Mon, 21 Nov 2016  |  

The recent labour market data threw up a few disconcerting facts about the economy.

Since the July 2016 election, employment has fallen by 25,650 people despite growth of over 70,000 in the working age population.

The Coalition government plan for 1 million jobs in 5 years is in tatters. Since the September 2013 election when the pledge was made, monthly employment growth has averaged 12,600 which extrapolated over 5 years means employment gains of just 757,000, some 243,000 short of the 1 million commitment. 

The workforce participation rate fell to 64.4 per cent, the lowest since 2006. At a time when Australia needs more of the population working, participation is falling. Little wonder the budget deficit remains too high.

The underemployment rate rose to a record high of 9.3 per cent, meaning that almost one in 10 people who do have a job would like to work more hours. The economy is simply not growing quickly enough.

In absolute terms, the data are disconcerting and the trend is going the wrong way.  


Fri, 18 Nov 2016  |  

The Turnbull government borrowed another $900 million today which means that gross government debt hit a fresh record high of $458.6 billion. It seems a long time ago that the Coalition threatened to block legislation to raise the debt ceiling to what now looks like a puny $300 billion. That was May 2012.

According to the Australian Office of Financial Management, the current government debt level is some $185.5 billion above the level inherited by the Coalition when it won the September 2013 election on a platform to return the budget to surplus and pay off Labor’s debt.

On any objective measure, the Coalition has failed dismally in this KPI. And the AOFM suggests there is still around $40 billion to be borrowed between now and the end on the financial year on 30 June 2017.

Thu, 17 Nov 2016  |  

This article first appeared on the Yahoo 7 website at this link: 


Is the Aussie economy in trouble?

It has not been a good week for data on the labour market.

Since the election in July 2016, employment has fallen by 25,600 people despite the working age population increasing by more than 70,000; the workforce participation rate has dropped by an alarming 0.5 percentage points; and annual wages growth has plummeted to just 1.9 per cent, a level not seen in many decades – possibly even half a century.

In trend terms, full-time employment has been falling to 10 straight months which means that the take home pay for many of those with a job is being undermined as workers work fewer hours, on average, than they would like. This crimps consumer spending and so the cycle of weak growth in consumer spending and employment continues.

You don’t have to be an economist to realise these are not good indictors.

Wed, 16 Nov 2016  |  

This article first appeared on The Guardian website at think link: 


What Bill Shorten and Labor can learn from the election of Donald Trump

In the years since the global financial crisis, proposals from Nobel laureates and professors of economics for fiscal policy stimulus to boost growth have been met with widespread derision. This was mainly from the proponents of fiscal austerity, who can only see cuts to government spending as a solution to all economic ills, despite the moribund state of the global economy.

But such economic quackery is being called out by someone who, oddly, appears to the master of quackery, the US president-elect, Donald Trump.

What a turn-up for the books. But the Trump win and his economic agenda has exposed a critical problem for the progressive side of politics in Australia and around the world.

When a bombastic businessman, with a void of economic understanding, accidentally becomes president of the United States and indicates that he will oversee a fiscal stimulus based on an infrastructure and defence spending spree, there is a surging stock market, forecasts of stronger economic growth and all-of-a-sudden analysis that such policy stimulus is overdue.

Fri, 11 Nov 2016  |  

This article first appeared on The Guardian website at this link: 

Note: in the 48 hours since this article was written, stocks have risen approximately 4 per cent and government bond yields have crashed, with the 10 year yield in the US, for example, up around 40 basis points. Tjis reverses the knee-jerk rection where bonds rallied and stocks fell.


Financial markets tell the world what they think of Trump as president

Financial markets have told the world what they think of the election of Donald Trump as US president – and it is not good.

Global stocks, both the futures and in the physical market, started to weaken when the votes started hinting that Trump might get close. They tanked when it was clear Trump would probably win.
There was extreme market volatility as the updated tally of votes were posted minute by minute but with an average fall of around 4% (at the time of writing), the value of global stocks has already dropped around US$3tn in value. US stock futures fell around 4.5%, throughout Europe and the UK stocks are down around 4% to 5%, while Japan is down over 5%. These numbers are fluid, but the verdict and direction are clear.

