Get ready to tighten your belt for a wild ride. Global equity markets could be setting up to get a bit bumpy.
That is, of course, if the last couple of hundred years are anything to go by.
Hong Kong, for one, is now in a recession.
I can only imagine you‘re wondering, ’I’m an Aussie. Why does this impact me?’
And that’s an excellent question. Today, you’re going to find out…
Asia’s problem is our problem
The Guardian reported a few days ago that Hong Kong has ‘plunged into deep recession’.
By now, you’re very familiar with the story, so I won’t labour the point.
The reason I’m bringing this to your attention is that Hong Kong may just be the catalyst that sends the West south.
What do I mean by that?
Next year was always going to be a doozy. Of course, if you’re a regular reader, this wouldn’t surprise you.
At Profit Watch headquarters, we have our own chant. We have repeated it consistently throughout 2019.
It goes a little like this…‘be cautiously bullish in 2019.’
The key to your long-term success
It’s got to do with what we call the Grand Cycle, which I introduced to you a few weeks back.
If you happened to miss it. In short, it’s a cycle that drives the economy.
It has three parts to it. The first two parts are seven years in length. This is typically marked by rising asset prices.
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The final part is a four-year stretch of declining asset prices.
You can remember this Grand Cycle by using the equation: 14+4.
Now to refresh your memory, the reason why the first 14-year period is broken into two seven-year parts is that…
…we tend to witness a mid-cycle recession or drip roughly seven years into this sequence.
2012 is our starting point. You simply add seven years to that, and you get 2019 as your halfway point.
That means we are watching for turbulence in the financial markets and even for a potential recession.
It’s very important that this clicks with you. It can honestly save you a lot of headaches and potential losses.
The recession we must have
So, Hong Kong’s in a recession.
Why should that interest you…well, because it’s simply time for it to happen.
By time, you should be thinking mid-cycle recession is due around 2019.
I’ve been amazed how markets have a habit of moving in and out of these recessions almost like clockwork.
This is despite the governments trying to fight against them.
In my opinion, the best thing to do though is simply to let it happen.
As with Hong Kong, so goes the West.
Let’s take a quick squiz at what’s happened in Australia over the last week.
It appears that the Big Four are under pressure.
Westpac released their results. Things didn’t look that great.
Rumours started to circulate before results were released that they may cut dividends. This is because their profits are falling.
You also saw the ANZ report last week. They posted a weak result, too.
The profit slump also led ANZ to cut the franking level on their dividend.
It turns out shareholders weren’t impressed with this and on the back of that news, shares fell around 7%.
So, what now?
Well, now is not the time to be gung ho buying stock.
Sure, you may get the odd run here and there. But overall, I think it’s best to play things conservatively, depending on your usual investing or trading timeframe, 2020 is a time to be watching for a pull back.
If you would like some assistance in navigating the Grand Cycle — or perhaps you even want to profit from anomalies in the stock market — make sure to keep reading Profit Watch. It’s likely to be a turbulent 12 months.
Until next time,