Blog

Wed, 28 May 2014  |  

The price of gold has fallen to US$1,265 an ounce this morning, for reasons that no one knows. In Australian dollar terms, gold is around $1,365 an ounce which is back to the level first reached in January 2009.

Think of it - that is more than five years of zero capital growth, no interest or yield and a considerable cost of holding the shiny dirt in the form of security such as a safe or safe deposit boxes at a bank.

What a dog of an "investment".

Tue, 27 May 2014  |  

Amid all of the political kerfuffle, opinion polls and growing sense of incompetence surrounding the Abbott government, the betting markets continue to have the Coalition as warm to hot favourites to win the next Federal election.

For those punters thinking Labor will cruise to victory at the next election, buoyed by disenchantment with thet Abbott government, as much at $2.65 is available from the bookies. In other words, punters can get a 165 per cent tax free return for a 28 months investment if in fact Labor romp home at the next election.

These appear to be generous odds in a two-horse race where the polls are generally 53 to 56 per cent to Labor and 44 to 47 per cent to the Coalition.

Mon, 26 May 2014  |  

The RPData house price series shows that house prices have tumbled a quite remarkable 1.7 per cent so far in May. This follows a softish 0.3 per cent rise in April and it just might be signaling something starting to go amiss in the $5 trillion housing market.

To be sure, the RPData house price series are not seasonally adjusted, they are produced on transactions from several months ago and no doubt there are other foibles in the series, but they are often used by the RBA to judge house price trends and for that reason alone, they are worthy of mention.

It was always likely that house prices would be softening after the strong gains between late 2012 and early 2014. It is just that the catalyst for the slowing - higher interest rates – has not been the cause.

Wed, 21 May 2014  |  

I am very, very surprised at the extent to which some key drivers of the Australian economy have hit a brick wall.

It is increasingly clear that this means the RBA is on hold for a while longer and my earlier view that the economy would sustain a period of strong growth was probably wrong. This upbeat view has been superseded by a strange and disconcerting run of economic news.

Consumer sentiment has been smashed, with the ANZ-Roy Morgan measure dropping a tub-thumping 14 per cent in a month. With interest rates obviously on hold, stock prices sort of flat and no other significant factor about, it must be reaction to the budget that is driving this collapse in sentiment. It is a similar story with the Westpac-Melbourne Institute measure of consumer sentiment which dumped 6.8 points in May to be at levels associated with very weak growth in consumer spending.

Sun, 18 May 2014  |  

One of the issues in the carbon price furore of recent years was the perception that consumers would be hit very hard by the associated rise in electricity prices. This was despite the obvious fact that for the average household, electricity is a small part of their spending and the Gillard government ensured that over three-quarters of the population was compensated for this rise.

More recently, Treasurer Joe Hockey has got into hot water over his comment that the $7 GP charge his government has implemented each time you go to the doctor is just "a couple of middies of beer or the third of the price of a packet of cigarettes"

Well, according to the latest consumer piece index release, the following facts of household spending make for interesting reading.

Sun, 18 May 2014  |  

It will be terrific viewing tomorrow night when Treasurer Joe Hockey appears on ABC TV's Q&A programme. It is an opportunity for the Treasurer to outline his economic strategy and the issues that he was dealing with as he framed the first budget of the Abbott government.

It is to be hoped that the questions and discussion move away from the lame rhetoric and platitudes that have come to dominate the economic and policy discussion in recent years.

On that score, here are 10 questions that I would like to hear Mr Hockey asked tomorrow night (or on any occasion for that matter).

Fri, 16 May 2014  |  

After a tepid 0.3 per cent rise in April, house prices have fallen a somewhat large 0.7 per cent in the first 16 days of May, according to the daily RPData house price series.

While the numbers are clearly choppy, volatile and are not seasonally adjusted (the autumn blues?), we just might be seeing the jolt to consumer sentiment and impaired affordability starting to bite what had been a strong rise in prices.

For now, a moderate house price fall of, say, 5 per cent or so would be small beer. Even with the recent house price pick up, which was looking uncomfortably large, the total change in house prices since 2010 has been a little over 6 per cent. This is not a large change.

That said, the perils of falling house prices for the banking sector and the economy more generally are clear. One only has to look at the experience of Ireland, the US, the UK and Spain, to name a few, to see how a drop in house prices can smash the economy into recession.

