A FALLING stock market always brings out bargain hunters despite repeated warnings about the risks of trying to catch a falling knife.
It’s especially the case when the best investment in troubled times is often the simplest and safest: cash.
While not completely risk free, cash is a comfortable place for savings when other asset values are falling, which seems the likely trend for the rest of the year, including a long overdue property-price correction.
War in the Middle East is already squeezing local oil supplies as concerns grow about the job-destroying effects of artificial intelligence (AI), and governments wake to the crisis in their budgets due to overspending on social welfare for the past decade.
That trifecta of trouble reminds older investors about life in the 1970s, which was a time of multiple oil shocks and flat financial markets.
So flat that an index measuring the Sydney Stock Exchange (the main market before the creation of the ASX in 1987) opened and closed the decade at roughly the same level.
In other words, not much happened in the 1970s: a grim period of low growth and high inflation known as stagflation.
And unless there is a sudden improvement in the current outlook, that could be where we’re heading today.
The 1970s were also a time when sensible investors were happy to sit on the sideline until markets settled and risks subsided, which they eventually did, rewarding those who had protected their capital by parking it in the bank until the air cleared.
Term deposits with reputable banks are edging towards 5 per cent and seem likely to go higher as government bond rates rise worldwide in an attempt to control the inflationary effects of the rising oil price.
Hints of what’s to come if Iran bottles up the Persian Gulf indefinitely (and the oil price heads for a forecast $US200 a barrel) can already be seen in energy-sensitive sectors of the economy, especially aviation and other transport-reliant industries such as mining and farming.
Air New Zealand was the first regional carrier to warn that the rising oil price was eating into its profits. In Britain, low-cost airline Wizz Air has suffered a 35 per cent fall in its share price during the past month in what’s a clear warning for all airlines (because fuel is easily their major cost).
The problem for Western Australia is that everything shipped, trucked or railed into the state from the east or overseas will soon cost more thanks to rising fuel prices.
Meanwhile, it seems consumers can sense what’s coming and have reined-in their spending accordingly.
A Commonwealth Bank research note earlier this month reported a contraction in household spending in February, the first downturn in 18 months.
So, how high might oil rise?
A first target is $US200/barrel but possibly more, because on an inflation-adjusted basis, the record price of $US147/bbl reached in 2008 during the GFC equates to $US225/bbl today.
The clear message for investors is that all asset prices, with the possibly exception of local oil and gas producers, and gold, which is a time-proven hedge against inflation, are more likely to fall than rise as oil soars.
During times like these, cash really is king.
Offline opportunity
IF there is any good news to be found today it’s in what could be a breakdown in the grip social media has on young people.
US consumer-focused research firm Circana found that shoppers aged from 14 to 29, the so-called generation Z, were spending more of their money in shopping centres than earlier generations, including baby boomers.
According to Circana, gen Z bought 62 per cent of their total general merchandise in shops last year, compared with 52 per cent by older generations.
What appears to be happening is that gen Z, a generation severely affected by Covid lockdowns and the resulting lack of social contact, is enjoying the novelty of human interaction even if it is in a crowded shopping centre.
The change could have a profound influence on everything from job creation for shop assistants to rental income for centre owners. And the share prices of listed centre operators such as Scentre Group and Vicinity Centres.
