New normal – are we fked? – Part 1

Just my thoughts on the “new normal” that has been talked about in both social media as well as government official announcements. What I observed other people’s behaviour after a year and a half under COVID-19 influence, and how did I respond to the same circumstance.

Tl; dr;

I think we are heading towards a cliff as a whole. Big explosions are expected to go off at anytime. However, it depends on what can I do if and when they happen.

I choose to hold close to my investment assets, and not selling anything as of now. Holding as much cash as I can in the offset accounts, while looking for more investment opportunities. I will only expand my portfolio if I find something that fits my calculations and risk tolerance.

The economy

Did you ever look back 2 years ago, when a 2-litre bottle of milk is $2.00? Now, it is $2.40. Same brand, same bottle. What happened? Did inflation go up so much that we did not even notice? Other food products have gone up too, maybe not 20% in the case of milk, but surely, 10% is the norm. While people are looking, researching on stocks, real estates, cryptocurrencies, other aspects of our lives are also going up at a high pace. And nobody bats an eye.

So why did it happen? According to investopedia, there are 3 forces that may affect the inflation rate of a certain product. Cost-pushing, Demand-pull, and Expansionary Fiscal Policy.

  • Cost-pushing: with the restrictions in travelling as well as worsened relationships with foreign countries, we are not importing as many materials in the last 2 years. As a result, a lot of subsequent products are going up due to the lack of materials. We can see it in the increment of new property builds.
  • Demand-pull: this probably can be observed the most when there are disconcerting news, like the first lockdown in Melbourne last year. People flocks to purchase food, and not surprisingly, toilet papers. We did have some people hoarding them and resell with a higher price. And sadly some people bought the items.
  • Expansionary Fiscal Policy: I strongly believe this is the cause of all food prices going up. With various supports coming from the government, suddenly there is more money in people’s pocket, and they can afford more. Corporations are probably the best people to take advantage of this fact, and they raise the price, just a little. I don’t blame them, if I were in their shoes, I would probably do exactly the same.

However, our economy has not been thriving at all. Lots of money going into people’s hand end up in properties. Let’s consider 2 streams, one is purchasing established properties, the other is purchasing new builds.

  • Established properties: this purchase, in my opinions, does not contribute to the productivity of the whole economy. It’s just moving money, or mostly credits in this instance, from one bank to another. And because the price of properties has been rising, there is more and more credits being created every time properties change hands. Which may lead to the breaking point where people realize that there are just too much debt to pay, and we have a time bomb waiting to explode.
  • New builds: contribute a temporary boost of productivity and jobs, due to the fact that someone has to build the property. However it is not sustainable. Some people will argue that we can keep building houses, but we only have like 30 millions population. Who are you building these properties for? Unless the government has a better migration policies, and hoping that people will flock into Australia, we might not end up where we think.
Source: ABS

Since when are we borrowing to buy properties more than we invest into our business, and therefore the economy???

Employment

I have seen companies who wants to employ an experienced level person for 6 months, but unable to do so. They put their compensation to more than $160,000 per annum but there was no hope. At the end, they needed to source the resource from oversea.

We are facing an issue where most of our senior level employees are from migrations, and not a lot locally. This may be the reason why employment is still high, and even if it’s low, the people who got employed may not worth it. The longer our border restriction is, the companies become more desperate and they will need to either go for offshore resources, or agree to a sub-optimal local one.

I know about this because I’m running a service to help businesses finding their offshore resources. The business is called VA For Everyone. And I talked to a lot of business owners with resounding answers that are similar to what I described above.

Summary

I guess that’s long enough for a rant. The economy and the employment aspects are pretty weird and I manage to take advantage of it by providing people what they need. However if this drags out for another year, I am not sure what is going to happen.

Next part I will share my thoughts on people’s psychology from observing people in my circle.

“You see, but you do not observe” – Sherlock Holmes

By Tuan Nguyen

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