The Australian Recession That Never Was

Australia is officially not in a recession! As of Wednesday this week, stronger economic growth numbers than expected reveal that our 25 year streak without a recession hasn’t been broken.

Let the good times roll on!

The thing is, if the results had come in negative, that wouldn’t really have told us that we were in a recession. It would have told us that we had been in a recession, for the previous two quarters.

Economic numbers like these are always backwards looking. And while a negative announcement would likely have led to panic and selling in markets — perhaps a lot of both — would that have really made sense?

Stay with me for a moment.

Share market investors have been receiving results for weeks now in company reporting season. But, again, this data is always a look in the rear view mirror. When we buy or sell, it’s based on our best guess of what’s to come. That doesn’t mean you should ignore what has happened in the past. Just remember, past results are no guarantee of future returns.

My point? Don’t forget to occasionally take your eyes off the rear view mirror and glance at the road ahead.

While it’s nice that Australia has avoided a technical recession, that technicality alone shouldn’t be enough to send you on a stock shopping spree. If things had turned out differently, that alone wouldn’t be reason enough to sell everything and take refuge in cash. So, recession or no, is now a good time to buy…or sell?

Your Money Morning editors sought to answer those questions this week. They took a look at the causes behind Australia’s growth, and the headwinds working against it. They discussed the dangers that still threaten your portfolio, even as Australia’s 25 year growth story continues. And they looked at how you can skirt the minefields to find investment success. Read on for the details…

Monday’s Money Morning looked at the vast gulf between speculating and investing. Two utterly different ways to approach the market…though perhaps both should have a place in your portfolio. Greg looked at very successful examples of both, and how each could work for you. For the details, you can find Monday’s Money Morning here.

On Tuesday, Greg compared two recent share buybacks on the ASX. He touched on the relativity of value in a stock (‘Like beauty,’ he explained, ‘it’s all in the eye of the beholder.’) and a fast rule for estimating it. To learn how you can judge share buybacks for yourself, you can read Tuesday’s Money Morning here.

Greg predicted Wednesday that there was little chance of Australia actually having fallen into a recession. Decent consumer spending and a strong rise in commodities made it very unlikely. So with the looming question of a possible technical recession settled, Greg looked to the next big question mark for Australia. Will interest rates move at the RBA meeting next week? Greg argued that the same factors that kept us out of recession mean a lowering is unlikely. But the strong Aussie dollar probably means that the RBA also can’t raise rates. So with interest rates likely on hold, what can we expect from here for Aussie stocks? Read the details here.

Greg’s predictions about the Aussie economy’s results turned out to be right. But in Thursday’s Money Morning, Sam argued that the positive headline results hid many dangers beneath the surface. Any rise in the Aussie dollar could be tough on exporters, but a fall brings risks of its own. China appears to be ticking over healthily, but it hasn’t been too long since investors learned hard lessons about the difference between appearance and reality in the Chinese economy. And while house prices appear to be a bubble in search of a pin, Australian households are working more to earn less.

How worried should we be about all these risks? Sam argues that there’s danger, and you have to be aware of it. But there’s also opportunity. Things that Australia does better than anyone else. Areas where you can still find growth. And if the market is risky, all the more reason why you should be well informed about where to find the best hidden gems. Read more here.

On Friday, Sam used a recent IPO as an example of how dangerous hype and emotional trading can be. Snapshot Inc, and its flagship app, Snapchat, has been monopolising headlines this week. Some call it the most anticipated IPO of 2017, others call it the new Facebook. But Sam argues that, when you look at the actual numbers, it may be remembered as 2017’s biggest trap.

Snapshot doesn’t make revenue to justify anywhere near its sky-high valuation. And it’s unlikely that any changes to its Snapchat messaging app could increase revenue enough to make a dent in the company’s loss-making record. Not without driving away the majority of its users, anyway. Sam argues that many of the investors buying this week are caught up in the hype surrounding a highly visible stock. It’s emotional trading, not logical. To read why, you can find Sam’s article here.

In this week’s podcast, Kris and Woody look at the frankly ridiculous gains that quick-moving investors have made across the US as the wave of marijuana legalisation continues. And they discuss the first stages of a similar story taking place in Australia. They also touch on the Dow Jones historic high, the Snapchat IPO, the housing bubble, and what oil prices teach us about overheated markets.

Next week Money Morning will carry on proudly into a recession-free Aussie future. Doubtless the sun will shine, birds will sing, house prices will go up, China will keep buying our dirt, and no one will ever lose money on the market.

Or not. We’ll see.

Cheers,

Tyler Jefferson,
Editor, Money Weekend

Publisher’s Pick: Crunch Point at Curtis Island’ How a failed $60 billion gamble by Australia’s three biggest energy giants could pay off big for you… [More]

Numbers of Interest, as of Friday’s Close

Aussie Dollar to US Dollar: 75.54

Gold: US$1,233.22 (AU$ 1,632.33) per troy ounce

Silver: US$17.77 (AU$23.53) per troy ounce

West Texas Intermediate Crude Oil: US$52.76 per barrel

ASX 200: 5,729.60


Tyler Jefferson joined Fat Tail Investment Research in 2012. With a background in publishing, he started out as part of the team working behind the scenes with your Editors to bring you Money Morning each day.

When he joined, Tyler was Fat Tail Investment Research’s 12th employee. Today that number has grown to over 50, as more and more readers turn to Money Morning as their source for independent financial analysis and ideas.

Today as Managing Editor, Tyler still edits the articles you read each day. Along with that, he occasionally contributes to Money Morning with his own irreverent take on the most interesting news and opportunities for you.


Money Morning Australia