<a href="https://www.apartments.com.au/developers/draycon">Draycon Building</a> is nearing completion of Boutique Chevron Island, a 42-apartment development on the northern end of Chevron Island at 17–19 Parneno Street, with a limited-time offer of fully furnished apartments available.

Now more than 90 per cent complete, <a href="https://www.apartments.com.au/buildings/boutique-chevron-island-17-19-parneno-chevron-island-qld-4217">Boutique</a> has been shaped by one of the Gold Coast’s most tightly held island addresses, where riverfront outlooks and walkable access to Surfers Paradise converge.

For Draycon Building Managing Director Howard Dabit, the appeal of the site was immediate.

“I knew it was a good site as soon as I saw it,” Dabit said.

“The position and location on the north end of <a href="https://www.apartments.com.au/developments/chevron-island-qld-4217">Chevron Island</a>, the way the river swirls around the site basically from the north to the east, it feels like the site is surrounded by the water. The height that we’ve got and the aspect looking north is beautiful. Eighty per cent of the apartments are looking north so they get that drenching sunlight coming in.”

[smartcode_project:default project_id=89709 project_image_fid=360922]

That northern orientation places the development within a stretch of Chevron Island defined by open river aspects and skyline views, while remaining embedded in the suburb’s established village setting.

Chevron Island has increasingly drawn owner-occupiers seeking centrality without the intensity of high-rise beachfront living. Positioned at the geographical centre of the Gold Coast, the island offers direct access to both the beach and key cultural infrastructure while retaining a neighbourhood-scale character.

Connected by bridge to Surfers Paradise, Chevron Island offers walkable access to beaches, riverfront parklands and a revitalised foreshore boulevard animated by walkers and cyclists throughout the day. The Pacific Ocean is only minutes away, reinforcing the suburb’s dual river-and-surf identity.

At the same time, Thomas Drive forms the spine of the island’s village life, delivering cafés, wine bars, casual dining and everyday services within easy reach. Independent grocers, wellness operators and neighbourhood retailers contribute to a community atmosphere that remains distinct from the vertical scale of the beachfront.

[smartcode_project:default project_id=89709 project_image_fid=360915]

In the opposite direction, the Green Bridge links directly to HOTA – Home of the Arts – placing galleries, performance venues and parklands within walking distance. Weekly markets and major exhibitions draw visitors from across the region, while residents return to a quieter residential pocket at day’s end.

Public transport, including nearby bus routes and the G:link light rail corridor along the coastal spine, strengthens connectivity north and south. Griffith University, the Gold Coast University Hospital precinct and established private schools such as The Southport School are all within a short drive.

Ongoing investment across Surfers Paradise, HOTA and the broader Southport corridor has elevated amenity while preserving Chevron Island’s comparatively low-rise residential character. It is this balance, walkable village atmosphere paired with metropolitan-scale infrastructure, that continues to differentiate the suburb from higher-density beachfront precincts.

Boutique comprises just 42 residences, designed to maximise river and skyline outlooks within this tightly held island setting.

Boutique Chevron Island is slated for completion in April 2026, with prices starting from $1,220,000.

[smartcode_project_cta:default project_id=89709]

Joel Robinson

Draycon Building’s Boutique Chevron Island places 42 residences at the heart of the Gold Coast

Sydney developer <a href="https://www.apartments.com.au/developers/deicorp">Deicorp</a> has secured planning approval for a $300 million residential development in Lindfield, marking the company’s second project on Sydney’s North Shore and its first on the Upper North Shore.

Located on Beaconsfield Parade and designed by DKO Architecture, the state significant development comprises three buildings of up to 10 storeys and will include 399 residences, including 59 affordable homes and 40 adaptable homes.

Residences will range in size from one, two and three bedrooms, with two-bedroom apartments accounting for over 60 per cent of the product make-up. Residents will have access to a broad suite of amenities, including a wellness area, indoor and outdoor recreational spaces, a pool, a gym, a community room and a golf simulator.

