Charlie Aitken is back today with a bearish growl that is well behind MB but still ahead of many and worth consideration:
One of the reasons we remain tactically cautious on Australian equities is we have been forecasting a period of economic data fade in Australia in response to the Federal Budget. That data fade has clearly started and is also being reflected in a series of cyclical stock profit warnings.
Australia is clearly entering a tougher economic period. Short-term interest rate futures have rallied to reflect this and near-term interest rate rise expectations have been priced out. There should be absolutely no doubt that the fall in consumer confidence is a real and significant event.
This week we have seen economists revise down Q1 GDP forecasts to “anaemic” headline growth. Capital City house prices actually fell -2% from April to May, albeit to still very high median prices, while April retail sales will also be sloppy today . Profit warnings from listed retailers based on May trading conditions suggest May ABS data on domestic discretionary retailing will also be sloppy. Building approvals also fell -5% and there are clear signs that momentum is toppy in the new home building cycle in terms of new approvals. This is all classic data fade that we had been forecasting.
The RBA is now pushing a string with monetary policy. 95% of recent credit growth in Australia has been mortgage credit and house prices are +16% vs pcp. Similarly, the switch from cash to higher dividend yield equities has been enormous. They have done everything they can to get asset prices up and assist in the transition to an East Coast cycle. Yet, now ultra-easy monetary policy is fighting tight fiscal policy and you can see the effects on confidence and spending.
…In my opinion all Australian’s are over-exposed to Australian assets in Australian Dollars. That asset allocation has worked very well over the last few years, but it’s time to think a little differently before everyone else does.
Charlie sees the AUD falling on a firmer greenback but still sees reckons the next move in Australian monetary policy is up, and so concludes yield stocks have had their day.
I agree on the dollar, not on interest rates, and remain eminently comfortable with the notion that international industrials are the only segment of the market that favourably captures the head and tail winds of the cycle.
