4 months ago....
A perfect storm of
1. CPI inflation - food, energy, certain commodities (which will push correlated stocks up).
2. Rising rates to try and get CPI inflation under control. This (and quantitative tightening) are the only tools that central banks have, and so they are deploying them. They won't be highly effective however. Previous waves of CPI inflation were often due to increased demand - so jacking rates helped by curbing demand of discretionary items. This time, CPI inflation is due to reduced supply (China shutting down, end of globalisation, Ukraine). Putting up interest rates isn't going to reduce your need for food or petrol - it will just take it harder to meet these expenses.
3. Asset deflation due to increased interest rates - housing, certain stocks
4. "Poor effect." People spend when their house increases - they feel wealthy and can pull equity from their home. This is the wealth effect. The opposite is the poor effect - as interest rates increase and the value of housing falls. people aren't going to be buying cars, or planning expensive holidays etc. They will hunker down.
This is happening around the world
However Australia is especially poorly placed to weather this storm due to
1. Extraordinary high levels of household debt - due to all the cheap credit the past 15 years,. Interest rates have been at 5,000 (yes, 5,000) year lows according to Ban of England research (interest existed back then)
2. Some of the most expensive housing in the world
3. Many Australians are on variable rates, or short term (2-3 yr) fixed rates. In many places, interest rates are fixed for 10 years - or even the life of the loan.
4. A need to seriously think about defence for the first time in decades - defence spending will have to rise significantly as we contemplate living in a less certain world.
At the same time, the "Chinese miracle" is coming to the end. There has been an unprecedented demand for iron ore and coking coal as China transforms from a rural society to an urbanised society. The largest demographic shift the world has ever seen. However its over - China is now reaching the 70-75% plateau at which societies cease this urbanising (some people always stay in the rural areas). China is also moving to steel recycling rather than making new steel. Sp iron and coking coal exports are going to fall. Hard.
We also look destined to experience global famine on a scale not seen for a long time. China now holds 50-60% of the world wheat stocks - China can see what's coming down the pike. China and Russia (by far the 2 largest exporters of fertilisers) are both restricting exports = less grains and other plants = less feed for humans and animals. There are also huge energy inputs into food - transport obviously, but also production (greenhouses) and processing food - these energy costs will reduce production and increase costs. So we are going to have less food, and its going to cost a lot more. This will cause civil unrest within countries, but also at a global level - think of Europe with a billion hungry Africans seeking food.
My strong suspicion is that Covid is not done with us either. A very strange virus that emerged at a very interesting time. Although not insignificant, we have way overestimated the risks. Our counter-measures (which were disproportionate due to a flawed risk assessment) have caused supply chain disruptions, reckless momentary policy (modern monetary theory) and inflation (whocouldaknown).
Chickens are coming home to roost. Covid? - you ain't seen nothing yet. Get ready.
4 months on......
1. Inflation at 40 year highs. And hiking rates and QT aren't working. Whocouldaknown.
Anyway US Fed will keep hiking as it doesn't have any other options.
Australia RBA will follow US Fed up but at a slower rate - Aust is far more vulnerable to rising rates with variable or 2 year fixed, while most US mortgages are fixed for the duration.
More house price falls ahead.
Aust $ will fall due to widening gap between US and Aust rates = cost of imports (especially oil) up.
And inflation will continue - deglobalisation, Ukraine, supply chain disruptions, energy shortage, food shortage
https://www.theguardian.com/business...est-rate-hikes
https://www.afr.com/world/north-amer...0221013-p5bppl
At least Yellen has admitted she was wrong about inflation.
Because Biden has forgotten he ever said it was transitory 15 months ago.
https://www.npr.org/2022/06/01/11023...llen-inflation
2. The energy crisis is getting more serious with industry shutting and energy rationing in Europe as we head into winter.
UK has told its citizens they can sit in council libraries all day this winter to keep warm.
Germany is re-opening coal power stations - pollution and global warming are the very least of Europe's concerns right now
https://www.dw.com/en/germanys-energ...gas/a-62709160
A state actor destroyed Nordstream 1 and 2, so that's the end of Russian gas into Germany
This will take years to fix - the immediate problem is this winter, but expect 2-3 years (at least) until this is resolved.
3. Energy and food production are inextricably entwined with interdependencies presents at multiple levels.
To the extent we have an energy crisis we will have a food crisis.
https://news.un.org/en/story/2022/09/1126771
Russia has hinted it can drive millions of hungry refugees from Africa into Europe to destabilise it.
4. Covid
Lancet Covid Commission report is out.
All options about origin remain on the table. However, Sachs (Chair of commission) is pretty certain it is manmade, and there has been disinformation by US and China. .
https://www.currentaffairs.org/2022/...o-the-pandemic
https://www.thelancet.com/commissions/covid19
5. Ukraine war.
Russia threatening nukes - can't see that, and I suspect he is warning NATO to keep out of it.
China will be the long term winner in Ukraine, and will gain a lot of influence over various Stans.
6. China
Has lots of problems (a faltering economy and a disastrous demographic profile).
Desperate countries can become dangerous (parallels with Germany in the 1930's)
7. Society
We are starting to see what happens when you disrupt a society.
Health and education systems are under a lot of pressure - little to do with Covid, and a lot to do with everything else.
Aviation still looks to be in a mess - which is what started this thread
Kids education has been impacted these 3 years. Not for every kid, sure. But is has for enough kids, and will affect them for the next 50 years.
The psychological health and resilience of many in society are poor, especially kids and young adults. This is appearing in many forms - including "long Covid'
We ain't going back to 2019 - many can't & almost have PTSD, and many others won't
Tossbag is right.
slats, what you've got to understand is that a pilot does not like to be challenged, they especially don't like their intelligence being challenged. You're right though, the world is in for some pretty serious lessons shortly. First, governments around the world scared the **** out of everyone with a tool as simple as a respiratory virus that did what any other respiratory virus did, culled the weak, overweight and unhealthy. You want to fight a virus? Lose weight, do some exercise and live a healthy life. Now we're dealing with a so called environmental crisis, so if you haven't already scared the living **** out of your children with a flu, how about you do it with this 'crisis.' We now have a few generations scared ****less of multiple crises, just add a new crisis to the existing bull**** and you'll tip those generations over the edge. Never mind, as you allude, we're in for a bit of a ride over the next few years, the next crisis will be running out of paper to print new money.
And you still ain't seen nothing yet.
Get prepared.