Time to be active.

Our economy is in a transitional phase.  The government is facing tough decisions. The core issue is that inflation continues to stay at 5.2%, as opposed to the preferred 2.5%.

Today the Government has raised interest rates by 25 bps to 4.35% to try and reduce inflation.  They expect to see inflation fall to around 3.5% by the end of 2024 and 3% by 2025. This has increased expectation that inflation will remain higher for longer.

With high government debt levels, higher interest rates will affect government spending and put pressure on the highly geared property sector.

The Federal Reserve kept interestrates steady in its most recent meeting with the target range to remain between 5.25% to 5.50%. 

With high government spending, increasing wages and rocketing immigration the pressure on inflation indicates interest rates will be higher for longer. We also note that unemployment has moved up slightly while under employment has moved up 6.4%.

Recession

Australian investors have been waiting for the government to indicate what they intend to do about high inflation, high debt and interest rates.  Under the cover of the Melbourne Cup, we have our answer.  At least for now.

With high interest rates we expect the chance of a recession has increased. For investors you need to review your positions to not just ride out any recession, but also benefit from it.

We cannot time market falls or recoveries, but we can prepare for them. During a recession period we need to be more active and act quickly and decisively.

Preparation tips for a recession:

  1. Move overweight cash, to ensure that you do not need to sell undervalued assets to cover your living expenses during this time.
  2. Review your holdings, reduce exposure to growth and speculative companies and increase exposure to value businesses. Focus on the top 50 companies. 
  3. Increase exposure to Fixed Interest, term deposits are paying close to 5% which is a good place to park funds while waiting for a recession.
  4. Take advantage of companies oversold by panic sellers.
  5. Reduce your exposure to geared investment and margin loans.
  6. Look for long term returns and upside as recession slows.

Portfolio Valuations

During a recession it is easy to focus on the drop in the value of your portfolio.  There are always times when the market is overvalued and undervalued.  What is important is the value of each company you own in your portfolio and how that investment will recover.

Companies are valued on the profits, so expect that price to reduce but they will bounce back once profits pick up again. It is a time to buy a bargain and to take a long-time view.

We are reviewing companies in our clients’ portfolios and will update clients on which companies they may want to reduce or increase their weighting too.

If you have any questions, please contact our office.

Grow Your Wealth Pty Ltd

AFSL 403509

51 Thuringowa Drive

Kirwan  QLD  4817

Phone: (07) 4771 4577

Email:   [email protected]

Jason Fittler: [email protected]

Jane Fittler: [email protected]

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November 8, 2023

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