This market reaction reflects the fear and uncertainty surrounding how president Trump will run the economy, frame the budget and operate on the international stage. As has been well analysed, there are irreconcilable differences in the economic policy aims of Trump – lower taxes and a smaller deficit do not go together, as an example.

“Make America Great Again”, the slogan from the Trump campaign, involves the US raising barriers to international trade in an effort to protect US industry. If Trump follows through and works to restrict trade, especially with China where the US runs a huge trade deficit, there is a genuine threat that the global economy will stall, perhaps falling back into recession. The decades of productivity and income benefits from strong global trade risk coming to an end. Periods of weak global trade are inevitably associated with sluggish growth, stalled productivity and falling living standards.

Tue, 08 Nov 2016  |  

With just two months to go to assess the absurd forecast from RBS analyst Andrew Roberts at the start of the year to “sell everything”, it gives me little pleasure to note that his forecast continues to be humiliatingly wrong. 

If Roberts has any clients left, they would be reeling if they had taken his advise on a range of asset classes he said were a "sell" when in fact most have been rallying strongly.

As a reminder of the issue at hand, when Roberts made his outlandish, headline grabbing forecast, I offered him a chance to have some skin in the game. I was overly generous in my offering noting that he would need to get just 6 of 11 variables to win a $A10,000 bet - not ‘everything’ had to fall for him to be right. The bet I offered Roberts is here 

Some ten months since the bet and the scorecard reads:

The Kouk  10
Roberts      1

As has been the case for the bulk of the year, the only market where Roberts is ahead is the Nikkei which is down a piddling 0.2 per cent.

Including that fall, the average rise in the 11 items that Roberts suggested should be sold, the gain so far is a marvelous 22.1 per cent. In the current era of low inflation and low interest rates, that’s about 6 years return in just 10 months.

Fri, 04 Nov 2016  |  

This article first appeared on the Yahoo7 Finance website at this link: 


Is the Aussie economy back on track for growth?

The interest rate cutting cycle appears to be over. This is not because inflation is accelerating – on the contrary, inflation remains low and looks like staying low for some time. Rather, interest rates are on hold is because the RBA is looking at a range of indicators that are suggesting the economy will be stronger over the next year and that, in time, inflation will eventually lift and return to the target band.

In other words, in not cutting interest rates now, the RBA is speculating that the economy will be strong enough to drive inflation higher during 2017 and beyond.

The growth pick up scenario has some strong points behind it. Importantly, commodity prices are moving higher which, if sustained, will give a substantial income boost to the Australian economy over the next few years. The unrelenting strength in house prices, particularly in Sydney and Melbourne, is not cooling to any significant extent, which is boosting wealth and posing a threat to financial stability. The RBA would prefer to see house price growth weaken and an interest rate cut does not fit with that wish. It does not want yet lower rates to underpin further house price growth.

Sun, 30 Oct 2016  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Is the Aussie economy about to get a surprise boost from commodities?

The commodity price cycle is turning into a major upside risk to the Australian economy into 2017. Since the low point at the start of the 2016, in US dollar terms, the iron ore price has risen 60 per cent, coking coal is up over 100 per cent, thermal coal up 45 per cent and even copper up 35 per cent and natural gas is up 10 per cent.

It is s boost that translates straight through to the bottom line profit of the mining companies, given that the Australian dollar is broadly unchanged in a broad 72 cents to 78 cents for the bulk of the year. This is despite the commodity price surge.

While most commodity prices remain well below the crazy peak levels around 2010 to 2012, the rise, if sustained or even built upon, the income flow and inflation effects will be strong.

Not only will the slump in national income be quickly reversed, but the government will be basking in ‘upside surprises’ to its revenue and will be rapidly moving to budget surplus, without lifting a policy finger to trim spending or adjust tax scales.

For mining companies and their share prices, the effect could be strong. During the last few years of dreadfully low commodity prices, many miners have trimmed or slashed their cost base. Their unit cost of production has fallen into what is now a climate of rising prices. A win-win as they say.

It is still early in this cycle, to be sure. Markets are fickle and China, the main source of demand of global commodities, is still negotiating its way through its economic problems.

