Blog

Wed, 18 Jun 2014  |  

The Australian has stories from Christian Kerr, Adam Creighton, Sinclair Davison and Chris Merritt in its paper today where they again largely ignore the facts on the consumption of tobacco and cigarettes from the Australian Bureau of Statistics. It seems like overkill when the facts on the matter are so clear, but at least some of the coverage seems to be a little bit nasty and personal.

The Kerr and Creighton article has as its focus a claim that the "anti-smoking measures are driving a boom in cheap cigarettes, with smokers buying more cigarettes from the lowest market segment". They cite Neilsen data to support this claim.

While the Neilsen data do not appear to be publicly available (I suspect The Australian would say it is commercial in confidence), I have no issue with this claim – it may or may not be correct. It is if correct, it does not refute the ABS facts which show a 5.3 per cent fall in the overall volume of tobacco consumed between the December quarter 2012 and the March quarter 2014. This is even if the volume of tobacco consumed has switched to cheap rather than expensive cigarettes.

To help the smoking fact deniers, here is a little illustration about what might be going on. In Period One, consumption of tobacco is 50 expensive and 50 cheap cigarettes (100 in total). In Period Two, consumption shifts to only 25 expensive yet 70 cheap cigarettes (95 in total). Clearly, the overall consumption of tobacco has fallen 5 per cent with a big switch to the cheaper product. This may well be happening if the data cited by Kerr and Creighton is correct and leaves the ABS data and my analysis untouched.

Mon, 16 Jun 2014  |  

Judith Sloan, who is Honorary Professorial Fellow at the Melbourne Institute of Applied Economic and Social Research at the University of Melbourne and who has a Master of Arts with First Class Honours in economics from the University of Melbourne and a Master of Science in economics from the London School of Economics penned an article in The Australian today making four criticisms of my analysis of tobacco consumption, which appeared here https://thekouk.com/blog/the-australian-s-claim-on-tobacco-go-up-in-smoke.html#.U56tQsa26f0

My reply to each of those four items is below:

Sun, 15 Jun 2014  |  

The evidence continues to flood in that the carbon price is weaving its magic in exactly the way it was intended. Greenhouse gas emissions in Australia are falling and it has driven a surge in energy production from renewable sources. There is no question in these two trends.

Now there more good news with indisputable proof that household consumption of energy is falling as consumers respond to price signals and knowledge about the benefits of energy conservation.

According to the national accounts, the volume of electricity, gas and other fuel ("energy") consumed by households peaked in the December quarter 2010. In the most recent data for the March quarter 2014, the volume of energy consumed by the household sector is 4.4 per cent lower than in the December 2010 peak. It's a recession in energy consumption!

Thu, 12 Jun 2014  |  

It is staggering the slowdown in the Australian economy that is unfolding before our eyes.

I was slow to realise this, but the recent run of news has now converted me to interest rates on hold with a renewed bias to cut and I am now bearish on the Australian dollar. Indeed, a couple of low inflation numbers, a faltering GDP growth rate through to the September quarter and a touch more downside on commodity prices will likely see the RBA cut interest rates.

So there.

Here is what I am now seeing. In the last month or two, some slightly disconcerting signs have emerged about the pace of economic growth with a number of key economic indicators stalling or indeed, reversing.

It was obvious that 2014 kicked off on a strong note, a point confirmed in the recent national accounts that confirmed annual GDP growth at an above trend 3.5 per cent. I judged this to be the start of a break higher in trend growth and that as a result the RBA would need to hike rates. Thankfully they didn't do that because it seems there is a real risk GDP growth will slow in the next little while.

Thu, 12 Jun 2014  |  

Last night, Australian time, US Treasury Secretary Jack Lew gave a speech where he openly welcomed the fact that the US economic growth momentum was "gaining traction". It was an optimistic outlook for the US which is only now genuinely emerging from the Great Recession of 2007-2009 which was brought on by a collapse in banking, insurance and the housing market.

In looking at the challenges ahead Lew noted, in comments oozing decency and empathy, that for the many people who were unemployed and those whose wages have stagnated, "this hardly feels like a recovery".

"The ultimate test for all of us will be how inclusive tomorrow's economy becomes and how widely our economic gains flow," he said. "The crisis we face today is the need to make sure the economy is expanding fast enough to support a growing middle class."

At about the same time Lew was discussing these issues of a stronger economy and fairness and equity, Australian Treasurer Joe Hockey delivered a speech which could not have been more at odds with Jack Lew's themes. Indeed, Mr Hockey's speech could have been penned by the US Tea Party fringe given its assault on equity and the contempt he showed for the less well off in society.

This morning's headline from the Australian Financial Review, no less, sums it up. "Joe Hockey slams welfare state".

Sun, 08 Jun 2014  |  

When Prime Minister Tony Abbott meets with US President Barack Obama and senior officials from the US administration, the economy is likely to be front and centre of their discussions.

With this being the case, Mr Abbott has a wonderful chance to show off just how wonderful Australian economic conditions have been, how adroitly economic policy has been implemented in the last few years and how that is showing up in an economic expansion and fiscal settings that people in the US could only dream about.

Recent data confirm the Australian economy into its 23rd year of unbroken economic growth. This is in stark contrast to the US which endured recessions in 2001 and of course in the period from 2007 to 2009. "Australian's have forgotten how to spell 'recession'", Mr Abbott could quip, such is our economic success. The fiscal stimulus measures taken in during the global economic crisis, Mr Abbott could highlight, were a critical factor stopping Australia diving into a nasty recession with hundreds of thousands of jobs saved, new jobs created and financial stability maintained during these troubled times.

