- Yesterday, we got the news the market was waiting for…
The Reserve Bank kept interest rates on hold.
Overall, the reaction was muted. I’d say most stocks had moved in advance of the official announcement.
However, looking out to the end of the year, there’s good news for investors in all of this.
It’s likely rates stay on hold until next year some time.
Rising rates have been a big headwind for the market over the last 12 months.
Now investors can move confidently knowing that monetary policy is more predictable.
In fact, they already are.
I can say that with reasonable confidence because some of the stocks in my portfolios for Small-Cap Systems and Australian Small-Cap Investigator have lifted quite strongly since March.
For my money, the most astonishing thing about yesterday had nothing to do with the RBA.
A company called Credit Corp [ASX:CCP] came out with its financial year results.
Look at what the Australian Financial Review observed about it:
‘The number of Australians struggling to pay their credit card bills is small and showing few signs of growth, despite repeated interest rate rises, the soaring cost of living and a softening economy.
‘Credit Corp boss Thomas Beregi, whose business buys books of distressed credit card and personal loans customers off the banks, says the Australian consumer is “still in really good shape” with few borrowers either in arrears or default.’
Hey, I want hours of my life back!
The drumbeat of negativity since the start of 2022 has almost never ended. I’ve been reading a mountain of it ever since.
There were calls for a 30–40% drop in house prices, mortgage cliffs, and recession.
The reality is the ASX today is within striking distance of its all-time high.
By hook or by crook, Australia has gone through the fastest rate hike in a generation and come through it in reasonable shape.
However, it wasn’t smooth sailing.
Here’s a chart of volatility (via the VIX Index) over 2022 as all these fears washed through the market.
It went haywire:
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| Source: Optuma |
This is part of what made the 2022 market so hard through the middle of the year.
The good news is volatility has waned substantially in 2023.
This should make ‘momentum’-style trading and positioning much easier to achieve than last year.
Volatility is the opposite of trend.
What’s good about that?
It’s less stressful, for a start! Plus, you can get some ripping runs that, at times, feel effortless.
There’s nothing without risk, of course, but I expect the next 12 months to throw up some fantastic investment and trading opportunities.
- I was fascinated to come across this following snippet from a Wall Street Journal article that a colleague of mine over in the US posted on his feed…
As above, after all the angst we went through in the last 12–18 months over the idea of a US recession, it’s possible one is years away!
Check out this bit:
‘The economy grew a better-than-expected 2.4%, annualized, in the second quarter, the Commerce Department reported Thursday.
‘Actually, in one respect a recession in the next six months would be unusual.
‘It would mean the current expansion, which began in April 2020, will have lasted just four years. That is less than half the 8.6-year average of the four prior expansions, dating back to 1982.’
Let’s do some quick maths based off these statistics.
2020 + 8 = 2028.
That sticks like the proverbial for me, because one cycle expert I’ve followed for a long time is Fred Harrison.
He dates, as he has before successfully, the next global recession to be in full swing by 2028.
That data is another little clue that he’s on the right track.
The good news is that 2028 is years away, as of today. That gives us plenty of time to make money in between.
In fact, part of the reason I was happy to borrow against my house (to buy shares) recently is because of Fred’s work.
Nothing I’ve seen this year has caused me one moment’s hesitation.
- We got the ‘latest’ housing credit data this week too…
Housing credit data is lagging. It’s 2 August today. The latest on this from the ABS is for June.
However, I’ve been tracking these figures diligently.
There was $25 billion in new loan commitments in June.
I can tell you that since September last year, the market has tracked around this figure each month. Neither too hot nor crazy cold.
It’s another reason to think Australia will muddle through today’s macro environment, and individual stocks will rise and fall according to their results.
This is to say the market should be less ‘macro’-driven as it was in 2022.
Things are looking up indeed!
Best wishes,
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Callum Newman,
Editor, Money Morning
