The other half of the million dollar question

Monday, 17 September 2018
Melbourne, Australia
By Bernd Struben

  • Up by the stairs…down by the elevator
  • What the latest US inflation figures mean for you

We kick off this week looking for trouble. Not inviting it, mind you. Just trying to spot it, with the goal of being better prepared when trouble does come barrelling our way.

Because, like it or not, there are plenty of potential pitfalls quietly brewing away in the shadows. And any one of these could be enough to unhinge the global economy.

Exactly what the next ‘black swan’ event will be is the million dollar question.

Actually, it’s only half of the million dollar question.

The other half is, when will it happen?

There’s almost universal consensus that a major global recession and stock market crash is on the horizon.

I say ‘almost’ universal, because you may also recall the muddled, hubristic thinking of former Federal Reserve Chairwoman Janet Yellen when she was quizzed on this topic in June last year. As Reuters reported:

“Would I say there will never, ever be another financial crisis?” Yellen said at a question-and-answer event in London.

“You know probably that would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be,” she said.’

I’m not sure what timeframe Yellen would put on her lifespan. She recently turned 72, but as a wealthy white woman it’s certainly possible she could be around for another 30 years. We wish her well.

But do you really think there won’t be another financial crisis for 30 more years?

Me neither.

Nor does renowned futurist and economist, Harry S Dent.

In fact, in his new book Zero Hour, Harry goes a lot further than that. He says that if a major global depression doesn’t strike by 2020, wiping off as much as 10% of Australia’s GDP, he’ll quit his profession to become a limo driver on the Gold Coast.

Now there’s nothing wrong with driving a limo for a living. And the Gold Coast is certainly an attractive place to motor around…inane speed limits aside.

But the point is that Harry — the man who predicted Japan’s 1989 economic bust and the subprime crisis that led to the GFC — is absolutely convinced we are staring a devastating global depression in the face.

In 2008, Australia was buffered from the worst of the global meltdown by China’s debt fuelled expansion. But in the next crisis he sees Aussies as among some of the biggest losers, with house prices crashing as much as 50%.

He explains everything, including steps you can take to protect yourself today from any future crisis, in his bestselling book, Zero Hour. You can find out more, and how to secure your discounted copy, here.

More after a look at the markets.


Over the weekend the Dow Jones Industrial Average closed up 8.68 points, or 0.03%.

The S&P 500 gained 0.80 points, or 0.03%.

In Europe the Euro Stoxx 50 index finished up 10.95 points, or 0.33%. Meanwhile, the FTSE 100 rose 0.31%, and Germany’s DAX closed up 68.78 points, or 0.57%.

In Asian markets, Japan’s Nikkei 225 is closed for Respect for the Aged Day holidays. China’s CSI 300 is down 0.99%.

In Australia, the S&P/ASX 200 is up 14.87 points, or 0.24%.

On the commodities markets, West Texas Intermediate crude oil is US$68.84 per barrel. Brent crude is US$77.96 per barrel.

Gold is trading for US$1,194.46 (AU$1,669.13) per troy ounce. Silver is US$14.08 (AU$19.68) per troy ounce.

Turning to digital currencies, one bitcoin is worth US$6,523.90. That’s up 5.4% since a dip down to US$6,190.15 last Tuesday, according to data from CoinDesk. Along with a strong rebound in ether — up 30% since last Wednesday’s low — the crypto bulls have cause to celebrate.

You may have heard that Michael Novogratz, for one, believes the price rebound could just be getting started.

Novogratz was a former partner at Goldman Sachs Group and is currently the CEO of crypto focused Galaxy Investment Partners LLC. Below is the tweet he sent last Friday:

chart image

Source: Twitter
Click to enlarge

And as Bloomberg notes, Novogratz isn’t the only one calling a bottom in bitcoin:

While the noted money manager [Novogratz] attracted attention with his Twitter post on Thursday calling an end to this year’s collapse in the biggest cryptocurrency, a market reversal indicator that recognizes turning points says the selloff is overdone.

