Jacque's Post Archives

July 10, 2023

Jacque's Post

July 10, 2023

Good afternoon,

Did anyone get the memo that the market would fall 500 and then rally hard after the Fed statement?

John didn’t and neither did I.

What a short covering event it was!

And did you see what Gold did? Straight up and then back down again.

Even with the Nasdaq rallying hard, the consensus is that it is still not a good time to be buying stocks.

Dan Niles, hedge fund manager of the Satori Fund, said he expects stock markets to fall by the middle of this year as the Federal Reserve opts to keep interest rates higher for longer. On Thursday, he told CNBC that there was a disconnect between market expectations and the U.S. central bank’s messaging.

Jerome Powell said he doesn’t expect to cut interest rates this year. However, interest rate swap data shows that a significant proportion of the market expects a cut in the base rate by the middle of this year.

Niles believes that when we get to mid-year, and it becomes obvious that the Fed is not going to be cutting rates, a realization is going to hit that the Fed is not going to help you out like people want.

Niles expects the S&P to fall to 3,000, 25% below its current level.

Elon Musk and Twitter

According to the Financial Times, Musk is planning to build a fiat payment system that could allow for crypto functionality later. Musk wants Twitter to be the “everything” app where the platform offers fintech services, like peer-to-peer transactions, savings accounts, and even debit cards.

Within a short amount of time, it is likely that Musk will run “Siri” out of town. Instead of talking to her on our phones about the weather, etc, we will converse with her cousin who will be organising our days and keeping us on track. The future is happening fast…

Have a great weekend.

Take care.

Cheers,

Jacque

July 7, 2023

Jacque's Post

(HAWAII LUNCHEON REPORT)

July 7, 2023

Hello everyone,

Throughout the week I was there, the weather was awful. Wind, rain, and mostly overcast skies. However, the change of scenery and pace was very welcome.

John’s lunch was on Friday.

Seven of us were there including John. Topics of discussion were varied, and they included:

Ukraine and Russian conflict
Alternative energy and its effect on the economy
Covid and its effect on the economy

Ukraine and Russian conflict

John believes the conflict will be hard fought, but Ukraine will eventually triumph. Sanctions have eaten into Russia’s economy, but Russian people are used to doing it tough and they believe that Putin is doing the right thing. However, many young people have left the county for fear of being drafted into a war where soldiers are used as cannon fodder. It seems most are completely untrained. Russia is already looking to North Korea and Syria for assistance in providing weaponry, etc. The U.S.is supplying tanks, missiles, etc as is Germany and several other countries. Factories in the U.S. are working overtime to keep up the production of armaments.

Alternative energy and its effect on the economy

Solar is going to be the future. It will be cost-efficient and readily available. It will be an added benefit for businesses as it will reduce costs. It will open the possibility of developing solar energy businesses in remote geographical locations. It’s all about acquiring land and thinking about what’s possible 10 years from now.

Covid and its effect on the economy

This pandemic stopped businesses paying slave labour wages, particularly in hospitality. Nobody is going to work again for those wages, so many restaurants won’t open for lunch again, because they just cannot get the staff.

In hotels, there are no China cups anymore, only paper cups. There is no room service. You wear a bracelet on your arm to enter your room. Many services have been discontinued.

Many airline staff have never returned to their job since the pandemic. Or they have returned briefly only to put up with some obnoxious behaviour from airline customers, which quickly depleted the airline staff as many sought early retirements.

In the U.S., there are hiring signs in business windows everywhere. If they don’t let some of the Mexicans across the border to live and work in the U.S., those signs will stay there.

The pandemic forced everyone online and this is the way many of us will continue to do business. Many staff left their company as conflicts arose over vaccines and these people have carved out new businesses online and are working for themselves. Many people died and many took early retirement.

The effects of covid on the economy are still being worked out and analysed. We still have another two to three years of covid effects to work through.

The market is messy. Volatile this year due to inflation and post-pandemic factors. Gold will likely rise and the U.S.$ will fall. Two favourite stock picks would be Tesla (TSLA) and Nvidia (NVDA). And remember only buy them on dips.

