Here’s a warning:

My colleague Greg Canavan thinks we’re in a budding bear market.

I don’t.

In fact, I see a lot of reasons why markets can keep climbing the fabled wall of worry.

Today’s Fat Tail Daily will explain, in part, as to why.

Of course, we all want to know how likely a “hard” landing is in Australia or another dump in the stock market.

One way is to watch what the banks and financial firms are doing.

The Australian Bureau of Statistics can help with that. Their quarterly lending data came out this week.

Credit is up over the year.

That’s a good sign. The economy should continue to expand while this goes on.

Lower interest rates – whether 5, 4, 3 or 2 cuts – will likely keep this humming along.

What else can we see?

Pepper Money ($PPM) is a non bank lender. They just had their Annual General Meeting.

They shared this chart below. You can see that here…

Credit demand is tracking higher in 2025 than previous years…at least, so far.

Most of this credit is mortgage debt.

We can expect house prices to respond…by going higher…as all the lenders respond in the same way.

Then we have the fuel to the flame as the Labor government juices first home buyers to get into the action via 5% deposits.

And the wider backdrop will give them a further push.

Property developer Tim Gurner warns the public that Australia faces a 15 year rental crisis.

There is, he says, record demand from immigration at the same time supply has never looked worse.

He may or may not be right in the long run.

But if it enough people believe it, they will act on it – and plough borrowed money into the housing market.

There’s another handy point thanks to the Pepper crew…

The CEO says most of the lending demand is coming from the “Prime” segment.

That’s solid income earners with stable jobs and verifiable budgets.

If that’s true across the industry, that’s a solid basis for the next lift in the housing market.

Banks should be keen to lend.

One bank cited in the Australian Financial Review actually complained it has too many deposits and not enough loans!

That’s hardly the thing you’d expect to hear if the economy was overheating, with wild speculation going on.

We may get to that environment down the track.

Jonathan Shapiro writes today that yield curves are steepening around the world, and that could be a sell signal.

I’m not sure I go along with that. Markets can’t be reduced to one factor, for starters.

And, remember, it was only a few years ago everyone was worried about an inverted yield curve portending a US recession…that never happened.

Now we’re supposed to worry about a ‘normal’ yield curve? I’m confused.

The other thing is that – as I understand, anyway – a steepening yield curve makes banks more profitable.

After all, the whole game is to borrow short to lend long. A steeper curve means they have a higher incentive to push out further credit. That’s generally bullish.

Perhaps that’s part of why CBA shares continue to defy the lower price targets and short sellers?

That’s speculation on my part. But Matt Comyn does seem keen to expand CBA lending, too.

For you and me, there looks to be good value in these smaller financial firms like Pepper, Australian Finance Group ($AFG) and others.

Here’s Forager Funds on two that they like…

“…quarterly reports from lenders Plenti (PLT) and Wisr

(WZR) were upbeat. Both are growing their customer bases. Bad debts are well under control.

“And loan books are now growing for both businesses. As loan books and revenue increase, the team expects only small increases in both companies’ overheads, driving further rapid increases in profits.”

Again, to the broader point at the start of today’s missive, none of this sounds like an impending recession for Australia.

Of course, keep the usual risks in mind. Maybe Greg is right and a bear market is looming. Perhaps the yield curve – or something else – upends markets.

That said, to me…

Domestic names that can surf some renewed consumer strength and an expansion in credit look very reasonable propositions.

Best wishes,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

PS. It’s another reason I’m urging my readers to buy good stocks. Here’s 4 for 2025.

Murray’s Chart of the Day –
Gold Weekly Chart

By Murray Dawes, Thursday, 15 May 2025

In last week’s Closing Bell I set out the reasons why I thought gold was about to get belted.

Four days later and gold has dropped US$141 (4%) to US$3,186.

I think I might be on the right track..

Gold flew higher in the first few months of 2025. One of the downsides of a really sharp rally is that if a reversal occurs there isn’t often much support on the way down.

The chart above shows you the weekly chart of gold since 2020.

Below the chart I have the MACD indicator which is looking at the relationship between the 10-week and 20-week moving averages.

The blue line in the indicator is just showing you how far apart the 10-week moving average is from the 20-week moving average.

The black line is a moving average of the blue line. Simple.

Over the last five years the crossover of the blue line with the black line in the MACD indicator has been pretty good at giving you a sense of the short term trends.

I have circled the moments when the crossovers occur and then placed arrows on the chart above to reflect where the price of gold headed after the crossover.

During the strong rally since early 2024, buying the bullish crossover of the weekly MACD has worked like a charm.

When the bearish crossover occurred during the rally, the gold price didn’t fall far, but it did usually spend some time in a range or selling off slightly.

Looking at the present moment and you can see that the MACD is close to confirming a bearish crossover.

That means that the correction in gold may be just getting started.

I can see plenty of support in gold around US$3,000, so that is a pretty solid target on this correction.

But there is no need to get too caught up in trying to predict the low of the correction, because we can just follow the weekly MACD along and when we get another bullish crossover it is probably time to start loading up again.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps