It's Buyer Beware As Risk Rises

The search for yield here and in the US could end in tears

- Hans Kunnen

Trust me – I’m an economist. (OK, stop laughing!) October is not “hexed”. Yes, bad things happened in Octobers past (1987, 1997 and 2007) but as my statistician friends tell me, “correlation is not causation”.

October is not special – unless it’s your birthday or you’ve got dividends coming your way. Don’t go looking for trouble in October, it’s there all year round.

So what about October 2018? Fallout from the royal commission is

likely to drain demand for banks. At the same time, rising offshore interest rates and tighter lending regulations are crimping bank margins. In addition, credit growth just isn’t what it used to be, so profit growth will be harder to find.

Thankfully (for some), the Reserve Bank will keep its cash rate on hold. This is keeping the banks and debt-burdened consumers in the game. A rate hike in Australia would crush consumer spending while a rate cut would add fuel to the fire of our household debt binge. Net result: no change to our cash rate for at least a year. Not so in the US.