Westpac’s Bill Evans predicts that the RBA will cut the cash rate to as low as 0.75%.
Cutting rates, especially from this low a base, is not a bullish sign. It will warn of RBA concern at the pace that the economy is contracting. Central banks are data-driven. They do not anticipate recessions, they react to them.
My own thoughts:
- The RBA needs to keep its powder dry. We are likely to face a severe contraction when China goes into recession because of the trade war.
- Household debt is still dangerously high and is impacting on economic growth.
- The bubble in housing prices threatens our already under-capitalized banks.
- Tax cuts will provide some stimulus but it’s time for Scott Morrison to step up to the plate and spend big on infrastructure.
- Infrastructure spending must be directed towards productive assets, else you end up with fiscal debt and no assets/income to service it.
- Australia needs to abandon its houses and holes strategy and build a multi-faceted economy with a strong emphasis on technology and services.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.