In line with Deicorp’s long-standing focus on creating transit-oriented communities, the project is located just 260 metres from the Lindfield Train Station, reinforcing its role in delivering well-connected housing close to established infrastructure, retail and local services.

The inclusion of affordable and adaptable housing supports greater diversity within the local market, while the mix of apartment types responds to demand from downsizers, young professionals and families seeking access to the Upper North Shore.

Deicorp Founder Fouad Deiri OAM said the approval represents an important milestone for both the company and the suburb

“This approval allows us to deliver well-designed homes in a location that is already supported by strong transport and community infrastructure," Deiri said.

"Our focus is on creating places that integrate into their surroundings and provide long-term value for residents, and the broader Lindfield community. Being within walking distance of the station ensures this project supports sustainable growth in the right locations."

Across its portfolio, Deicorp currently has 4,703 apartments under construction, playing a leading role in shaping connected, liveable communities across Sydney.

Its expanding portfolio of Metro-linked developments includes Tallawong Village, <a href="https://www.apartments.com.au/new-apartments/kings-bay-village-five-dock-53-75-queens-road-five-dock-nsw-2046">Kings Bay Village</a> in Five Dock, <a href="https://www.apartments.com.au/new-apartments/hyde-metropolitan-sydney-133-141-liverpool-street-sydney-nsw-2000">Hyde Metropolitan</a> in Sydney CBD, <a href="https://www.apartments.com.au/new-apartments/falcon-alexander-crows-nest-8-alexander-street-crows-nest-nsw-2065">Falcon &amp; Alexander</a> in Crows Nest and Showground Village, Castle Hill.

Deicorp purchased the Beaconsfield Paradise site last year. Construction is scheduled to commence in Q2 of 2026 and will be completed in 2029.

Deicorp expands portfolio to nearly 5,000 apartments with Lindfield project

In a joint venture with The Trump Organization, Australia developer Altus Property Group has announced plans to bring a Trump International Hotel &amp; Tower to the Gold Coast, marking the first Trump-branded project in Australia.

"Trump International Hotel &amp; Tower, Gold Coast is our first official project in Australia and reflects our unwavering commitment to delivering world-class luxury experiences in iconic locations around the world," Eric Trump, Executive Vice President of The Trump Organization, said.

"This development exemplifies the Trump brand’s dedication to quality, sophistication, and unmatched service, and we are thrilled to bring this vision to the vibrant Gold Coast community."

The 91-storey building, which will become the tallest in Australia at 335 metres, will feature a&nbsp;285-room luxury hotel bearing the trademark Trump logo. It will also include 272 luxury residential apartments, a three-level podium with an exclusive Beach Club, and over 3,400 sqm of premium commercial, retail, and dining space, revitalizing the central Surfers Paradise precinct.

“Trump International Hotel &amp; Tower, Gold Coast will be a truly unique offering in the Australian market, bringing the prestige and allure of a world-class luxury brand,"&nbsp;Altus founder and chief executive David Young said.

"Altus Property Group is proud of its track record in delivering landmark developments across Australia, and our expertise ensures this project will be an outstanding success."

Trump Hotel heads for the Gold Coast to become Australia's tallest building

More than a century after the Corrimal Coke Works first opened in 1912, the industrial landmark that helped shape the suburb is being reinterpreted as a walkable residential neighbourhood, with Stage One of <a href="https://www.apartments.com.au/new-apartments/the-works-stage-one-27-railway-street-corrimal-nsw-2518">The Works</a> now underway at 27 Railway Street.

For 102 years, the site was central to <a href="https://www.apartments.com.au/developments/corrimal-nsw-2518">Corrimal</a>’s economic and social identity before operations ceased in 2014. Rather than erasing that legacy, developer Legacy Property has embedded it into the masterplan, retaining and reinterpreting elements such as the iconic 1912 brick chimney and sections of the original C1 Coke Oven Battery, alongside the adaptive reuse of the former powerhouse building.

