Australian business bosses say the business is great, but Wall Street says it stinks: the Dow Jones fell more than 1,000 points (or 3.5%) overnight, and worse, the Nasdaq Technology Stock Market Index fell by 5%!
This is an unpleasant rating with a capital letter. So does this need to force us to prepare for a worse recession scenario in the US, more stock market sell-offs and job losses? Or do we listen to and rejoice in the world’s greatest investor Warren Buffett and “… be greedy when others are afraid”?
For those who know little about Buffett, you can summarize his enrichment strategy in the stock market like this: buy quality companies if the market thinks it’s time to quit them. And the longer you can wait before you take a deep breath and buy unloved stocks, often, the shorter the pain will be before a stock market surge tells you you’ve invested in Buffett-style money.
In fact, over the weekend Buffett considered a matter of time. “At Berkshire Hathaway’s annual shareholders’ meeting on Saturday, Buffett advised not to get carried away looking for the perfect time to buy shares,” said Megan Sauer of CNBC discovered this week. “Rather, Berkshire Hathaway CEO said, ‘Go and invest and then watch the stock market over time to see if you should buy more shares of that company or sell them.’
And here’s his observation of his own investment over time: “We have no idea what the stock market will do if it opens on Monday. We did not know how to take time. We found out pretty well when we were getting enough money. “
This timely advice on when to buy stocks comes when local CEOs, founders and chairmen of local companies are giving our economy and business prospects a big thumbs up. And this despite the fact that the media is almost murder covering what may happen to some Australians as interest rates rise.
Of course, if the RBA raises rates too many times and too quickly, then we will see a long list of sick borrowers who will be forced to pull the belt with their lifestyle, or worse, forced to sell their property. However, all of this may be an excessive assumption and contrasts with what NAB chief Ross McEwan and Jerry Harvey of Harvey Norman said. AFR about what business is now.
Yesterday, NAB earned a record profit of $ 3.38 billion in the first half, which made McEwan thank Australia’s much-recovering economy for an impressive result.
Meanwhile, Jerry says consumers are not showing any signs of retreat, and this follows from the huge data on retail spending this week, which reinforces the views of founder Harvey Norman and other retailers.
Here’s what ABS told us about our purchases:
1. Retail sales grew 1.6% in March after growing 1.8% in February and growing 1.6% in January.
2. Retail sales increased by 9.4% compared to the same period last year and reached a record $ 33.6 billion.
3. The S&P Global Australia Services (PMI) Purchasing Managers’ Index rose from 55.6 in March to 56.1 in April, the third consecutive month of business activity. A score above 50 means increased activity.
4. And we are looking for loans: new housing loans grew by 1.6% in March and 11.1% over last year.
I wonder how the rise in the cost of living is central to this election campaign, which is certainly important when inflation makes it harder to buy things and rising interest rates take away our cash income, but that needs to be kept in context.
If someone hasn’t had their pay cut because of the pandemic, and they now work a few days at home and save on expenses, then they can save on childcare costs, and the home loan rate has dropped by an average of 4% to less than 3% . If this is the case, then the impact of the coronavirus for many may be relatively positive in the dollar sense.
And given unemployment, which now stands at 4%, there are far more families living in better positions because of government spending that has been increased to fight this damn virus, as the chart below shows.
Ignoring the surge due to the initial virus strike and related blockages, unemployment was over 5% but is now 4%. This means that more than 100,000 Australians who were unemployed before the pandemic now have jobs.
Jerry Harvey, who has many stores in regions of the country, says many regional areas are experiencing a boom, provided they have not been destroyed by floods. And Macquarie CEO Shemar Vikramanayake reported AFR that economic growth will remain stable “due to decarbonisation, digitization and the availability of capital”.
Another point to note is that only a third of Australians have housing loans, and many were obtained before housing prices rose ballistically. And so borrowers could have lower rates on home loans and more valuable homes.
Meanwhile, retirees will finally be getting the best rates on their savings, and I recently noted that now in Macquarie the one-year term contribution is 1.9%.
So how much should we worry about selling Wall Street?
The U.S. is struggling with its threat of inflation and the possibility that too much raising interest rates could cause a recession. And this was not helped by the war in Ukraine and the problems of Chinese closure.
I expect the stock negative and volatile in the coming months, but I like what I see in our economy, so I expect a positive return to the markets later this year. And Shane Oliver of AMP Capital said the same thing on my TV show last night.
However, as Buffett taught us, while time is hard to pick up, investing in quality companies at good prices is much easier.
Check out Shane’s views here. I’m also looking at my favorite bear market indicator, which currently says that bears in the stock market shouldn’t seriously bother us in the near future.