Blog

Wed, 22 Oct 2014  |  

Within hours of the news that Gough Whitlam had died, age 98, the mantra of 'hopeless economic management' started to flow.

According to those who clearly loathe Whitlam and anything vaguely socially progressive, Fairfax and The Australian had stories where the Tea Party faithful in Australia wrote or were quoted saying, Whitlam was the worst Prime Minister Australia had seen, he was economically damaging, that he set up the culture of entitlement especially for health and university education, that he created the mentality of the dole bludger and so on.

I am sure you get the drift.

Fri, 17 Oct 2014  |  

The global economic slowdown and market turmoil is a cause for concern for Australian policy makers.

The RBA will soon need to consider cutting interest rates based on low inflation, rising unemployment and general economic weakness. For the budget, Treasurer Joe Hockey is facing revenue write-downs from the disinflation funk that is hitting the local economy at the same time the government is ramping up spending. When the Mid Year Economic and Fiscal Outlook is released in December, the budget deficits will be bigger than forecast at Budget time.

The clip below is me talking to Chris Hammer from Fairfax Media on 16 October.

https://media.theage.com.au/news/federal-politics/economic-turmoil-threatens-budget-5884584.html 

Wed, 15 Oct 2014  |  

This article was originally published on 30 April 2013 on my old blog, marketeconomics.com.au

The background to this article was Mr Abbott taking a significant pay cut after the 2007 election when he went from a Ministerial salary of around $200,000 a year to a Shadow Minister's salary of around $110,000 a year. He and his family clearly maintained their spending levels, did not 'tighten their belts' in any observable way and reverted to debt - a $710,000 mortgage - to cover his expensive lifestyle choices. The article has not been altered to take account of events since April 2013.  

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Here's a true story. It's about a man called Tony.

Tony is a hard working Aussie, doing his best to provide for his family. He has a good job, but such is the nature of his work that his income is subject to unpredictable, sharp and sudden changes.

Tony's much loved and wonderful children go to a private school and wow, those fees that he choses to pay are high. He used to have a moderate mortgage, especially given he was doing well with an income well over $200,000 per annum.

Then things on the income side turned sour.

Wed, 15 Oct 2014  |  

Deflation is spreading like the plague throughout Europe to the point where negative interest rates are in play. In the UK, inflation has cascaded to a 5 year low and is set to fall further as the early and encouraging signs of economic recovery in the first half of 2014 are snuffed out. Even in the US inflation is too low and this alone is seeing the market question just when the US Federal Reserve will start to hike interest rates from zero per cent.

This morning the oil price has crashed to below US$82 a barrel (WTI) as a ramp up in supply meets softening demand. The global indices of commodity prices are also plumbing fresh lows.

For Australia, this news is poison.

Tue, 14 Oct 2014  |  

On election night, in September 2013, Tony Abbott claimed that with the election of his government, "From today I declare Australia is under new management and is once more open for business".

Well, 13 months on and the signs are not good for Mr Abbott with the business sector floundering, the stock market flat and under-performing and the unemployment rate rising. At the same time, consumers remain gloomy and the prospects for GDP growth hitting its long run trend at around 3.25 per cent are bleak.

Let's have a look at a few basic facts.

Sun, 05 Oct 2014  |  

The Australian dollar has already fallen a long way – a peak of US$1.10 in late 2011 and 0.95 from four months ago to under 0.87 at the moment.

Some might suggest that this sort of depreciation is sufficient given the still upbeat outlook for growth from the RBA and a bunch of other optimists, and the fact that the world's largest economy, the US, is looking entrenched in its long awaited recovery from the Lesser Depression.

The influences on the Australian dollar at the moment are very ugly.

The oil price (west Texas intermediate) is under US$90 a barrel, iron ore is under US$80 a tonne, gold is floundering around $US1,190 an ounce and copper is under $3.00 a pound.

Wed, 01 Oct 2014  |  

The report in the Australian Financial Review today confirms that the Abbott government's fiscal strategy is in tatters.

Elected on a platform to 'fix the budget' and tackle the 'budget crisis and emergency', the Abbott government is now planning a mini-budget in December to deal with the fact that its policies have resulted in a budget deficit blow out that at this stage, looks to be about as significant as some of the misses of the previous government.

According to the AFR, the Abbott government has capitulated on measures that would have lowered the budget deficit by around $30 billion over four years, which only adds to the frenzied spending by the Abbott government on RBA payments, national security, roads, defence and paid parental leave, among other things. Add to that a negative shock from the fall in commodity prices and the terms of trade, and the budget deficit projections that will be in Mid Year Economic and Fiscal Outlook will dwarf the numbers the Abbott government inherited in Pre-Election Fiscal Outlook.

