The general rule is high interest rates slow an economy and low interest rates speed it up. China’s priority is the latter. They want to grow and keep growing at rates like 6.5%.
Growth is up. Spending is up. Savings are down. In fact, savings as a ratio of income is just 1%. Here’s some high-level maths for you; a person on $100,000 a year is saving just $1,000.
International currencies have all slipped against the US dollar. This means that global liquidity is tightening. So it's time to be cautious.
With trade war tensions escalating between the US and China, it’s surprising to see that Aussie stocks have powered ahead. Ironically enough, we have a falling Aussie dollar to thank for this.
The Reserve Bank continues to hold the official cash rate at 1.5%. What’s going on? Is this as good as it gets for the Aussie economy?
The US dollar rally has barely paused for breath since getting underway in February. Late last week, it took its toll on commodities. Oil fell nearly 3%. Iron ore fell 3.7%, while aluminium declined 0.7%. What will happen next?
Thought about buying a house recently? Or even selling? If you’ve been looking into the real estate market, or simply watching the news over the past decade, you’ll have noticed that housing prices have soared. It also would have been quite difficult for you to miss the housing crisis currently spreading throughout the country.
Right now in Australia, we’re getting low nominal wage growth and increased costs in about everything. That means many Australians are experiencing a reduction in REAL wages. Inflation is coming. It may not hit next month, this year, or even the next. But it’s coming. Which brings me to gold. When the market realises that governments and central banks will put up with higher than expected levels of inflation, it will start moving ‘insurance capital’ into the precious metal.
Clearly, there has been too much cash in asset markets over the past few years…especially in fixed income markets. But now, the Fed is concerned that this excess cash will show up in consumer price inflation — which is, apparently, a lot worse than asset price inflation. The bond market will feel the biggest impact of this tightening.
As US bond prices collapsed, so too did bond prices in most developed countries. The rise in yields not only devastated bond portfolios, it encouraged thousands of investors to jump out of stock and into high yielding bonds. It caused the All Ordinaries (the 500 largest Aussie stocks) to fall more than 22% from its high in 1994. Question is, could we see a similar situation play out in 2018?