Stage One will introduce 181 apartments across low-rise buildings, offering predominantly two and three-bedroom residences with completion targeted for mid-2027. The scale and configuration reflect a deliberate focus on owner-occupiers, targeting those seeking a lower-maintenance home in a prime location within the northern suburbs of Wollongong.

[smartcode_project:default project_id=143415 project_image_fid=359833]

Apartments have been designed to maximise natural light and cross-ventilation, with floor-to-ceiling glazing extending living areas onto generous balconies. Engineered timber flooring, induction cooktops and 900mm ovens in larger residences support everyday functionality, while two interior palettes allow buyers to tailor finishes to their preferences. The material selection draws on a restrained coastal language, intended to connect homes to their surroundings rather than compete with them.

The Works forms part of a broader 18-hectare masterplan that will ultimately deliver around 550 dwellings, new parks, and a heritage precinct celebrating the site’s past. More than seven hectares are dedicated to open space, including Southern Park and a Village Green with community gardens and recreation areas. The creek corridor is being rehabilitated with 150,000 native plantings, restoring biodiversity to the site and softening landscape.

[smartcode_project:default project_id=143415 project_image_fid=359841]

Positioned adjacent to Corrimal Station and within walking distance of Corrimal Town Centre, the precinct places daily essentials, rail connections and local retail within easy reach. Wollongong CBD, including the hospital, university and entertainment venues, sits approximately 6.5 kilometres to the south.

For buyers more familiar with North Wollongong, Corrimal offers a different proposition: a well-established coastal suburb framed by beaches to the east and the escarpment to the west, with a strong sense of local identity shaped in part by the former Coke Works. The Works seeks to reinforce that identity by creating a connected, walkable neighbourhood between coast and escarpment, rather than a standalone apartment complex.

Sustainability underpins the development approach. The Works is targeting Wollongong’s first 5-Star Green Star-rated community, with water-sensitive urban design, recycled materials and energy-efficient buildings integrated across the masterplan. For residents, these measures provide not only environmental benefits but also reduced operational costs and future resilience.

[smartcode_project:default project_id=143415 project_image_fid=359842]

With construction commenced and display materials available to view, prospective buyers can now engage more directly with the project’s vision, reviewing floorplans, material selections and the broader masterplan in detail. For many local homeowners weighing a move, the opportunity to experience how heritage, landscape and contemporary design intersect may help bridge the gap between familiarity and the next chapter.

As Stage One progresses toward its mid-2027 completion, The Works represents a significant chapter in Corrimal’s evolution, transforming a site that once powered local industry into a walkable residential precinct designed for its next generation of residents.

[smartcode_project_cta:default project_id=143415]

Legacy Property’s The Works reimagines Corrimal’s century-old Coke Works

When it comes to developing in Melb​ourne's Bayside region, <a href="https://www.apartments.com.au/developers/lowe-living">Lowe Living</a> knows exactly what buyers want.

With a longstanding presence in the area and a string of sell-out projects, Lowe Living consistently delivers developments that are as sought-after as their predecessors.

Their latest instalment is in <a href="https://www.apartments.com.au/developments/hampton-vic-3188">Hampton</a><a href="https://www.apartments.com.au/developments/hampton-east-vic-3188">&nbsp;East,</a> the same postcode where they have previously delivered Hampton Hill and Oceano. The developer-builder recently commenced construction on its newest project,&nbsp;<a href="https://www.apartments.com.au/new-apartments/marella-hampton-31-35-alicia-street-hampton-east-vic-3188">Marella</a>, a collection of 32 apartments just five minutes from the beach.

Site acquisition is paramount to success. Lowe Living rarely brings a building to market that isn’t within walking distance of essential amenities, whether it be the beach, a prominent retail strip, or a train station. Marella is no exception, located at its Alicia Street address, less than a kilometre from the retail heart of Hampton Street and Hampton Station.

[smartcode_project:default project_id=146197 project_image_fid=358495]

Equally important to Lowe Living is the architecture.

