Mar 18

Commodity Prices Boom/Bust History

Source: www.macrobusiness.com.au

Found the above chart on the brilliant Australian blog, www.macrobusiness.com.au, and its quite a frightening picture indeed. As the headline says, “at no time in the last 200 yeasr have commodity prices risen as fast and as high as in the last decade without a sharp decline”. When you throw in the fact that Australia residential property prices are amongst the highest in the world, there is little doubt there is significant downside risk to the Australian economy. Unlike the US adnmuch of Europe during the GFC and Japan over the last 20 years, our banks have held strong thanks largely thanks to our property prices holding up. If our property prices crash, and some sources (Economist) say they are overvalued by 50%+, and commodity prices bust, then our amazing run of economic growth will probably crash like never before.

Of course, hopefully that won’t happen, just sayin’.

For me the key message in these two key risks in our economy is that we shouldn’t be complacent, we should consider diversifying our portfolios more than we do (we have way too much Australian equities exposure), and we should educate our clients on what true risks we face in this country…we are a lucky country, and lets hope that luck doesn’t run out.

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