The AUD and Economic Instability — The Signal Telling You It’ll Get Worse

The AUD and Economic Instability — The Signal Telling You It’ll Get Worse

10 years ago this month, I headed off to the US and Mexico for bit.

It’s funny how different back then is to now.

For starters, I had a few less wrinkles. A dog instead of kids.

I owned a locally made Holden Calais. It had a thumping V8 engine, and we weren’t scared of petrol costs back then.

The US was in the grip of a recession. The Aussie economy was roaring on the back of Chinese stimulus buying our minerals.

One Aussie buck would get me about 90 US cents in return.

And gold? Well you could buy an ounce for US$1,111. Or about $1,222 in our currency.

Times have changed.

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Then and now

It’s amusing how much has changed in a decade.

Back then the Aussie economy was on the tip of a credit explosion for bricks. People ditched low paying labour work for six-figure FIFO salaries.

While the government continues to pat themselves on the back for their economic management, the reality is we avoided a recession simply because China bought anything we would sell them. Most of it came out of the ground and went into the steel that holds up their cities today.

We have a very different picture today.

For starters, I’m writing to you from my home office set up in my lounge room.

The 10-month-old puppy is destroying something. The kids’ school is closed and they are doing their schoolwork from iPads sneaking snacks from the cupboard.

Australia isn’t in ‘lockdown’, as the media likes to portray. Rather we’ve been asked to not be anywhere we don’t have to be. Don’t get me wrong, I’m anticipating much tougher measures are coming.

Based on my contacts here in Australia, I’m hearing a bits and bobs of how long this may last. The only thing I can put together from speaking with these people: Not one of them has the same thing to say.

Meaning I expect confusion and fear to reign for even longer.

Then of course, we have the Aussie economy heading for its first recession in 29 years. Although, a technical recession won’t be declared until the end of the June quarter.

Nonetheless, we’ve got at least one million people trying to access Centrelink services immediately. And based on the data I’m reading, that’ll soon jump to two million at some point in the next few weeks.

And given we have no firm idea how long this quasi-lockdown will last; the job security of another million more is possibly online the line.

The construction industry — where another odd million Aussies work — are staggering shifts to embrace ‘social distancing’ and attempt to reduce the spread of the disease.

With the bombardment of the news lately, I haven’t had the chance to dig through this sector. Aside from government infrastructure projects, the large commercial projects are reliant on bank funding. Right now, we don’t know the financial viability of these projects.

To compound all of this, is knowing which businesses in the service sector will survive the economic rout. How many of these are marginal? How many can weather a many month shut down and still open their doors like nothing happened?

The Aussie dollar today, gives us a small glimpse how others view out market.

Like I said before, I decade ago one of our bucks would get you 90 US cents. Today, is more like 60 cents. And a few days ago, it was even lower at 57 cents.

Long-time readers of the Daily Reckoning Australia know that I have been a permabear on the Aussie dollar for almost two years.

The rapid decline of the Aussie dollar reflects the faith in the Aussie economy from international markets. And right now, they don’t have much confidence in our economy.

Gold booms in Aussie dollars

Ooofft. It gets easy to wallow doesn’t it?

So much gloom.

Here we are fighting over toilet paper and have digital drinks with our friends. Two months ago, we were coughing up smoke because of the bush fires.

The mood has changed quickly this year.

Nonetheless there are bright spots to note. It’s just about changing what you should be looking at.

In other words, stop investing like it’s yesterdays market. The rules are being rewritten, and you have a choice: adapt and invest, or get caught up chasing your tail in how it used to be done.

Once the market finds its bottom — and I have no doubt it will soon — there will be some spectacular investing opportunities for those investors ready to pounce.

In the meantime, all this economic gloom can be a benefit to you.

The Aussie dollar is tumbling. But don’t let its falls freeze you from doing something.

You see, the Aussie dollar is sending you a signal…

Check this out.

Two years ago, I bought an ounce of gold for around AU$1,500.

Today that same ounce would set me back three gees.

In fact, a colleague just spent $1,500 to buy half an ounce of gold.

Gold is doing exactly what it should be.

Alerting us to stress in the financial system.

The volatility we are seeing in the gold price, is a reflection of not only currency weakness, but economic instability as well as stress in the financial system.

And based on the information I’m reading, getting your hands on the precious metal is becoming harder than ever.

We’ll delve into what’s happening in the gold market back drop tomorrow.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia

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