‘Short Australia’, says this investor

‘Short Australia’, says this investor

Short Australia.’

That was Grant Williams’ conclusion back in May this year, after the global investment adviser wrote about the Australian economy in his flagship newsletter, Things That Make You Go Hmmm.

You see, Australia’s 28-year recession-free run is a global anomaly.

In fact, only Japan beats us, going 32 years (1961-1993) without a technical recession.[1]

Australia was also one of the few countries to dodge a downturn in the aftermath of the global financial crisis.

This could be why Williams put Australia’s economic woes on display for his global audience.

We got lucky at a time when developed nations didn’t.

And Williams didn’t hold back in his warts-and-all look at what many outsiders think is a trouble free-country…

Raging property prices, low interest rates, enormous personal debt and an unprecedented economic reliance on China are all dangerous problems for Aussies.

And that’s what formed the basis of my chat with Williams today…

Six down…more to come

And that’s another interview in the bag.

You see, in six weeks, I will be launching a brand-new service. I can’t give away too many details at this stage, but here’s what I can tell you.

This brand-new service we are launching is about all things precious metals — but with a twist. Instead of just providing recommendations, I will be interviewing industry specialists from around the world.

The sort of insider gurus who normally charge tens of thousands of dollars to speak at events.

Trust me, I’m hunting a big game here. I’ve already bagged four interviews. Plus, I have a list that’s 25 people deep and growing.

The point is, this new service isn’t just about finding a great stock idea and telling you about it. It’s about giving you access to knowledge that is out of reach for most investors. Big industry names you read about in the news…

I’m fresh off a terrifyingly early call with Grant Williams. This week, he’s based in New York. To work around his schedule, that meant a 5:30am start for me here in Melbourne.

But was it worth it? Without a doubt.

Grant’s been kicking around the industry for the better part of three decades.

Despite his frequent globetrotting, Grant knows the Aussie economy well. In fact, he watched the financial crisis unfold from his Sydney office while working for Credit Suisse.

Today, he and I talked about all the problems impacting the Aussie economy, the global issues we need to watch…and why people need to stop fixating on the gold price.

A few more weeks, and I’ll be able to reveal everything I’ve been working on…

Investors are getting mixed signals

‘Short Australia’ seems a bit dramatic, doesn’t it?

However, that’s the exact solution Williams came up with back in May.

Something is up with Aussie economic data.

Long-time Daily Reckoning Australia readers know that I, too, have been warning about a looming Australian recession for months now.

And now it seems the markets are giving us the cue as well.

Even Reserve Bank of Australia Governor Philip Lowe had to admit it earlier this year.

Just before the RBA’s back-to-back rate cuts, Lowe acknowledged that he was confused why the bond market was indicating a recession is near, when our stock market was suggesting that only good times are ahead.[2]  

Why the discrepancy? Well, bond prices signal a recession is imminent when the ‘yield curve inverts’.

This means that shorter dated bonds are offering a higher interest rate than longer dated bonds.

When this happens, it essentially tells us that the market expects lower rates in the future.

Now, every time this has happened in the US, a recession has followed.[3]

So when the 10-year Australian government bond rate fell below the RBA’s cash rate in May, market spectators got nervous.

The ‘inverted’ yield has gone for now. However, the fact that it happened is an ominous sign.

The problem is, the stock market didn’t match the bearish attitude of the bond market.

In the two months since Aussie bonds danced with danger, the S&P/ASX 200 rallied 6%. Compounding investors’ confusion is the fact that the Aussie market is up almost 20% since the start of this year.

This is what Lowe meant by conflicting signals.

On one hand, we have a fairly reliable indicator of an imminent recession. But this is in stark contrast to the rampant enthusiasm in the Aussie stock market.

What’s an investor to do?

Pay attention and prepare for the worst

‘Pay attention and prepare for the worst’, was Williams’ simple answer.

He also added that all bubbles eventually pop.

And while Australia isn’t in a stock market bubble, the high Aussie property prices and the debt attached to them could likely have very serious consequences if the two finally implode.

So what’s an everyday investor supposed to do with this information?

Consider this chat with Williams as an insider’s tip.

Don’t wait for the nightly news to tell you that a recession is here.

Until next time,

Shae Russell Signature

Shae Russell,
Editor, The Daily Reckoning Australia