Green Shoots

For the last 12-18 months virtually all the macro indicators have been pointing to a poor economy - the worst for at least 15 years... and if you believe the popular press, a Depression. However, in the last quarter some indicators have started to turn positive.....

  • Car Sales tick up from low levels
  • Housing Finance up - both OOs & especially investors
  • House prices up slowly
  • Building approvals up
  • Private credit up
  • GDP +ve
  • Share market up from v. low P/Es
  • Long term bonds up steeply
  • Short term yield curve continuing to rise & RBA looking a lot less likely to cut to 2%
  • Retail sales up 2 consecutive months - although probably mostly due to stimulus
  • Commodity prices rising (including Dr Copper)
  • Oil rising
  • Baltic Dry Index back to pre 2007 levels from extreme lows
  • Consumer confidence rising from low base - this week pessimists & optimists were balanced
  • Job Ads have stopped falling


However, there are many that are still negative....
  • Last years company profits down sharply
  • Inventory down
  • Company sales down
  • Business investment down
  • Unemployment expected to rise... however so far only a move from full-time to part-time jobs
  • Wages growth falling (still rising, but not as quickly)


The first group contains mostly leading indicators (green shoots?), the 2nd mostly trailing indicators (anticipated weeds?). Unemployment particularly will be the next D&G to hit the headlines, everyone will have an anecdote about someone who is looking for work.

However, as an investor it's critical to look some way ahead, while still taking the expected bad news into account. After 18 months of unrelenting bad news (including factoring in a depression), there are signs that the economic cycle in Australia has turned the corner, and far-sighted investors are pricing in a recovery.
 
Could it be the short term, temporary results of government stimulus?
A spike as it were and then continue the prevailing downward/flat trend.
 
For the last 12-18 months virtually all the macro indicators have been pointing to a poor economy - the worst for at least 15 years... and if you believe the popular press, a Depression. However, in the last quarter some indicators have started to turn positive.....

  • Car Sales tick up from low levels
  • Housing Finance up - both OOs & especially investors
  • House prices up slowly
  • Building approvals up
  • Private credit up
  • GDP +ve
  • Share market up from v. low P/Es
  • Long term bonds up steeply
  • Short term yield curve continuing to rise & RBA looking a lot less likely to cut to 2%
  • Retail sales up 2 consecutive months - although probably mostly due to stimulus
  • Commodity prices rising (including Dr Copper)
  • Oil rising
  • Baltic Dry Index back to pre 2007 levels from extreme lows
  • Consumer confidence rising from low base - this week pessimists & optimists were balanced
  • Job Ads have stopped falling


However, there are many that are still negative....
  • Last years company profits down sharply - this will take time to filter thru - results are always 3-6 months behind
  • Inventory down
  • Company sales down - uncertainty will always stop people spending
  • Business investment down - because banks aren't lending
  • Unemployment expected to rise... however so far only a move from full-time to part-time jobs - only 1700 odd (?) jobs for last month compared to the results last month..."up for the 5 year high" - well, blow me down, wasn;t the last bubble 5 years worth...?
  • Wages growth falling (still rising, but not as quickly) - still growing becuase all these lovely people now avaialble for the picking lower pressure on $$ retention rates


The first group contains mostly leading indicators (green shoots?), the 2nd mostly trailing indicators (anticipated weeds?). Unemployment particularly will be the next D&G to hit the headlines, everyone will have an anecdote about someone who is looking for work.

However, as an investor it's critical to look some way ahead, while still taking the expected bad news into account. After 18 months of unrelenting bad news (including factoring in a depression), there are signs that the economic cycle in Australia has turned the corner, and far-sighted investors are pricing in a recovery.

i believe a recovery is already 50% priced in - all ords broke 4000 again yesterday and i reckon we'll see a slowing now until Dec. still, there's 10% left, but i still call a sept/oct correction, possibly 3200ish.

however, a lot of your first list was in the second list 6 months ago - so i'm agreeing with your sentiment.:D
 
For the last 12-18 months virtually all the macro indicators have been pointing to a poor economy - the worst for at least 15 years... and if you believe the popular press, a Depression. However, in the last quarter some indicators have started to turn positive.....

