Profiting from the Midcycle?

30th of January, 2020

Over the last few years we have been questioned by many people on our continuing explanation that the Mid-Cycle in the Australian Share Market is NOT yet upon us.

Many investors thought that the decline in December 2018 MUST have been the onset of the decline that typically punctuates the longer 15-20 Year Economic and Credit Cycle.

However, at Calnan Flack we continued to explain that we are not yet at the point where the Australian Stock Market is likely to have a cyclical decline.

We have for some time expressed that all investors need to understand the market in which they are investing. Understand the cycle, the drivers and how it interrelates with other assets.

We have continually emphasised that the Mid Cycle will not occur for all markets in tandem, but rather at a time that is relevant and specific for each market or asset.

Photos by, TheDigitalWay, Aditya Joshi, Jacek Dylag, _M_V_ and yucel-moran

Each Market Same, Same, But Different

Our modelling shows that just as each market will exhibit different growth patterns, they will also react and decline at different times in reaction to different events.

If this were not the case, then it could be assumed that ALL markets will rise and fall by the same percent and at the same time.

Many people believe that the US markets drive the world and that all other markets just “follow” the US. You know the old saying, the US sneezes and the rest of the world catches a cold.

Photo by Matthew Henry on Unsplash

But it must be remembered that the US S&P500 Index has increased nearly 400% from its 2009 lows. Yet the All Ordinaries has only rallied about 130%…

Yes, both are stock indexes, however they perform very differently and are subject to the macro drivers specific to their location and each market’s performance will reflect this.

This means each market must have its own Mid Cycle decline, at its own specific point in time, for its own duration.

It is not until we see the busting of the credit bubble at the end of each cycle that we see the convergence of share price declines.

It has been our ongoing assessment of the Australian Share Market and its drivers, that has enabled the Calnan Flack investment committee to continue to invest on the upside while others are hedging waiting for a major decline.

Graph provided by Dr Robert Vagg

How Far will it go?

We have long held the opinion that the Australian Share Market’s bull run still has significant profits ahead of us.

We have outlined exactly how far and for how long we expect this market to keep rallying in detail at our Calnan Flack Forecasting Conference. In fact we have detailed the profits to expect ahead of the mid cycle top for the last 3 years.

Understanding history and the cycles has enabled us to provide attendees with a detailed diagram that clearly outlines our expectations.

Although we can’t reveal to Investment Club members just exactly how far we expect the Aussie market to rally, as this is strictly for our financial advice clients and Forecasting Service members, what I can say, is that there are two key levels above the market that we will be watching like hawks!

We can reveal that we see blue sky in the markets for some time to come. We even went as far as to name the Australian Share Market to likely be one of the best performing markets over the next 12-18 months at our November 2019 Forecasting Conference.

Blue Sky for the Aussie Share Market

This is a BIG call we know. But we have a decent track record of such investment forecasts with previous nominations including the Indian market the Nifty50 in 2014 (43% increase) and in 2017 the NASDAQ (40% increase).

Will the Australian market repeat these increases? Well we will have to wait and see. What I can say is that we are very bullish on the Australian Share Market.

We remain confident despite:

  • Bushfires
  • Coronavirus
  • Yield Curve inversion
  • Climate Change Debate
  • Trump v China
  • Ukraine plane disaster
  • The looming recession
  • Real-estate prices
  • Current monetary Policy

Or any other reason you might like to throw at us!

Photos by Darren Halstead, Markus Spiske, Terri Sharp and PublicDomainPictures.

Different Market. Different Cycle

The point I’m trying to make is please understand the market you are investing in. Understand that the Real estate Cycle and the Share Market Cycle DON’T have to be mirror perfect.

And certainly, this cycle and these two markets are acting like anything but siamese twins! With property having completed its mid cycle slowdown and now looking to resume its upward price trajectory the share market still needs to navigate its mid cycle decline.

But we have some time yet and with excellent price drivers in place for the medium term it’s time to sit back and allow the cycle to do the heavy lifting for you.

Let’s get started

If you want to avoid the mistakes of not understanding the dangers of investing without an understanding of the Economic Cycle, then why not have a chat to us about how we can help?

You have nothing to lose except a few minutes of your time and everything to gain.

So… let’s get started.

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Disclaimer: Any opinions or recommendations expressed here do not purport to Financial Advice but rather should be considered General Advice and does not take into account your personal needs and objectives or your financial circumstances. You should therefore consider these matters yourself before deciding whether the advice is appropriate to you and whether you should act upon it. Should Financial Advice be sought, we suggest you seek such advice from an appropriately qualified advisor. Any growth rates, yields, rental income, tax rates, interest rates, depreciation rates, inflation rates Dividends per Share (DPS) and Earning Per Share (EPS) etc shown are estimates only and should not be used as a guide to future performance. Past performance is not necessarily a guide to future performance and should not be relied upon for this purpose. Authorised Representative of PGW Financial Services Pty Ltd – AFSL 384713 ABN 15 123 835 441.