Here’s a few things I’m thinking about today…
1) The Australian Financial Review recently ran some sort of property shin dig. I mention it because one of the men involved said the biggest issue for most buyers was affordability.
The Prime Minister says housing is all about ‘supply, supply, supply’.
Blah blah. It’s the same BS that goes around in a never ending cycle.
Academic Cameron Murray makes clear in his recent book that politicians pretend to care about high prices whilst achieving nothing to take them down.
The reality is that the financial system, the politicians and the broader Australian culture are simply too embedded around real estate for anyone – except those out of the game – to want significantly lower prices.
So we get Albo’s low deposit policy rolled out. What’s it doing?
Juicing the market, of course!
See this from the AFR…
‘“It’s a market where we’ve got a combination of more sellers and more buyers,” SQM Research founder Louis Christopher said on Sunday.
“We’ve entered into an upswing. It’s going to get stronger from here.”
The consistently strong clearance rates were indicative of annualised price increases in Sydney and Melbourne of anywhere between 8 per cent and 12 per cent, Christopher said.’
What’s interesting about this, broadly speaking, is how Australia is moving out of step with property in the USA.
American real estate is “frozen”, according to most reports. This is, in part, because of their unique 30 year mortgage market.
Anyone who locked in a low rate back in the Covid times has no incentive to move now that rates are much higher.
Now prices appear to be weakening as Trump’s promised “golden age” turns into a bit of fizzer.
We know stock markets are elevated around the world after a barnstorming run from April. I think it’s fair to say we can expect volatility to pick up over the next 3 months as the market wrestles over where the world is going.
Another reason is…
2) Employment numbers out of the US might be sending a warning. Not only does US property look frozen, now the job market is going the same way.
See this from the Financial Times…
The US added just 22,000 jobs in August, raising fears that the labour market is stalling and intensifying pressure on the Federal Reserve to slash borrowing costs this month.
Friday’s figure from the Bureau of Labor Statistics was far below the upwardly revised 79,000 jobs added in July and the 75,000 expected by analysts polled by Bloomberg.
This is increasing the odds of the Fed cutting rates.
However, don’t take too much comfort from that. It means US growth is now trending lower.
I’m reminded of a point I made in 2023. At the time the debate was whether the year would look like 1995 (bullish) or 2001 (bearish).
I said 1995. My colleague Greg Canavan thought 2001.
One of the reasons he concluded that was because the Fed cut rates in 2001, and it didn’t stop the stock market from falling.
Greg may have got his timing off there, in that instance, but the point still stands now.
The Fed cannot save a market, or an economy for that matter, that’s not healthy.
But just how bad is the US? As ever, there are conflicting signals.
The CEO of McDonald’s recently warned his low income customers were avoiding spending money on dining out. Some are apparently skipping meals to save on costs.
Now the FT also reports that US health insurers are raising prices to cover the costs.
American consumers are under the pump, unless they’re in the top 10% of income earners.
This is consistent with the story of the US stock market. The big tech companies keep it afloat. The other 493 are less buoyant.
It’s not time to be blasé about anything.
Best Wishes,
Callum Newman,
Australian Small-Cap Investigator and Small-Cap Systems
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Murray’s Chart of the Day –
Gold
Source: TradingView
[Click to open in a new window]
I think it is worthwhile jumping in a plane and considering a bird’s eye view of markets at regular intervals.
We all get caught up in the day to day gyrations and often anchor our beliefs about what we think a market will do based on what the current price is.
But when you step back and consider history, you realise that anchoring can lead to underestimating what is possible.
The chart above shows you two rallies that occurred in gold in the past. One from 1976-1980 and the other from 2001-2011.
I have mirrored those moves (‘A’ and ‘B’) to show what they would look like if they started at the most recent major low in 2015.
I have used a logarithmic scale, so the rallies reflect percentage moves in price.
A similar rally to the ones in the past would take gold up to a price of US$8,000-9,000.
I’m not saying that gold is about to move in a straight line to US$8,000. I’m just saying that we need to stay humble and not think we know what the market is capable of doing.
By respecting the fact that markets can behave in ways that are far outside our expectations, we can plan trades that will give us the best chance of riding huge trends.
If we anchor our expectations to current price action we are far more likely to jump at shadows and end up shaken out of great trades at the wrong time.
Regards,
Murray Dawes,
Retirement Trader and International Stock Trader
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