Econosights- The US economy – upcoming midterm elections & its impact

Econosights – The US economy – upcoming midterm elections & its impact Key points Upcoming US midterm elections may see the Republican party lose its majority in one or both houses of Congress which could make passing policy changes more difficult for the government. But, policy already passed (including tax reform) will be difficult to reverse.   Impeachment investigations against Trump are likely if Democrats gain a majority in the House, which would lead to …

Market correction or market downturn?

Market correction or market downturn? It’s understandable that the recent sharp sell-off on financial markets has left investors feeling particularly nervous. The main concern has been the US Federal Reserve’s shift in monetary policy from low rates and printing money to rising rates and the withdrawal of that printing policy. But there’s also a lengthy worry list of issues that we hear continuously: the US trade conflict with China, issues around the leadership of President …

Consumer confidence and interest rates

Consumer confidence and interest rates   Investors are looking for a sense of where interest rates are heading around the world. Consumer confidence is one of the best guides. Consumer spending is a key driver of between 50% and 70% of economic activity in developed economies like the US and Australia. How consumers feel is critically important to economic growth and the outlook for monetary policy. So what is consumer confidence telling us now? Americans …

The impact of short-termism on markets

The impact of short-termism on markets Humans are hard-wired to focus on the short term. We all have a tendency to react to immediate risks as a result of the ‘fight or flight’ syndrome inherited by our ancestors thousands of years ago. Our human biases have been exacerbated in more recent times by the need to react more quickly to the data that is provided almost continuously by the barrage of daily ‘news’, the exponential …

Boom turns to bust – falling Australian home prices.

Boom turns to bust – falling Australian home prices. How far and for how long and what’s the impact on the economy? Key points Property prices in Sydney and Melbourne are likely to see top to bottom falls of around 20% as credit conditions tighten, supply rises and a negative feedback loop from falling prices risks developing.   Other cities will perform better having not seen the boom of the last few years.   Property …

Why investors should go back to basics in a low-return world

Why investors should go back to basics in a low-return world Investors can be forgiven for wondering how they are going to continue to make money in financial markets. Cash rates globally are low and are likely to remain so, especially in Australia. This article looks at a ‘back to basics’ investment strategy suitable for a low-growth environment. The US Federal Reserve has been hiking cash rates. But despite talk of a post-QE (quantitative easing) …

An update on the US rate rise

An update on the US rate rise   Although we’ve seen declines on Wall Street this week, there’s still strong growth in the US market. The most recent rate hike in the US may have investors concerned that the Fed could threaten markets with even more aggressive hikes. But I don’t think that is likely; I expect the Fed will continue raising interest rates at a gradual pace. The latest 25 basis point rise takes …

Five things you need to know about the Australian economy

Five things you need to know about the Australian economy Key points The Australian economy grew solidly over the last year.   While recession remains very unlikely, the combination of a slowing housing cycle, constraints on consumer spending and still subdued business investment will likely see growth slow going forward to around 2.5-3%.   As a result, spare capacity is likely to remain significant, keeping wages growth and inflation low.   We don’t expect the …

Market Drawdowns

Market Drawdowns Overview As the profit cycle matures, we are increasingly being asked how long-term investors should best position themselves should the economic backdrop and equity markets become more challenging. As the profit cycle matures, we are increasingly being asked how long-term investors should best position themselves should the economic backdrop and equity markets become more challenging. Key points Markets mark-to-market in the short term and are inefficient in the long run.   The impact …

Investment returns over the next five years are likely to slow

Investment returns over the next five years are likely to slow Key points   The continuing slide in investment yields across most major asset classes points to a constrained medium-term return outlook. For a diversified mix of assets, this has now fallen to around 6.2% on our projections.   The key for investors is to have realistic return expectations; allow that inflation is also low so real returns aren’t down as much; and focus on …