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The TRUMP-ET has sounded for the Boom-Bubble-Bust Cycle

Written on the 16 November 2016 by James Cagney

INTRODUCTION

Last week I discussed the surprise result of the USA elections. Donald Trump as presidential elect and briefly mentioned what it means to Australians and the rest of the world. To access this article click >>> BUST. As discussed most political commentators predicted Hillary Clinton would win but I like  what Greg Canavan of The Daily Reckoning said:  "After the events of last week, I'm sure you would agree that dart-throwing monkeys would have had a better chance of predicting the election than most of the political pundits out there."

One thing we can't deny is that Trump is very smart when it comes to making money through real estate and he has a good understanding of  the USA economy. He is an exceptional entrepreneur and business leader who knows how to employ the skills of the best in the business to help him achieve his goals. 

Dr Shane Oliver who is head of investment strategy and chief economist at AMP Capital has this to say:

"While Trump's victory will come as a bit of a shock to many, there is a good chance that economic realities and the checks and balances provided by Congress will see his policies become more pragmatic. It was healthy to see that Trump's election night speech was conciliatory and a good initial guide will be reflected in the advisers he appoints.

"Remember there was much concern that a "yes" Brexit vote would be a disaster for shares and the global economy. What actually happened was an initial knee-jerk sell-off but after a few days global markets moved on to focus on other things and shares rallied. So there is a danger in making too much of the US election. It's also worth noting that recent global growth indicators have been improving. Business conditions surveys and profit indicators along with continuing ultra-easy global monetary policy, provides support for investment markets in the face of short-term political uncertainties".

The debate now is who will Trump appoint as his advisers. Unfortunately for all of us Trump is a very loyal person to his friends and associates and he will probably make some mistakes with his cabinet. However, he will have no option but to get the right people around him because he knows that he does not have the experience and skill to single-handily run the largest economy of the most influential super power.

In the meantime let's take advantage of the short reprieve we have to get our finances in order before the BUST in the Boom-Bubble-Bust Cycle. Even Trump has admitted it's coming and that was not easy for a person who sells expensive apartments and builds top class hotels. This is what Donald Trump said earlier this year on Good Morning America:  'We're in a bubble - and, frankly, if there's going to be a bubble popping, I hope they pop before I become president, because I don't want to inherit all this stuff. I'd rather it be the day before rather than the day after, I will tell you that." Donald Trump, president elect of the USA.

So Trump is well aware of the BOOM-BUBBLE-BUST Cycle and he know that the "Bubble" is about to pop and that the BUST is coming to the USA. Research has shown that between 6 to 12 months Australia follows suit. However, we live in this global village where news, polls and research is so quickly and freely available and  I recommend you work towards the BUST coming to Australia around 6 months after the USA BUST.

Most economic commentators agree that there will be big changes in the USA  under Trump's presidency which will have global significance. Many investors took advantage of the volatility in global financial markets over the last week and have made money as the share markets around the globe moved into positive territory after the news of Trump's victory.  However, today on the 16th November the Dow declined by 0.4% and the NASDAQ declined by 0.2%. There is plenty of opinions out there what will happen next. As I wrote in my article last weeks I work hard for my money and I prefer to put my money into sustainable long term investments like residential property and not speculate and gamble on the next whim in the market place. To access this article click >>> BUST .

THE RISE OF NATIONALISM AND THE END OF GLOBALIZATION

Harry Dent who is an expert on  BOOM-BUBBLE-BUST Cycles has this to say about this:

"From all the evidence popping up the world over, I call this second great globalization boom over. We'll see separatist, trade protectionist and anti-immigrant policies around the world adopted at alarming rates. Walls and fences on national borders have already been going up exponentially since 2000. We'll see many more Brexits, including in the U.S. (a "rednexit" because the red states have made their voices heard). Countries and regions are going to have to realign around common ethnic, religious, political and financial roots before globalization can advance again.

The Greek bailouts were the first shot across the bow of the second surge in global interconnectedness, and the Eurozone's huge disparities in income and competitiveness have threatened to tear it apart ever since. The demise and/or a major restructuring of the euro and Eurozone is inevitable in the years ahead.

And the Scottish and the Catalonians in Spain may be next to exit. Italy and other countries may have to exit the euro when they don't receive the bailouts Greece did. And then Quebec could finally exit from Canada, and so on.

Like Brexit, Trump staged a surprising win last week, proving every poll wrong. This is a sign of an underlying trend more massive than the winter economic season that began in 2008. It's clear evidence of the end of globalization (at least for now). And that's an important point to take away from the election and from Brexit.

People are angry. They're discontent. They're sick and tired of how small the world has become and they're ready to revolt. This brings us to the heart of my 250-Year Revolution Cycle.

