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I am currently sifting through the mountain of information on investing in shares/funds/commodities etc and was wondering how a recession in the US if it occurs would effect some of Australia's leeading company values ie CBA and the likes. Also if it does adversly effect these companies to diversify and limit risk of loss in the face of a slide what are the better investment options, Gold? Thanks for entertaining the Q's of an ignorant!
 
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I am currently sifting through the mountain of information on investing in shares/funds/commodities etc and was wondering how a recession in the US if it occurs would effect some of Australia's leeading company values ie CBA and the likes. Also if it does adversly effect these companies to diversify and limit risk of loss in the face of a slide what are the better investment options, Gold? Thanks for entertaining the Q's of an ignorant!

IMHO you need to look at company specifics more than a US recession. For example we are in the midst of a credit contraction. The days of cheap and easy money for all have come to a close (at least until the Fed lowers rates to 1% again). This will have a direct effect on banks such as CBA as funding becomes more expensive and banks facing higher risks of default on all credit types including residential, commercial and consumer loans, will reduce their willingness to lend. All the major Australian banks have started to hike their loan loss reserves in anticipation of this.

That said Australian banks' balance sheets are in great shape. At least that is what they tell us in their financial statements. I doubt we will see any kind of Citibank equity injections into the likes of CBA to bolster capital reserves (famous last words?) The chart at the bottom attests to the health of Australian banks. You'll notice impaired assets are beginning to rise and they will continue to do so as we move closer to the end of this credit cycle however a repeat of the early 1990's is very doubtful. A rise back to Sep 01 level is a definitely possibility.

In a generalized economic downturn, few stocks will not be effected. Look to the more defensive plays with solid earnings. As for other investments such as gold, commods etc. I'll leave that to someone who knows what they're talking about.


*Numbers on the left hand side of the graph are in millions
 

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U.S. Economy Contracted 5% in First Quarter, Slightly Steeper Than Initial Estimate -- Update
https://uk.advfn.com/stock-market/s...s-economy-contracted-5-in-first-quarter-sligh
WASHINGTON -- The U.S. economy's first-quarter contraction was slightly steeper than initially estimated, and a key measure of corporate profits weakened as coronavirus-related shutdowns began to come into effect.
I didn' t think there was any shutdowns? I thought Trump just let it run rampant?
 
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I didn' t think there was any shutdowns? I thought Trump just let it run rampant?
This situation looks to be hoping for the best and touting it whilst ignoring the worse situations. Many companies will go to the wall though like the 'Industrial Revolution' in the UK and Europe between 1820 and 1840 a lot of people will end up jobless.
Those who are in the know are buying precious metals and bitcoin to put off the fateful day. The stock market recovery is the same as in 1929-1930 when major markets recovered 48% before crashing to be down 90% at the floor during 1932.

Australia - Watch for a Rally - Then Jump Ship
https://www.tradingview.com/chart/XAO/Riz7XLyH-Australia-Watch-for-a-Rally-Then-Jump-Ship/
 
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This situation looks to be hoping for the best and touting it whilst ignoring the worse situations. Many companies will go to the wall though like the 'Industrial Revolution' in the UK and Europe between 1820 and 1840 a lot of people will end up jobless.
Those who are in the know are buying precious metals and bitcoin to put off the fateful day. The stock market recovery is the same as in 1929-1930 when major markets recovered 48% before crashing to be down 90% at the floor during 1932.

Australia - Watch for a Rally - Then Jump Ship
https://www.tradingview.com/chart/XAO/Riz7XLyH-Australia-Watch-for-a-Rally-Then-Jump-Ship/
So is this imminent?
Or just speculation?
Are we talking weeks, months, or years, before the collapse?
 
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So is this imminent?
Or just speculation?
Are we talking weeks, months, or years, before the collapse?
Though the market did not fully recover in 1930, it did go through a series of rallies and drops as it tried to mount a revival. New York Stock Exchange stocks recovered 73 percent of their losses in 1930. Each rally was met by a disappointing drop, but the market never went back to its 1929 state of chaos and panic.
1bfc23b32f008b4869?width=700&format=jpeg&auto=webp.jpg 59524c4a19008b4934?width=700&format=jpeg&auto=webp.jpg 1930-stock-chart-small2.png
 
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So is the crash imminent.
Or just speculation.
Are we talking weeks, months, or years before the collapse.
 
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I guess the video touches on quite a few conspiracy theories, but true or not, it is starting to feel a bit like the GFC all over again.
Too much credit (Edit: Or should I say debt) and easy money.
Time will tell how it pans out, but I am getting the feeling its not going to be good.
 

wayneL

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I guess the video touches on quite a few conspiracy theories, but true or not, it is starting to feel a bit like the GFC all over again.
Too much credit (Edit: Or should I say debt) and easy money.
Time will tell how it pans out, but I am getting the feeling its not going to be good.
Watch the debt market, bonds. This is where everything is going to blow the @#$& up.

