It’s Opportunity Time In The Australian Market!
25th of January, 2019
The brittle state of Australian Politics!
These and many other events are enough to make you think, to make you question “Is this time different?”.
Is the real-estate cycle still in play? Or are these events signs that in this cycle things have actually changed?
The turmoil of world equity markets in late 2018 did nothing to abate investors’ fears that this time it really IS different.
The media is economically bearish, and Trump’s wall continues to cause controversy.
The FANGS are dead. Because the growth in Apple iPhone sales have slowed, the talk of the town is that the US economy and hence the world economy is now in trouble..
“This graph shows Apple iPhone sales worldwide from the third quarter of 2007 to the company’s most recent financial quarter. In the fourth quarter of 2018, 46.89 million iPhones were sold worldwide. In the 2017 fiscal year, Apple sold 216.76 million iPhones.”
Global Apple iPhone sales from Sept 2007 to Dec 2018 (in million units)
Simplistic yes, but it’s the logic many seem to be using. The US and world economies are toast…
But life is never as straight forward as it often seems.
So, while Trump has shut down the US economy by refusing to fund essential US services, Huawei it seems can only make the news regarding its spat with Canada.
In what appears to be “tit for tat” arrests by both governments the enormous sales growth of Huawei’s mobile phones seems to have gone unnoticed.
Huawei’s surge in sales has seen such an improvement that it has now overtaken Apple and is the 2nd largest phone seller behind Samsung.
World growth has not stopped, and neither have the technological advancements.
China is the big wild card this cycle. They have never experienced a real estate led asset boom – let alone the destruction of a bust. They are forging ahead at a miraculous pace.
Their “Belt and Road” project is just stunning! And they recently shocked the world by sprouting cotton on the Dark Side of the Moon.
This is BIG news.
As is Huawei phone sales.
China’s growth rate has moderated and fearful of slower economic growth they intend to stimulate it. However, China has decided that it will abandon its previous wasteful infrastructure binges – this time they will stimulate their economy with good old-fashioned tax cuts.
$300B of them…
This is a big number and sure to cause a stir. The announcement went almost unreported in the west. Instead, we decided to focus on more pressing matters, like a Wall?!…
There appears to be an unprecedented level of political unrest. Will Trump be impeached? A Russian Spy?
How is the UK going to resolve BREXIT? Currently, there appears no sensible way out with the entire UK parliament in complete disagreement.
Australian politics is in a dire predicament with another election looming; the outcome of which only seems to be no better than the continued nonsense we have endured from ALL sides of politics for the last 10 years!
Is this really any different from any other period of uncertainty?
The key to long term investment performance is to hold your nerve and stay true to your plan.
Our plan is based around the long-term cycles and everyone is currently focused on the coming mid-cycle slowdown. We see no evidence that the mid-cycle is upon us.
It is coming and the cracks are starting to appear, but like a market can climb a continual “Wall of Worry” we remain bullish for the medium term.
Investing can be hard work.
Markets continually test our resolve.
But until we see real evidence of the mid-cycle slowdown, we will remain committed to growth assets.
Recent falls in the equity markets both here and abroad feed into our possible “Mid-Cycle Hypothesis” that it could be felt more largely in the equity and credit markets while the property markets potentially may escape.
We are not seeing any increase in Unemployment nor other “Mid-Cycle” signs. Further the Dynamic Asset Allocation Modelling we undertake with Dr Robert Vagg is not ringing alarm bells, rather it too is indicating that the most prudent long-term asset allocation approach is to continue to focus on equity growth assets.
Currently property vacancy rates are low which is placing landlords in a position of power. As always well located investment grade investment properties continue to remain a sound investment.
The Australian Banking Royal Commission Report is due to be released shortly. The banks have been publicly humiliated and their short comings exposed. The Royal Commission is talking about higher compliance hurdles and making lending institutions more accountable ensuring they require more onerous disclosure and assessment from borrowers. Meanwhile the Productivity Commission is poking fun at how the banks are gouging and not extending credit to those who seek it.
You can’t have it both ways – Credit is either easy. Or its not.
And currently it is not – but it can’t stay constricted forever…
As soon as we detect a change in our models, we will be swift to change our market outlook and asset allocations. Our Economic Cycle Action Plan indicates that the mid-cycle slowdown is approaching so although we need to remain bullish and exposed to growth assets a change can be expected in the coming 18 months.
We still believe (and our models are currently agreeing) that the major bias remains up.
So don’t worry about the US economy being trash just yet.
The US economy has proven itself throughout history to be a very innovative economy and today is no exception.
We believe that we are still in the “Opportunity” stage of the cycle. Where market declines represent buying opportunities.
So, until we reach the mid cycle we will continue to greet any such decline as an opportunity.
However, this bullish outlook will not remain forever. Be alert but stay invested. That’s the way we currently see the markets.