For Marella, they appointed <a href="https://www.apartments.com.au/architects/cera-stribley-architects">Cera Stribley</a>, who explains that the architectural vision was to create a contemporary reinterpretation of the Californian bungalow, a style that’s iconic to Hampton’s heritage.

"By borrowing, abstracting, and reinterpreting elements of this quintessential style, such as strong datum lines, articulated columns, exposed structures, and roof tiles, our design strikes a balance between modernity and familiarity," says Cera Stribley.

"This approach ensures that the development is not only visually appealing but also contextually sensitive, resonating with Hampton's existing architectural landscape."

[smartcode_project:default project_id=146197 project_image_fid=358499]

The building features terracotta brick, soft cream masonry, and exposed metal detailing, giving it a tactile presence that is intended to weather gently over time.

Internally, the focus on lasting quality continues, with two and three-bedroom residences anchored by sculptural stone kitchen islands, natural light, and clearly defined transitions between living, dining, and outdoor spaces.

The layouts have been carefully designed. Open-plan zones extend to private balconies, with light-filled interiors and generous kitchen proportions, supported by Miele wall ovens, induction cooktops, and integrated fridge-freezers. These are not small apartments rebranded as luxury; they have been designed at scale, with ample storage, hotel-style entry access, and secure basement parking provided as standard.

[smartcode_project:default project_id=146197 project_image_fid=358492]

At the uppermost level, Marella’s Signature Collection penthouses offer city or bay views, large entertaining terraces (some with outdoor spas), and elevated finishes, including fully wrapped stone kitchen benches and a Liebherr wine fridge.

Flexible room arrangements allow for a fourth bedroom or secondary living space, sought-after by both empty nesters who want the space when family visits and families with older children.

[smartcode_project:default project_id=146197 project_image_fid=358498]

A residents’ lounge on the ground floor reinforces the project’s small-community feel. With a fireplace, private dining area, and adjoining terrace, it’s one of several shared spaces that balance amenity with privacy and scale.

Construction has commenced, with completion expected in early 2027.

[smartcode_project_cta:default project_id=146197]

