The losses announced by Woolworths in the past week and decision to exit its home improvement business serves as a timely reminder about the dangers associated with corporate diversification and investing for growth in the current environment of powerful revenue headwinds. Corporate Australia has already taken heed, with the economy on the precipice of a capex cliff. The recently released ABS survey of capex intentions points to a 20% slide in business investment in the current financial year, which would represent the largest annual decline in over 25 years. Any bubble talk around housing therefore discounts the important role that dwelling investment and household consumption still has to play to support the economy until a revival in the corporate sector’s animal spirits emerges. The prospect that interest rates will remain low for an extended period suggests that if there is a bubble in housing it might well persist for a while yet. To take a cue from John Maynard Keynes, hedge funds seeking to capitalise on Australia's 'big short' will probably need an abundance of patience (and capital). (VIEW LINK)
Excellent read Sam, great insight into the capex outlook.