Have a great week.

Cheers,

Jacque

“A life spent making mistakes is not only more honourable, but more useful than life spent doing nothing.”

July 5, 2023

Jacque's Post

(INVESTING IN A S&P 500 INDEX FUND COULD BE A SMART MOVE)

Friday, July 5, 2023

Hello everyone,

Warren Buffett is a big fan of S&P 500 Index Funds, so maybe you should consider squirreling away some of that hard-earned cash into one of those funds. As Buffett says, it’s a way for investors to mitigate the risks that come with choosing individual stocks.

By investing in this product, you are essentially buying all the big companies through the S&P500. If you do it consistently and average in, you will end up with a very good investment.

The S&P500 is a market index that tracks the stock performance of around 500 large-company U.S. stocks, including Amazon, Google parent company Alphabet, Meta, and Visa.

While the index is not immune to overall market downturns, long-term investors have historically earned a nearly 10% average annual return. However, as with all investments, it is important to note that past performance can’t be used to predict future results.

Here’s how much you’d have now if you’d invested $1000 in the S&P500 about one, five, and 10 years ago:

$1000 a year ago would be worth $942 as of April 20.

$1000 five years ago would be worth $1,689 as of April 20.

$1000 10 years ago would have more than tripled to $3,217 as of April 20.

Choosing to buy an S&P 500 index mutual fund or exchange traded fund (ETF) gives you exposure to the index’s underlying stocks.

It’s less risky than owing individual shares. Not as many severe drawdowns.

As index funds are considered passive strategies, they tend to be low-cost investments. Index funds track a benchmark performance and therefore don’t employ a manager to run the fund, as is the case with “active” strategies.

As a result, the average passive fund charges an annual fee of 0.12%, compared with a 0.60% average fee among active funds, according to data from Morningstar.

Of course, the sooner you start investing the better. The power of compounding will work for you and reward you handsomely.

Wishing you all a wonderful weekend.

Stay healthy and take care.

Cheers,

Jacque

July 3, 2023

Jacque's Post

Retire Well by Reading These Books.

July 3, 2023

Hello everyone,

Reading books about money &/or the markets or listening to them via Audible can have a profound effect on your lifestyle & how comfortable you will be in retirement. Provided, of course, you make some changes, and take action.

So, here is a list of books I recommend you pick up and read. Even if you get one small piece of advice from each book, that could be worth its weight in gold.

Enjoy!

1. “The Millionaire Next Door: Surprising Secrets of America’s Wealthy”

By Dr. Thomas Stanley

The late Thomas Stanley collected years of data about millionaire lifestyles. He found that they don’t all inherit their wealth or own mansions. Instead, they live modestly while accumulating their wealth.

This book was originally published in 1996, but the basic money principles can still be applied today.

2. “The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich”

By David Bach

Millionaires don’t spend hours managing their money; they use automated systems that make the wealth-building process easy and repeatable.

From a company-sponsored 401(k) to automatic deposits into a savings account, you’ll learn how to turn your financial life into a well-oiled machine.

3. “Brain Makeover: A Weekly Guide to a Happier, Healthier and More Abundant Life”

By Phyllis Ginsberg

Our brain mainly runs on autopilot, but there are ways to retrain your brain for lasting changes that can help you feel happier in just one week.

The book breaks down the components of happiness and stress, then offers weekly exercises to help you build new neural pathways for a more joyful and purposeful life.

4. “Just Keep Buying: Proven Ways to Save Money and Build Your Wealth”

By Nick Maggiulli

Popular finance blogger Nick Maggiulli dives into the two main principles of building wealth — saving and investing — and crunches numbers to give practical advice for any type of investor in any type of market.

This book is a good reminder that you don’t need to be a math genius or even lucky to get rich in the market.

5. “I Will Teach You To Be Rich: No Guilt. No Excuses. No BS. Just a 6-Week Program That Works”

By Ramit Sethi

The second edition of Ramit Sethi’s popular book “I Will Teach You To Be Rich” challenges traditional finance advice.