Lowe Living continues Bayside legacy as Marella rises in Hampton

Global Financial Crisis

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<img src="/images/2016/03/Holdencapital_banner.jpg" alt="" width="655" height="138">
SPONSORED POST
Currently we are seeing a constant barrage of articles from all sectors of the press and social media regarding the onset of an impending financial readjustment or even a collapse, with some arguing it will be worse than the last GFC.
There are many areas being pointed to as the likely root causes or triggers for this financial Armageddon and most are driven by international triggers well beyond our control, however the potential ramifications on our markets are being touted as devastating and even their potential occurrences are impacting our day to day business confidence.
One key area of influence that we have touched on previously is the impact of the post GFC capital requirements on our banks and how that impacts their appetite for construction lending. It is important to understand why this is happening but of more importance is what you need to do to ensure your business is not adversely impacted.
While the changes in bank policies towards construction lending will fluctuate within certain low risk parameters, these overriding regulatory requirements are not temporary responses to a specific event; they represent an ongoing constraint that will impact the pricing and structure of all future loan transactions and represent a new world order in construction finance.
Fundamentally this is because Australians have an expectation that their savings accounts will always be there when things get tough and they expect their politicians to ensure that this is so. No political leader wants to be explaining why they allowed unscrupulous lenders to lose the hard earned savings of their Mum and Dad depositors.
Accordingly, Governments of both persuasions continue to apply pressure on the major banks via the available regulatory levers to ensure that their contingent exposure to underwriting a portion of the banks deposit funds is appropriately controlled and that the banks risks are “well managed”.
History tells us that during booms, lenders can get over-excited and sometimes leads to being careless in the race to secure a share of the profits being generated as markets run hot, and then as it peaks and the signs are there that risks are increasing, the temptation to do “one more deal” often leads to losses.
The regulatory requirements being imposed on the banks are designed to minimise this risk and this is demonstrated by the recent changes seen their attitude towards construction lending that has been substantially pared back to ensure that they maintain appropriate capital reserve exposures.
Putting aside the question of the profitability of these types of loans to the major banks which we have also addressed in a previous paper, all bank loans of this type are now assessed on deal-by-deal basis with all the relevant factors input into a complex risk model in order to monitor the banks risk profile as prescribed by ASIC. As a consequence, there are far fewer “discretionary” decisions available to your bank manager when he deals with your application, which also reflects the lower risk appetite now prevailing amongst the major banks.
As a result of all this, developers can no longer expect their regular bank will provide the necessary funding just because “they have always done it in the past”. 
As many are learning, the fact that you may have had a 30+ year sound relationship with your bank is of no consequence and does not guarantee they will lend you money when you ask them for it, or on the terms they previously have.
With the banks limiting their exposure to the sector and pricing risk far more keenly than in the past, there is now a wide range of alternative providers of debt, equity and all the permutations between entering the market.
The challenge for tody’s developer is identifying which ones best fit both their business and specific project needs. This in turn requires a readjustment of expectations as to what constitutes an appropriate finance cost when assessing project viability.
While all this sounds like the industry has become a lot more complicated, and in some ways it has, it also means there are far more options available to Developers, enabling them to fulfil their project ambitions and maximise their available capital.
As a consequence, knowledge of all these competing options is a critical prerequisite to getting the best outcome. Even more importantly, engaging the right finance consultant who can navigate your transaction through to a successful conclusion, just as you would with any specialised requirement such as town planning or engineering solutions, is the key to securing funding and ensuring a profitable outcome for your next development.
As always, your success is directly related to how well you adapt and deal with change and as the saying goes, there is nothing surer than change. So make sure that you are setting your expectations at the appropriate levels and getting sound advice.
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arrange construction finance and invest in projects through their equity fund, Queen Street INVEST. To discuss your project finance requirement please call (07) 3171 4200 or visit HoldenCAPITAL <a href="https://www.holdencapital.com.au/" target="_blank">here</a>.
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firstname-zEygzUaHDN