The very success of globalization, which has flourished since World War II, has taken us to the point where it's put very different factions at each other's throats (I'm talking globally AND locally). It's become a case of domestic workers versus foreign workers and immigrants the affluent versus the middle class and poor Sunni versus Shia and other religious divides; the young versus the rapidly growing burdens of the aging and big government versus individual freedom. And, most potent in the U.S., the red versus the blue states!" .

Harry Dent has the amazing ability to predict BOOM-BUBBLE-BUST periods because he studies the cycles. It is based on sound research and he has no wheelbarrow to push like CEO's of big banks, retail stores and commerce who talk up the economy so they can make a profit for shareholders and earn their large pay cheques and bonuses. Harry Dent knows what he is talking about and the prudent investor will take his advice.

HAVE A MEDIUM TO LONG TERM STRATEGY

A summary of what Andrew Zbik, senior financial planner with Omniwealth advice is below:

"In the wake of the election of Donald Trump as president of the United States, what should Australian investors consider?

1. Prepare for an inflationary environment.

Donald Trump's main policies of tax cuts, increased infrastructure spending and protectionism are a cocktail that will likely see inflation rise in the US, which will drive global inflation, pushing up the price of goods and services.

2. It's a good time to consider starting to fix interest rates.

Rising inflation is likely to result in rising interests rates. We still have to see if a President Trump is dogmatic in trying to implement his agenda or whether he will be pragmatic. This may cause some short-term market volatility and if that continues there may be a case for another interest rate cut locally.

However, the odds are pointing to rising interest rates to counter inflation So now is a good time to consider fixing interest rates on your loans.
First, you need to determine what percentage of your loans should have a fixed rate. I never recommend a fixed rate on all debt. Look at your free cash flow and determine how much debt you could pay down over the time period for which you are considering fixing the rate.

I then generally add a 20% margin to this amount and leave this portion under a variable interest rate. There is nothing worse than having the capacity to pay down debt but being restricted by the fact that your debt has a fixed rate. The penalties for breaking a fixed-rate loan can be high.
The portion of debt that you see you cannot pay off within a set period of time can be fixed. Any investment debt should be placed under a fixed rate ahead of non-deductible debt such as a home mortgage.

For example, let's say a couple have $400,000 of home loan debt and $350,000 of debt used for an investment property. Over the next five years they feel it is achievable to save $20,000 a year to make additional repayments to reduce their mortgage. Thus they would keep $120,000 (including the 20% margin) of the home loan as a variable loan. At this stage they may hold off on fixing the $280,000 of home loan debt, but fixing all of the investment property debt now makes sense as this is tax deductible. They would focus on paying down the mortgage before any investment debt is paid down.

3. Don't be afraid of using market volatility to top up your investment portfolio.

Warren Buffet, one of the most successful share investors of all time, famously said, "Be fearful when others are greedy. Be greedy when others are fearful." I'm not advocating spending all your spare cash now by buying shares. However, when the market drops in volatile times we need to stand back and look at the broader fundamentals. The US and Australian economies are performing well. The result of the presidential election is not going to have major impacts on the finance, tourism, mining and mineral, health care and agricultural sectors in Australia.

The average capital growth of Australian shares has been around 4.5%pa. If your investment time frame for deploying cash is beyond five years, now may be a good time to top-up your share portfolio given the good dividend yield from Australian shares relative to the risk of buying a diversified basket of shares through an ETF."

Andrew Zbik concluded "Remember Brexit in the middle of this year? The share market immediately reacted negatively to the news of the UK deciding to leave Europe. But once the dust settled global share markets quickly recovered within the next month."

The political pendulum is always swinging. Bad news and fear sell newspapers (or gain clicks online). The global economy is a complex array of relationships between governments, corporations and individuals. Change will not happen quickly from an event such as an unexpected win from an underdog presidential candidate.

We see changes ahead with inflation, interest rates and market volatility that are somewhat, but not entirely, influenced by the election outcome. Planning your financial strategy is always about reviewing the current economic, social and political environment.

The three strategies of preparing for an inflationary environment with increasing interest rates and market volatility will help to ensure smart management of cash flow and positioning yourself to create wealth over the medium to long term."

Andrew Zbik is a forward thinker and you would be wise to follow his advice. James Cagney is a credit representative of Asset Finance Pty Ltd. He can offer you advice on what loans will be best for your individual circumstances. To see more about what Asset Finance can do for you call James on 0416 137 645 or click >>> HERE

MINING - LAZARUS RISING FROM THE DEAD

Kris Sayce, Publisher, The Daily Reckoning said:

"Since the beginning of 2016, the ASX 300 Metals and Mining Index has outperformed the ASX 200 by a factor of 23-to-1. That's bonkers!

