FY22 in Review

Headlines abound overnight as H1 of 2022 closed at the worst in 60 years for the world’s biggest share index, the S&P500, down 21.2% so far this year. The NASDAQ had its worst H1 ever, down 30% and eclipsing the dot.com bubble’s 25% for the same period. But you’d be fine if you had a ‘balanced’ 60/40 portfolio yeah?  Nope.  As we reported here, US Treasuries just had their worst H1 ever by a factor of 50%!  Like a little risk with your bonds? High Yield Corporate Bonds (via the ETF basket) also saw their worst H1 ever by a factor of almost 100%.  Bitcoin is down 59%.  Gold on the other hand has held steady over the same period in USD and is up 4.5% in AUD terms proving (again) gold is the real balancer in a portfolio.

In local fiscal year terms, lets review FY22.

ASX200 – down 9.6% (pretty much gradual grind down all FY)

10yr Aussie Bond – down (yield up) from 1.4% to 3.6%

Gold – up 4.5% (after posting all time highs in March)

Silver – down 15.7% (after hitting $37 in March)

Platinum – down 5.4%

Bitcoin – down 42% (after all time highs in November)

Aussie Property (to 1 June) – up 14.1% (now falling)

That is a tumultuous year in anyone’s books and now all focus is on the way forward and what that brings.  The fact is all those H1 falls in global markets got an earlier start than here in Australia.  The RBA was famously late to start tightening policy to reign in inflation which we discussed here before it happened and here when it did.

Since then we have seen the AUD sink from 75c to currently 68.9c, an 8% drop in global purchasing power (unless you held it in gold…).  NZ which has been right up there with us in inflated property prices was well ahead of the RBA in raising rates and is already seeing substantial drops in property prices, down 5.5% to end of May since the peak in November when they started tightening (well ahead of our May).

The big question for Australia is how does the most personally indebted nation in the world handle rate rises amid wage growth continuing to be half that of inflation and most of that debt mainly being in the illiquid asset that is housing? Just yesterday the biggest lender in the nation hiked its fixed mortgage rates by an incredible 1.4% and forecasts of much more to come.

More broadly we face as a nation the additional headwinds of our biggest trading partner China pushing us away and reports that they are soon to be self sufficient on steel and iron ore, our single biggest export.  And by additional we mean the growing prospect of a global recession.  Last night the Atlanta Fed downgraded the US Q2 GDP forecast to a recessionary -1%, just 2 weeks after their 0% forecast which was one week after their 0.9% forecast.  You get the trend right?

We won’t rehash all the data and headwinds we talk to frequently (you can go back and read our daily articles).  The simple fact is FY22, and even H1 of 2022, are very likely just the start of more pain in financial and property markets as the world adjusts to this stranger called ‘normal’ monetary policy after 15 years of loose monetary policy and stimulus.  The $300 trillion question is how long can the central banks keep raising rates on the world’s biggest debt burden and financialised economy?  Arguably the soft landing train has long since left and we are looking at severe economic, and more particularly financial turmoil dead ahead. 

Gold gave us a glimpse of what it can do for your portfolio this last 6 months and that is AFTER its usual liquidity squeeze dip with ‘everything’.  It appears to have formed a nice base, the initial share margin call liquidation past, and ready for the launch it ordinarily does as the financial markets take their next leg down.