As MD of McCarthy Global, I would like to take this opportunity to wish a very Merry Christmas to our clients, supporters, partners, friends and family.
We’ve reached the end of another tumultuous year. It’s a cliche, but every trip around the sun seems to go faster and faster. Maybe I’m getting old, or maybe it’s the increasingly frenetic pace of our modern tech-infused life. Whatever the case, it certainly doesn’t feel like a full 12 months since I sat down to write 2015’s version of this letter.
I think there will be a lot of people who’ll be glad to see the back end of 2016. As a nation we’ve certainly had our fair share of challenges, driven in large part by the end of the resources super-cycle. Labour force participation is at near-record lows, indicating that a substantial number of working-age people have given up seeking work. Wages growth is also at record lows. Private debt (mortgages, credit cards etc) as a percentage of income is among the highest in the developed world and growing quickly.
These factors are causing many consumers to tighten their purse strings, and unfortunately our political class doesn’t appear to have any answers as to how to get the economy back on course. As a result, the IMF has warned that it believes Australia is at risk of economic crisis, and S&P is widely tipped to downgrade our credit rating next week.
There’s no guarantee 2017 will be any better, but neither is there yet any indication that we’re in for an annus horribilis. The event that is expected to have the greatest impact on our economy next year is, of course, the election of Donald Trump as US President. Interestingly, in contrast to many pundits’ pre-election predictions of doom and gloom, the financial markets have rallied since his election and many economists are now predicting an improvement in our economic fortunes.
For starters, the OECD has cautiously predicted that Trump’s economic policies, particularly infrastructure spending and tax cuts, will have a positive impact on global GDP growth. However, it also notes that much of this growth could be undone if the Trump administration enacts its proposed protectionist trade policies.
The Dow Jones, with which the All Ords is closely correlated, has rallied since the election of Donald Trump, and is now nearing the 20,000 point milestone. It remains to be seen whether this rally continues, however the result is already in stark contrast to the doomsayers who predicted an immediate crash if Trump was elected.
Commodity prices, upon which Australia is still heavily reliant for prosperity, have also rallied strongly. Iron ore and coal have both doubled in price since the start of the year, based largely on financial market speculation that a Trump-led US government will invest heavily in infrastructure, as well as the aforementioned expectation of global GDP growth and a moderate increase in recent physical Chinese demand.
Of course, the fact remains that Trump is a mercurial character, with an ego the size of Texas and a tendency towards emotional outbursts and rash decisions. His unique approach to the Presidency may be just the thing the world needs to shake it out of its post-GFC slumber, or it could be an unmitigated disaster. One thing’s for sure: it won’t be a boring ride.
I hope you all have the opportunity to take some time off over Christmas, to give your mind and body a rest, reflect on the year that was and to prepare for the year ahead. If you can, try to take a day to set some measurable, achievable goals for the coming year. People who set and work towards goals will generally find their performance exceeds those who do not.
See you in 2017.