Wed, 14 May 2014  |  

Mr Hockey's first budget allows me to update my 'size of government' comparison, which I first published on 1 May 2014. It is reproduced in full, below.

For the sake of simplicity, the size of government is calculated by adding revenue and spending as a share of GDP, to see what sort of footprint any particular government has in the economy.

It is early days for the Abbott government, to be sure, but the budget shows that the size of his government will be 49.1 per cent of GDP, calculated on the period from 2014-15 to 2017-18.

This is a smidge below the Howard government (49.2 per cent) and the Hawke / Keating government (49.6 per cent), but is significantly larger than the Rudd/Gillard government (47.4 per cent).

Tue, 13 May 2014  |  

Today's the day the snake oil assumptions that created the budget 'emergency' should be washed away and the true position of the long run fiscal settings will be revealed.

A vital element of the bottom line of the 2014-15 budget and the forward estimates will be the extent to which changes in the economic parameters are the driver of the return to budget surplus.

Most people seem to have forgotten that in the independently prepared PEFO document released during the election campaign in August 2013, the budget was on track to return to surplus in 2016-17. The PEFO used a range of conservative and near consensus forecasts. No serious economist took issue with the numbers underpinning the PEFO estimates.

This changed with the MYEFO in December 2013 when the Treasurer's office forced a range of unduly pessimistic forecasts onto a meek Treasury and as a result, the budget was smashed to the point where never again would Australia record a budget surplus.

Fri, 09 May 2014  |  

With today's $700 million borrowing by the Abbott government, the cumulative total of all borrowing since the election stands at $70.95 billion. Not bad for a government that prior to the election was hell bent of paying off debt but to date has only had policies in place to increase borrowing.

The $70.95 billion of borrowing includes funds to cover maturing bonds and T-Notes, as it always does, as well as covering the Commonwealth government's budget deficit which at the time of MYEFO was assumed to be $47 billion in 2013-14.

Allowing for the borrowing to cover maturities, gross government debt has increased by $46.7 billion since the 2013 election to now stand at $319.925 billion.

THE LATEST FROM THE KOUK

The RBA rolls the dice on house prices

Wed, 21 Nov 2018

This article first appeared on The Wire, the web page for FIIG, at this link: https://thewire.fiig.com.au/article/commentary/opinion/2018/11/19/rba-ignores-property-at-its-peril 

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RBA ignores property at its peril

The RBA rolls the dice on house prices

The usually careful and well considered Reserve Bank of Australia is taking a huge gamble on the Australian economy into 2019 and 2020.

The RBA is betting that the current slump in house prices and dwelling approvals are orderly and will not have any material or lasting consequences for the economy. In fact, RBA Governor Philip Lowe believes the fall in Australian house prices “is good news”, “manageable” and “a welcome development”. Further, in its November Statement on Monetary Policy, the RBA suggested that house prices “have continued to ease gradually”, which is a remarkably bland assessment given that close to $400bn has been wiped off the value of Australian houses since the price peak in September 2017.

Governor Lowe and the RBA’s open indifference to what is a major shift in the $7trn valuation of residential property is bold.

Wealth and household spending – The link

While some cooling in house prices was always inevitable following the price boom in the four years to 2017, the price falls are getting close to a point where the loss of household wealth will impact household spending. The RBA itself and a bevy of global academic research show a link between changes in household wealth and growth in household spending.

How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents

Tue, 13 Nov 2018

This article first appeared on the Business Insider web page at this link: https://www.businessinsider.com.au/labor-negative-gearing-impact-housing-comment-2018-11 

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How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents

The economic policy debate over Labor’s plans to overhaul the negative gearing rules is hotting up.

It is an important debate on a policy change that will have implications for the housing market, particularly for first home buyer and investor demand.

The government is claiming that the negative gearing change will “take a sledgehammer”, “smash” and “punish” everyone in Australia. Treasurer Josh Frydenberg says that under Labor, “your home will be worth less and renters will pay more.”

It is a frightening scenario for property obsessed Australians with the value of all dwellings in Australia estimated to be around $7 trillion.

But is it true? What are the facts about the current housing cycle and how will Labor’s plans to revamp negative gearing impact the housing market?