Development finance new world order: Resetting your expectations for success

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EXPERT OBSERVER
There is always someone telling us that there is some sort of economic/financial disaster coming our way.
However, there does seem to be a higher level of hand wringing now about the global economic outlook than normal.
 These concerns basically go something like this: 
Global debt – both public and private – is at record levels relative to GDP and with public debt ratios so high there is no scope for fiscal stimulus should things go really bad. 
Years of quantitative easing and other unconventional monetary policies like negative interest rates by central banks in major advanced countries haven’t worked and seem to have no end.
More and more debt globally is trading on negative interest rates – it’s now around $US14 trillion including around 25% of all government bonds – which is unnatural and causing distortions in valuing assets with risks of asset bubbles.
Inequality (as measured by Gini coefficients) is rising – particularly in the US – which is driving a populist backlash against rationalist market-friendly economic policies of globalisation/free trade (as evident in Trump’s trade wars), deregulation and privatisation. 
This along with the relative decline of US economic and military power is contributing to geopolitical tensions as we move from a “unipolar world” (dominated by the US after the end of the Cold War) to a “multipolar world” as other countries (China, Russia, Iran/Saudi Arabia, etc) move in to fill the gap left by the US or even “challenge” the US.This is all seen as being bad for global growth and hence growth assets, all of which is being heightened by the downturn in global growth seen over the last year or so.
 Five reasons not to be too fussed
There is no denying these concerns. Debt is at record levels globally. QE has been running in various iterations for more than a decade now in some countries.
Inequality is up – albeit its mainly a US and emerging country issue. Support for market-friendly economic rationalist policies such as globalisation, deregulation and privatisation seems to have waned (except in France). And geopolitical risks are up.
All these developments point to the risk of slower global growth and investment returns ahead and may figure in the next major bear market. But there is always something to worry about (otherwise shares would offer no return advantage over cash) and trying to time the next downturn is hard. Moreover, there are five reasons not to get too fussed about the global outlook.
1. Debt is more complicated than being at a record
History tells us that the next major crisis will involve debt problems of some sort. But what’s new – they all do! Just because global debt is at record levels does not mean that a crisis is imminent.
There are several points to note here:
<ul>
<li>debt has been trending up ever since it was invented; </li>
<li>comparing debt to income (or GDP) is like comparing apples to oranges as debt is a stock and income is a flow – the key is to compare debt against assets and here the numbers are not so scary because debt and assets tend to rise together;</li>
<li>debt interest burdens are low thanks to low interest rates;</li>
<li>all of the rise in debt in developed countries since the GFC has come from public debt and the risk of default here is very low because governments can tax and print money.</li>
</ul>
While Modern Monetary Theory has its issues, it does remind us that as long as a government borrows in its own currency and inflation is not a problem, it has more flexibility to provide stimulus than high public debt to GDP ratios suggest.
2. QE’s end point is not necessarily negative
Quantitative easing and other unconventional monetary policies actually do appear to have helped. Since its high in 2013 unemployment in the Eurozone has fallen from 12% to 7.5% and in the US it fell from 9% in 2011 to 4% in 2017 enabling the Fed to start unwinding unconventional monetary policy.
Inflation has not been returned to 2% targets, but wages growth has lifted and at the start of last year it looked like the global economy was getting back to normal. What kicked the global economy off the rails again was a combination of Trump’s trade wars, a debt squeeze in China and tougher auto emission controls. But this it wasn’t due to a failure of quantitative easing. As to how quantitative easing is eventually unwound there is no easy answer, but there is no reason to believe that it will end with a calamity.