For example, many experts recommend brewing your coffee at home to save money, but not Sethi. In fact, he teaches readers to uncover their “rich life” by spending lavishly on things they care about while cutting back on what doesn’t matter.

(I especially liked his script for talking your way out of late fees. That alone could be worth the price of the book.)

6. “Stop Overthinking: 23 Techniques to Relieve Stress, Stop Negative Spirals, Declutter Your Mind, and Focus on the Present”

By Nick Trenton

Overthinking can have devastating effects on your mental health, and this book shows you how to escape your own mental prison.

You’ll learn to identify when you are overthinking and use relaxation techniques. Even those who live a relatively stress-free life could benefit by giving this a read.

7. “The Psychology of Money: Timeless Lessons on Wealth, Greed and Happiness”

By Morgan Housel

If paying off your mortgage early makes it easier to sleep at night, it’s a great decision, even though it might not make sense mathematically.

Making good money choices is equal parts math and psychology. Money expert Morgan Housel explores the psychological side of finance in a clever and non-judgmental way.

8. “Your Money or Your Life: 9 Steps to Transforming Your Relationship With Money and Achieving Financial Independence”

By Vicki Robin and Joe Dominguez

This book explores the uncomfortable idea that many of us work ourselves to death. We work 40 hours a week for decades and hope to have 10 quality years of retirement.

The authors flip that script by challenging you to think: How much of my life am I giving up to drive that expensive car or live in the big house on the hill? When is enough enough?

Wishing you all a great week.

Cheers,

Jacque

"We may encounter many defeats, but we must not be defeated." - Maya Angelou

Jacquie's Post Trade Alert - (OXY) July 3, 2023 - BUY

Jacque's Post

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

June 30, 2023

Jacque's Post

(COULD OIL PRICES DOUBLE FROM HERE?)

June 30, 2023

Hello everyone,

Let’s talk about oil and oil prices and what stocks could be a great buy.

It’s a distinct possibility that oil prices could soar in the next couple of years.

And why is that you ask?

It all comes back to inflation potentially being a sticky problem. It may stay at an elevated rate longer than anticipated.

It seems that there are too many people -who are cashed up – going after fewer goods.
If you are a business now in the U.S. and you want to hire unskilled labour, the price seems to keep rising – about 5-10% every six months.

OPEC, earlier this week, suggested demand would be strong well into the future. The group expects oil demand to hit 110 million barrels a day in about 20 years pushing the world’s energy demand up by 23%.

Bill Smead, who is the CEO of Smead Capital Management expects crude prices to rise to between $150 to $200 a barrel over the next three to five years. That’s an increase of between 100% and $170% from Tuesday’s Brent crude price of around $74 per barrel.

Another portfolio manager, Eric Nuttall of Ninepoint Partners, also sees bullish moves ahead for oil. Nuttall believes we have seen the lows for the year after Saudi Arabia announced voluntary production cuts.

Of course, much will depend on China’s economic performance in the second half of the year, and the ability of the U.S. and Europe to avoid an economic slowdown amid rate hikes.

Even allowing for all of this, research firm Rystad Energy believes upside pressure will materialize soon.

So, how do we as investors capture this move?

Occidental Petroleum would definitely be on my list as it plans to capture and store carbon dioxide. And this carbon capture business could be as big for Occidental Petroleum (OXY) as the cloud business AWS has been for Amazon (AMZN).

And another reason to buy OXY is John mentioned it in his last webinar as a LEAPS candidate.

Daily chart

Weekly chart

Nuttall names Cenovus Energy as another stock that will do well in the long term. He notes that this company has a high free cash flow yield of 12-18%. Furthermore, Nuttall expects Cenovus to hit its last debt target by the year-end, pivoting toward 100% of free cash flow returned to shareholders.

Daily chart

Weekly chart

Some housekeeping:

I’ll be leaving for the U.K. this weekend for a summer break.

I will be sending posts from the past that most of you have probably not yet read.

