Oliver's Insights: Investment cycles - what are they & why you need to be aware of them

The key points are:

• Cyclical fluctuations are a key aspect of investment markets. Most are driven by economic developments but get magnified by swings in investor sentiment.

• Of particular importance are the long-term cycles which are often driven by waves of innovation and the 3-5 year business cycle. Lately we have been in the benign phase of the business cycle and may have be entering a weaker and constrained phase of the long-term cycle.

• Periods of poor returns invariably give way to great returns & vice versa. The key is to not get thrown by them.

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Oliver's Insights: Bubble trouble - is AI enthusiasm driving a bubble in shares?

The key points are:

• Rich share market valuations are warning of the risk of a pullback in shares and fears of a bubble and it’s possible that enthusiasm for AI has run ahead of itself. But the fundamentals behind this are arguably far stronger than they were at the time of the late 1990s tech boom.

• For investors and super fund members, the danger in trying to time corrections and bear markets that you miss out on the longer-term gains. The key is to adopt an appropriate long-term investment strategy appropriate and stick to it.

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Oliver's insights: Medium term investment returns face five key constraints

The key points are:

• Five mega trends still point to risks of a more inflation prone/lower growth environment than pre-pandemic.

• These are: a move away from economic rationalist policies; the reversal of globalisation; rising geopolitical tensions; climate change and decarbonisation; as well as slowing and aging populations. A productivity boost from artificial intelligence should provide some offset though.

• But taken together and along with rich share market valuations this will likely constrain medium term superannuation returns, potentially to around 5% pa.

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Oliver's Insights: Gold at record highs - can it keep going? Implications for investors

The key points are:

• The gold price has surged to record highs. Key drivers have been central banks increasing their gold reserves, rate cuts, a renewed downtrend in the $US and demand for a hedge against public debt worries and geopolitical threats.

• While gold is short-term overbought, implying the risk of a short-term correction, more upside is likely over the medium-term as a hedge against a falling $US, public debt and geopolitical worries.

• There is a case for gold in investment portfolios, but its speculative nature suggests only a modest exposure and over the very long-term shares have done better than gold.

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Oliver's Insights: Australian growth on the mend – implications for profits and interest rates

The key points are:

• Australia is seeing a gradual economic recovery with growth likely to reach 2.5% next year.

• This in turn is underpinning a likely upswing in profits.

• The RBA is expected to cut again in November, February and May to 2.85%, although the risk is on the upside.

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Oliver's Insights - Compound interest and returns are an investor's best friend

The key points are:

• Compound interest is an investor’s best friend but can be a borrower’s worst nightmare.

• The higher the return, the earlier and bigger the investment contribution and the longer the period the more it works.

• To make the most of it, ensure an adequate exposure to growth assets, contribute early & often to your investment portfolio and turn down the noise around investing.

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Oliver's Insights: The RBA cuts for the third time – expect a further gradual easing to 2.85%

The key points are:

• The RBA cut its cash rate by 0.25% taking it to 3.6%. This is the third rate cut in this easing cycle.

• The RBA sees inflation running around target but has revised its growth forecasts down again. Its forecasts assume that the cash rate will continue to “follow a gradual easing path”, implying that without further easing, growth and inflation will be lower and unemployment higher than its forecasting.

• We expect the RBA to cut again in November, February and May taking the cash rate to 2.85%.

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

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Oliver's Insights: Poor Australian productivity – why all the fuss? And what to do about it?

The key points are:

• The last decade has seen productivity stagnate in Australia. This has curtailed growth in living standards and real wages.

• Policies to boost productivity include: deregulation; more housing supply; a cap on public spending; and tax reform. 

• Unfortunately, the political pendulum has moved against many of the necessary policies and the lack of a “crisis” like Labor faced in the 1980s may make many reforms difficult.

• But the good news is that the Government now recognises the problem and is starting to focus on how to boost it.

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Oliver's Insights: Seven key charts on the state of the Australian property market

The key points are:

• The Australian housing market remains far more complicated than many portray it to be.

• The Australian housing is cycle is turning up again; falling interest rates are the key driver; along with a chronic undersupply of homes of 200,000-300,000 dwellings; this partly reflects a surge in building times; poor affordability is a key constraint though; but it varies significantly between cities; and finally, mortgage arrears remain low.

• Average prices are expected to rise 5-6% this year boosted by falling rates but constrained by poor affordability.

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Oliver's Insights: China - the tariff threat, structural challenges & implications for Australia

The key points are:

• Chinese growth is running around 5% and while threats remain high – with the property downturn and tariffs – policy stimulus is likely to be enough to keep growth okay.

• However, longer term structural challenges – around excess saving, demographics and state control – will likely see growth slow to around 3% pa over the next decade.

• Australia is now less sensitive to China, but Chinese growth is likely to be enough to keep the iron ore price elevated.

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

The key points are:

• The first half of this year saw good returns, but they were interrupted by a correction into April thanks to US tariffs.

• We remain upbeat on a 12-month view but see a high risk of another correction in the next few months.

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

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Oliver's Insights: 2024-25 saw strong investment returns yet again – but is it sustainable?

The key points are:

• While recession fears, worries about US tariffs and war with Iran resulted in volatility, 2024-25 saw another financial year of strong returns helped by central bank rate cuts, economic conditions proving better than feared, and as President Trump paused the worst of his tariffs and Iran fears fizzled.

• Share market volatility is likely to remain high given tariff uncertainties, concerns about US debt, geopolitical threats and likely weaker growth and profits. But with Trump likely to pivot towards more market friendly policies and central banks, including the Fed and RBA, likely to cut rates further, investment returns should be reasonable over 2025-26.

• However, after three years in a row of 9-10% balanced growth super fund returns, some slowing is likely to a more sustainable pace around 6-7% particularly as share valuations are high.

• The key for investors including super fund members is to maintain a long-term strategy and turn down the noise.

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Oliver's Insights: Five charts on investing to keep in mind in uncertain times like now

The key points are:

• The US intervention in the war with Iran has substantially increased the risk of disruption to global oil supplies and a deeper impact on share markets.

• But predicting how this will all unfold is hard. The key is to stay focussed on the basic principles of successful investing.

• These five charts focus on principles of investing critical in times like now: the power of compound interest; don’t get blown off by the cycle; the roller coaster of investor emotion; the wall of worry; and market timing is hard.

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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.

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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.

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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.

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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.

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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.

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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.

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