Unfortunately for Australia I think the worst is yet to come and...

Unfortunately for Australia I think the worst is yet to come and I think the lower end of depressed prices might still be another 6-12 months out.

The Domino Effect:
1. The Mortgage Cliff's Stark Reality:With an average mortgage size of AUD 580,000 in 2023, homeowners are facing a significant financial hurdle. Transitioning from an interest rate of ~2% to ~7% translates to monthly repayments surging from AUD 970 to a hefty AUD 3,380. This more than tripling of annual mortgage commitments from AUD 11,600 to AUD 40,600 places immense strain on households, especially when combined with other financial obligations;

• https://www.news.com.au/finance/economy/interest-rates/mark-bouris-warns-families-will-be-forced-to-sell-their-homes-within-months-as-mortgage-cliff-erupts/news-story/40b6b439d21305344c4df6fe87ec2726
• https://www.news.com.au/finance/economy/interest-rates/australias-mortgage-cliff-disaster-peaks-as-homeowners-buckle-after-brutal-rba-rate-rises/news-story/7d249caf2e1a06866c6fe75247bf1755

2. Real Estate Market Volatility: As homeowners grapple with escalated repayments, many will have to resort to distressed selling. The increased supply, if unmatched by demand, will crash property prices. Homes are often used as collateral for various financial ventures. Depreciating home values compromise borrowing capacities, and for some, this might necessitate offloading other assets.

3.Consumer Spending: Beyond the mortgage payments, the heightened financial stress will inevitably suppress discretionary spending, for those faced with increased borrowing costs, risking recessionary pressures especially in sectors reliant on consumer spending. Even the ABC admitted, four months ago, that we are in a consumer recession;

• https://www.abc.net.au/news/2023-05-09/official-data-confirms-australia-in-a-consumer-recession/102322380

4. Inflation and Supply-Side Dilemmas:
In light of a recession many essential prices will keep rising:
- Energy: Implementing green power infrastructure is not only expensive and time-consuming, but it will also increases energy prices for everyone since manufactured renewable products have loads of embedded fossil energy and their production increases demand for fossil fuels raising prices for everyone. Rooftop solar for example has, in a place like Alice Springs, an Energy Pay-Back Time (EPBT) of 14 years

• https://www.spectator.com.au/2023/05/solar-a-risky-waste-of-time-and-money/

- Agriculture: Farmers, already facing surging costs for essentials like fertilisers, diesel and the labour shortages will be passing on their costs

• https://www.news.com.au/finance/economy/world-economy/real-reason-food-prices-are-skyrocketing-as-aussies-struggle/news-story/5f01df76bd83701f845d2fc832aba0c6

- Rental Crisis: The rental market is further complicated by low vacancy rates, bankrupt builders (over 2000 in administration this year alone) and migrant inflows.

• https://www.news.com.au/finance/real-estate/renting/domestic-violence-victims-forced-to-return-to-violent-homes-due-to-rental-crisis-inquiry-hears/news-story/f218f3a38379d673abbc85606c60aff0
• https://www.news.com.au/finance/business/other-industries/two-more-australian-home-builders-collapse-in-wa/news-story/6766a249dbe4a59348073ff4198ed74d

- Irrational Government Spending

Interest Rate Challenge:

The fundamental issue for Australia, as mentioned in TWD annual report, is that we have to keep raising interest rates to tame inflation, and I think the reason is, is that our inflation is dissimilar to the 1970-80s USA inflation. Australia is uncompetitive in manufacturing and so we have to import basically everything from places like China, meaning that, the number one source of our inflation comes from importation. The concern for imported goods is currency exchange and if our government does not keep raising rates our currency will fall and we could have a giant premium on all imported products, essentially an inflation. However, as pointed out earlier increasing interest rates inevitably means increasingly difficult mortgage repayments and financial decisions. It also means company's that are over leveraged will be affected by their debt repayments, and suddenly zombie company's that were attractive because they were promising immense future revenue and growth and that were able to raise money easily because of the once in a life time low interest rate environment go from being regarded as eccentric to just crazy. Investor's are already shorting these sorts of company's, I am guessing Atlassian might be gone in the next few years as they have a billion dollars in debt. Given the changing environment investors are now recalculating what makes a stock valuable, shifting from debt generating stocks to profitable ones such as TWD that give dividend when rational, mitigate risks and don't have any debt.

• https://www.copyright link/policy/economy/low-aussie-dollar-makes-rba-s-inflation-fight-harder-20230822-p5dydt
• https://www.bloomberg.com/news/articles/2023-03-09/hedge-funds-bet-against-offices-using-tactics-that-big-short-s-burry-made-famous#xj4y7vzkg

Depressed Prices:
Many people believe depressed prices are 6-12 months out, those same people also believe it could also be more protracted, the Great Depression, for example, lasted 3 years until it bottomed out. I think the Australian Government will follow the Western style approach and try to spend its way out of it instead of any compromise in policy, given what little control regular Australian's have on federal spending. In any case, when the recession does begin, the biggest problem will be a leverage crisis, principally similar to Big Short.

People have an economic memory of roughly 2-3 years, aka rearview mirror investing, so it is only a matter of time until people see Australia's new reality...

Btw Michael Burry just put a 2.5 billion short against the S&P500 and the Nasdaq 100

• https://www.news.com.au/finance/economy/world-economy/investor-who-accurately-predicted-08-housing-crash-bets-25-billion-on-2023-wall-street-catastrophe/news-story/f3b5af9d1745323eb1860ddbd10487dd

Therefore I think TWD should wait it out, as they have been doing since Covid, and let external events play out and not take any risks until management and board are ready

Not to be taken as advice