Leap Forward Into Investing
  • 19 November 2016

Leap Forward Into Investing

The Trump saga will be on-going for at least four years of course, and I would not be surprised if he wins a second term.

Leap Forward

Right now, the trends to watch are those of the stock market, and interestingly, inflation.

You may not be aware of it because good news doesn’t make the front page headlines, but would you believe the US stock market is now at ALL TIME RECORD HIGHS.

Yes, again all the media barrage about the end of the world, and various crises, has again been proven to be much ado about nothing. Just as our forecast Trump victory is indeed proving “interesting”, and will actually be good for the US economy.

As we have mentioned a few times before, a strong stock market is very good for property values. Rising stocks reassure people generally about their lives and job security. Such is the world of immediate media coverage of any stock market downturn, that just its mere absence is a relief to most investors. We have seen several great property buying opportunities in the past couple of years when everyone else hesitated, be it for Grexit or Brexit, or Trump, and this was our opportunity to leap forward with our investing.

Having suggested each of those opportunities as they occurred, we have to now accept that there are going to be less of these gift moments going forward. The world is really settling down into a sweet spot for continued strong and accelerating global growth. Even the UK. Remember how there was suppose to be a crisis and recession now? Well, actually the UK economy just experienced its strongest GDP number in two years and has just achieved full employment.

UK unemployment is now down to 4.8%.

Interesting isn’t it because apparently according to the Australian media the UK is in crisis and in Australia we are doing well. Yet our unemployment is much higher at 5.6%?

This isn’t good enough, but we do live in a political and RBA environment, where it is all a bit clubby and the elite go about patting each other on the back. What is happening is Australians are currently celebrating just so-so economic performance, and avoiding the fact that we should and could be doing twice as good. This isn't lost on our Asian neighbours however, and so investment will continue to flow to us.

The rest of the world is doing well, China, the USA, Europe, all are improving. This means that we are unlikely to see prices falling generally. In fact, we are likely to see firming inflation in such an environment. We forecasted this all year while many others were panicking about a deflationary spiral. It was never going to happen. Inflation is firming and will continue to grow. Most parts of the world are now seeing their highest inflation levels in the past two years, but in absolute terms, these are still low numbers such as 1.6% in the USA. In Australia, with a global economic acceleration getting underway, with a companying firming, but still not problematic inflation, we will still continue to see very low interest rates. While I firmly believe low inflation is here for good, due to the greater price competitiveness of our modern world, inflation rates will nonetheless firm just a little. This means of course that lower official interest rates are unlikely.

My forecast has been that the Reserve Bank of Australia will stay on hold at 1.5% for perhaps two years and that the eventual next move in rates will be to hike. This remains my central forecast.

Which means we have to prepare and acknowledge a property market in an environment of slightly higher inflation and that, if any pressure, which it places on property prices.

The good news is that the likely outcome of rates remaining stable and even increasing in 1-2 years time, is higher property prices. We have seen property prices continue to move sharply higher as we have consistently forecast. This was in an environment of lots of false fears about various developments around the world, and a sustained period of political volatility in Australia.

This is why rates were being cut. The RBA was trying to catch up with a changing world it still doesn’t understand.

The reverse is about to be true. There will be firming inflation as a result of a clearly strong global environment. This will lead to interest rates being stable to ticking slightly higher. To investors, this can only signal, that they can feel more secure than they have been able to be for a good decade now. It was indeed a tumultuous decade from 2007 to 2017.

Now, though the world is safer than it has been in a long time, and opportunity abounds. Australian property prices are going to continue to move higher at breakneck speed.

The arising inflation trend around the world is confirmation of the strong underlying economic growth that currently exists. We are indeed living in the midst of the most prosperous period in history. There has never been a better time to be invested and to be participating.

Clifford Bennett

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