Blog

Tue, 17 Oct 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/1897318-045821149.html 

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What bubble? The financial sector is fighting fit

Australia’s banking sector is in peak health and the household sector is having few if any problems managing its debt.

This is the good news from the Reserve Bank of Australia Financial Stability Report which effectively put the kybosh on the fear-mongers who continue to forecast a crisis in household debt, a crash in house prices and turmoil in the financial system and more specifically, the banks.

The key conclusion from the RBA was that “the financial system is in a strong position and its resilience to adverse shocks has increased over recent years.”

These are strong and direct words from the normally cautious RBA.

It also noted that the bank’s non-performing loans (bad debts in other words) “remain low” and bank profitability “is high”, which are the key indicators of financial stability and strength. The RBA went as far to say that “the banks also have ample access to a range of funding sources at a lower cost than a decade ago” which is fundamental to the functioning of the financial system. Nothing was presented that indicated current problems in the financial sector.

The RBA assessment can be tested from the markets, specifically bank share prices. Most evidently, bank share prices remain strong as the investment community continues to place its money where its mouth is when determining actual performance and even risks when allocating investment funds.

Wed, 11 Oct 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/1870680-024951753.html 

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The truth about our debt

Much is being made of the record level of household debt in Australia. The media is full of stories screaming about the risks of debt for the economy.

Household debt has risen from levels equivalent to around 75 per cent of annual household disposable income in the mid 1990s to close to 200 per cent today and it is an issue that sparks fears of a crash, the next recession or something equally frightening. Debt is high, for sure, but for anyone who undertakes sober and factual analysis of the household debt issue and judges the overall financial position of the household sector and not just debt, there is little to be worried about.

It is vitally important to realise that households do not take on that debt and throw the cash away. On the contrary.

Debt is used to buy assets which includes things like housing, commercial property and shares. For the bulk of the population with little or no debt, they are coincidently squirrelling away their savings and are accumulating wealth.

Tue, 03 Oct 2017  |  

The latest Dun & Bradstreet survey is available at this link: https://dnb.com.au/article-bex-q4-2017-final-report.html#.WdLuVDOB24k  The key points of the report are below. 

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Retailers face tough Christmas

Business sentiment remains flat moving into the final quarter of 2017, despite an uptick in mid-year trading. In Dun & Bradstreet’s September Business Expectations Survey companies are predicting weaker sales, lower employment and a decline in selling prices; however, profits and capital investment are tipped to rise in the last months of the year. The upcoming Christmas period has done little to lift spirits in the troubled Retail sector, with expectations uncharacteristically low for the December quarter.

"As 2017 draws to a close, business expectations remain broadly steady, which points to ongoing moderate economic growth. Actual business activity ticked higher in the June quarter, but it remains in a range that points to the economy neither being strong nor weak, but rather something in between."  Stephen Koukoulas, Dun & Bradstreet Economic Adviser

Retailers, Manufacturers downbeat
Sentiments within the Retail sector remain subdued: while expectations have ticked upward for the fourth quarter compared to the third quarter, the current result is substantially lower than prior corresponding quarters.

Retailers are the least upbeat about business growth across all sectors: 55.4 percent of retail firms said they were more optimistic about business growth in the year ahead compared to the previous year, while 35.7 percent are less optimistic. Wholesalers are the most upbeat, with 69.8 percent feeling more optimistic compared to 20.8 percent feeling less optimistic.

Sat, 23 Sep 2017  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/religious-marriages-slump-record-low-054148504.html 

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Marriage equality – what’s God got to do with it

The debate surrounding the survey on marriage equality is throwing up a range of issues that sit oddly with over 100 years of historical marriage patterns of heterosexual Australians.

Social media feeds, on line news, the radio, newspapers and television are heavy with people discussing the issue of marriage equality whose only real claim to be heard is their religious belief and their status within their church, synagogue, temple or other religious lobby group.

There are few, if any, declared atheists or marriage celebrants on these news and chat shows outlining their views on same sex marriage. This is despite there being more people of no religion than any other faith.

For some unknown reason, the overwhelming bias towards those with a religious affiliation promotes them to a point where they have a special status to pontificate as to whether people should vote yes or no to the marriage equality survey. Their views are getting a disproportionate coverage, including relative to how Australians are now choosing to get married.

For over 100 years, Australians getting married have been shying away from church based ceremonies and instead are opting for a marriage celebrant to allow them to legally tie the knot.

This alone should put the status of religious organisations and their spokespeople as authorities on the issue of marriage on very thin ice.