I will be back on deck in late July after a good rest.

Maybe I will catch you on Zoom this Friday (U.S. time) before I leave?

All the very best for the summer.

Cheers,

Jacquie

June 28, 2023

Jacque's Post

(FURTHER UPSIDE IN TECH IN THE SECOND HALF OF THE YEAR)

June 28, 2023

Hello everyone,

With all the talk about recession, everyone is now wringing their hands anxiously and moving a lot of their funds to cash.

I know cash is a position too. But long term it is not a great place to leave your funds.

Although the return on the cash is attractive now, returns from stocks far outweigh cash in the long run.

Try not to get caught up in the day-to-day movements of the market. It will make your head spin.

And remember, this time of year the market usually takes a rest – just like a lot of people do. So, don’t be surprised if you see a sell-off or consolidation movement.

The second half of 2023 is likely to see a broadening of the tech rally as investors consider the consequences of the $800 billion AI spending wave on the horizon and what it means for the software, chip, hardware, and tech ecosystem over the next year.

We could see tech stocks up in the second half by 10%-15%. The Technology Select SPDR and the Communication Services Select SPDR, which contain most of the AI plays, are up more than 30% in the first half of the year so far.

Favourites going into the second half would have to be Microsoft and Nvidia, which are up 40% and 189%, respectively, so far this year.

From 2024 onwards, the AI boom really kicks in.

In 2024, it is estimated that AI IT budgets could comprise up to 8% - 10% as opposed to 1% in 2023.

Also worth considering are Salesforce and C3.ai.

Have a great week.

Cheers,

Jacquie

June 26, 2023

Jacque's Post

(JUNE 21, 2023 WEBINAR SUMMARY)

June 26, 2023

Hello everyone,

Hope you all had a great weekend.

This Post will summarize John’s most recent Webinar, which was last Wednesday, June 21, 2023.

Firstly, John issued an Emergency Geopolitical alert on Saturday, June 24 about a possible coup underway in Russia. The Wagner Group is marching on Moscow with the intent of overthrowing the government. John said that Putin took off in a plane which then disappeared from radar, meaning he has either been shot down or is flying low to keep his destination secret.

It could mean the end of the Ukraine war.

Nothing to do here as intelligence pours in over the weekend. The U.S. has satellites overhead and human intel on the ground.

Expect market volatility on Monday. The markets are ripe for a black swan induced sell-off.

John will be monitoring the situation closely.

Webinar: The Fed Speaks (June 21, 2023)

Luncheons

July 6, 2023, New York
July 13, 2023, Seminar at Sea
July 19, 2023, London
July 27, 2023, Cortina d’Ampezzo
August 4, 2023, Vienna, Austria

Trade Alert Performance

June 0.47% MTD
2023 year to date +62.52%
+659.61% since inception
40 out of 44 trade alerts are profitable

Method to My Madness

Not much has changed. Lots of money in 90-day T-bills
Looking for a strong second half in stocks.
Expect a big rotation out of cash into industrials, commodities, and energy. Summer will present a great buying opportunity.

We shall wait and see what happens after the dust settles in Russia.

The best time to invest is after a 10% down move in the markets or a sideways consolidation, which is a time correction.

Global Economy – in Flux

Fed leaves rates unchanged at 5.00% - 5.25%.

Inflation plunges to 4.00 YOY. Much more than expected and the 11th consecutive decline.

Possibility of 2 more ¼ point rate rise to come.

ECB hikes interest rates from 3.25% to 3.50%.

Market Timing Index = extreme risk.

Tech stocks are peaking.

Investment in tech is broadening beyond the “Magnificent Seven” to industrials, commodities, and energy.

The Volatility Index hits a 2023 low of $13.50.

NVDA and TSLA hit new 2023 highs.

Airbnb – a good stock to own.

Buy gold on dips – it's sensitive to a decline in interest rates. Silver also.

John advises not to buy Bitcoin.

Instead, he wants everyone to focus on the following:

John Deere (DE) -buy on the next dip.
Caterpillar (CAT) LEAPS candidate
Boeing (BA) buy on the dip.
Freeport McMoran (FCX) buy on the dip.
U.S. Steel (X) – LEAPS candidate
Union Pacific (UNP) – buy on the dip.
Amgen (AMGN) at multi-year lows – LEAPS candidate
Goldman Sachs (GS) buy on the dip.
Morgan Stanley (MS) -buy on the dip.
BlackRock (BLK) buy on the dip.
Berkshire Hathaway (BRKB) buy on the dip.

Bonds

Bonds rally on Fed interest rate decision to one-month high at $103.75.

Keep buying 90-day T-bills now pushing a 5.2% risk-free yield.

Still looking like a 2.50% yield by end of 2023.

Junk bonds JNK and HYG are great high-yield plays (8%)

Still likely to hit $120 by year-end.

Any run to $100 on TLT you should be putting on LEAPS 2 years out.

Foreign Currencies

Dollar dumps on Fed decision of no interest rate rise.

Japanese Yen held back by low-interest rate policy.

Investors flee to safe haven short-term investments.

Economic data is pointing to a recession and 10 months of falling inflation is another indicator of a slowdown.

Dollar strength will be temporary. Look for new dollar lows by end of 2023.

Buy FXE, FXY, FXB, and FXA on dips.

Energy and Commodities

Even with a mild recession crude could lose $20 very quickly.

The Oil collapse is signalling a recession as is weakness in all other commodities. One of the worse performance assets in 2023.

Buy USO on dips as an economic recovery play.

China expects an LNG price spike later this year due to coming supply shortages and a recovering economy.

If you could only buy two stocks, John would recommend Tesla (TSLA) and Nvidia (NVDA). But you need a 10% correction before you do anything.

Mid-cap stocks that will do well. Airbnb (ANBN), Snowflake (SNOW), and Palantir (PLTR).

Buy UNG LEAPS 12/13 call spread 18 months out.

OXY – LEAPS candidate.
FCX – buy LEAPS on dips – target $100.
CCJ – buy on the dip.

Precious Metals

No Fed action to lower interest rates undercuts precious metals.
Interest rates rise in Europe and Australia aren’t helping either.
Gold is headed to $3000 by 2025.
Silver is the better play with a higher beta.
Russia and China stockpiling gold to sidestep international sanctions.
Severe short squeeze in copper developing, leading to a massive price spike later in 2023.

Barrick Gold – buy on the dip.
Newmont – buy on the dip.
SLV, SIL, and WPM – buy on the dip.

Real Estate

U.S. Housing starts to rocket up 21.7% to a 1.63 million annualized rate, the most since 2016.
The structural housing shortage is being felt acutely.
30-year fixed rate mortgage jumps back to 7.0%.
A tidal wave of millennial buyers underneath the market.
Home builder sentiment is up for the 10th straight month as it will be for the next decade.
CCI – bouncing along the bottom.

John will be traveling in July, but still working and monitoring the markets. It’s basically a working holiday for him. John’s next webinar will be in mid-August.

Have a good week.

Cheers,
Jacquie

June 23, 2023

Jacque's Post

(GETTING WEALTHY IS ONE THING; STAYING WEALTHY IS ANOTHER)

Friday, June 23, 2023

Hello everyone,

I thought I would dive into some psychology around money today. In my personal opinion, I don’t think enough emphasis is placed on this area. Most people just focus on their spreadsheet and the numbers – and looking at whether they are in profit or loss. But there is so much more to making and keeping money than just counting the numbers. It really involves your behaviour around money.

Getting wealthy and staying wealthy involve different skills.

Getting wealthy involves taking risks, being optimistic, and putting yourself out there. For instance, you all took a risk subscribing to my product, and some of you are also subscribers to John’s product. But, if you don’t take some risks, you will stay in the same place.

