Blog

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

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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.

Thu, 15 Jun 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/article-231056138.html 

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Aussie debt is about to top half a trillion dollars

Australia’s government debt is poised to break through half a trillion dollars. As of last week, it stood at $0.4992 trillion.

Half a trillion dollars, is $500,000,000,000.00 of gross debt on which the government will be paying interest of around $15 billion each year – and that assumes that interest rates remain at the current record lows.

Government debt has been on an upward path since the global financial crisis hit the economy in 2008. The GFC saw a significant fiscal stimulus where government spending increased substantially as it delivered enough support so that Australia avoided a recession. It was text book economics but the price of avoiding recession was a rise in government debt.

More recently, structural changes in the economy have seen chronically weak wages growth and below target inflation locked into the landscape. These trends have undermined government revenue at a time when government spending is still running well above the levels prevailing before the GFC. Efforts of the government to cut its spending is recent budgets have not only failed, but spending is actually rising at a strong rate.

As a result of all of this and some reckless pre-GFC policies that wastefully sprayed money around the economy, the budget has been in deficit since 2008-09 and is set to remain in deficit until at least 2019-20. And while ever the budget is in deficit, gross government debt keeps rising.

Tue, 13 Jun 2017  |  

Today, Malcolm Turnbull has overtaken Billy McMahon to be the 21st longest serving Australian Prime Minister. Australia has had 29 Prime Ministers since Federation in 1901.

So – Congratulations Malcolm!

Here are a few fun facts:

When McMahon lost the 1972 election, the unemployment rate was 2.5 per cent – under Turnbull today it is 5.7 per cent.

Under McMahon, there was a budget surplus of 2.0 per cent of GDP, now it is a deficit of 1.6 per cent.

Under McMahon, government spending was 18.5 per cent of GDP, now it is 25.2 per cent.

Sat, 10 Jun 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/rba-like-rabbit-headlights-050200564.html 

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The RBA is like a rabbit in headlights

Horrible.

There is no other way to describe the March quarter GDP result which showed annual growth of just 1.7 per cent, which is one of the weakest results in the last 25 years.

Little wonder consumers are feeling under the pump, with real wages falling, savings being run down to fund their meager spending growth and unemployment / underemployment adding to insecurity.

The genuinely odd thing about the current economic malaise is the policy complacency that prevails. Neither the government or the Reserve Bank seem to be in the least bit concerned about the disinflationary funk being felt in Australia.

A month ago, the government delivered a budget that took away any extra spending in the economy via tax hikes on banks and a rise in the Medicare levy. Not an iota of policy stimulus was unveiled to deal with the chronic sluggishness in the economy.

Thu, 08 Jun 2017  |  

This article first appeared on The Crikey website at this link: https://www.crikey.com.au/2017/06/08/scott-morrison-missing-the-point-on-economy-and-employment-statistics/?utm_content=buffer674b5&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer 

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Don't celebrate, ScoMo: job ad stats mask ugly truth about the labour market

In the aftermath of the release of the ANZ Bank job advertisement series on Monday, Treasurer Scott Morrison proudly tweeted that the figures showed: “almost 170,000 jobs advertised in May. Job ads now at the highest level since August 2011.”

Morrison is not a prolific tweeter and rarely does he comment on the monthly job advertisement series. One can only assume he was pleased to see a data point heading in the right direction.

To be sure, the news of rising job ads is a welcome respite from the general gloom in the recent set of economic news. Most now agree that the economy is sluggish, rolling along without much evidence of a much needed or wanted acceleration in activity.
But in tweeting the fact that there are almost 170,000 jobs advertised in May, Morrison indirectly exposed the current difficulties in the economy more broadly and the labour market in particular.

Thu, 08 Jun 2017  |  

The recent Dun & Bradstreet Business Expectations survey confirmed a softening in business expectations for the economy into the second half of 2017.

The link to the full survey results is here: https://dnb.com.au/_media/documents/DB%20Australian%20Business%20Expectations%20Survey%20-%20full%20-%20Q3%202017%20interim.pdf 

A summary of the survey findings are here:

As Australia grabs the world record for uninterrupted economic growth, the signs are mainly pointing downwards. Business performance for the first quarter has hit a four–year low, resulting in lower expectations for the second half of the year. Dun & Bradstreet's May Business Expectations Survey shows a generally muted outlook for the September quarter of 2017 despite employment expectations reaching a two-year high.

The official GDP data, which confirmed a clear slowing in the rate of economic growth, was fully anticipated by the Dun & Bradstreet Business survey. Business expectations have dropped off for the September quarter 2017 following a softer-than-expected March quarter on the back of lower actual sales, profits, employment, selling prices and investment in the first quarter. This continues to highlight the importance of the Business Expectations Survey as an early indicator in turning points in key aspects of the economy – in this instance overall economic growth. The survey also has a solid record in anticipating turning points in other variables such as selling prices, employment and profits.

