Oliver's Insights: The risk of a US public debt crisis – and implications for shares

The key points are:

• US tax cuts point to ongoing budget deficits around 7% of GDP, a rising trend in already very high public debt and a further rise in already record debt interest payments.

• While a full-blown US public debt crisis is unlikely, this along with declining foreign investor confidence in US policy making could mean upwards pressure on US bond yields.

• In the near-term shares look like they will break to new highs. But the risk of further tariff and US public debt worries driving another bout of weakness is high

• It’s possible the $US is losing its ‘safe haven’ status. This means the $A may behave a bit less as a shock absorber in a crisis, meaning more pressure on the RBA to cut rates than might normally be the case.

Read full article

Oliver's Insights - The RBA cuts again and becomes more dovish

The key points are:

• As widely expected, the RBA cut by 0.25% taking its cash rate to 3.85%. This is the second rate cut in this easing cycle.

• The RBA remains “cautious about the outlook”, but its overall commentary appears more dovish leaving the door wide open for further easing.

• We expect the RBA to cut again in August, November, and February taking the cash rate to 3.1%. There is now close to a 50% probability of another cut as early as July though.

• The ongoing rate cutting cycle should help underpin a modest further pick up in Australian economic growth to around 1.8%yoy, but with the tariff threat posing a big downside risk.

Read full article

Oliver's Insights - Trump’s policies & the equity risk premium

The key points are:

• Helped by President Trump’s backdown on tariffs, shares have rebounded to within 3-4% of their record highs.

• The good news is that the last month highlights that Trump is still sensitive to share market falls and worries of recession. The bad news is that the tariff mayhem could still flare up again once the 90 day pauses end.

• The bigger worry is that his erratic policy making & threats to US institutions could weaken longer term share returns. Against this, though, he is likely to pivot to more positive supply side policies which could work the other way.

Read full article

Why investors need to be aware of the psychology of investing

The key points are:

• Investment markets are driven by more than just fundamentals. Investor psychology plays a huge role and helps explain why asset prices go through periodic booms and busts & why they can react in extreme ways to events.

• The key for investors is to be aware of the role of investor psychology and its influence on them.

• The best defence is to be aware of past market cycles (so nothing comes as a surprise) and to avoid being sucked into booms and spat out in busts. If an investor is looking to trade, they should try and buy when the crowd is panicking and sell when it’s euphoric.

Oliver's Insights - Australian home prices turning back up again

The key points are:

• CoreLogic data shows average home prices rose 0.3% in February, after a brief three-month downturn of just 0.4%.

• The upswing came in anticipation of, and then confirmation of, an RBA rate cut which boosted buyer confidence.

• Annual growth in rents slowed to 4.1%yoy, the slowest since 2021. Poor rental affordability leading to rising average household sizes and easing student arrivals are weighing on demand for rental property.

• Australia continues to have a chronic shortage of homes, estimated to be around 200,000 dwellings and possibly as high as 300,000. This partly explains the resilience of home prices despite the rise in mortgage rates since May 2022.

• RBA rate cuts are expected to drive a modest upswing in average prices this year. However, while there is still a big housing shortfall in Australia, the upswing will be starting from a point of still poor affordability, interest rates are only likely to fall modestly, and population growth is slowing.

• After 4.9% growth last year, we expect average property prices to rise around 3% this year.

Read full article

Oliver's Insights - Seven key charts for investors to keep an eye on

The key points are:

• So far shares have been relatively resilient but uncertainties are mounting particularly around Trump’s policies.

• We remain upbeat on a 12-month view but expect a rougher more constrained ride this year for shares, with a 15% plus correction likely somewhere along the way.

• Seven key charts worth watching are: Trump’s tariffs; long term inflation expectations; inflation; business conditions PMIs; profit growth; the gap between earnings yields and bond yields; and the $US. Right now, they are mixed.

Read full article

Oliver's Insights - The RBA starts cutting rates

The RBA starts cutting rates -implications for the economy and investors

The key points are:

• As widely expected, the RBA cut its cash rate to 4.1% from 4.35% after 13 rate hikes reflecting “more confidence that inflation is moving sustainably towards” the 2-3% target.

