Back in February, Chris Watling, CEO and Chief Market Strategist at Longview Economics, wrote that a recession in Australia was likely, and that rates would be cut to zero if this happened. While he acknowledges that a lot has changed in Australia since then - not the least of which being the surprise re-election of the coalition government - his base case remains that a recession is on the way.
"The basic thesis on recession is that housing was in a bust phase, and the bust phase will probably be bigger than 10-15% peak to trough. Obviously we're having a bounce in house prices now that questions that, I personally think it's probably a head-fake."
In the latest episode of The Rules of Investing podcast, Chris discusses his views on Australia in-depth. He also shares why the outlook for the US is more positive, shares his favourite chart in the world today, and discusses eight key asset bubbles globally.
Links and charts discussed:
- Fully automated, luxury communism. By Aaron Bastani.
- 2:37 - The challenges and joys of being non consensus
- 3:24 - Tracking the performance of macro calls
- 5:16 - Chris shares his favourite chart in the world today
- 9:26 - Are low rates here to stay?
- 11:18 - A high conviction trading idea
- 15:16 - Is Australia heading for recession?
- 19:37 - Is QE on the cards in Australia?
- 23:16 - Can the US avoid recession?
- 24:42 - Why inflation won't be an issue in the near future
- 29:42 - The eight key asset bubbles globally
- 31:15 - The asset bubbles that are most important to Australia
- 34:16 - What is the current account balance, and why does it matter?
- 36:53 - China's current account balance, and what it's telling us
- 38:53 - Chris answers our three favourite questions
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Another brilliant educational interview giving investors an insight this time into investing but from a non Australian domiciled perspective.
Insightful and intelligent. Really enjoyed it.
Excellent interview once again and great questions. Thanks Patrick. We are certainly at an interesting time of the economic cycle and I’d love to hear more interviews on the topics of the global economy and macro fundamentals. The aggressive easing from global central banks when equity markets are at their peaks is pushing investors further up the risk curve. This seems to be unprecedented demonstrated by the gold-silver ratio vs SPX chart, adding the Fed fund rate chart gives even more clarity. But the question that is not answered for me is why Chris believes Australia is heading for recession but the US is not. Even though the Australian housing market is in correction and likely to have another leg down, the economy is stimulated by both the monetary and fiscal policies and the Australian banking system is robust. The US current account deficit; corporate debt vs GDP ratio and the asset bubble is a much more alarming picture than the slow down experienced by the Chinese economy or the Australian housing market. It is not my view that Australia and China are likely to avoid recession but the positive outlook for the US in the context of the global asset bubbles raises more questions than it answers.
For me at the moment it’s actually energy security. I can’t see how Australia can thrive economically with its current policy. Having a full state lose power and another subject to rolling blackouts is alarming. We are relying too much on renewables, we haven’t secured enough cheap domestic coal and gas and we worry way too much about the amount of carbon dioxide in our atmosphere, 0.04%! This molecule is the stuff of life for crying out loud. We expire it every second , plants respire it every night; completely normal, natural and healthy!
Thanks for the comments everyone, glad you're all enjoying the podcast!
Excellent interview with Chris. I listened to it twice. To Ngaire Groves, I think you need to expand your reading list. Start with Wikipedia page on the Keeling Curve.