  • Car Sales tick up from low levels
  • Housing Finance up - both OOs & especially investors
  • House prices up slowly
  • Building approvals up
  • Private credit up
  • GDP +ve
  • Share market up from v. low P/Es
  • Long term bonds up steeply
  • Short term yield curve continuing to rise & RBA looking a lot less likely to cut to 2%
  • Retail sales up 2 consecutive months - although probably mostly due to stimulus
  • Commodity prices rising (including Dr Copper)
  • Oil rising
  • Baltic Dry Index back to pre 2007 levels from extreme lows
  • Consumer confidence rising from low base - this week pessimists & optimists were balanced
  • Job Ads have stopped falling


I would say more than one on your list is mostly due to stimulus and bribes on offer. What happens when the candy is taken away?
 
There were lots of positive indicators also a year ago and untill at least August.
The most important positive indicator last year was the trade surplus and commodity prices, also budget surplus was very good and unemployment very low. After august there was the positive factor of lower AU$ that helped australia
 
i believe a recovery is already 50% priced in - all ords broke 4000 again yesterday and i reckon we'll see a slowing now until Dec. still, there's 10% left, but i still call a sept/oct correction, possibly 3200ish.

3200 - that's a fair correction. I wouldn't be surprised to see a correction, but 3200 is a fair drop. Care to tease out your thoughts a bit...?
 
sure.

Sept/Oct will see some horrible freaking news come out of the US regarding corporate earnings for the season we're about to enter.

we will follow the SP500 and DJI and QQQQ as usual, but it will be the last time.

XAO only just popped 4000, so there'll be some resistance now.

any weakness under 3850 and it'll fall back...but only to 3650 or so.

further weakness outta the US will push it to unrealistic lows, like 2700 was but not that stupid, and then i'm calling the mother of all rebounds up to 4200-4400.

like i always say, it's purely opinion. it'll be the start of a solid bull market for 3-4years i reckon.
 
Could it be the short term, temporary results of government stimulus?
A spike as it were and then continue the prevailing downward/flat trend.
Sure... some of it is. Prevailing downtrend in what ? House price - nope, ASX - nope already turned, all the indicators in the 1st list - nope. Which prevailing downtrend ?

I would say more than one on your list is mostly due to stimulus and bribes on offer. What happens when the candy is taken away?
Absolutely. Do you think the Govt/RBA would take the candy away before there was normal demand ?

There were lots of positive indicators also a year ago and untill at least August.
The most important positive indicator last year was the trade surplus and commodity prices, also budget surplus was very good and unemployment very low. After august there was the positive factor of lower AU$ that helped australia
You misunderstand. These first list mostly contains indicators that were -ve in the past year, and have changed to +ve recently - a sign that the economy has bottomed & is improving.

The v. good trade surplus & commodity prices of last year were trailing data, and gave no indication of what the future held.



Most commentators believe the global financial meltdown that was priced in last year, has been cancelled. We only have a possible recession to deal with.

And in the light of this weeks jobs figures, some think that unemployment will peak at ~7%, albeit with reduced hours for a small percentage of the population. High unemployment & consequent foreclosures appears to be off the table. House prices probably flat to rising as people realise that contrary to last years headlines the world isn't ending. And price falls appear to be a lot less likely.

With better unemployment figures, increasing consumer confidence and lack of recession, interest rates are likely to be rising sooner rather than later, despite the RBA's alleged 'easing bias'.
 
The overall trend is flat or down in most indicators. A spike or blip (as you have mentioned) does not affect the overall major trend.

Sure... some of it is. Prevailing downtrend in what ? House price - nope, ASX - nope already turned, all the indicators in the 1st list - nope. Which prevailing downtrend ?
 
sure.

Sept/Oct will see some horrible freaking news come out of the US regarding corporate earnings for the season we're about to enter.

we will follow the SP500 and DJI and QQQQ as usual, but it will be the last time.

XAO only just popped 4000, so there'll be some resistance now.

any weakness under 3850 and it'll fall back...but only to 3650 or so.

further weakness outta the US will push it to unrealistic lows, like 2700 was but not that stupid, and then i'm calling the mother of all rebounds up to 4200-4400.

like i always say, it's purely opinion. it'll be the start of a solid bull market for 3-4years i reckon.

