Could Australia be heading for a recession?
One prominent hedge fund manager thinks so.
Quoted in The Australian Financial Review today, London-based Odey Asset Management founder, Crispin Odey, said Australia is facing some tough times ahead as China's slowing growth takes its toll on Australia's unemployment rate, inflation, capital expenditure and big banks.
He said Australia's big banks could have a, "bad time ahead of them" because, "China is everything to Australia in lots of ways."
He said low interest rates and the prevalence of Quantitative Easing (QE) means many central banks will be unable to pull a "rabbit out a hat" like they did during the fallout of the Global Financial Crisis.
Why you should listen…
Odey Asset Management has a strong track record when it comes to macroeconomic calls and annual returns for investors, by adopting both long and short positions. Short positions result in a profit for an investor if the price of the investment drops.
According to Fairfax, Mr Odey is short both Genworth Mortgage Insurance Australia (ASX: GMA) and Fortescue Metals Group Limited (ASX: FMG) – Australia's third largest iron ore miner.
If his bearish views on China – and therefore Australia – are correct, both of these companies stand directly in the firing line, with exposure to the local property market and plunging iron ore prices, respectively.
The biggest banks, such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), would also be at risk.
Here's what you should do…
It can be easy to get caught up in the midst of the financial media's constant doom and gloom – especially when the local market is riding high. However, it's important to remain focused on the long term and make rational investment decisions based on facts.
Charlie Munger and partner Warren Buffett – considered by many to be the world's greatest investor – is famous for saying they don't try to predict which companies will do well when the market rises or falls, instead they make sure they pick companies that stay profitable no matter what the economy is going through.
Personally, I share similar views on the outlook for the local economy, and China, as Mr Odey. However, I also know there are few alternatives for investors other than the share market, with bank term deposit interest rates at a measly 2.75% per year, following in the footsteps of the greats like Charlie Munger and Warren Buffett sounds like the reasonable thing to do.
