The sun is shining through my office window this morning. How can it be? Hasn’t the world ended now that the RBA raised the cash rate to 0.35%?
Cue belly laugh! The more I think about it, the stupidity of the current hysteria around interest rates seems more ridiculous.
The big banks dominate around 80% of the mortgage market. APRA already pressured them long ago to raise their serviceability buffers to 5% for this exact scenario.
This happened before the pandemic. That is to say when rates were higher than they are now.
Most borrowers in recent years will have big buffers in place. Plus, we have the accumulated savings that COVID sent into offset accounts all over the country. Then we have the ‘equity, mate’ gains since the property market roared out of 2020.
And we’re supposed to break into a sweat over this…why?
That’s my take. But you can get more than my opinion on this.
We can glean insight from a company intimately attached to what’s happening in the property market.
The Australian Financial Review cites the chief executive of REA Group [ASX:REA] this morning. His company dominates the market for real estate listings in Australia.
Check it out:
‘REA Group chief executive Owen Wilson says he is not concerned about interest rate rises, arguing the fundamentals of the property market remain strong with buyers factoring in potential increases.
‘‘‘The interest rates are coming off very low settings and, even if all the predicted rate rises come through, it really only gets us back to where we were pre-pandemic,’’ Mr Wilson told the Australian Financial Review.
‘‘‘The market has already factored it in. Anyone buying or selling at the moment is doing so with a full expectation that these rate rises are coming, and yet, we’re still seeing really healthy levels of listings and transactions.’’’
I couldn’t agree more.
Here’s another snippet that I came across from a random source…
On Sunday, I read a book about the need to reduce wasteful consumption in today’s economy.
The author went back and looked at industries that were hit when US consumer income came under pressure in 2008.
What did he find?
Motor homes got the flick first. Car and boat sales tanked. Then discretionary things like carpets, jewellery, furniture, big household appliances, and airfares.
Hello!
Qantas just came out with a great update, saying that leisure travel was its strongest market.
Does that scream consumer distress to you?
My goodness, the market is discounting an extremely negative scenario when it comes to property.
I told readers of Australian Small-Cap Investigator the following recently…
None of the above looks very scary to me.
Add in increasing immigration and low unemployment, plus big government deficits, I’m not losing sleep over the housing market.
Let’s bring it back to our hunting ground: the small-cap sector of the ASX.
The three recommendations I have for you today are down 48%, 36%, and 32% from their all-time highs.
Why?
I already alluded to it. All those interest rate fears you’re reading about now are mainstream headlines. But the stock market moves way ahead of the general news.
That means fearful investors started bailing out on these stocks 6–9 months ago.
What does that mean to you as a small investor?
The fear around interest rates killing the property boom is built into today’s share prices already.
In fact, it’s the basis of the entire opportunity! Why else would these stocks be trading so cheaply?
The market has already priced in a very negative scenario. We only need future interest rate developments to be LESS bad than the market fears and these stocks should respond…by moving UP.
Put the headlines aside…
Every indication I have says these three are primed to fly again over the next 2–3 years.
Nothing I saw last week changed my mind on this. If you want to check out some ripping stocks to pick up at crazy cheap valuations, go here now.
Your future self should thank you!
All the best,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: If the small-cap market isn’t entirely your cup of tea, my colleagues over at Strategic Intelligence Australia have a new model portfolio project underway that’s specifically calibrated for Aussie investors. You can learn more about it here.
