and falls seem to be getting smaller. I mentioned in Money Weekend yesterday that I wasn’t exactly the leading expert on technical analysis (I leave that to Gabriel Andre), but I don’t need to be an expert to see that the Australian market hasn’t broken out of its downward trend yet.
However, although it hasn’t broken the trend that doesn’t mean to say that it will fall below the low reached in November.
A quick look at the chart above shows you that in late September/early October the market had a major slump at what is now the resistance point to a move upwards.
We’ve also got to remember that apart from the 50% fall in the stock market and the collapse of a few highly leveraged companies the visibility of a downturn is not there for most people.
But how much of that anticipated bad news is already built into the market? All of it, some of it, or none of it. We won’t know that for sure until the bad news happens. We can say with some degree of certainty that it isn’t the latter.
The markets have seen a lot of bad news but just don’t know how much more to expect.
Some economic numbers this week should point to more clues. Today the ANZ Job Advertisements data is due out. On Wednesday the Housing Finance numbers are due, and on Thursday Employment Change numbers are released.
But let’s be honest, at the moment, this isn’t really what a recession is supposed to look like. Recessions are supposed to be people losing jobs, companies going bust, economic contraction, houses being repossessed, and much, much more.
Surely there are some signs out there to give us a clue. Will Australia continue to ride its luck?
Well, here’s a couple of things your editor has picked up on that may or may not provide any insight into the current state of the economy:
Car Sales: Your editor bought a new car last week and wanted to trade in the old rust bucket at the same time. “We’ll pay you the value of the rego” the car dealer told us.
“Erm, the rego expires in two weeks” we replied. That wasn’t a promising start to the negotiations.
“Well, we’ll give you $600 for it as it will just go for scrap.” We snapped up the offer.
It turns out that up until recently, new car dealerships would take on old cars as a trade-in and then flog them off to the dodgy used car yard down the road. Except now, even the used car dealers can’t flog off the discounted old bangers.
Either the scrap yards are going to clean up or car buyers are going to (actually, sounds like they already have) desert the market.
The Weekend Australian Financial Review interviewed Srecko Lorbek, a luxury car dealer at Lorbeck Luxury Cars in Melbourne. He said, “I love it, I’m buying these cars that were $200,000 new for $50,000 and selling them the next day for $55,000. I’m having a field day.”
He went on, “Why would some clown pay $50,000 for a new Commodore when he can drive a BMW or a Mercedes, Audi or a little Porsche Boxster?”
No wonder he’s loving it, he’s probably the one who sold the $200,000 car to the customer in the first place.
House Sales: You can look at this one as either the glass is half full or the glass is half empty. When a real estate window has over half of their window space full of houses that have a ‘SOLD’ sticker over them, what does that tell you?
That business is booming, “look at all these houses we’ve sold”, and “what good agents we are for selling this many in a recession.” Or does it tell you that they aren’t getting enough new property listings to fill the window space?
Put it this way, unless you are a distressed seller, why on earth would you want to move house now? Even if you haven’t mortgaged your house up to the hilt, chances are that you may not have enough money to cover the deposit on a new house.
For instance, supposing you bought your house for $500,000 three years ago and took out a mortgage for $400,000. Well, now the house may only sell for $450,000, which after you take off the agent fees and the stamp duty on the new house, doesn’t leave you that much as a deposit.
Granted, the new home you buy is also likely to be cheaper than it would have been two years ago, but who wants to sell something for a loss?
Former stockbroker Peter White does apparently.
Taking up the prime spot in the AFRs ‘Life & Leisure’ liftout, the blurb tells us the four units completed six months ago are now being advertised below cost. Prices are “ranging from $3 million to $3.8 million for the penthouse, which was originally listed at $4.8 million.”
We’ve already heard anecdotal evidence about the forced or panic selling of holiday houses, could the same thing happen to rental investment properties? That would be a real sign of a recession. For all we know, it may already have started.