The famous yield curve: buy or sell signal? You | Term Deposits

Here’s a warning:

My colleague Greg Canavan thinks we’re in a budding bear market.

I don’t.

In reality, I see a lot of the explanation why markets can keep climbing the fabled wall of fear.

Today’s Fat Tail Daily will clarify, partially, as to why.

Of course, all of us wish to know how possible a “hard” touchdown is in Australia or one other dump within the stock market.

One method is to watch what the banks and financial corporations are doing.

The Australian Bureau of Statistics can help with that. Their quarterly lending information got here out this week.

Credit is up over the 12 months.

That’s a good signal. The financial system ought to proceed to develop whereas this goes on.

Lower rates of interest – whether or not 5, 4, 3 or 2 cuts – will possible keep this buzzing alongside.

What else can we see?

Pepper Money ($PPM) is a non bank lender. They simply had their Annual General Meeting.

They shared this chart beneath. You can see that right here…

Credit demand is monitoring larger in 2025 than earlier years…not less than, to date.

Most of this credit is mortgage debt.

We can anticipate home costs to reply…by going larger…as all of the lenders reply in the identical method.

Then now we have the fuel to the flame because the Labor authorities juices first home patrons to get into the motion by way of 5% deposits.

And the broader backdrop will give them a additional push.

Property developer Tim Gurner warns the public that Australia faces a 15 12 months rental disaster.

There is, he says, document demand from immigration on the similar time provide has by no means seemed worse.

He might or will not be proper within the long run.

But if it enough people imagine it, they’ll act on it – and plough borrowed money into the housing market.

There’s one other useful level because of the Pepper crew…

The CEO says most of the lending demand is coming from the “Prime” section.

That’s strong income earners with secure jobs and verifiable budgets.

If that’s true throughout the industry, that’s a strong foundation for the following carry within the housing market.

Banks ought to be eager to lend.

One bank cited within the Australian Financial Review truly complained it has too many deposits and never enough loans!

That’s hardly the factor you’d anticipate to listen to if the financial system was overheating, with wild hypothesis occurring.

We might get to that atmosphere down the observe.

Jonathan Shapiro writes at this time that yield curves are steepening across the world, and that may very well be a sell signal.

I’m not sure I go together with that. Markets can’t be lowered to 1 issue, for starters.

And, bear in mind, it was solely a few years in the past everybody was fearful about an inverted yield curve portending a US recession…that by no means occurred.

Now we’re supposed to fret about a ‘normal’ yield curve? I’m confused.

The different factor is that – as I perceive, anyway – a steepening yield curve makes banks more profitable.

After all, the entire recreation is to borrow short to lend long. A steeper curve means they’ve a larger incentive to push out additional credit. That’s usually bullish.

Perhaps that’s half of why CBA shares proceed to defy the decrease price targets and short sellers?

That’s hypothesis on my half. But Matt Comyn does appear eager to develop CBA lending, too.

For you and me, there appears to be good worth in these smaller financial corporations like Pepper, Australian Finance Group ($AFG) and others.

Here’s Forager Funds on two that they like…

“…quarterly reports from lenders Plenti (PLT) and Wisr

(WZR) were upbeat. Both are growing their customer bases. Bad debts are well under control.

“And loan books are now growing for both businesses. As loan books and revenue increase, the team expects only small increases in both companies’ overheads, driving further rapid increases in profits.”

Again, to the broader level at the beginning of at this time’s missive, none of this appears like an impending recession for Australia.

Of course, keep the standard dangers in thoughts. Maybe Greg is correct and a bear market is looming. Perhaps the yield curve – or one thing else – upends markets.

That mentioned, to me…

Domestic names that may surf some renewed shopper energy and an growth in credit look very cheap propositions.

Best needs,

Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator

PS. It’s another excuse I’m urging my readers to buy good stocks. Here’s 4 for 2025.

In final week’s Closing Bell I set out the the explanation why I believed gold was about to get belted.

Four days later and gold has dropped US$141 (4%) to US$3,186.

I feel I could be heading in the right direction..

Gold flew larger within the first few months of 2025. One of the downsides of a actually sharp rally is that if a reversal happens there isn’t typically a lot help on the best way down.

The chart above reveals you the weekly chart of gold since 2020.

Below the chart I’ve the MACD indicator which is wanting on the relationship between the 10-week and 20-week shifting averages.

The blue line within the indicator is simply displaying you how far aside the 10-week shifting average is from the 20-week shifting average.

The black line is a shifting average of the blue line. Simple.

Over the final 5 years the crossover of the blue line with the black line within the MACD indicator has been fairly good at supplying you with a sense of the short time period trends.

I’ve circled the moments when the crossovers happen after which positioned arrows on the chart above to mirror the place the price of gold headed after the crossover.

During the robust rally since early 2024, shopping for the bullish crossover of the weekly MACD has labored like a allure.

When the bearish crossover occurred during the rally, the gold price didn’t fall far, however it did often spend some time in a vary or promoting off barely.

Looking at the moment second and you may see that the MACD is close to confirming a bearish crossover.

That signifies that the correction in gold could also be simply getting began.

I can see lots of help in gold round US$3,000, so that’s a fairly strong goal on this correction.

But there’s no need to get too caught up in attempting to foretell the low of the correction, as a result of we are able to simply observe the weekly MACD alongside and after we get one other bullish crossover it’s most likely time to start out loading up again.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps