The cratering in stock indices is afoot.

HSI and HSCEI today are doing so.

Opening gains in stocks are being given up as the past 2 days of trading is occurring.

Pessimism is growing amongst a host sentiment and survey indicators.

Really long term mean reversions are occurring or nearing.

Smaller investors seem jittery.

The AUD/USD is plunging. A visit to 0.6320 would be a 3 standard deviation event.

On September 9th, 2022, I wrote;

“I think prices will jump a little, drag in a few more people and then spit them out again in the coming week or three followed up with another swoon.”

And here we are…..

For a bit of sport, I think S&P 500 has a terrible day during Wednesday’s session and the Aussie market will give up its early gains then sink further on Thursday before traders swoop in and start buying 2 hours before Thursday close not before they dump the same stock into Friday’s close before their long weekend on the Australian east coast.

That’s the sort of market we have currently.

September 28, 2022

by Rob Zdravevski

Australia is not in recession.

As much as I dislike the time spent speculating on such a definition, if I’m forced to pass an opinion, it’s looking like a mid cycle slowdown.

Irrespective, businesses adjust and we trade through the cycle.

Over the past 40 years, studies show that recessions are officially registered somewhere between 18 months and 22 months following the inversion of a country’s yield curve, being when the difference between the 2 year and 10 year bond yield trades into a negative percentage.

The jury is still out whether the 5 year minus 3 month yield is a better indicator to watch.

So back to the traditional 10 year minus 2 year…..and unlike the United States, the Australian yield curve is not inverted.

The red line in the chart below represents 0.00%.

The two things occurring which I think will invert this curve are;

1) an overzealous Reserve Bank of Australia hiking rates too much trying to correct the overly accommodating and subsidising government fiscal policy errors and;

2) a government which cuts off the nations (commodity supply and capacity) ‘nose to spite its own face’ by crimping production and export of gas, coal, iron ore and other minerals.

September 19, 2022

by Rob Zdravevski

Watching Currencies – AUD/JPY

Correlations – AUD/JPY and the Australian Inflation Rate

September 5, 2022
by Rob Zdravevski

Australian Inflation Correlations (Natural Gas prices)

As an addendum to last week’s note about elevated Natural Gas (US$ Henry Hub) prices,

here is a chart pitching those American gas prices against the Australian inflation rate, aiding my call for moderation.

September 3, 2022

by Rob Zdravevski

Knowing how the world works

My inadvertent political comment is pointed towards the recent ‘sudden’ and ‘rushed’ coincidence of Australia’s Prime Minister electing to visit the Glasgow COP26 climate event aligning with the subsequent release of a (albeit feeble) net zero climate policy in order to support his reason to ‘show face’ at the event.

Imagine being a political eunuch showing up to a pro-climate change conference without a pro-climate change position.

The poor soul faces an almighty dilemma.

The consequence of his absence at COP26 (as the leader of a nation which is the 2nd largest per capita carbon emitter) would be palpable.

Although having a firm view on global warming (notice how we don’t call it that anymore) and setting an appropriate policy carries a risk, for it has been the re-election downfall of the past 4 Australian Prime Ministers.

But all is averted……

Furthermore, in the coming week, fully vaccinated Australians can now depart Australia much more freely and return from international travel without the need to quarantine.

What a wonderfully coordinated convenience for the travelling ministerial delegation to Glasgow.

There is nothing illegal here, but it’s just a prompt to be aware of how things are framed and presented.

Happy travels!

Very Good Pay for Low Productivity

A topic I’ve been thinking about involves wages, labour and productivity.

Particularly in Australia.

Bureau of Statistics data suggests that wage inflation is benign.

I am seeing the contrary. A range of people from hospitality workers, truckers to tradies being paid above award rates for their labour.

Sorry folks, but house cleaners are making $55 per hour. That’s the same as a registered nurse.

On the subject of labour, it is anecdotally evident that we have a shortage of labour. Whether that is spliced and framed between those willing and not willing to work (either subsidised or otherwise), available labour is scarce.

I’d like to be corrected with this next statement but productivity (any type that you wish to look at) is significantly lower than it was 20 or 30 years ago.