Wed, 20 Sep 2017  |  

This article first appeared on The Crikey web site at this link: https://www.crikey.com.au/2017/09/20/koukoulas-penny-pinching-on-education-leaves-the-nation-lagging/

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Penny-pinching on education leaves the nation lagging

Educational attainment is a proven path to higher incomes, not only for the individual concerned, but also for the nation as a whole.

The latest research from the Organisation for Economic Co-operation and Development, Education at a Glance 2017, shows that in each of the 38 countries in the survey, adults with below upper secondary education were paid an average 25% less than someone with upper secondary education. There was an even more extreme difference with a 56% average pay advantage for those attaining a tertiary education against upper secondary schooling.

Put together, this means that someone with a tertiary education will, on average, get roughly double the income of those with below upper secondary education.

The public policy implications of these findings should be obvious.

The first step should be to ensure that all children get fundamental reading, writing and arithmetic skills, without which completion of upper second education is impossible, let alone the step to tertiary education.
Targeted, sufficient and productive public investment in human capital (education) via skilled teachers and high level, up to date resources for students are a bare minimum. Any shortfall in this infrastructure to provide a good start to education will show up in a short fall in educational attainment in later life with negative implications for the economy.

Mon, 18 Sep 2017  |  

It’s time for a quick government debt update.

Just the facts.

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NET GOVERNMENT DEBT

At May 2017: $323 billion Source: https://finance.gov.au/publications/commonwealth-monthly-financial-statements/2017/mfs-may/ 

At September 2013: $175 billion Source: https://www.finance.gov.au/sites/default/files/mfs-september-2013.pdf 

Increase in net government debt under current Coalition government: $148 billion or $3.36 billion a month.

GROSS GOVERNMENT DEBT

Friday 15 September 2017: Value of government securities on issue (Gross government debt) was $503 billion. Source: aofm.gov.au 

Friday 6 September 2013: Value of government securities on issue was $273 billion Source aofm.org.au plus calculations from Market Economics, available on request. Call AOFM 0262631111 or email This email address is being protected from spambots. You need JavaScript enabled to view it.

Increase in gross government debt under current Coalition government: $230 billion or $5.23 billion a month.

WHAT ABOUT LABOR 2007 TO 2013?

When the Coalition lost the 2007 election and Labor won it, net government debt was negative - ie, it had financial assets of $28 billion (as at 31 October 2007) Source: https://www.finance.gov.au/sites/default/files/mfs_oct2007.pdf  

Under Labor (2007 - 2013), net debt rose by $203 billion or $2.86 billion a month, even during the GFC and with associated fiscal stimulus policies, some $500 million a month less than current Coalition government.

When the Coalition lost the 2007 election, gross government debt (government securities on issue at June 2008) was $59 billion. Source: https://archive.treasury.gov.au/documents/1321/HTML/docshell.asp?URL=06_appendix_b.htm  

Under Labor (2007 – 2013), gross debt rose by $214 billion or $3.01 billion a month, which is more than $2.2 billion a month below the monthly run rate of the current government.

Mon, 11 Sep 2017  |  

This article first appeared on The Guardian web site at this link: https://www.theguardian.com/commentisfree/2017/sep/11/turnbull-and-morrison-dont-talk-about-unemployment-its-a-deliberate-but-dodgy-cop-out?CMP=share_btn_tw 

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Turnbull and Morrison don't talk about unemployment. It's a deliberate but dodgy cop-out

It is a sad state of affairs to realise that the current crop of Australian policymakers have effectively given up on reducing unemployment.

Treasury reckons that the lowest the unemployment rate can go without there being a wages and inflation breakout is around 5.25%. The Reserve Bank of Australia notes something similar, forecasting that even when the economy is growing strongly at an above-trend pace, the unemployment rate will hover between 5 and 6%.

The current unemployment rate is 5.6% or some 728,100 people – enough to fill the Melbourne Cricket Ground about seven times. Given the Treasury and RBA estimates, it looks like Australia will never see fewer than about 700,000 people unemployed.

And it seems to be a peculiarly Australian issue. In the US, the unemployment rate is 4.3%, in the UK it is 4.5%, in Japan it is 2.8%, while in Germany the unemployment rate is 3.9%. And none of these countries are experiencing a wage/inflation problem. Indeed, even with the very low unemployment rate in Japan, wages are actually falling.

Fri, 08 Sep 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/1714473-004126949.html 

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Why the RBA refuses to cut rates

The forecasting record of the Reserve Bank of Australia is poor, but that has not stopped it relying on its forecasts, rather than hard data, when setting monetary policy.