Thanks for that, some good food for thought. It will be interesting to see how things unfold. I'm currently buying in with my own and borrowed funds every month,and plan to keep doing so for probably the next 10 years or so. So if it takes a while to recover, I'm not really that worried.
 
As you know i don't get too anal about this stuff. (I know you love to tho) My point is that a short term flurry of economic activity caused by government stimulus does not alter the prevailing trend.

If we have different views on that, cool, that's what forums are for.

Which indicators (that are trending down or flat) are you watching & why ?
 
As you know i don't get too anal about this stuff. (I know you love to tho) My point is that a short term flurry of economic activity caused by government stimulus does not alter the prevailing trend.

The govt stimulus will probably affect some indicators -
  • Car Sales tick up from low levels
  • Housing Finance up - both OOs & especially investors
  • House prices up slowly
  • Building approvals up
  • Private credit up
  • GDP +ve
  • Retail sales up 2 consecutive months - although probably mostly due to stimulus
  • Consumer confidence rising from low base - this week pessimists & optimists were balanced

However a lot won't be affected...
  • Commodity prices rising (including Dr Copper)
  • Oil rising
  • Baltic Dry Index back to pre 2007 levels from extreme lows
  • Job Ads have stopped falling
  • Share market up from v. low P/Es
  • Long term bonds up steeply
  • Short term yield curve continuing to rise & RBA looking a lot less likely to cut to 2%

It's OK to change your mind when circumstances change. I've been bearish for a long time, and now I'm starting to see reasons not to be bearish.

What would cause you to change your mind ?

If we have different views on that, cool, that's what forums are for.
Disagree - the forum is for debating (not merely airing) different views. I was hoping you'd be able to support your different view.
 
As i'm a TA fan on the stockmarket, so i am with property as well. I;m very much a trend or momentum investor.

To answer the question, A medium/long across the board term upward trend (in property prices, mortgage apps (especially investor), etc

That would pretty much encompass all the indicators you mention just as a rising index or share price encompasses all the factors that cause sentiment toward that stock to trend upwards.

I know you wont accept this as avalid answer and come back with another question. Knock your self out. :)

T
What would cause you to change your mind ?
 
Hi Keithj,

I've been thinking, whether there's any possibility of China stop stockpiling commodities (since allegedly they have enough stockpiles to work through for a long while anyway) to "punish" BHP and RIO and cause another wave of correction?
 
As i'm a TA fan on the stockmarket, so i am with property as well. I;m very much a trend or momentum investor.
I'm with you there. However, I'd prefer to combine a good trend with good value.... I see good value & I'm starting to see signs of a turn in the trend.

To answer the question, A medium/long across the board term upward trend (in property prices, mortgage apps (especially investor), etc

That would pretty much encompass all the indicators you mention just as a rising index or share price encompasses all the factors that cause sentiment toward that stock to trend upwards.
Agreed - I see the downtrend of the last 18 months bottoming, and a possible uptrend starting..... not enough to invest in houses yet, but enough to invest in good value assets that tend to lead the cycle.

I know you wont accept this as avalid answer and come back with another question. Knock your self out. :)
No worries... it's just that your posts can come across as an expert in what NOT to do - it's hard to know where your strengths are :).
 
I've been thinking, whether there's any possibility of China stop stockpiling commodities (since allegedly they have enough stockpiles to work through for a long while anyway) to "punish" BHP and RIO and cause another wave of correction?
Anythings possible... there's always some bad news somewhere if you look hard enough. The Doomsday scenarios are always present..... it's only with hindsight that we know if they are significant. OTOH they do plant a seed of doubt and prevent many would-be investors from ever starting.
 
Hi Keithj,

I've been thinking, whether there's any possibility of China stop stockpiling commodities (since allegedly they have enough stockpiles to work through for a long while anyway) to "punish" BHP and RIO and cause another wave of correction?

last i heard was that both shanghai and beijing are already re-opening steel mills that were shut down 8-9 months ago.

india has BLASTED it's way outta this GFC, china will always be a big player now.

China only has a small hold of RIO, certainly enough to lodge a formal objection worth listening to, but not enough to over-ride the board.
 
Back
Top