First, in the absence of a surge in inflation necessitating a withdrawal of the money that has been pumped into the global economy there is no reason to withdraw it. And when inflation does start to rise it can be reversed gradually by central banks not replacing their bond holdings as they mature.
Second, the assets central banks purchased as part of QE have boosted the size of their balance sheets but the varied size of central bank balance sheets from one country to another as a share of their economy shows that there is no natural optimal level for them.
In fact, the Fed is now resuming natural growth in its balance sheet as occurred prior to the GFC so its balance sheet may just stay high (as along as inflation is not a problem).
Finally, if push came to shove just consider what would happen if say the Bank of Japan told the Japanese government that it no longer expects payment at maturity for the 50% of Government bonds it holds?
The BoJ would write down its bond holding and the Japanese Government would suffer a loss on its investment in the BoJ but that would be matched by a write down in its liabilities.
Basically, nothing would happen except that Japanese government debt would fall dramatically!
 3. Inflation and interest rates are low
The key thing that has caused many sceptics to miss out on good returns this decade is that they focussed on low inflation as reflecting low demand growth but missed out on the positive valuation boost to assets like shares and property that low inflation and low interest rates provides.
 4. Rapid technological innovation and growth in middle income Asia is continuing
This is well known and has been done to death, so I won’t go over it suffice to say that there are still a lot of positives helping underpin the global outlook and these two remain big ones.
5. Global growth looks like it may pick up
While the slowdown in global growth over the last 18 months has been scary and associated with share market volatility, the conditions are not in place for a deeper slide into global recession like we saw at the time of the GFC – excesses like overspending, surging inflation, excessive monetary tightening are not present.
 In fact, various signs are pointing to a cyclical global pick up ahead: 
<ul>
<li>Bond yields are up from their lows &amp; look to be trending up;</li>
<li>The US yield curve is now mostly positive – suggesting the inversion seen this year may have been another false recession signal like seen in 1996 and 1998; </li>
<li>European, Japanese &amp; emerging shares are looking better; </li>
<li>Cyclical sectors like consumer discretionary, industrials and banks are looking better;</li>
<li>The US dollar looks like it might have peaked; and </li>
<li>Business conditions PMIs for the US, Europe &amp; China were flattish in October &amp; may be stabilising.</li>
</ul>
This saw the global manufacturing PMI go sideways and a rise in the services PMI and both still look like the 2012 and 2016 slowdowns.
These could be pointers to global monetary easing getting traction. Of course, much depends on what happens to geopolitical risks.
The US election next year will be a big one to keep an eye on and beyond that US/China tensions look likely to be with us for years. But there is reason to expect some respite in the short term on the geopolitical front:
First, the economic slowdown in both China and the US is pressuring both to defuse the trade dispute in the short term. This pressure is greater now as Trump wants to get re-elected next year and knows that he won’t if he lets the US slide into recession or unemployment rise.
China may prefer to wait till after the election but is more likely to opt for the devil it knows.
Second, Trump’s avoidance of retaliation after the attack on Saudi’s oil production facilities in September shows a desire to avoid getting into military conflict in the Middle East.
Third, Brexit risks are on the back burner for now (although they could still come up again next year).
Concluding comment
There is good reason to expect the global economic cycle to turn up in the year ahead just as it did after the growth in 2012 and 2016. This should be positive for growth assets like shares.
Finally, for those worried that more and more debt will trade at negative interest rates our view is that this is unlikely: many countries have already sworn off using rates including the US and RBA Governor Lowe says it’s extremely unlikely in Australia. And if growth picks up as we expect the proportion of global debt on negative rates will decline as it did after 2016.
DR SHANE OLIVER Head of Investment Strategy and Chief Economist AMP Capital
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soliver-smf6LQXgW9