Staying wealthy requires a certain amount of frugality and an element of paranoia. In other words, you need to be wise to the possibility that what you have made in the past ten years or past two years can be taken away from you just as quickly. Furthermore, it also requires acceptance that at least some of what you have made is attributed to luck. In other words, you placed that trade that John or I sent out at just the right time and got a great price and then you closed it at maximum profit. You were in the right place at the right time. What I am trying to highlight here is that you can’t be complacent. It becomes more about survival through all the financial storms that have happened in the past and are arguably ahead of us.

It must be the cornerstone of your strategy. A survival mentality is key with money.

We all must learn to survive the ups and downs we will inevitably experience over time.

So, how do we do this?

Who can we look to and learn from?

Let’s look at Warren Buffett for a moment. There are numerous books written about this man and his strategy on how to invest and become wealthy. But let’s investigate the things that he didn’t do.

He didn’t get carried away with debt.
He didn’t panic during the 14 recessions he lived though.
He didn’t attach himself to just one strategy.
He didn’t limit himself to one worldview.
He didn’t sully his business reputation on one passing trend.
His survival gave him longevity – he didn’t burn himself out and quit and retire.

Warren Buffett and Charlie Munger had another partner when they started Berkshire Hathaway.
His name was Rick Guerin. Unlike Buffett and Munger, Guerin was in a hurry to make money. During the 1973-1974 downturn, Rick was positioned with margin loans, so when the stock market went down almost 70% in two years, he got margin calls. Ultimately, Rick ended up selling his Berkshire stock to Warren at under $40 a piece. He was forced to sell – a position you never want to be in.

Most people would wonder, how could this have happened to him; a person that was so smart with money and was surrounded by great mentors.

It is important to remember that having an edge and surviving are two different things.

The first requires the second.

You must become unbreakable.

Compounding doesn’t rely on earning big returns, merely good returns, sustained, uninterrupted for the longest period of time, especially in times of chaos and havoc. This is the strategy that will always win.

Planning is important – but the most important plan is to plan on the plan, not going according to plan.

Sounds weird, right, but doing this gives you some breathing space.

Financial and investment planning are critical because they let you know whether your current actions are within the realm of reasonable.

But remember, few plans of any kind survive their first encounter with the real world. We’ve all been there, right?

If you are projecting your return, your income over the next 25 years, think about all the big stuff that has happened over the last 25 years, that no one could have foreseen. I’m talking about those “black swans.”

September 11.

A housing boom and bust that caused 10 million Americans to lose their homes.

A financial crisis that caused almost 9 million Americans to lose their jobs.

A record-breaking stock market rally that ensued.

And a Corona Virus that shook the world.

A plan is only useful if it can survive reality.

A future filled with unknowns is everyone’s reality.

So, there should be room for error in everyone’s plan.

And please, turn off the noise of the talking heads on TV. It will manipulate your thinking and psychology about when to invest. The best investment strategy is to buy small parcels often regardless of whether we are heading into recession, are in a recession or there has been some major crisis. The most successful strategy can seem quite boring.

In an annual general Berkshire Hathaway stockholder meeting in 2013, Warren Buffett said that he has owned abut 400-500 stocks over his lifetime but has made most of his money with only about 10 of those stocks which outperformed. Charlie Munger admits that if you removed just a few of Berkshire’s top investments, its long-term track record is pretty average. When we pay attention to role models’ successes, we can overlook that their gains came from a small percentage of their actions. In other words, maybe they are right just as often as you or me.

It's not whether you are right or wrong that’s important, but how much you make when you’re right and how much you lose when you’re wrong. (George Soros)

So, you can be wrong half the time and still make a fortune.

We underestimate how normal it is for a lot of things to fail which causes us to overreact when they do.

I’ll be writing more pieces about the psychology around money because I think it is important to gently nudge you into thinking about your behaviour in relation to investment/trade decisions.

A little bit of housekeeping now:

For those of you who have not filled out this survey about peer tutoring, could you please do so by clicking on the link below? Once I know who would like to participate, I can go ahead and begin grouping people together.

Here is the link to the Survey Page https://www.madhedgefundtrader.com/trader-survey/

Wishing you all a magical weekend.

