POST COVID FINANCIAL FALL OUT
As we enter the post covid phase we also have to wear the consequences of the financial fall out from the way that we’ve dealt with things. I don’t think Australia and he US have dealt with things particularly badly. But let’s face it, we’re all in uncharted territory. Both countries (Australia more so) have given out huge amounts in grants to keep business and individuals afloat in this time. But unfortunately there’s a hangover from the covid we’re all going to have to deal with.
POST COVID INFLATION
My Country (Australia) has gone into massive amounts of debt. Since the onset of Covid we’ve potentially doubled the amount we owe as a country. The USA has certainly increased debt but not like we have. For a lot of reasons inflation has been running rampant and sitting at 5% (see previous article) in both countries, which means both countries will have to start controlling their inflation. Unfortunately this means raising interest rates to curb spending to bring prices down.
This is also going to put pressure on the stock market. At the time of writing this the stock markets in both the US and Australia had taken similar 8% percent hits from the record breaking heights that they both reached a couple months ago. It’s worth noting this is only the start of upswing in the interest rates cycle. There could potentially be 4 interest rate hikes in Australia before the end of the year. Regardless of when they come, they are coming. Same with the US. This is going to put a lot more pressure on the stock market in the coming year. Have a look out and monitor it for yourself. I’m going to find a way to buy in as the prices go down so that when things eventually do recover I’ll make some money out of it.
POST COVID CRASH
How big will this crash be? There’s no real way of knowing but let’s look at the facts. There hasn’t been a major correction since the covid first hit in 2019 and the market was sitting at all-time highs before this correction.
Property prices are also at an all-time high. It’s hard to judge the US market from here in Australia, but here, too many are living week to week and up to our eyeballs in mortgage debt. The average price of a house in Australia is now $700,000. This means that if rates go up 1% you could be paying $140 per week (if you haven’t paid much of your loan off) on top of what you we’re already paying. We’ve only had 0.25% rate rises so far so it’s really only $35 a week more now, but I’d be expecting the full $140 at some point soon (maybe a year).
What happens if you’re not saving anything at the moment? If by the time you get your wage, pay your bills and mortgage and you end up broke in a climate where interest rates are at an all-time low, you’re going to be in trouble when they start going up. You either need to work more, pray that you get some hefty pay rises or a better paying job, or severely curb your expenditure (basically living in poverty) or eventually you’ll lose your house.
HOW CAN YOU CASH IN ON THIS?
On the bright side, if you’re not encumbered with crippling debt this is your chance to jump in and find some bargains. Either in the stock market or the property market, either is good. This usually happens every 7 years but there hasn’t really been a huge fall (crash) since the end of 2007 when the GFC started. We’re overdue for one, and I believe this one could be huge.
As with any astute investor you shouldn’t listening to anything I say and acting blindly on it. Look into this yourself and make your own decisions. I believe this has already started but really at the end of the day you have to believe it. You have to decide to take the jump to enter either of these markets. As with anything the potential is there to win or lose. If you win at buying a property and it bounces back from the low price you bought it at, it can be a life changing windfall. Even a good stock win can change your year! Just remember kiddies, don’t invest anything you can’t afford to lose because if it doesn’t bounce back you’re basically stuck with it till it does. Either that, or you have to sell at a loss.
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