In the past year where interest rates have been left unchanged at a level that is amongst the highest in the industrialised world, the RBA has been banking on its forecasts for stronger economic growth, a lift in wages and rising inflation to validate its failure to join the rest of the world with ultra low interest rates.

There are a couple of consequences of this approach from the RBA.

Importantly, despite its status, the RBA is made up or mortals. Sometimes its forecasts are wrong. And in recent years, the RBA forecasting record has been wide of the mark on growth, wages and inflation.

As the data has unfolded through the course of the past year or so, contrary to the rosy outlook from the RBA, economic sluggishness remains the order of the day.

Thu, 07 Sep 2017  |  

The Dun & Bradstreet Business Expectation survey confirmed a mixed picture for the economy.

The full report is at this link https://dnb.com.au/article-bex-q4-2017-final.html#.WbBm1zOB24k 

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Growth prospects remain mixed across the country

Uncertain economic conditions continue to impact optimism across the Australian business landscape, with sentiment softening for the final quarter of 2017. In Dun & Bradstreet's August Business Expectations Survey, businesses predicted lower sales, employment and selling prices for the December quarter, despite a general pick-up in business activity during the June quarter. However, capital investment and profits are tipped to rise.

Wed, 06 Sep 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/five-ways-grow-wealth-230647235.html 

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5 ways to grow wealth

Luck certainly helps some people get wealthy.

For the rest of us, careful planning and an understanding of markets, investing strategies, economics and finance are vital aspects of going down the path of wealth creation.

There are many aspects to wealth creation and the list below covers just five of those. These are the five characteristics or strategies usually evident in most wealthy people and if you follow them throughout your life, you will probably have more wealth than those who don’t.

Buy a house to live in

Owning your own house to live in is the best way to both meet the need for a roof over your head and to accumulate wealth. House prices were high 30, 20 and 10 years ago. They still are. Postponing the decision to buy a house has proven to be a financial disaster in just about every year since house price records started in the 1800s. Mortgage repayments are not only ‘forced savings’ but even with modest price growth, on such a big asset the wealth gains over a long time frame (think well over 10 years) are substantial. Once you build some equity and wealth in your own house, it can be used, in time, to finance other wealth creating investments.

THE LATEST FROM THE KOUK

Don’t look now – you are almost certainly poorer than a year ago

Wed, 09 Jan 2019

This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/dont-look-now-almost-certainly-poorer-year-ago-211934583.html 

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Don’t look now – you are almost certainly poorer than a year ago

I am sorry to kick off the new year with some gloomy news of your finances.

It is never nice to discuss how much money you have lost, but if you are a home owner in Sydney, Melbourne, Perth or Darwin and if you have a superannuation nest egg, the odds are you are less wealthy today than you were a year or two ago.

Here are some uncomfortable facts.

The Australian stock market, where the bulk of your superannuation assets are likely to be invested, has slumped 11 per cent since August, reducing the value of stocks by around $200 billion.  No doubt your superannuation has suffered part of this loss.

At the same time, home owners in Sydney, Melbourne, Perth and Darwin are seeing the value of their homes getting crunched.

Here are some examples.

Falling dollar reflects global concern all is not well in the Australian economy

Mon, 07 Jan 2019

The article first appeared on The Guardian website at this link: https://www.theguardian.com/business/2019/jan/03/falling-dollar-reflects-global-concern-all-is-not-well-in-the-australian-economy 

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Falling dollar reflects global concern all is not well in the Australian economy

The Australian dollar was hit hard overnight, Australian time, slumping below 70 US cents before a sharp and more extreme move saw it temporarily crash to a low of 67.40 US cents. It subsequently recovered marginally, but remains weak at around 69.40 US cents.

Rather than focus on the micro aspects of minute-by-minute or hour-by-hour moves in the dollar, which can be more noise than substance, the trend for the dollar over the past year has been down.

In January 2018, the Australian dollar was trading at 81.50 US cents.

There is increasing concern from global investors that all is not well with the Australian economy. Policy is in a do-nothing phase. Entrenched low wages growth is hampering growth in household spending. This is being complemented, in a negative way, by a sharp fall in wealth as house prices drop and the share market weakens, both of which will be a negative for the economy during 2019. This is because householders are simply not getting the income growth nor wealth accumulation needed to allow them to keep spending at a rate that will see the economy expand at a pace that will generate upside wage and inflation momentum. Strategies aimed at reducing debt and paring back new borrowings mean, by definition, weaker economic growth over the near term.