Cheers,

Jacquie

June 21, 2023

Jacque's Post

(INTEREST RATES IN AUSTRALIA AND THE EUROZONE)

Wednesday, June 21, 2023

Hello everyone,

I hope you all had a wonderful long weekend.

Interest rates rose in the Eurozone and in Australia, but were put on pause in the U.S.

Let’s investigate.

The decision to hike another 25 basis points in Australia brings the cash rate to 4.1%, its highest level in 11 years. And there are more hikes to come to make sure inflation returns to target.

The Reserve Bank of Australia (RBA) currently forecasts headline inflation – which was running at 7% last quarter- to return to the top of its target range of 2-3% by mid-2025, a slower path than many other economies as Lowe wants to preserve strong gains in the labour market.

Mortgage owners have been hit with a 400-basis point hike in the space of a year in what has been hailed as the fastest tightening cycle on record, as inflation stays stubbornly high.

April 2023 has been the only exception, when the RBA briefly paused rates, giving mortgage holders a much-needed reprieve.

Aussies with an average loan size of $577,000 will be spending over $15,000 more per year on their mortgage compared to what they were in April last year.

Lowe has already acknowledged the risks of a more pronounced downturn in the economy, saying the path to “achieving a soft landing remains a narrow one”. The RBA is walking a tight policy rope.

It is thought that the RBA will hike again in July or August to bring rates up to 4.35%. Some of the major banks in Australia are estimating that there won’t be any rate cuts until November 2024. And the banks are also suggesting that mortgage rates could hit 7+% before they start to moderate in late 2024 and into 2025.

Many homeowners bought houses in Australia in the last few years before interest rates surged as there was a firm commitment expressed by the RBA not to raise rates until 2024. Now, many of these people are being forced to sell their homes because they can’t meet the increased costs.

Looking historically at rates from the 1970s onwards in Australia, high interest rates have not been uncommon. Rates exceeded 10% for the first time in 1974 and pretty much remained above 10% until 1995. In just 4 years, interest rates dropped from the high of 17% (January 1990) to the low of 8.75% (June 1994). After a peak of 10.5% in 1995, interest rates reached a low point of 6.5% in December 1998.

Average House prices in Australia increased to $896,000 (AUD) in the first quarter of 2023 from $887,500 in the fourth quarter of 2022.

Australian Fixed Housing Interest Rates

Average house prices in Australia from late 2020 to early 2023

So, what’s happening in Europe? Are they in a better position than Australia?

Last Thursday, the European Central Bank raised eurozone interest rates by a quarter-percentage point to the highest level since 2001 and they have indicated that another hike is likely as they strive to get inflation under control. The hike marks the eighth successive rate rise for the bank showing that they too are struggling to rein in price rises amid quavering economic growth.

The latest increase pushes the ECB’s deposit rate, which is paid on commercial bank deposits, to 3.5% - the highest since 2001. Inflation is expected to average 5.4% in 2023, before dropping to 3% in 2024, according to fresh projections from ECB staff.

The central bank’s rates cover the 19 member economies that make up the eurozone. The latest rate hike marks the sharp shift in economic forces when compared with last summer’s deposit rate of -0.5%.

Last week, revised data showed that the eurozone had slipped into recession as the rising cost of living dampened consumer spending. Economic output shrank by 0.1% in the final quarter of 2022 and the first quarter of 2023, according to official data from Eurostat. A technical recession is generally defined as two consecutive quarters of negative growth. The central bank is “very likely” to raise rates again in July as there is still ground to cover in taming inflation according to Christine Lagarde.

Eurozone inflation rises to 8.6%, the highest ever – The New York Times

Even though the US paused on raising rates last Wednesday, it seems that further rate rises are to come worldwide before peaking next year. When and by how much rates are cut will differ in each country, but the US market appears to be pricing in rate cuts as early as later this year. Let’s see if Mr. Market is correct.

Have a great week.

Cheers,

Jacquie

The president of the European Central Bank, Christine Lagarde, spoke in Frankfurt, Germany last Thursday.