This time it's going to be epic, absolutely biblical in proportion. Everything is a derivative of the bond market... Real estate, stocks, everything.
 

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Watch the debt market, bonds. This is where everything is going to blow the @#$& up.

This time it's going to be epic, absolutely biblical in proportion. Everything is a derivative of the bond market... Real estate, stocks, everything.
While it’s true that as interest rates rise, longer dated bonds with lower interest rates will have their price drop. Bond holders with longer term outlooks will be spared from any carnage simply by the fact that if they hold their bonds until maturity they will get the face value of the bond back.

So the shorter dated bonds aren’t really at risk of big capital losses, because the bond fund or insurance company or who ever owns it can just be hold until maturity and feel confident of getting the face value back, while the longer term bonds will see some capital losses as interest rates rise, however these losses will evaporate as time passes and they get closer to maturity.

Over all the bond owners will probably be happy that interest rates are rising, because even though initially they will see some unrealised paper losses across their portfolio of bonds, actual income will rise as the capital is recycled into new bonds with higher interest rates, and the paper losses will disappear as the older lower interest bonds move closer to maturity.
 

wayneL

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While it’s true that as interest rates rise, longer dated bonds with lower interest rates will have their price drop. Bond holders with longer term outlooks will be spared from any carnage simply by the fact that if they hold their bonds until maturity they will get the face value of the bond back.

So the shorter dated bonds aren’t really at risk of big capital losses, because the bond fund or insurance company or who ever owns it can just be hold until maturity and feel confident of getting the face value back, while the longer term bonds will see some capital losses as interest rates rise, however these losses will evaporate as time passes and they get closer to maturity.

Over all the bond owners will probably be happy that interest rates are rising, because even though initially they will see some unrealised paper losses across their portfolio of bonds, actual income will rise as the capital is recycled into new bonds with higher interest rates, and the paper losses will disappear as the older lower interest bonds move closer to maturity.
In a normal cycle that may be true, but these are different times and your thesis above highlights the problem "total return". Peruse any of the bond total return indices or funds reveals a bond market making losses. Chuck in inflation and real returns into the equation... and indeed other structural anomalies and you have a bond market at the precipice of the abyss.

There's plenty of macro analysis out there from credible sources (Jim Bianco for eg) which details the possibilities, so DYOR there.

Screenshot_2022-06-13-06-52-55-27_40c520d53fccdd78ab16fa5075625c85.jpg
 

Value Collector

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In a normal cycle that may be true, but these are different times and your thesis above highlights the problem "total return". Peruse any of the bond total return indices or funds reveals a bond market making losses. Chuck in inflation and real returns into the equation... and indeed other structural anomalies and you have a bond market at the precipice of the abyss.

There's plenty of macro analysis out there from credible sources (Jim Bianco for eg) which details the possibilities, so DYOR there.

View attachment 142826
The large insurance companies, pension funds, endowment funds etc etc aren’t buying bonds to make large returns, mostly it’s just a way of having some capital stability for funds that they need to pay out over the next 5 years or so, and most of them would be planning on holding the bonds till maturity and would be holding bonds across a wide range of maturities.

E.g if you are an insurance company holding funds which you have to pay out fixed payment annuity to car accident survivors over the next 25 years, you aren’t that worried about fluctuations in the bond price in the short term, you would have just invested the cash over a range of maturity dates and interest rates and be sending the victim the interest payments and some capital each year, the capital coming from the bonds that mature at face value that year.

A lot of these insurance companies are required to invest in the bonds by law, and couldn’t trade out of them even if they wanted, rising interest rates will be good for them, not bad.
 

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By the way, I am not saying there wouldn’t be big fluctuations in price in the short term, I am just saying any one who’s strategy is to hold these bonds till maturity doesn’t need to worry about price fluctuations.
 

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Time will tell VC. This is the thing, there are several competing theses regarding a whole host of macro factors and anything can come from left field at any time.

It's gonna be interesting either way.
People attempting to trade in and out of the bond market can offcourse get hurt, but the long term holder can only be hurt if the bonds are defaulted
 

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...and currency debasement
Yep, but the big bond holders have already factored that in, in general institutions that hold a lot of bonds would be doing so because they are holding the capital to meet future fixed dollar costs.

Eg the example of an insurance company holding the capital to pay out fixed dollar annuities for life or disability insurance.

So if you signed up for $1 Million of life insurance, that’s all they are going to pay even if the dollar is debased.
 

wayneL

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That won't stop the debt market blowing up and taking everything else with it.
 
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