The so-called Williams %R Indicator moves between 0 and -100 and measures overbought and oversold levels for traders searching for entry and exit points. A mark under -80 means oversold, which Bitcoin is currently showing. The last time Bitcoin hit this mark, it rallied 22 percent, to $7,361 from $6,017.

You can see the technical market reversal indicator below:

chart image

Source: Bloomberg
Click to enlarge

Now charts like this can look confusing at first glance. But they do give you a lot of useful information. The biggest takeaway here is that bitcoin appears to be oversold. And that could result in a solid price rise over the coming weeks.

But as the article notes, technical analysis shows that if bitcoin doesn’t manage to break above its previous high of US$7,316, the trend remains down.

So is it time to buy the dip?

You can find out what our own crypto experts Sam Volkering and Ryan Dinse recommend at Secret Crypto Network right here.

Lest we forget about fiat currencies, the Aussie dollar is worth 71.56 US cents.

Up by the stairs…down by the elevator

You don’t have to be an economist or futurist to know that Australia’s house prices are perilously high.

You can blame it on a shortage of supply. Or on high migration numbers and foreign investors. But the real culprit is Australians’ own passion for property. An appetite that’s been fuelled by years of cheap debt.

But even in a world of record low interest rates, there’s a limit on how much debt homeowners can take on. And there’s an even more rigid limit on the amount of rent property investors can charge for their dwellings.

Even flat property prices could be enough to trigger a wave of sales…putting more downward pressure on prices.

If investors can no longer bank on their properties gaining value each year, and their yields (rental income) are only 2–3%, they’re going to start looking for better places to put their money.

It’s not rocket science. The property bubble can only expand so far before it either stalls…or pops.

The government, for obvious reasons, is hoping to see it merely stall or gradually deflate.

RBA Governor Philip Lowe said as much last month. Concerned about high housing prices alongside stagnant wages and soaring debt, he said ‘I think we do need a period of moderate house prices or some declines.’

But that could be wishful thinking.

According to Oxford Economics, Australia’s housing market is the fourth riskiest in the world.

From The Australian Financial Review [AFR]:

The housing market dangers were “especially acute” in Sweden, Australia, Canada and Hong Kong, according to Oxford, which weighed a range of risk factors, including housing valuations compared to long-term averages.

‘“In all four, valuations are very elevated, there has been a lengthy housing boom, debt levels are high and there is a significant share of floating rate debt,” Oxford’s lead economist Adam Slater wrote in a research note…

‘[T]he Australian housing market ranks highly on another risk factor, with an 82 per cent share of its mortgages held on floating rates.

With all the big four banks, save NAB, having just nudged rates up again despite the RBA, you should take note of that last line. 82% of mortgages are on floating rates. This means one heck of a lot of households could find themselves in deep water as rates move higher.

And judging by falling auction clearance rates, potential home buyers are beginning to take note. From the AFR:

Hopes of a spring renaissance in the housing market evaporated over the weekend with owners of luxury homes in Sydney and Melbourne starting to feel the impact of the softening conditions.

As CoreLogic reported the “lowest preliminary clearance result seen so far this year” at just 55 per with overall auction numbers in the two main markets down by more than 500 on the same weekend last year, more owners of top-end homes were selling privately before auction.

Sydney, which led the charge higher, is now leading the retreat lower.

CoreLogic data reveals the average Sydney dwelling is down 5.64% over the past calendar year. Taking out apartments, Sydney’s housing market has fared even worse, down 7.13% over the year.

Now that’s far from the 50% property market crash Harry Dent is warning about in his new book Zero Hour. But don’t forget these price falls are happening in the face of low interest rates, a stock market near 10-year highs, and solid economic growth figures.

It’s not hard to envision how a few small shocks to the system could see owners throwing up ‘for sale’ signs.

But will there be any buyers?

Finally, here’s the latest economic snapshot out of the US from The Australian Tribune:

‘What the Latest US Inflation Figures Mean for You’

Debt addled governments across the globe are desperate for inflation. A 3% annual inflation rate, after all, will see the cost of their debts cut in half every 24 years. Over the past few years, however, reaching that level of inflation has proven elusive.

But signs are increasingly pointing to a resurgence in inflation in the US. This will likely embolden…

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