BT sees 50% chance of recession

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Now they are getting it, from the AFR:

Top-performing bond manager BT Investment Management is loading up on longer-dated government debt, seeing a one-in-two chance the Reserve Bank of Australia will cut its benchmark below 1 per cent.

The Reserve Bank of Australia will at least cut its target rate by 50 basis points to 1.75 per cent and could take more drastic steps, according to Vimal Gor, BT’s Sydney-based head of fixed income. The local dollar may drop below US60¢, he said.

…He sees the economy taking two potential paths. If the property market holds up and the prices of exports relative to imports don’t get too much worse, then the country can “muddle through” with another 50 basis points of rate reductions, he said. The alternative, a self-feeding recession with declining housing, would be “a real big problem,” according to Gor.

“I see us either stopping at 1.75 per cent or stopping at sub 1 per cent,” he said. “If it’s bad enough to take us below 1.75 per cent, it’s bad enough to take us a long way.”

That’s nicely put. BT is obviously talking its book but it should. Rather obviously, risks are weighted to scenario two as commodity prices keep falling.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.