Fri, 06 Jun 2014  |  

The Australian is at it again. It is running another fact-less story with the express intent of undermining a key policy of the previous Labor government and what is disconcerting this time, is that it is pushing the line of the tobacco industry.

Today there is a Page One story by Christian Kerr which makes the sensational claim that "Labor's nanny state push to kill off the country's addiction to cigarettes with plain packaging has backfired, with new sales figures showing tobacco consumption growing during the first full year of the new laws".

The "exclusive" story based on "new data obtained by The Australian" claims that "tobacco sales volumes increased by 59 million 'sticks' ... last year". The source of this shock finding is "industry monitor" InfoView which is "backed up by retailers, consumer marketers and the industry". Only Philip Morris and the Australasian Associates of Convenience Stores are cited.

Fortunately, the story is wrong.

Thu, 05 Jun 2014  |  

The increase in the minimum wage has sparked the usual hand-wringing about Australia being a high wage country. Those demoaning the modest 3 per cent increase in the minimum wage and wage levels more generally, suggest wage rates should be lower.

Here is a look at some minimum wage levels in other countries. I for one would never want Australia to aspire for lower wages and view the high income levels in Australia as a sign of our massive prosperity and now 23 years without a recession.

Here we go - average hourly wages rates, US$. 

Afghanistan  US$0.57

Angola US$0.71

Argentina US$4.31

Australia US$16.88

Bangladesh US$0.09

Belgium US$11.69

Benin US$0.36

Brasil US$2.11

Canada US$9.95

China US$1.19

Estonia US$2.73

France US$12.22

Gambia US$0.12

Greece US$5.06

Haiti US$0.37

India US$0.28

Indonesia US$0.52

Japan US$8.32

South Korea US$4.63

Luxembourg US$14.24

Malawi US$0.16

Mongolia US$0.82

Niger US$0.34

Poland US$2.97

Russia US$1.04

Slovenia US$5.84

Taiwan US$3.88

UK US$10.02

US US$7.25

Vietnam US$0.30

So Australian wages are high, which is a great thing. We should hope wages here stay high as it is a sign of our economic strength and prosperity.

Source: World Bank

Wed, 04 Jun 2014  |  

The March quarter national accounts confirmed the economy accelerating to an above trend growth pace in the first quarter of 2014. GDP rising 3.5 per cent is a sign of the robustness of the economy in the past six months in particular (annualised GDP in last two quarters was 4.0 per cent) and it is clear that, in normal circumstances, the RBA would be looking to normalise (hike) interest rates from the current record low 2.5 per cent.

Things are not normal.

Almost half of the 3.5 per cent GDP growth in the past year has been due to China buying the raw materials that are rolling off conveyor belts 24 hours a day, 7 days a week.

Tue, 03 Jun 2014  |  

The European Central Bank contemplating negative interest rates as one of its policy tools to kick start the moribund Eurozone economies. 

I've had a number of questions about the concept of negative interest rates and thought it best if I reproduce an article I wrote for Business Spectator in 2012 on the topic.

The link is here https://www.businessspectator.com.au/article/2012/8/9/australian-news/zeroing-negative-rates 

The full story is below.

THE LATEST FROM THE KOUK

Change of view on interest rates

Fri, 24 May 2019

Having been the only economist to correctly anticipate an interest rate cut from the RBA when close to 50bps of interest rate hikes were priced in to the market last year (See Bloomberg 17 August 2018), I have agonised over the exact months the cuts would be delivered and then how many rate cuts would be needed to reflate the economy.

Recently, I was of the view that the RBA would need to cut 100bps from now, to a level of 0.5%, but I did so with relatively low confidence. This is why I recommended all clients to close their long interest rate positions on 17 April 2019 (when the implied yields were 1.10% for the mid 2020 OIS; 1.35% on 3 year yields and the Aussie dollar was just over 0.7000 at the time).

Like in most good trades that were massively in the money, I left a little money on the table while I reassessed the outlook.

Since calling for interest rate cuts from the RBA, a lot of water has passed under the bridge, especially in the last few weeks.

Events mean I am changing my view on interest rates and have been placing / will be looking to implement new trades.

Watch out Australia: There's a flood of dismal economic news on the horizon

Wed, 01 May 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/watch-out-australia-theres-a-flood-of-dismal-economic-news-on-the-horizon-211110783.html

--------------------------------------------

Watch out Australia: There's a flood of dismal economic news on the horizon

The Australian economy is in trouble and Scott Morrison and the Liberal Party government need to come clean and acknowledge this and outline a framework how this period of economic funk is to be addressed if they win the 18 May election.

The Liberal Party is campaigning in the election on a “strong economy” and being “good economic managers”, bold claims that fly in the face of the latest score card for the economy.

That scorecard shows a flood of what is, frankly, disappointing or even dismal economic news. Australia is going through a very rare recession in per capita GDP terms and last week saw data showing zero inflation in the March quarter. Contribution to these indictors of economic funk is the fact that well over half a trillion dollars of householder wealth has been destroyed as house prices have tumbled.

Add to that the fact reported by the Australian Office of Financial management last week that gross government debt is $543 billion, almost double the level that the Coalition government inherited in September 2013, and the scorecard is looking very ratty indeed.

As the ad man used to say, “but wait, there’s more”.