Australian Economy

Australia’s reality check?

This week I have spoken to a few other colleagues around the globe, and we are all arriving at very similar conclusions. While we may differ in strategy, how we think about money, and what we chose to invest in, the consensus on the current state of global affairs has us all concerned.

The Analysts I have spoken to have been in the game longer than I in some instances and combined we would have well over 50 years of trading experience, some of us with time in hedge funds or trading floors across the globe. The most interesting factor is that we can all agree that the data is not indicating a positive outcome for this post covid-19 world. We all survived the 2008/9 global financial crisis with profit and have been making comparisons to then and now almost daily, trying to see some form of similarity, and there are not that many.

The most obvious thing to state in this circumstance is that the world has changed, and the scenario is not one anyone was anticipating. We collectively feel that the pandemic induced crisis is likely to change the way we all invest.

However, we can all see that the change is coming for our homelands were perhaps we are more in tune with the local challenges, that we are likely to see. The things that I see as being different and why Australia’s position is worse this time round is pretty clear.

Things are different:

  • Demand from our largest trading partner China has been lower
  • Tensions have begun to bubble between China and Australia resulting in bans and tariffs
  • The Reserve Bank of Australia has little room for error, and even less room for lowering rates
  • The quantitative easing approach being taken is a quick fix and not a solution to everything
  • More than 1 chunk of our GDP is out the window, namely Tourism, Mining and Tourism
  • Our household debt levels has outpaced income for years
  • Not to mention Australia’s net debt had doubled prior to COVID-19 stimulus
  • In 2008 it was a Top down liquidity issue, now it is the reverse with a bottom up problem
  • Both supply and demand have taken shocks globally

Australia who has weathered the storms for 30 years is likely not to come out of this one unscathed, many of the decisions being made at higher levels have not been sound of mind but fear induced. My concern now is that after such a long period of growth is the Australian economy primed for a very big reality check? To me the stimulus that has been pumped into the Australian economy has acted like that of helium in a balloon, except each time the balloon has come down the stimulus has reinflated it. Eventually the rubber in the balloon stretches beyond its limits.

The current standings of the global economies do not bode well, the sheer fact that we have multiple billionaire investors who are usually quite vocal about value investing during downturns, remaining deafeningly silent, gives cause for concern.


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