Macro news

  • 8 May 2017 : Big Update on Everything
    Hi everyone, it's time for a big update.  I'll try to be as brief as possible. China It's highly possible they're melting down. In fact, their financial system IS melting down, that's why iron ore prices are falling steeply once again. When the credit taps are on, it rockets up and when the credit taps are off, the price falls off a cliff. Of course we've seen this many times before.  China will just turn on the credit taps again later this year, probably.  They've always chickened out on real reforms and juiced their economy with easy credit everytime prices crash and unemployment rises. Will this time be any different?  Maybe.  Because once Xi Jinping is elected to another five year term in November 2017 and cemented his power, China may embark on serious reforms.  If they don't, they're going to make the Chinese economy even more volatile. The credit swings are absolutely huge right now.  The [More...]

  • 30 March 2017 : General update of where things are – running to nowhere
      I have been wanting to write but really there is not much to write about because the world is still pretty much standing still.  What I mean is that debt levels, which are unsustainable, continue to be supported with yet more unsustainable debts.  See Greece for example.  Can you  believe that Greece is still mired in debt problems??! I guess at some point, some of you may be wondering, "what if they can sustain these unsustainable debts indefinitely".  Of course the thought did cross my mind also but ultimately, debt and money is something that can't be increased forever due to longevity, aging demographics and income levels. I know you may have taken a hit recently on bonds and gold/silver but guess what? The trump dream is finally fading and your assets are going to be just fine.  In fact, with almost everyone so cheery and rosy eyed about the global economy [More...]

  • 15 February 2017 : What is going in China right now?
    This video explains the problem exactly: https://www.youtube.com/watch?v=oNszaxRGaEM In a nutshell, China is currently experiencing the largest debt growth ever, at the fastest rate ever, in all of recorded human history.  And they can do this because they are a command economy, meaning, if the Government says to the Banks, "lend money" the Banks will lend money to anything that moves and breathes oxygen. However, that doesn't mean that the money is being spent wisely.  In fact, it's very clear that the money is being spent un-wisely. Inflation is shooting up in China Even though China is making lots of products, they are making an even larger amount of money in terms of credit growth.  The natural consequence of money growth being greater than product growth is rising inflation.  See the green line in the chart below: Implications:  China is creating more money (via credit growth) than products.  Imagine waves of money sloshing around inside China moving from [More...]

  • 6 February 2017 : CFS Australian index bond fund
    Hi everyone, Happy New Year to everybody.  I think some of you have wondered about the performance of your superfund and may have been wondering what it means and how it's going to be perform in the future.  I'll be brief: The bond fund comprises of Australian bonds and the performance from 1 July 2016 to 31 December 2016 was impacted by the election of Donald Trump and the subsequent Trump euphoria. Initially, everyone expected sharemarkets to tank and the bond fund did rise in value because Donald was considered a market risk, however, sentiment soon changed and excitement started materialising about a great America under Trump.  So, sharemarkets went up and bond funds got hit because people started to factor in higher interest rates because they're thinking inflation is going to take off under Trump. This is my view I think sentiment changes based on known factors and everyday Trump is surprising everybody with new policies [More...]

  • 5 December 2016 : Australian housing, Italy and general update
    Great video: https://www.youtube.com/watch?v=DWA2Hef2nP0 Australia I believe house price growth is slowing in the East due to three factors: Banks are feeling nervous and increasing LVRs in certain locations, especially CBD areas Australian banks have been cutting funding to Chinese property investors Interest rates are rising due to the cost of wholesale funding going up When this finally blows up, I think things are going to be quite dire because there are too many buildings, too much debt due to the economy and debt expanding over the past 25 years and there's not much to fall back on other than Government spending to support the economy.  China is pretty much on its last legs with their continued debt splurges. As for WA, we are experiencing recessionary levels of unemployment now.  Rents are adjusting to the new normal.  I think we are about two thirds of the way down and there's another one third to go.  The current blip up [More...]

