SalDee
12 o’clock on the Investment Clock
Australians will witness the end of the Boom Phase and the Slow Down Phase begins as business confidence begins to fall and consumers stop spending. Investors find little value in either shares or property and with impending trouble on the horizon, fixed-interest securities become very popular again.
1 o’clock
Interest rates are rising. Because property purchases are primarily funded by borrowing, the increased demand for funds is causing the cost of funds or interest rates to rise. The Government recognises that the economy is overheating and introduces measures to enable a “soft landing”, by increasing interest rates to flatten demand by consumers.
2 o’clock
The rapid growth of the property and sharemarket cannot be sustained for more than a few years and eventually the economic slowdown becomes apparent. Interest rates continue to increase until it is no longer viable for purchasers to continue investing in property and soon supply outstrips demand
3 o’clock
The Recessionary Phase marks the peak of a downward swing in the economic cycle. Recessions are characterised by high unemployment, caused by employers shedding staff as production levels fall, cutting profitability and the need for labour. Historically, Australia has entered a period of recession (two quarters of negative growth) every seven to nine years, with our last in the early 1990s.
4 o’clock
The decline into recession has begun. Investors find little horizon in either shares or property and with impending trouble, fixed-interest securities and cash become popular again – cash is king.
5 o’clock
Poor business confidence means that new capital ventures are postponed and initial public offerings (IPOs) become a thing of the past. This is a time where capital harder to secure and banks are not lending.
6 o’clock
This marks the bottom of the economic cycle. Investors are either too scared or cannot afford to borrow money. People try to repay debt, spend less and try to keep their jobs. This is where the Recovery Phase starts.
7 o’clock
The US Federal Reserve and reserve banks around the world begin to cut interest rates to kick-start economies. Because of the falling interest rate, long-term investors see value in the sharemarket and start to accumulate the better-performing shares.
8 o’clock
Companies are forced to become leaner and increase productivity. These measures and the slowly improving economy translate into increased company profits and this gradually stimulates share prices to recover.
9 o’clock
Australia has passed the beginning of the Boom Phase. The seeds of the recovery are sown and eventually share prices will rise as unemployment falls. Overseas reserves are rebuilt and money becomes easier. Subsequently, property again becomes an attractive investment opportunity.
10 o'clock
The improving economy leads to more aggressive market highs. A frenzy of interest and speculation begins, marking the beginning of the end of the Recovery Phase as overseas reserves continue to rise.
11 o’clock
More spending on Government projects and infrastructure is occurring, fuelling employment. Lower interest rates, which by then prevail, prompt businesses to borrow and invest in capital projects. Well before the Investment Clock strikes midnight, wise investors have sold their shares and have begun looking for other opportunities to invest their
cash.
What time on the investment clock?