Economic Reality Check

Regardless of what you might have read in this week's news—whether it be improving sentiment due to tariff adjustments, Australian political developments, or even Trump's declarations about market strength—I'm here to provide a reality check if you're feeling optimistic about the near-term.

While positive headlines about tariffs and politics have captured investors' attention globally, the underlying economic landscape has deteriorated significantly since the start of 2025. The tangible economic forces that truly matter—consumer spending, savings rates, employment figures, and confidence levels—have taken a substantial hit. These fundamental factors don't change overnight, regardless of the headlines.

Australian Banking Sector Signals Caution

As we wrap up this week's bank reporting season in Australia, the discussions from all three major banks point to a protracted economic slowdown beyond the headline profitability figures. (Note: A detailed Banking sector report is currently in development).

Unemployment in Australia is projected to rise, and economic growth is expected to slow considerably. This aligns with the broader economic indicators we've been tracking.

China's Troubles: No Rescue This Time

China is currently experiencing a credit bubble implosion that began in its property sector. Unlike the post-GFC period from 2009 onwards when Chinese demand for resources helped Australia weather the economic storm, this time China is unlikely to come to the rescue. Iron ore demand has already begun to suffer, impacting a key Australian export.

The Housing Market: Chinese Investment Decline

It's widely accepted that Chinese investment has been a significant factor supporting Australia's robust housing market over the past decade. However, what's less discussed is that these capital inflows actually peaked in 2018 and have been on a steep decline since then.

While we've witnessed strong immigration from other regions (Southeast Asia, India) in recent years, the financial impact of these newcomers on our housing market is substantially smaller than the capital flows previously provided by Chinese investors.

Current Market Outlook

I'm not predicting an imminent collapse in the housing market. Rather, I'm highlighting the difficulty in identifying robust positive drivers for continued housing market strength.

Rate cuts are unlikely to provide significant stimulus. Why? Because contrary to expected behaviour, the housing market failed to de-rate in a rising rate environment. This suggests a degree of mispricing in the current market, potentially limiting upside.

Meanwhile, a new theme has emerged: deteriorating economic conditions. This combination of factors presents a challenging outlook for Australian housing in the near to medium term.

Key Takeaway

Don't let your emotions be caught up with news headlines, Trump's comments that markets are super strong, or Australia's return to a two-party system. As Benjamin Graham wisely noted:

"In the short run, the market is a voting machine but in the long run, it is a weighing machine."

Website Updates

I've spent considerable time reorganising the website's structure—please take a moment to check it out. While not much new content has been uploaded yet, I have approximately 400 company reports ready to roll out in the coming weeks, along with sector and industry analyses.

I've decided to delay further monetisation until June/July. The current subscription option remains essentially as presented. I hope to welcome some founding members in the coming weeks!

Thank you for your continued support.