We truly do live in the land of milk and honey. The goldilocks economy. The lucky country.
Oh, that's not the current narrative, of course. Years of grandstanding and sniping from our politicians combined with a population with severe FOMO (fear of missing out) combined with a little YOLO (you only live once) and short memories has resulted in us somehow feeling like we're the most aggrieved nation on earth.
Debt spirals, dole bludgers, queue jumpers and government fat cats are our staple diet. We see an RBA cutting rates — despite an unemployment number that we would have walked over hot coals to achieve just 30 years ago — and a 'below trend' rate of economic growth and we swear we can see the four horsemen of the apocalypse just coming over the horizon.
Our houses are bigger, our incomes are at record levels, our sharemarket is higher (after dividends) than before the GFC, and the cost of borrowing is at generational lows, and we're all convinced someone owes us something.
Give me a break, people.
Okay, not everyone thinks that. If you're reading this and agree that we're truly blessed, congratulations — you have the perspective that most Australians (not to mention most politicians and commentators) are lacking. But if you're reading this and — despite the previous few paragraphs — think the Australian economy is a basket case, then you've been a victim of the shrieking headlines (from some quarters) and political point-scoring that has characterised the last few years.
Good news doesn't sell — and it sure as hell doesn't win elections. So we don't hear enough of it. And sometimes, that means the dominant narrative can tend to carry the day.
Two years ago, there wouldn't have been a single country in the OECD that wouldn't have given their eye teeth to have our 'problems'. Today, the USA may well feel that the worst is behind it, and not quite as envious of us, but I don't think there's any other major developed country that wouldn't want to change places with us.
When bad is great
If this is bad, sign me up… great must be out of this world.
But here's where perspective is important. It's entirely possible that there's some real (as opposed to perceived) bad news on the horizon. We know that iron ore mining investment has ground to a halt, and prices have fallen — dramatically. And while that's a known, the flow-on impacts are yet to be fully felt.
Mining companies that have been hanging on for dear life are now facing up to the realities of an iron ore price that looks unlikely to get back to US$100/tonne any time soon — let alone the US$140 and over levels we've seen in the not-too-distant past. Facing up to reality, in this context, means mothballing mines and laying off workers. That's starting to happen, and in all likelihood will continue to happen over the next 12-18 months. And even profitable miners will be looking to cut costs… hard.
A vicious circle
In that scenario, the fallout is significant job losses, but that's not where it ends. Job losses can directly and indirectly lead to lower consumer spending and lower real estate prices, which have a flow-on effect through the economy — less money being spent means fewer jobs and lower pay in the retail and service sectors. Those who are currently working in those industries will spend less as a result — and you have the beginnings of a vicious circle that, at its worst, could see house prices fall and Australia go into recession.
Will it happen? Who knows? That's a pretty negative scenario, to be sure, but it's far from impossible.
The problem for investors is that such a scenario — or variations thereof — have been suggested almost constantly since the end of the GFC. Hyperinflation, the collapse of Greece, Cyprus' banking collapse, Ukraine… there have been no shortage of potential problems — or causes. And if you'd jumped at every shadow, you would have missed out on a significant recovery on the ASX while you waited for the next shoe to drop.
