Expect a sharp slow down in the Australian economy as deliveries of products from Europe are greatly slowed and even cancelled.
For instance, an Australian company importing marble stone for large scale high rise city office developments just had its entire delivery from Europe cancel by the seller. It is just too difficult and expensive to ship to Australia now.
Most people in Australia do not get this.
They do not even see it coming.
The Australian Dollar will remain vulnerable until the conflict is resolved. The risk could be as great as a move to 61 cents, perhaps 58 cents over the next few months.
Everyone thinks that somehow a solution will be worked out?
Think again. Plan for many months of reduced to little supply of goods from Europe.
Plan for, as we are already seeing, sharply accelerating oil and all energy prices.
Australia’s exports beyond Asia and the USA will also be almost totally impacted or cancelled.
Sell the Australian Dollar like there is no tomorrow.
Not only is the Australian economy immediately in trouble, the US dollar will likely strengthen on safe-haven flows and the prospect of the Fed returning to a tightening bias.
Sell Australian equities that will be impacted by this like there is no tomorrow.
Higher oil prices mean higher US inflation and global inflation and no rate cuts.
Supply shortages, global shipping disruption and the Fed thinking about hiking again.
Just as the US stock market became the most narrow in breadth in history, making it already vulnerable to a sharp collapse.
I think you get my drift here.
I said last week on ausbiz TV that the biggest risk to markets this year was an expansion of the Middle East conflict. It is happening.
There was a battle between three US destroyers screening two US run freighters, and the Houtis. It lasted a long period before the merchant ships had to turnaround and the three destroyers withdrew. Not in the mainstream media. There is also an unconfirmed report of a US warship being hit by a missile, but continuing to make way. I am not completely sure of this one, but you can be sure the escaping battle at sea is not being fully reported by the US Administration.
It is actually already worse than we know, and from what we know it is developing into a worst case
In this environment, insurance companies will refuse to insure shipping. That is why the Red Sea is now closed. Not something that will happen. It already is.
There are reports Maersk, the world’s second biggest shipping company has already cancelled ALL Red Sea servi scenarios. Iran has destroyed US and Mossad military targets in Iraq with missile strikes and shot down a US military drone over the weekend. One of the US’s large state of the art drones. There have been significant Houti/US military exchanges. including the shooting down of at least one helicopter.ces.
Beware, the implications could be for many months. Further escalation could see a broader Middle East conflict throughout this year and into 2025.
Everyone under-estimated that Russia would invade Ukraine in the first place. Then the market sentiment was that it would only last a few weeks. I wrote two weeks in advance an essay “5 Reasons Why Russia Will Invade”. I didn’t want it, but I knew it would happen and warned clients of the global inflation tsunami and higher rates ahead of everyone else.
Today, though with less certainty than then, I am again warning of a sustained closure of the Red Sea and all the implications that come with that,. The Houti’s are a formidable force. All of Yemen is now onside against Israel over Gaza. They have ballistic missiles. They are supported by Iran. They will not be easily shut down.
Not what you want to hear. Very much what will help you to consider your portfolio more fully.