  • 19 November 2016 : Bond values
    After Trump won the US elections, sharemarkets went up and bond values declined and I realise some of you may be concerned about this.  Sharemarkets have since corrected a little although bonds remain oversold. The primary reasons for the above market reactions are expectations that, Trump will: spend trillions building infrastructure and a wall; cut US corporate tax rates to a reported 15%; and label China a currency manipulator and bring jobs to America. People are expecting the US economy to be re-inflated with spending, to push GDP growth to 4% per year.  As a result, the expectation is for interest rates to rise.  However, in my view, these expectations will prove to be false for the following reasons: Trump will be spending a lot of money and US government debt will exceed $20 Trillion at short notice.  Congress will likely balk at such spending and Trump's plans might not happen at all or in a diluted form; Even [More...]

  • 10 November 2016 : Trump Presidency
    Donald Trump's win was unexpected and the sharemarkets fell initially but then bounced back.  The surprise win sent shockwaves through the market into perceived safe assets including bonds, gold, silver and bonds.  The sharemarket then reversed course because people realised that Trump will likely spend money on infrastructure and increase US fiscal spending to create jobs to Make American Great Again. China Risk here is that Trump moves to label China a currency manipulator and raises trade barriers to protect American jobs.  We don't have sufficiently detailed information on this.  I believe there is likely to be more trade barriers raised around the world.  Trump is keen to be perceived to be "punishing" China and "protecting" American jobs. I believe Chinese trade will continue to slow.  It's been slowing since early 2015: Trade in other export nations is also stalling: Korean exports have been shrinking since early 2015. Singaporean exports has also turned negative since about [More...]

  • 20 October 2016 : Why is the Chinese debt bubble so dangerous?
    On an absolute basis, Chinese debt loads are large but relative to Japan and the US, China's debt load is actually smaller than Japan's and comparable to the US. So, what's the problem?  China's debt load is dangerous for two reasons: The growth of Chinese debt is unprecedented in terms of speed and the stage of economic development of the country; and China's GDP is probably misstated, which means their real debt load as a percentage of GDP is higher than what is reported. Speed of debt growth The growth of Chinese debt has been extremely aggressive.  According to Chinese Economic Researcher, Charlene Chu, Chinese debt has outgrown the entire US banking system within the five year period from 2009 to 2014.  Bear in mind the US is the largest economy on the planet. Because debt has expanded so quickly and due to the stage of China's economic development, most of that money has flowed into construction projects rather than high [More...]

  • 6 October 2016 : No gains since 2007
    Quick summary of the Perth housing market: CoreLogic reported that house values in Perth have shed 7.1 per cent so far this year in 2016.  In comparison, Perth prices fell 3.7% in 2015 and increased 2.1% in 2014.  Can you spot the trend?  Perth property price are declining at an accelerating rate. The decline in CAPEX spending is now hitting Perth hard, especially in the rural areas but also the CBD.  Just google "mortgagee possession WA".  There were at least 44 properties in WA under that search last I checked. I also saw an apartment in the city that was previously purchased for $1.6M now being offered at almost half that price.  I think the person probably bought the property off the plan.  Personally, I would avoid off the plan apartments. Basically, Perth has returned back to prices as far back as 2007.  If you purchased property at any time over the last decade, you would have [More...]

  • 29 September 2016 : Perth market
    Some of you may know that I've been a little unwell. I'm pretty much recovered so I'll try to write once a week. Perth property The WA economy is in a downturn with many people falling into debt distress. "A Perth legal centre that provides free advice over the phone for people in debt says calls have almost doubled in the past month, as the local economy continues to adjust to the post-mining boom. "In the last month we have had 434 calls, which is 100 to 200 more calls than normal," Gemma Mitchell, from Consumer Credit Legal Service WA, told 720 ABC Perth." Not surprisingly, one in five houses in Perth are being sold at a loss.  Digging deeper into the stats: One third of houses sold in regional areas have been sold at a loss. 53% of properties sold in the city area have been sold at an average loss of $60,000. Is it time to [More...]