2015: An Inflection Point?

16 December 15

"As 2015 draws to a close the year we thought we’d recap the year and look at what’s on the horizon for 2016 and beyond. Right now, we seem to be at somewhat of an inflection point, both here in Australia, and around the world. Why?


World

For one, the greatest monetary experiment of all time is widely (and wildly) about to come to an end in America when the Federal Reserve is expected to raise interest rates on December 15-16 for the first time in nine years. Manic monetary experiments will continue though in Europe and Japan with their respective quantitative easing (ie QE) programs, despite the fact that QE has been a dismal failure.

 

Australia

Our economy continues to suffer from the downturn in the mining sector although GDP growth remains strong which is much more than we can say for other leading resource producers Canada and Brazil, both of which are in recession.

 

Australia’s economy has long been out of balance due to its love affair with property, and whilst Australian’s may feel wealthier, the fact is we, like all other western economies, have been living a fantasy by borrowing more money to maintain our lifestyle, a reality borne out by the fact that our household debt as a percentage of household income is the highest in the world. Furthermore, the Federal government this week revealed public debt is headed for $600 billion by about 2020 and we should not expect a budget surplus until 2021. 

 

A couple of things to ponder which show our economy is in desperate need of re-balancing. Firstly, at a presentation by a fund manager the other week we learned that financial stocks accounted for a whopping 48 percent weighting in the ASX 200, compared to just 16 percent on the S&P 500 in America. Remember, America is a much more mature economy than ours. Secondly, back in 2006 Australian banks owed more than 80 percent of our private foreign debt.

 

Future
Australians still have much to look forward to regardless of the picture painted above, and please, don’t shoot the messenger. We have a great lifestyle, we’re a long way from the geopolitical turmoil in various pockets around the world, unemployment is low, the cash rate is at a record low 2 percent, and GDP growth is still positive despite the resources crash.


Investors have much to look forward to with the tax rebate available to retail investors in start-ups, a prime minister that is pro-innovation, and a world that is trying to move away from fossil fuel dependency."

 

Colin Hillery, Investor Relations, Funding Strategies, 16th December 2015.

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of the director/s and management team of Funding Strategies.

 

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Additional Documents

Colin Hillery Article