Five reasons I'm not fussed about the global economic outlook: Shane Oliver

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EXPERT OBSERVER
Ever since the Global Financial Crisis (GFC) there has been an obsession with looking for the next recession.
In this regard, over the last year or so there has been increasing concern that a flattening yield curve in the US - ie the gap between long-term bond yields and short-term borrowing rates has been declining - is signalling a downturn and, if it goes negative, a recession in the US.
This concern naturally takes on added currency given that the current US bull market and economic expansion are approaching record territory in terms of duration and given the trade war threat.
The increased volatility in shares seen this year, including a 10% or so pull back in global shares earlier this year, adds to these fears.
Whether the US is about to enter recession is critical to whether the US (and hence global) bull market in shares is about to end. Looking at all 10% or greater falls in US shares since the 1970s (see the table in Correction time for shares?), US share market falls associated with a US recession are longer lasting and deeper with an average duration of 16 months and an average fall of 36% compared to a duration of 5 months and an average fall of 14% when there is no recession.
Similarly, Australian share market falls are more severe when there is a US recession.
So, whether a recession is imminent or not in the US is critically important in terms of whether a major bear market is imminent.
The long US economic expansion and bull market The cyclical bull market in US shares is now over nine years old.
This makes it the second longest since WW2 and the second strongest in terms of percentage gain.
And according to the US National Bureau of Economic Research the current US economic expansion is now 109 months old and compares to an average expansion of 58 months since 1945.
See the next two tables. So, with the bull market and the economic expansion getting long in the tooth it’s natural to ask whether it will all soon come to an end with a major bear market.
<img src="https://www.urban.com.au/images/2018/7/20/Oliver%20Graph%201.JPG" alt="">
The yield curve flattens – but it’s complicated 
The yield curve is watched for two reasons. First, it’s a good guide to the stance of monetary policy. When short-term interest rates are low relative to long-term rates it indicates businesses can borrow short and lend (or invest) long &amp; this grows the economy.
But it’s not so good when short rates are above long rates – or the curve is inverted. And secondly an inverted US yield curve has preceded US recessions. So, when it’s heading in this direction some start to worry.
However, there are several complications. First, which yield curve?
Much focus has been on the gap between 10-year bond yields and 2-year bond yields which has flattened to just 0.3%, but the Fed has concluded that the traditional yield curve based on the gap between 10-year bond yields and the Fed Funds rate is a better predictor of the economy and it has flattened but only to 1%
. based on the gap between 2-year bond yields and the Fed Funds rate predicted past recessions like the longer yield curves but has actually been steepening in recent years which is positive.
<img src="https://www.urban.com.au/images/2018/7/20/Oliver%20Graph%202.JPG" alt="">
Second, the yield curve can give false signals – the traditional version flattened or went negative in 1986, 1995 and 1998 before rebounding – and the lags from an inverted curve to a recession can be long at around 15 months.So even if it went negative now recession may not occur until late 2020.
Third, various factors may be flattening the yield curve unrelated to cyclical economic growth expectations including still falling longterm inflation and real rate expectations, low German and Japanese bond yields holding down US yields and higher levels of investor demand for bonds post the GFC as they have proven to be a good diversifier to shares in times of crisis.
Fourth, a flattening yield curve caused by rising short term rates and falling long term rates is arguably more negative than a flattening when both short and long term rates go up like recently.
Finally, a range of other indicators which we will now look at are not pointing to an imminent US recession.
Watch for exhaustion, not old age
A key lesson of past economic expansions is that “they do not die of old age, but of exhaustion”.
The length of economic expansions depends on how quickly recovery proceeds, excess builds up, inflation rises and the central bank tightens.
The US economic recovery may be long, but it has been very slow such that average economic and employment growth has been around half that seen in post WW2 expansions.
So as a result it has taken longer than normal for excesses to build up.
Apart from flattening yield curves one area where the US is flashing warning signs is in relation to the labour market where unemployment and underemployment have fallen about as low as they ever go warning of a wages breakout and inflation pressure.'
<img src="https://www.urban.com.au/images/2018/7/20/Oliver%20Graph%203.JPG" alt="">
However, there is still arguably spare capacity in the US labour market (the participation rate has yet to see a normal cyclical rise) and wages growth at 2.7% remains very low.
The last three recessions were preceded by wages growth above 4%.
Secondly, while US GDP is now back in line with estimates of “potential”, what is “potential” can get revised so it’s a bit dodgy and more fundamentally, industrial capacity utilisation at 78% is still below normal of 80% and well below levels that in the past have shown excess and preceded recessions.
Thirdly, cyclical spending in the US as a share of GDP remains low. For example, business and housing investment are around long term average levels as a share of GDP in contrast to the high levels in one or both seen prior to the tech wreck and GFC.
<img src="https://www.urban.com.au/images/2018/7/20/Oliver%20Graph%204.JPG" alt="">
Finally, while the rising Fed Funds rate and flattening traditional yield curve is consistent with tightening US monetary policy, it’s a long way from tight.
Past US recessions have been preceded by the Fed Funds rates being well above inflation and nominal economic growth whereas it’s still a long way from either now. See the next chart.
<img src="https://www.urban.com.au/images/2018/7/20/Oliver%20Graph%205.JPG" alt="">
US likely to see overheating before recession 
Apart from the amber lights flashing from the flattening yield curve and very low unemployment our assessment is that a US recession is still some time away as it will take time for excesses to become extreme and US monetary policy to become tight.
Looked at another way, the US is still more likely to overheat before it goes into recession.
We have been thinking recession is a 2020 risk.
The end of the current fiscal stimulus around then would also be consistent with this. However, given the current slow pace in terms of building excess, that 2020 is a presidential election year – do you really think Trump will allow the US to go off a fiscal cliff then? – and with 2020 being the consensus pick for a downturn, the risk is that it comes later.
Of course, an escalating trade war could mess things up earlier, although we still see a negotiated solution.
The rising US budget deficit is a concern but it’s more of an issue for when the economy turns down as this is when investors will start to worry about its sustainability. And of course a 1987 style share market crash cannot be ruled out but probably requires a share market blow off before hand.
In the meantime, the Fed has more tightening to do and while share market volatility is likely to remain high as US inflation and short rates rise, excesses gradually build and given risks around Trump and trade, with recession still a way off the US and global share bull market likely still has some way to go.
Dr Shane Oliver is the Head of Investment Strategy and Chief Economist for AMP Capital.
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