There is, nonetheless a strong possibility that capital expenditure will find a floor and some previously postponed mining projects will all of a sudden be viable again. If this were to occur, it would be unlikely to show up in the next year – it is too soon.

Thu, 27 Oct 2016  |  

This article first appeared on The Guardian website at this link: 


House prices are surging because of low supply – it's Economics 101

As housing affordability becomes a live political issue there is a consensus from the government and opposition that housing supply can address the problem.

They are correct.

Tax rules on capital gains and negative gearing – which became central issues in the federal election campaign – distort the housing market, as do interest rates. But there is a basic economic principle that dominates these distortions over the longer run, and that is the interplay of housing supply and demand.

Until very recently, Australia’s strong population growth fuelled unrelenting growth in underlying demand for dwellings at a time when new building was not adding sufficiently to supply. This housing shortage, mixed with aggressive interest rate cuts and tax rules, underpinned strong house price gains.

Economics 101 suggests that for a given level of growth in demand (population growth and household formation rates) a larger increase in supply will lower prices, regardless of tax rules. Why would a potential investor in housing, for example, buy a property when house prices and rents are flat or falling?

New housing supply relative to a given level of demand will lower house prices and address housing affordability and issues such as negative gearing and capital gains tax will be largely immaterial. One only has to look at the recent trend in house prices in Perth (down 10% from the peak), Darwin (down 7%) and Karratha (down 65%) to show how a drop in demand relative to supply affects prices and therefore affordability. Anecdotally, there are very few investors lining up in those cities.

Mon, 24 Oct 2016  |  

This article first appeared on The Adelaide Review website at this link: 


Peter Costello and the Future Fund Fiddle

The latest portfolio update from the Future Fund confirmed that the average annual return on its investments has been 7.7 percent since it was established in May 2006.

Former Treasurer Peter Costello, who is the Chair of the Future Fund Board of Guardians, judged this return to be good to the point where he claimed that it was successful in “exceeding the return objective”.

That is an expansive claim.

In the media release – that included details of the fund return up to June 30, 2016 – there was a table that showed the 7.7 percent annual return that Costello referred to. It also noted that the ‘target return’ or objective for the Future Fund since inception was 6.9 per cent, which no doubt leads Costello to his conclusion that the 7.7 percent was larger and had exceeded the objective.

Alas, that target return for the Future Fund in its own media release is misleading. According to the Future Fund Act 2006, the investment objective or target return is at “least the rate of inflation (measured by the change in the CPI) plus 4.5 to 5.5 percent”.

This return was designed to be achieved “over the long term” which is prudent and sensible given the inherent short-term volatility and variability in many market values.


The Australian stock market is a global dog.

Sat, 24 Jun 2017

This article first appeared on the Yahoo7 web page at this link: 


The Australian stock market is a global dog.

At a time when stock markets in the big, industrialised countries are zooming to record high after record high, the ASX200 index is going no where. So poor has the performance been that the ASX is around 20 per cent below the level prevailing in 2008.

It is a picture most evident in the last few years. Since the middle of 2013, the ASX 200 has risen by just 10 per cent. The US stock market, by contrast, has risen by 50 per cent, in Germany the rise has been 55 per cent, in Canada the rise has been 20 per cent, in Japan the rise has been 45 per cent while in the UK, with all its troubles, the rise has been 15 per cent.

So what has gone wrong?

Tony Abbott and debt

Fri, 16 Jun 2017

With Tony Abbott and governemnt debt hot news topics at the moment, I thought I would repost this artricle which I wrote in April 2013:

Enjoy, SK


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.

Tony had a change in work status that resulted in his annual income dropping by around $90,000 – a big loss in anyone’s language.

How did Tony respond to this 40 per cent drop in income?

Well, rather than selling the house and moving into smaller, more affordable premises, or taking his children out of the private school system and saving tens of thousands of after tax dollars, Tony called up his friendly mortgage provider and refinanced his mortgage.

In other words, Tony took on a huge chunk of extra debt so that he could maintain his family’s lifestyle. No belt tightening, no attempt to live within his means, just more debt.