• However, the RBA noted that it is “cautious on prospects for further policy easing”.

• We expect the RBA to cut again in May and August taking the cash rate to 3.6% this year with another cut next year.

• The start of a gradual easing cycle should help provide support for the shares and home prices, albeit some of the good news on rates has already been factored in.

Read full article

Oliver's Insights - More Trump tariffs (and deals) - implications for investors and Australia

The key points are:

• US President Trump has announced tariffs on Canada, Mexico and China and is threatening more tariffs.

• The one-month delay to tariffs with Canada & Mexico is a sign they may be averted, but the uncertainty with more tariffs likely means a volatile ride for investment markets.

• Australia is vulnerable to a US/global trade war via a hit to China, but its less vulnerable than many other countries.

• Trump’s trade war adds to the case for an RBA rate cut as its more of a threat to Australian growth than inflation.

Read full article

Oliver's Insights - What’s driven the fall in the $A? Does it threaten inflation and RBA easing?

The key points are:

• The $A has been hit since September by the return of Trump, a hawkish pivot by the Fed versus the RBA and concerns about the outlook for iron ore prices.

• We doubt the fall is significant enough to boost inflation much and shouldn’t stop the RBA easing in February if underlying (or trimmed mean) inflation falls as expected.

• In any case, it’s now had a bit of a bounce from oversold levels as Trump has refrained from Day One tariffs opting for government agencies to investigate unfair trade & tariffs and reportedly more of a negotiating approach. 

• The $A could be stuck between $US0.60 and $US0.70, but with the risk skewed to the downside if Trump acts more aggressively on tariffs in the months ahead. Note that Trump still said in his inaugural speech that tariffs are coming.

Read full article

Oliver's Insights - Australia's falling living standards - what's driving it and how to it

• Falling real wages and a surge in tax and interest payments have led to a slump in living standards.

• But a broader driver of the malaise in living standards has been a slump in productivity growth from over 2% pa in the 1990s to near zero since 2016.

• Key policies to boost productivity growth include: tax reform; a cap on public spending as a share of the economy, deregulation; greater incentives to invest; and competition reforms.

 Read full article

Oliver's Insights - Goldilocks stayed for 2024, but what's in store for investors in 2025

The key points are:

• The main themes for 2024 were: better than feared growth; global divergence; more disinflation; falling interest rates but with Australia lagging; and more geopolitical threats but not as bad as feared. As in 2023, returns were strong.

• 2025 is likely to see positive returns, but after the surprising calm of 2024, it’s likely to be far more volatile (expect a 15% or so correction along the way) and more constrained.

• Expect the RBA cash rate to fall to 3.6%, the ASX 200 to rise to 8800 and balanced super funds to return around 6%.  

• Australian home prices will likely see further softness ahead of rate cuts providing a boost in the second half of 2025.

• Key things to keep an eye on are: interest rates; recession risk; a potential trade war; and the Australian consumer.

Read full article

Trump 2.0 - why investors should expect a somewhat rougher ride, but it may not be as bad as feared

Key points:

• The economic and financial environment today is more challenging than when Trump first took over in 2017: inflation is a bit higher, the budget deficit is worse, bond yields are higher and shares are more expensive.

• He also faces constraints from: rising bond yields; not wanting a sharp fall in shares; a razor thin House majority; and a political mandate to get the “cost of living” down.

• This could mean his more populist policies may ultimately be contained resulting in a better outlook for shares than many fear, albeit it will likely still be rough along the way.

Read full article

Oliver's Insights - Donald Trump elected President of the US (again)

Donald Trump elected President of the US (again) - implications for investors and Australia

The key points are:

• The return of Donald Trump to the US presidency brings the prospect of more US tax cuts and deregulation, but also more tariff hikes and trade wars and policy uncertainty.

• His win was not the surprise it was in 2016, and markets have moved to adjust – but it means higher US bond yields, a higher $US & a knee jerk rise in shares. Shares could be threatened though by the higher bond yields and tariffs.

• Australia is vulnerable to an intensification of trade wars.

