US And Australia’s Worry Track Ahead

The Reserve Bank of Australia (RBA) is expected to raise interest rates again as home and dwelling prices continue to fall. Running faster to the downside than the winner of the Melbourne Cup perhaps.

The RBA will likely hike by 25 points, but I am prepared to forecast 50 points. 

The reason being the latest extreme inflation print and the masking afforded the RBA by the Melbourne Cup event. Willing to be wrong to highlight the risk. Let’s see.

Over in the USA, the Federal Reserve will be hiking rates again very aggressively by 75 points. It has an argument for doing so, inflation is broad-based and extreme, while rates are still arguably at a stimulatory level. This is all their own fault of course. 

The Fed will be hiking aggressively as both President Biden and the Chairman of the central bank verge on insanity as they continue to herald a strong economy. Really?

Several Fed regions are in severe contraction in manufacturing and services too are registering contraction in some economic series like the S&P Global USA PMI.  Just yesterday, we saw Texas register its sixth month of severe manufacturing contraction.

If one had written a novel that the services and manufacturing sectors were collapsing, property prices were falling, with only one data series, employment, looking good but dysfunctional, and the Federal Reserve was hiking rates more aggressively than at any other time in its history, even with high inflation, no one would have believed that fictional story. 

Yet, here we are living it and bizarrely most fund managers are still buying the dip. A strategy that has patently failed all year long.

Americans are experiencing extreme inflation, growing mortgage stress, worst-ever consumer confidence, declining services and manufacturing sectors, and falling property and stock market values.

There is only one ending to all this. It starts with a D. The ugly Depression word has to be raised as a very distinct potential outcome from such a bizarre grouping of economic realities. 

None of this is theory. It is all already happening.

The US stock market remains extremely overvalued. This is not a buy-the-dip world by any measure.

Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities

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