Presentation to Authorised Representatives of SIRA Group on the 26th November 2015 by Chief Investment Officer, Nigel Purchase:
All sorts of indicators suggest that world growth is picking up. In the US, Q1 weather-related weakness has reversed; in Europe, stimulus via QE (Quantitative Easing) and a zero cash rate has finally kick-started growth; in India growth is picking up; leading indicators we watch point towards global recovery.
It is an accepted orthodoxy in economics that inflation is A Bad Thing. This is because the price system is an extremely clever invention which provides information to market participants on how to reallocate consumption and production, and it does this without any central control or guidance. The different prices within the overall economy are derived from the interaction of consumers and producers, from the workings of the system itself.
Will Australia enter a recession soon?
The answer in part depends on how you define a recession. The traditional (U.S.) definition has been two consecutive quarters of negative growth in real GDP (Gross Domestic Product). Real GDP is the volume of output in the economy, in other words, the level of goods and service produced after inflation is removed. For example, if inflation is 5% and nominal (unadjusted) GDP rises by 2%, real GDP has actually fallen—by 3%.
When the share market is volatile in the short term, many people forget the long-term benefits of share investment. The chart below shows the All Ordinaries Index from January 1990 to now, plotted on a log scale. A logarithmic scale is designed to make similar percentage moves in the market occupy the same “space” on the chart
Over the last few months, the Australian share market, as measured by the All Ordinaries index is down 12%, so we are now officially in a correction.