Let me remind you: These stocks were largely given up for dead by investors just four years ago. They were abandoned after the mining boom fizzled out. Zipped into body bags. Investors pulled up stumps and took their cash elsewhere.

But this year, there's a different feel to the sector. Several of these stocks have, without warning, sprung back into life.Something's going on (Here's one really interesting theory that could explain it and no, it's not a new mining boom...or the 'Trump Effect'.)."

That is really good news for many mining towns and regional centres in Australia who have been in depression for the last few years. Yes most Australians' shudder when they hear the word "Depression" . We would rather not admit that many regional areas are in depression.  Recent research released by the Australian Council of Social Services has shown that there are more than 730,000 children and 3 million people  in Australia who live below the poverty line. This is described by the media as a national disgrace but it is not comfortable news for the people living in plush suburbs in and around our capital cities. They would rather ignore this and pretend that all is well in the "lucky country".  Many of the middle class and wealthy in Australia say that the dole is available for the unemployed. However, for many of the poor do not own homes and pay  rent and once they have paid the rent the is very little left over for food and utilities.

THE REAL ESTATE MARKET IN AUSTRALIA

LJ Hooker's Head of Research, Mathew Tiller, said:

"Nearly all parts of the Australian economy are intrinsically linked to the performance of the US; our equity markets take their direction from the US, and the Australian dollar is impacted by the strength of the US economy.  Its therefore important that there is confidence in the future policy direction of the US government and that of the president," said Tiller.

Tiller pointed out that the US is a major investor in Australian property. The latest FIRB annual report showed that in 2014/15, investment from the US into Australia was $25 billion, of which, 28%, or $7.1 billion, was directed into real estate."

Tiller indicated that any increase in sovereign risk in the US, could see global property investors turn to other countries, such as Australia, for safe-haven investments.

CONCLUSION

Australians' need to get their house in order to prepare for the inevitable BUST in the Boom-Bubble-Bust Cycle. It is pointless putting on the blinkers because the Sydney and Melbourne real estate market continues to increase in value. People say "Everybody has been saying that for years, it won't happen".

Property follows cycles and cycles are controlled by supply and demand. Take note of what is happening to the unit market in Sydney and Melbourne - a huge oversupply. Now think about it: - If unit prices are about to be smashed, rents are going to decline and banks are going to pull in mortgage lending across the board - what is going to happen to the housing market? It's next in line.

Housing across Australia is a sitting duck. Banks are going to lose hundreds of millions of dollars as Developers and builders go to the wall because people will not be able to settle on their properties.Prospective home owners and investors will end up with half completed houses and apartments. That is exactly what happened in Australia in 2008. And it's about to happen all over again. We need to have the courage to face the truth - no matter how unpleasant it may sound.

We hope that the current mining recovery continues for the sake of the locals that live in these areas who cannot sell their homes or find jobs.For those in Australia who are more fortunate please donate to charities that offer support to these communities like the Salvation Army, the Exodus Foundation (run by the Rev. Bill Crewes) and Mission Australia . The universal law of "The more you give the more you get back" does not only mean financial gain if you generously give. It means health and prosperity  in all ares of your life. Many of the rich use this principle and they are getting more prosperous. Give it a try you will be amazed at the result.

If you are one of those who lives in these depressed areas and you are doing it tough take note of what Mike Todd said " I've never been poor, only broke. Being poor is a frame of mind. Being broke is a temporary condition".

Be prepared, do your research before investing in property or any other asset class. That does not mean you should not take action because there will be opportunities to snap up bargains over the next few years. Napoleon Hill, the author of "Think and Grow Rich" said "Be willing to risk failure to succeed" . Take calculated risks because there will be money to be made in the next few years.

James Cagney is a licensed real estate agent, and a credit representative with Asset Finance Pty Ltd. James is a member of the Property Investment Professionals of Australia (PIPA) and is bound by their strict Code of Ethics in his business dealings with clients. James is an experienced  real estate investor as well and if you would like sound professional advice on real estate and / or your mortgage please give him a call on 0416 137 645 or click >>> HERE

James Cagney and his team visit people in the comfort of their home around Australia and discuss a feasible framework for decision making. This is a FREE consultation with no obligation on your part. However, if what we say does makes sense to you then become a client.  Call James on 0416 137 645 or click >>> HERE to make an appointment.

DISCLAIMER

This is not financial advice. You should not act solely on the basis of the material contained in this Property Update for your investment strategies. Changes in government and legislation occur frequently and without prior notice and financial markets are unpredictable.
Please note that the information herein is of a general nature only and is not intended as specific advice for any particular person or entity.

This information was written and compiled by James Cagney.  The opinions expressed herein do not necessarily represent the views and opinions of his associates including
Asset Finance Pty Ltd.

 


 


Author: James Cagney
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