• While the US election is important, investors should bear in mind that many other things influence investment markets

Read full article

Oliver's Insights - Why value matters in investing

Why value matters in investing - and what are valuations telling us now?

The key points are:

• Starting point valuations – like yields and price to earnings ratios – are key drivers of medium-term investment returns.

• Valuation starting points for term deposits and bonds have improved.

• For shares they suggest constrained return potential, particularly from US shares thanks to rich tech sector valuations - but Australian, European and Chinese shares are a bit more attractive from a valuation perspective.

• It's worth noting though that worries about the US share market’s dependence on tech stocks are not new and they have kept going for longer than many thought so trying to time their performance is very hard. 

Read full article

Oliver's Insights - Nine bad habits of ineffective investors: common mistakes investors make

The key points are:

• Many of the mistakes investors make are based on common sense rules of thumb that turn out to be wrong.

• As a result, it’s often wise for investors to turn common sense logic on its head.

• The easiest way to avoid many of these mistakes is to have a long-term investment plan that aligns your financial goals with your risk tolerance.

Read full article

Oliver's Insights - China's big stimulus - will it work? And what does it mean for Australia?

After a run of disappointing economic data, collapsing property prices and Chinese shares falling to their lowest since 2019 giving rise to increasing concerns about the outlook, China appears to be moving towards aggressive policy stimulus. But what’s driving the change? Will it work? And what does it mean for investors and Australia?

Key points:

• A move towards more aggressive fiscal policy stimulus and property support measures should help drive a mild cyclical upswing in China’s economy.

• However, it’s doubtful it will be enough to reverse longer term structural problems facing China – around excess saving, demographics and growing state control.

• The Australian economy is less sensitive to China than it used to be, but a stimulus driven cyclical boost to the Chinese economy is still positive for the Australian economy, share market and the $A.

Read full article here.

Oliver's Insights – Harris versus Trump - implications for investors and Australia

The key points are:

• The US election has significant potential to impact markets. A Harris victory would mean more of the same but a Trump victory could lead to uncertainty particularly around trade.

• Australia would be vulnerable to a rapid intensification of trade wars which is looking likely under a Trump presidency.

• Historically, shares have performed better under Democrat than Republican presidents with the best outcome being a Democrat president & Republican House and/or Senate.

Read full article

Oliver's Insights - Will house prices crash? And what's needed to fix housing affordability

Apart from “what will home prices do?" and "where are the best places to buy a property?" the main debate around the Australian housing market has been about poor housing affordability, occasionally interspersed with a scare that home prices will crash. The most recent example of the latter was on 60 Minutes last week with a call by US demographer & economist Harry S Dent that Australian house prices could fall “as much as 50% in the coming years”. But how serious should we take forecasts for a crash? And more fundamentally how do we fix affordability?

Key points:

• Predictions of an Australian house price crash create lots of interest but have been a dime a dozen over the last 20 yrs.

• However, there is more to the surge in property prices than easy money with a supply shortfall being the main factor. Absent much higher interest rates and or unemployment, a house price crash in Australia looks unlikely.

• The key to sustainably improving housing affordability is to boost supply, better align immigration to housing supply, reduce or delay public infrastructure spending, encourage decentralisation and tax reform.

• A failure to boost affordability risks a further slide in home ownership and rising inequality.

Read full article here.

Oliver's Insights – Why super and growth assets really are long term investments

The key points are as follows:

• While growth assets like shares go through bouts of short-term underperformance versus bonds and cash, they provide superior long-term returns. So, it makes sense that superannuation has a high exposure to them.

• The best approach is to simply recognise that occasional sharp falls in share markets and hence super funds are normal and that investing in both is a long-term investment.

Read full artilcle

Oliver's Insights – Seven key charts for investors to keep an eye on – where are they now?

The key points are as follows:

• Shares have hit a rough patch since recent highs with concerns about the growth outlook.

• We remain upbeat on a 12-month view as falling inflation allows rate cuts and hopefully recession is avoided or is mild. But the risk of a further correction in shares is high.

• Seven key charts worth watching are: inflation; inflation expectations; global business conditions PMIs; unemployment and underemployment; earnings revisions; the gap between earnings yields and bond yields; and changes in the $US.

Read full article