According to the Fujitsu/JPMorgan Australian Mortgage Industry Report released this week close to 25% of Australian home owners had to reduce their spending to meet mortgage payments after last year's interest rate rises. This means that we are potentially seeing the end of the current 15 years of economic boom. The reason why I say this, is because that this statistic has grown from 2% in just on a year. Now, less spending means less demand which flows through to less demand for employment. This then mean less wages growth which means less extra money to pay for the ever increasing cost of debt. If interest rates go up again next Wednesday as predicted, even more strain will be placed on the 8 million mortgage holders in Australia meaning that the 25% could rise to anywhere near the 50% mark before the years out. This is a potentially frightening outcome as it will hit the heartland of Australia. Sure inflation will be under control but perhaps we may be seeing the signs of the beginning of the end of the 16 year economic boom.
Now, how can I say that when we are constantly seeing record company profits and economic statistics such as the Westpac Consumer Confidence Index are showing us that things are all fine and dandy? Well, let me tell you that you need to scratch a little further beneath the surface to see the real signs.
The dark clouds are gathering
Over the past 10 months I have been studying the headlines in the newspapers from around Australia and the US. Here I've noticed a very interesting trend that despite all the good news a darker picture about the economic world is beginning to surround us. To give you just a taste of what I've seen, here are just some of the headlines that have been somewhat overshadowed by the big bold huge profit announcements or takeover offer headlines: "Aussie Shoppers Spend $23.7billion in December". "Aussies Saving Less as Debt Increases", "Housing Uncertainity Reigns", "Drought and Rates Put Handbrake on Demand", "Foreign Debt Rises as Economy Loses Steam". 'The Great Fall of China", "US Housing Falls" and so on. See what I mean? All you need to do is look between the beefed up headlines and you will start to see a real under current of a slowdown beginging to take shape. This is how most economic cycles come to a soft landing - most of us don't see it until it's too late.
Learn to read the signs!
Speaking of signs. Just look at the US for example. Its overall economy is weakening, its dollar is plummeting, the sharemarket is on a rollercoaster ride and its underlying housing industry is almost on its knees. China on the other hand is still on a high but we all saw a few weeks back what sort of damage a very small hiccup can do to world markets (and that was only a rumour!). Look, I'm not suggesting that the world is about to end, nor are we about to fall into the deep depths of a recession, but more importantly, I'm writing this newsletter to get you to do some real thinking about the REAL state of your financial affairs. In fact, I want you to truthfully answer the question - Are you really OK financially?
Don't be a by-stander
Are you one of the 25% who are tightening their belts as we speak or are you the part of the other 75% who are getting a bit nervous about the future? Alternatively are you a prospective home buyer that is a bit confused about what to do? Or do you have a voracious appeptite for spending and as a result your credit card is out of control? Alternatively are you cashed up and looking to perhaps take advantage of the posible slowdown with some smart investing? Now if you answered Yes to any one of the above can I suggest that you do something about it now. Don't be a by stander and watch all the events unfold in front of you and then wish you had done something.
If things are not looking that rosy for you - It's time YOU did something