Sun, 04 Jun 2017  |  

The absurd situation occurs again this week where the RBA Board meeting will be deliberating the appropriate monetary policy stance with the last data on GDP three months old.

Well, it actually relates to the economy in the December quarter 2016 so it is up to 8 months old!

If the RBA meeting was held just two days later, the day after the national accounts and GDP are released, it would have this vital information before it when determining whether or not to adjust the current monetary policy stance.

It might be the case that one quarter of extra data from the national accounts, should not have that much influence on the RBA thinking. To a point that is true. There are other snippets of more up to date news which are helpful in giving guidance to current economic conditions. But given that employment and inflation are vitally determined by how strong GDP growth is, the case for having the data feed into the RBA forecasting round seems compelling.

Fri, 02 Jun 2017  |  

It might be slow in coming, but the market is starting to price in the possibility of lower official interest rates in the months ahead.

At this stage, there is about a 25 per cent chance of an interest rate cut by year end priced into the market which means there is still a long way to go for one, let alone the likely two or three, cuts that need to be delivered if Australia is ever to see 3 per cent GDP growth and unemployment anywhere near 5 per cent.

Reflecting this slow mood change, 3 year bond yields have fallen to 1.70 per cent, just 30 basis points from historical lows. The Australian dollar is losing friends to the point where it is clinging to 0.7375 and is seemingly vulnerable to a sharp decline.

Of course, the ones that need to change their view are the upper levels of the RBA. They seem to be strongly of the view that Sydney and Melbourne house prices are more important to the economy that the persistent missing of its inflation target, the near 750,000 people unemployed, the 1.1 million underemployed, the record low wages growth and what appears to be a troubling slide in commodity prices.

Wed, 31 May 2017  |  

This article first appeared on the Yahoo7 Finance website at this link https://au.finance.yahoo.com/news/rba-need-play-catch-slash-rates-065806231.html?soc_src=social-sh&soc_trk=tw 

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The RBA needs to play catch up - and slash rates

The pressure is building for the Reserve Bank to cut interest rates. And not just once, but several times in the months ahead.

The pick up in economic activity that the RBA has been looking for appears to have faltered. Next week’s data for GDP are almost certain to show annual GDP growth below 2 per cent and it will be lucky to be zero in per capita terms. This severe weakness in the economy is clearly why the labour market continues to operate below full capacity with record low wages growth and very high levels of unemployment and underemployment. It is not only next week’s GDP data that are causing the market to fret – recent economic news is disconcerting, to say the least.

New building approvals have been trending lower for the past year and Westpac are now suggesting that the slump in new dwelling investment will become “a material drag on growth”.

Fri, 26 May 2017  |  

This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/business-finance/scouring-budget-enlightenment/ 

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Scouring the Budget for Enlightenment

Every Federal Budget contains many thousands of numbers, graphs and words about the economy, the finances of the government and the impact of the decisions taken during the budget process.

It is impossible to digest every aspect of this myriad of information but it is fun, and somewhat enlightening, to scour through the budget papers for interesting facts and issues that the budget throws up after it has been delivered.

Some of those issues that captured my attention, as I sat by the fire the weekend after budget day, are outlined below. They help to illustrate how detailed and complex the budget process is and how much work is undertaken to get the budget finished, signed off and delivered on time each year.

Here are some Budget snippets:

Iron Ore
Each US$1 a tonne move in the iron ore price in 2018-19, away from the US$55 a tonne assumed in the budget, impacts government tax receipts by $420 million per annum. If, for example, the iron ore price were to jump US$20 / tonne, to the level it was two months ago, the budget bottom line would improve by $8.4 billion each year.

THE LATEST FROM THE KOUK

Employment - the odd one out or is the economy booming?

Thu, 19 Oct 2017

I am reluctant to bag and slag the employment data, because it is all we have when looking at the health of the labour market. But there are a few quirky bits and bobs in the news of the wonderful run of job creation over the past year.

Employment rose by a remarkably strong 3.1 per cent in the year to September, a fabulous result.

But, and it is a big but, the results are at odds with just about every other indicator in the economy. EIther they are misleading or the employment data are misleading.

One way to check it to have a look at the economy the last time annual growth in employment was above 3 per cent. This takes us to the period around 2007 and into early 2008.

In 2007, annual real GDP growth was generally around 4 to 5 per cent, as you would expect with such jobs growth. The economy was on fire!  In 2008, the CPI surged by over 4 per cent which is again as you would expect given the boom in employment. The RBA was hiking rates at an agressive pace, with the official cash rate hitting a stonking 7.25 per cent in 2008. Wow! 

What bubble? The financial sector is fighting fit

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.