Forget a possible replay of the Roaring Twenties in this 21st century, all driven by the coincidence created by the government between huge stimulus spending around the world and a rapid vaccine rollout that experts say would take much longer than expected.
No, it may not be a boom of a proportion of the 1920s, but even a larger one, similar to the one that followed WWII, which I call the ’40s boom at war’ .
But inside any beautiful silver cloud there is a bit of a dark liner that grows as the “ cloud ” / economy gets bigger, which ends up raining down on our ” parade ” of the economic and lucrative market.
In case you missed it because you were enjoying your Easter break, there was some good economic news that contributed to the bad news of rising interest rates and taxes! And those awful twin tests of our hip pocket are both tied to all the better-than-expected economic data we’ve seen for at least six months.
When you woke up this morning you may have heard or read that the US stock market is once again in record territory. Even tech stocks that have been trashed in recent times were back in favor. It should also help our stock market today.
Behind this craze in the market to buy hid the latest employment report for March.
On Friday, the S&P 500 Index, which captures the stock prices of the top 500 companies listed in the United States, rose above 4000 for the first time as manufacturing data exploded to a reading not seen since 1983!
Then, after the market closed, it was revealed that the unemployment rate in the United States last month had dropped from 6.2% to 6% as some 916,000 jobs were added to the economy. It was huge, but more importantly, economists were only expecting 675,000!
That’s almost a million jobs in a month, and you can thanks to President Joe Biden’s stimulus package and his aggressive vaccination rollout that is reopening the economy faster than economists and other experts have assumed. .
We have seen similar economic results here too and that is why our unemployment rate is now 5.8%. And a once predicted budget deficit of $ 213.7 billion is now expected to be as low as $ 150 billion because we are growing faster than even Treasurer Josh Frydenberg predicted.
CoreLogic’s monthly house price index also registered a national jump of 2.8% last month, the fastest growth rate in 30 years!
And it’s going better than the banks expected, which is why “ten lenders raised their four-year fixed rates last month, while many more cut their shorter fixed rates, according to figures compiled by the comparison site RateCity.com.au. ” (SMH). The ABC increased its four-year fixed rate on homeowner loans, principal and interest on home loans by 0.2% to 2.19%. However, other banks such as Westpac, St George and Bank of Melbourne still claim to have the lowest four-year fixed rate of 1.89%, but I suspect that won’t last long.
On the other hand, the two-year fixed rate was cut by 25 lenders, while 18 institutions reduced their three-year fixed offer, which tells me the banks think the RBA’s “ promise ” to maintaining rates until 2024 will not be required. because this economic boom is bigger than expected.
I think the RBA will do its best to resist the increase in the spot interest rate, which directly affects variable rate home loans for as long as possible – for about two years if borrowers are lucky. However, if a 1940s boom at war comes (as Morgan Chief Economist Michael Knox says in my last Switzer Investing TV show), rates will increase sooner than expected.
Adding to the potential negativity of economic positivity, the International Monetary Fund (IMF), which “… urged nations to consider using the Abbott government’s temporary fiscal repair tax to overcome the huge deficits left by the coronavirus recession , warning of deep spending cuts. could lead to political instability. “(The Australian)
This budget repair tax was a 2% limit for people earning more than $ 180,000 a year and was imposed between 2014 and 2017, raising more than $ 3 billion to help reduce the budget deficit, following the fallout. economics of GFC and subsequent government spending. to save the economy and jobs.
The IMF has also suggested taxes on “excess” profits, such as the mining resource rent tax that once hit miners. But governments around the world must be careful not to accept the IMF’s suggestions too soon, because the unemployment rate in the United States could now be 6%, but before the coronavirus crushes the American and global economies, the unemployment rate was unbelievably low at 3.5%! At the same time, our rate was 5.2%, which is what the RBA wants in the 4% region to help wages rise. It’s still going to take some time, which means I’m factoring in at least two years of low interest rates and some good news on the market markers front.
I love these booms, but they can’t last forever and rising rates and taxes are going to ruin the party. But let’s take advantage while we can!