If you’ve been paying attention to my posts over the last couple of years, you’ll have noticed a theme:
2020 – a change is a coming
2021 – lock in your interest rates as the reserve bank says they’re not going to move – but I’m telling you they will by 2022
2022 – be prepared to pivot quickly in business with your people and suppliers
My message today is don’t stress.
The truth is, we’ve seen this before. And while it might feel like the world is ending, it’s not.
With the US Federal Reserve raising rates by 0.75 percent the other week, the Australian Reserve Bank is expected to keep following suit.. The belief is that squeezing the economy, with higher interest rates and less consumer spending, will help to curb inflation.
In the short term, it means we can expect the stock market to be volatile. And in the long term, it means we need to be prepared to pivot quickly in our businesses.
We’ve also seen numerous articles in the June The Financial Review highlighting how Melbourne and Sydney’s house prices may fall by up to 20 % over the next 12 months.
While this might feel like deja vu for some of us who lived through the GFC, it’s important to remember that we are in a much better place now. Our banks are well capitalised, our economy is strong and unemployment is low.
So what does this mean for you?
Unless you’re leveraged to the hilt and are relying on quarterly property price increases to fund your next investment property it doesn’t really matter.
Back in 1993 (yes i know), I sat in an economics lecture at Monash uni with my strawberry Big M and blueberry muffin, and listened to a grey haired guy teach me about economic cycles -basically, the economy is cyclical. There are peaks and troughs. We are heading into a trough now. And the reality is we will always come out the other side.
So my advice to you is, stay calm. You shouldn’t let the fear of a downturn stop you from living your life or investing in your future.
It means there’s some stress coming for businesses and households before the property and share markets settle, and we head into the ‘recovery’ stage of the economy.
Don’t get me wrong given the war in Ukraine, post pandemic debt and other factors, this may last for a few years.
Our sky-current high Inflation is the obvious elephant in the room. However I heard Westpac’s chief economist present the other week, and say that by the end of 2023 with the right levers pulled by the reserve bank and other politicians, inflation should slow.
To wrap up , I want to leave you with a few tips:
- Sort out your cost of financing, lock in supply contracts for your business, cut unnecessary overhead costs, and sit tight for the next 24 months.
- Review your finances and make sure you have a buffer in place.
- Keep an eye on your investments and don’t make any rash decisions. Avoid capital intensive investments that may depreciate.
- If you’re in business, make sure you have a plan B in place in case things take a turn for the worse.
- And finally, stay calm! We’ve seen this before and we’ll get through it again.
