Reasons to be Cheerful: 1, 2, 3…

If you’ve come to this article for yet another whinge-fest about everything that is wrong with the entire world… I’m sorry, you’ve come to the wrong place! Lord knows there’s too much of that doing the rounds already (and jeepers, as a Pom, I thought I’d heard it all back in the Old Dart). Ahh, you know what I’m talking about:

Interest rates are too low! Interest rates are too high! Unemployment might go to 20%! OK, then 15%! Well, it could hit 6%. And what about the pensioners? What about the savers? And won’t someone please think of the children! House prices are going to plummet by 20% in 2012! House prices are going up in 2013 – it’s another bubble! US share prices are up by 120%, it’s obscene! Share prices are down 2%…we’re all doomed! The world might change and I don’t like change! The world might stay the same… I don’t like that either!

It’s utterly exhausting just listening to it all (if you bother to listen, that is).

Gone are the days when the Reserve Bank could trot out a couple of one-liners on inflation with barely a comment from anything approaching the flotilla of deadwood that passes for online commentary today. The internet has brought many great things to the world but improved finance reporting is not one of them.

Instead, we’re now lumbered with an armada of online pundits who ‘got interested’ in finance in the last year or two and are somehow more familiar with the intricacies of how a Central Bank should operate than our own RBA’s board. Incredible! Personally I reckon the old dog Stevens has learned a thing or two in his dozen years as Guv and Assistant Guv, so I’ll probably listen to him, if it’s all the same.

Here’s a heads up: the one constant in the world is change, and change brings opportunities. So, we only really have two choices: we can either whinge about the changes that will inevitably occur or we can see them as opportunities and get on with life. In fact, that is the mark of every great investor who has ever lived.

With a nod to Ian Drury (and the Blockheads), here are a few reasons to be cheerful: 1, 2, 3…

1. Global Economies Recovering

ECB’s honcho Mario Draghi confidently stated that “the Eurozone is through the worst.” In Britain, UK industrial production crunched June forecasts, economic growth is forecast to return to 2.5 per cent and the housing market is starting to fire up again. Bloomberg reports that orders are up to recent highs in Germany signalling that a recovery is well underway, while contraction in Italy slowed.

Meanwhile, unemployment continues to fall in the US towards its target and the housing market is rising in 87 per cent of cities. As the US stock valuations have more than doubled in just a few years, our own share markets have been on a tremendous run, adding around 20 per cent in value in just one year, increasing Australian household wealth to all-time record highs – the highest level of personal wealth in the world!

2. China is Booming

The Reserve Bank believes that exports will ramp up and see stronger economic growth return to Australia. And the huge volume ramp ups being reported in quarterly production report releases from the majors make it look very much to me as though they’ll be right. Interest rates have been cut to stimulate the rest of the economy, but in the meantime look at that green line go:

 

 

 

 

 

 

 

 

 

 

 

 

Will we drop off a mining investment cliff? Maybe. But from anecdotal evidence there might be a surprisingly high level of capital expenditure in the pipeline, even if it is kicked along a bit by the less-than-ideal combination of inefficiencies and overruns. Of course, we might get a terms of trade shock – and if we do, interest rates will head lower still and so will the dollar.

As for China, the predictions of growth falling away were thrown into disarray this week when a stonking set of trade figures was reported, suggesting that the targeted 7.5 per cent growth might yet be achieved. Meanwhile the July data from ANZ was just mind-boggling reading: industrial production growth and retail sales are just flying, right across the board. Great news for Australia, which is ideally positioned to capitalise on this once-in-a-generation boom with its mineral exports.

3. No Aussie Recessions for More Than Two Decades

It’s more than two decades since we had a recession in Australia. And in the best forecasts of the RBA, that looks set to continue. As for the forecast inevitable housing bust, prices are up since their trough in Sydney (+10 per cent), Perth (+11 per cent) and Melbourne (+8 per cent), while moderate gains are also being recorded in Canberra, Adelaide and Brisbane. Darwin has also jumped to record highs. Great news all round for homeowners and property speculators across Australia.