Economic Indicators and Predicting the Future

  • Extremely high household debt
  • Low to negative real wage growth
  • Rapid housing price growth
  • Rising home loan and consumer loan interest rates
  • More money leaving the country than coming in
  • Sharply falling unemployment rate
  • Modest housing price growth
  • Low to modest real wage growth
  • Low to modest household debt ratio
  • Rising broad interest rates

Market Lags

“Be fearful when others are greedy, and greedy when others are fearful”

Economic Indicators

  1. The economy is a group of people. People behave you expect people to behave. They do exactly what you think they’d do when things get scary and when things look great.
  2. It’s about the flow of money. Where is the money going? Is into the country, or out of the country? Is it into productive investments that create jobs and stimulate the economy or speculative investments where we just expect capital growth just because?
  3. It’s never certain. It’s all subject to change and big events change things, nothing is certain.
  • GDP per capita: It should always be about per capita rather than just GDP. Population growth in most countries means that the GDP should almost always be growing, but is it going up per person or is each individuals share of GDP falling.
  • Clearance rates: Clearance rates lead property prices and give a good indicator to the confidence of consumers. Are they feeling wealthy and that the future is bright enough to buy a home or are they retreating.
  • Property prices: 500 years of data demonstrate that rapid rises in property prices, or asset prices precipitate a recession. There’s a huge amount of research and theory supporting this.
  • Participation rate: The unemployment rate can be grossly misleading because it excludes so many people. With ageing populations in most countries around the world the unemployment rate should be falling. People are retiring. This doesn’t mean that they don’t exist though. It doesn’t mean that just because they’re retired that they don’t cost the government money in services. Look at participation rate rather than unemployment to see what portion of people are really working.
  • Balance of payments: Is money coming in or out of the country? That’s the question here. Are other countries seeing this as a safe haven or good returns, and what impacts does their behaviour have on us.
  • Household debt ratio: How leveraged are our everyday people. If they have more debt than they can poke a stick at, then how can we expect them to consume and fuel the economy.
  • Retail sales: Retail sales are a great indicator of consumer attitudes and leveraging. If the household debt ratio has been growing to a high amount but now retail sales are falling then we can usually assume that households have reached their limit.
  • Loan approvals: Are our banks leveraging up on a booming economy and providing easy access to credit? Or are they tightening up, or have people lost an appetite for debt? These all indicate something.
Claude Monet

Don’t Be Misled

  • The time taken to realise the impact of the Fed raising rates on emerging markets.
  • The realisation of the impact the Australian Royal Commission would have on bank behaviour and consumer access to credit.

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