Macro Environment, is it like the 1970’s?

Hi,

There are similarities but obviously comparisons are never a perfect science especially on events 50-years apart.  Rampant inflation in the 1970’s sent stocks down nearly 50% in just 20-months, so far the Australia’s Tech Sector is already down 43% and that’s in only 6-months.

Currently we have markets concerned with official rates moving towards 3%, in the 70’s they got closer to 20%, imagine mortgage repayments then. As MM has said a few times central banks are walking a very tough path as they look to normalise  interest rates to control inflation while at the same time avoiding tipping economies into recession.

At this stage we believe unemployment is firmly missing from the stagflation / recession scenarios but I do believe we need to become used to living with the cost of money at more realistic levels – today the Feds Fund Rate is only 1.00% but its been around 5% for the periods over the last few decades.  Locally, a neutral setting from the RBA is 2.5% however I do think rate increases will get a big bang for buck given the level of debt out there. i.e. I share CBA’s view on this that rates will not see levels that are now being implied by the bond market.