Australia’s dependency on globalisation and foreign supply of goods is about to be exposed on unimaginable levels. Toilet paper shortages is just the start. Too many businesses are already majorly struggling to find consumable supplies, from coffee cups, cutlery, boxes and packaging, the supply lines are closed or stretched too thin. We laugh about people stock piling supplies, but if people knew the mechanisms behind the scenes, shortages of supply will become our the new norm for the coming months. In response to ScoMo “this is a disease crisis, not an global economic crisis” I disagree. It’s very difficult to put numbers on the impact this will have but it’s going to be massive, and with so many businesses and individuals already contributing to the dangerous credit bubble, a collapse of the financial system is not a wild prediction. A world record bull market stimulated by so much quantitative easing, interest rates are now at record lows. With possibly one of the biggest risks to the world economy knocking on the door, what defences do we have left? We see opportunities in the stock market on current earnings, but we can’t be blindsided by major downgrades to future earnings. If you’ve been fortunate to have played a defensive strategy and considerations are being thought upon for buying opportunities don’t pull the trigger too early. While yields based on current DPS is yes attractive (most blue chips starting to offer up 5-7%), remind yourself that the impact of a significant downturn will reduce EPS and effectively reduce DPS. My wild prediction, ASX XAO will test support @ 4900.