Fri, 26 Sep 2014  |  

OK – the US economic recovery still seems robust enough to see the US Federal Reserve moving to hike interest rates over the next couple of years. It is not fanciful to suggest that the Fed funds rate will be near 1.5 to 2 per cent some time in 2016. Hardly draconian, but it would be part of the long run process of normalising monetary policy after the Lesser Depression of 2008 to 2011.

In Australia, the free-fall in the terms of trade, fiscal tightening, persistently glum consumer sentiment and the near certainty that house prices will stop rising – they could even fall modestly – suggests that the RBA will be moving to cut interest rates in the not too distant future. Indeed, it is not fanciful to think that the cash rate in Australia will be near 1.5 to 2 per cent some time in 2016.

The divergent economic trends and monetary policy settings will also play into the bond market. US bond yields will rise as the Fed hikes interest rates and the 10 year bond, currently yielding around 2.5 per cent, would likely trade near 3.5 per cent on the back of solid and sustained growth and Fed interest rate hikes.

For Australia, in a disinflationary funk, it would be likely that 10 year yields would fall from current levels around 3.5 per cent.

Tue, 23 Sep 2014  |  

The polls show some quite serious disenchantment with the Abbott government. The general trend shows that Labor is about 6 points ahead of the Coalition, plus or minus a couple of points for sampling variance and margin of error.

If an election was being held in the next few weeks, there is no doubt that Labor would be very short odds to win.

But the election is not a few weeks away. It is two years away and these polls count for nothing. Zip. Zero. Zilch.

They are interesting, to be sure, just like the score at lunch on the second day of a five day test match as they give a read on how some the political themes are unfolding, but they deliver not much more than that.

Mon, 22 Sep 2014  |  

It is very odd that the vast bulk of economists and market participants are content forecasting ongoing moderate economic growth, a topping out in unemployment and on-going pressures on inflation that will see it remain near the upper part of the RBA target.

Very odd because it is increasingly clear that the RBA will need to cut interest rates in the not too distant future as it rides to the rescue of faltering growth, deflationary pressures and stubbornly high and possibly still rising unemployment.

The commodity price free-fall continues unabated which is crunching national income and risking deflationary pressures in the economy. Iron ore, gold, coal, to name a few, are seeing prices fall to levels that threaten the cause market ructions for local producers.

THE LATEST FROM THE KOUK

Is the Aussie economy slowdown good or bad news for you?

Mon, 04 Mar 2019

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/aussie-economy-slowdown-good-bad-news-015353581.html 

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Is the Aussie economy slowdown good or bad news for you?

Your economic well-being is undergoing some significant changes at the moment. Whether that is good or bad news depends on your home ownership status and intentions to buy, and the amount of money you have in invested in shares either directly or indirectly in your superannuation fund.

To the stock market first

Having been beaten down late last year, the Australian stock market has staged a powerful pick up. Compared with the low point in December, the ASX200 has risen over 12 per cent in two months. This is, quite clearly, great news for your superannuation balance and for your wealth if you own any shares directly.

The change in sentiment about interest rates and a solid profit reporting season has underpinned this jump in share prices and with US and local interest rates set to remain low or be lowered in the months ahead, share prices should continue to do well.

Falling house prices met with dismay and joy

From the perspective of personal finances, the news on falling house prices has been greeted with both dismay and joy. Home owners in Sydney Melbourne, Perth and Darwin and reeling under the weight of wealth destruction with prices down by between 10 and 25 per cent.

In Sydney, for example, that house that was valued at $1 million back in the middle of 2017 is now worth around $870,000, a drop of $130,000 in less than two years.

Ouch!

2019-20 budget will be 'problematic': here's why

Wed, 20 Feb 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2019-20-budget-will-problematic-heres-194957605.html 

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2019-20 budget will be 'problematic': here's why

Word has it that the framing of the budget, due to be handed down by Treasurer Josh Frydenberg the day after April fools day (and around 6 weeks before the election), is more problematic than usual.

Problematic because there is some mixed news on the economy that will threaten the current forecast of a return to budget surplus in 2019-20.

Housing has gone into near free-fall, both in terms of prices and new dwelling approvals. This is bad news for GDP growth.  The unexpected severity of the housing slump is the key point that will see Treasury revise its forecasts for GDP growth, inflation and wages lower when the budget is handed down.

It will be impossible for Treasury to ignore the recent run of hard data, including the weakness in consumer spending and a generally downbeat tone in the recent economic news when it sets the economic parameters that will underpin its estimates of tax revenue and government spending and therefore whether the budget is in surplus or deficit.