Certainly software has helped increase one type of productivity but generally in Australia, I think the drop in productivity commenced from the moment Bill Kelty became the Secretary of the ACTU in 1983.

The costs associated with hiring and keeping employees coupled with the difficulty in firing staff has manifested it into a growing gravy train of complacency and lack of productivity.

Now, it has spread into a common work vernacular.

Why does it take 18 months to build 5km of highway ??

Australia is a one-speed economy.

Slow !

September 1, 2021

by Rob Zdravevski

It’s a seller’s market

In the context of the Australian residential real estate market and specifically, the Perth market I was asked by an esteemed national accounting firm today for my buy, sell or hold opinion.

Following the discussion, I followed up with this email,

“In today’s meeting I gave you that current valuation case for residential property being expensive or at least fully valued, in citing a net earnings yield of 2% equating to a Price/Earnings Ratio of 50.

My other negative points included fixed or perhaps growing expenses (including rising interest rates).

Poignantly, should interest rates double, your client may still be able to service the debt, but others around him (especially those buyers of property in the past 2 years) may feel debt payment strain. This leads to a rise in listings and lower prices due to increase stock. Water does find its natural level.

On the other side of the financial statement, residential properties don’t have same ability to increase revenue in the manner or potentially the velocity in which a corporation can.

Invariably, higher residential prices have heralded new dwelling development which also increases stock.

But most subjectively, when you find clamouring buyers driven by scarcity and fuelled with low interest rates, it is identifiably a “Seller’s market” and not the other way around.

It may not be a time to ‘dump’ all holdings as it depends of your cost basis, the utility the property provides or the associated debt and holding costs but there are times to trim and sell assets when they are fully priced.

When it comes to residential real estate, a seller should greet moments when liquidity and buying interest is abound and forgo perfect timing, as the real estate market doesn’t afford you ’natural’ price discovery and quick settlement periods, unlike the stock market.

Catching the ‘fat’ part of the trade is perfect.
Preserving capital is paramount.”

August 24, 2021
by Rob Zdravevski


ASX 200 Registers Rare Monthly Overbought Reading

This month, the ASX 200 has touched a “rare” Monthly (not weekly, but monthly) Overbought reading.

For the lack of a better word, I’m calling it rare as the chart below covers 35 years and this level has only been (generally) visited 5 times prior.

Such a moment is worth noting but it’s not an absolute ‘sell’ signal.

My work suggests a greater probability for higher prices or a ‘melt-up’ before we see a peak.

For now the upward trend remains intact and I’ll look for the index to touch 2.5 standard deviations (the upper end of the bands illustrated) above its mean before searching for exhaustion of the current bull market.

Keep in mind that prices can stay ‘overbought’ longer than expected and the constituents (and their weightings) have changed over the course of this charts history.

August 15, 2021

by Rob Zdravevski

The Delicate Game of Interest Rates & Inflation

Brazil lifts interest rates by 1% to 5.25%. It’s seen as its most aggressive move since 2016.

2 weeks ago, Russia, (another commodity reliant economy) hiked rates too.

It looks like both central banks are trying to curb inflationary pressures. Rising commodity prices are a notable contributor.

Invariably, rising inflation will send government bond yields higher.

Why are the central banks in other commodity sensitive economies such as Australia and Canada still holding interest rates around the 0.50% mark?

Are the Bank of Canada and the Reserve Bank of Australia foolishly towing the same line as other Western economies?

The British, German and French economies are vastly different.

This may turn out to be a perilous policy error.

Are the BOC and RBA not entirely politically independent?

Can it be that the Russian Central Bank is acting for the good of the economy and citizens or is it because Putin doesn’t need to worry about being re-elected and Scott Morrison does?

Or perhaps it’s because the Household Debt to GDP for Russian’s and Brazilians is 22% and 37% respectively,

while in Canada it’s 113% and Australia’s is a world topping 123% ????

August 6, 2021

by Rob Zdravevski

Russia aggressively hikes interest rates

I found this news interesting.

Is the world’s 11th largest economy ahead of the curve and crowd when it comes to managing inflation or does its strengthening currency hinder growth and exports?

Incidentally, South Korea and Australia are ranked 12th and 13th

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