Blog

Tue, 08 Apr 2014  |  

The favourable news on the economy is unrelenting.

After the flood of extremely positive news last week, there has been further reinforcement of the clear upswing in a couple of series released in the last day and a bit.

Yesterday saw the number of job advertisements, as measured by the ANZ, lock in five straight months of increase in trend terms. There is now no doubt that employment growth will also lift in the months ahead and the unemployment rate will start to fall very soon.

Sun, 06 Apr 2014  |  

 

This article, written on behalf of Per Capita, first appeared on The Drum website:

https://www.abc.net.au/news/2014-04-03/koukoulas-our-rolls-royce-budget-can-handle-a-flat-tyre/5363402

Australia is in a fine budget position and the deficit isn't nearly as big an issue as some politicians would have you believe. Just ask the credit rating agencies, writes Stephen Koukoulas.

The budget debate in Australia is so pathetically inane that the fiscal blame game has reached a point where neither side of politics wants to take responsibility for Australia's triple-A rated fiscal settings.

This perverse situation shows up with the notion that debt and deficit are political poison rather than the medicine that, when used wisely, has delivered spectacular wealth-creating returns for the economy.

Fri, 04 Apr 2014  |  

The latest $700 million bond issue by the Abbott government brings the cumulative total of gross borrowing since the election to $64.15 billion. What is extraordinary about this is not the borrowing itself, but the fact that after 7 months in office, the government has not implemented any meaningful policies to stem the rise in debt accumulation.

The AOFM has indicated it will be borrowing a further $1.4 billion next week.

Indeed, as the Mid-Year Economic and Fiscal Outlook showed, policy decision taken by the new government added $13 billion to the budget deficit.

Thu, 03 Apr 2014  |  

The run of data in the few days since Tuesday's meeting of the RBA Board has continued the trend of strength, confirming a substantial lift in the non-mining investment parts of the economy.

The RBA appears to be too gloomy with its views on growth and sanguine on inflation as it happily leaves interest rates at record lows, inflating house prices along the way and allowing the rest of the economy to pick up momentum at an increasingly worrying pace.

Tue, 01 Apr 2014  |  

As I sit back and contemplate what is, I often wonder which is more damaging to the Australian economy: rapidly inflating house prices which are starting to look and smell a bit bubble-ish, or on the other hand, a strong Australian dollar which sort of, maybe, kind of, perhaps is a bit overvalued?

The lever pullers at the RBA clearly think it's the Aussie dollar rising that is the biggest threat with its decision today to let the house price surge continue unchecked with interest rates being held at record lows.

I don't agree with the RBA. One reason is that I am not sure the Australian dollar is all that over valued, while I am also unsure whether interest rate hikes would see its value rise for any sustained period. After all, if interest rate differentials were the main driver of currencies, the Japanese yen would be worth next to nothing and the Turkish Lira would be a world beater.

Mon, 31 Mar 2014  |  

My old sparing partner and AFR scribe, Christopher Joye, thinks "when [house] prices do start sliding, it is not inconceivable that we could see unprecedented 10 to 20 per cent losses across the board".

While I am clearly worried about the current run up in house prices and can see a period where house prices will falter as the RBA moves to a monetary policy tightening cycle, Chris' view of such large falls seems to be askew.

As a result, I am offering Chris a simple two-tiered offer based on his forecast.

Mon, 31 Mar 2014  |  

The RPData five city house price index rose a thumping 2.3 per cent in March which is a stunning rate of increase at a time when house prices are already elevated.

For the first three months of 2014, the RPData series shows house prices up 3.5 per cent, or an annualised pace of close to 15 per cent. This is a rate of increase that must be causing the RBA some concerns as it continues to sit on official interest rates at a record low 2.5 per cent.

While the RBA does not target house prices with its monetary policy settings, it is well aware of the macroeconomic policy risks that come with house price booms... and busts. House price booms generally lead to a pick up in speculative borrowing and a ratcheting down of lending standards by financial institutions as every one wants to get on board the price surge.

Fri, 28 Mar 2014  |  

It is refreshing to see the RBA catching up to my view about the strength of the domestic economy. In recent days and weeks, RBA officials have finally acknowledged some of the general risks to inflation associated with a clear strengthening in the non-mining parts of the economy and from what is an increasingly worrying lift in house prices.

The RBA Board meeting next Tuesday, 1 April, is likely to throw a few more hints that the current 2.5 per cent cash rate is not appropriate for the current fundamentals. The foreign exchange market understanding this as the AUD powers to 0.93 US, even though it is taking an eternity for the many strategists to roll over to the new information.

Booming double digit growth in house prices, a record high level of new housing construction, rising commodity prices, exports surging in both volume and value terms and consumer demand expanding at a solid clip are threatening to put a rocket under inflation, which has already been marching higher since the middle of last year.

Thu, 27 Mar 2014  |  

The Federal election is still probably 125 or 130 weeks away, but many of the online bookmakers are already offering odds on various aspects of what might happen in politics between now and polling day and of course, who might win.

OUTCOME:

The Coalition government are warm to hot favourites to win the 2016 election, at $1.45 versus $2.70 for Labor, despite some of the polls that currently have Labor well ahead on a two-party preferred basis. It just goes to show what punters, and the bookies, think of the predictive power of polls two and a half years away from election day. 

Wed, 26 Mar 2014  |  

I am not sure which part of the graph below that Treasurer Joe Hockey does not understand.

Mr Hockey's crusade against the former government and its Treasurer Wayne Swan on the issues of economic management, debt and deficit shows a disturbing lack of self-awareness. Mr Hockey doesn't realise people are laughing at him like a down-and-out soothsayer procliaming "the end is nigh" each time he raises those issues. Indeed, it is a little embarrassing to see Mr Hockey discuss economic management without even the slightest understanding of the issues that make this one of the most extraordinary charts doing the rounds. The information in this chart is likely to fuel a library of Ph D theses as the smart economists around the world work out what went right in Australia and what went wrong in the other advanced economies.

sp-ag-160314-graph2

 

 

 

THE LATEST FROM THE KOUK

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.

This is the main driver for a cash rate CUT, and it'll happen soon

Wed, 13 Feb 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/main-driver-cash-rate-cut-itll-happen-soon-200635247.html 

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This is the main driver for a cash rate CUT, and it'll happen soon

The prospect that interest rates will be lowered within the next few months is already starting to impact on the economy.

Here’s how.

Around the middle of 2018, financial markets were expecting the RBA to hike official interest rates to 1.75 or 2 per cent over the course of the next 18 months or so. If proof was needed that investors and economists can get it wrong, markets are now pricing in official interest rates to be cut towards 1 per cent over the next 18 months.

The about face has been driven by a raft of disappointing news on the economy, most notably the fall in house prices, the free-fall in new dwelling building approvals and a slump in retail spending growth.

Business confidence has also taken a hit and job advertisements have been falling for eight straight months. Ongoing low inflation and increasing signs of a slowdown in the global economy have simply added to the case for this dramatic change in market pricing.