Blog

Wed, 11 Jan 2017  |  

This article first appeared on the Yahoo7 Finance website at this address: https://au.finance.yahoo.com/news/is--interest-rate-hike--scenario-coming-225432895.html 

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

Is the ‘interest rate hike’ scenario coming?

2017 has kicked off with money markets starting to price in interest rate increases over the next few years. That’s right – interest rate rises.

The market appears to be focusing on the good economic news from the global economy, especially in the Eurozone which has proved to be a surprise packet with growth picking up and the unemployment rate falling. The US economy is also is a strong position with unrelenting growth in employment and the unemployment rate firmly entrenched below 5 per cent.

Add to that buoyant commodity prices and an export revenue boom in Australia and there we have the ‘interest rate hike’ scenario that the market is looking for.

As to timing, the current market pricing has a 25 basis point hike to 1.75 per cent priced in around the middle of 2018 and a further hike about six months after that.

A total of 50 basis points of interest rate rises over two or so years, if correct, would certainly take some heat out of the housing market. It would also trim the growth outlook for business investment and risk driving the Australian dollar higher.

Fri, 06 Jan 2017  |  

Here's a story about housing and snake oil.

Back in late 2009, there were two Sydney based couples looking to buy their first first home.

The median house price in Sydney in the March quarter 2010 (ABS data) was $583,000 and the standard variable mortgage interest rate was around 6.7 per cent. Each household was on a combined income of $95,000 a year, which was about average for those living in Sydney.

Couple 1 took the plunge, they had $116,600 in savings, and borrowed the $466,400 or 80% of the value of the house and moved into their median house. The repayments were solid, at $2,881 a month over a 30 year mortgage.

Couple 2 also had $116,600 in savings in 2010 but saw a series of high profile stories from economist Steve Keen, who was warning about a 30 or 40% fall in house prices as the Australian property bubble burst. He reckoned unemployment would exceed 20% and something akin to a Great Depression was almost unavoidable. Couple 2 continued to rent and put their savings in term deposits, fearful of their job prospects and waiting hopefully for the collapse in house prices before buying.

Wed, 04 Jan 2017  |  

This article first appeared on the SMH website: It is Michael Pascoe’s take on the Roberts “sell everything” fiasco. https://www.smh.com.au/business/markets/the-unending-game-of-bulls-v-bears-20170103-gtl6jz.html 

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

The unending game of bulls v bears

Remember the biggest market scare headline from January 2016: The Royal Bank of Scotland's "sell everything!" alarm? And the $10,000 bet Steven Koukoulas tried to make against the RBS analyst? Well now the tables have turned and "The Kouk" is the bear.

Funny thing about the RBS analyst who made the "edge of a cataclysm" call – he seems to have disappeared. After advising RBS clients they should sell everything except high-quality government bonds, Andrew Roberts hasn't turned up on a Google search since. I've gone through several pages of searches but there's been nothing fresh from Mr Roberts since that headline-grabbing advice.

Arguably the world’s biggest bear at this time last year seems to have disappeared, but the bull who most publicly called him out has himself turned into a bear. Michael Pascoe comments.
If he was out to get publicity, he was certainly successful, featuring in stories around the world. Embarrassingly, much of the coverage was uncritical or even barely sceptical. Hey, fear sells.

But not everyone was unquestioning. Stephen Koukoulas of Market Economics, alias The Kouk, went a step further than expressing doubt by immediately calling Roberts out, prepared to bet 10 grand that at least six of 11 markets Roberts indicated as losers would in fact rise.

Tue, 03 Jan 2017  |  

You can teach an old dog new tricks, or at least an old dog with an open mind, some understanding of markets and a desire to make money.

As an investment, I think gold has no fundamental underpinnings. I have written about my dislike of the shiny dirt as a means of investment and there are many reasons why I reckon it is still a dog. Here is my take on gold from a few years ago https://thekouk.com/blog/gold-price-falls-revisiting-gold-as-an-investment.html 

That said, even dirty dogs can get cheap and present a trading opportunity.

And so it appears with gold.

Mon, 02 Jan 2017  |  

I am not sure if Andrew Roberts, the RBS markets guru who famously kicked off 2016 with a recommendation to clients to “sell everything” still has a job, but anyone who followed his prognostication would have lost a lot of money. An aweful lot.

At the time Roberts’ started grabbing global attention with his extraordinary, ill founded, irrational and illogical forecast, I offered him some ‘skin in the game’ in the form of a A$10,000 bet that he would be wrong - that many of the markets he identified as a "sell" were in fact a "buy". The link to that offer is here https://thekouk.com/blog/sell-everything-my-challenge-to-andrew-roberts-of-rbs.html 

As noted previously, it was a very generous offer on my part – Roberts only had to have the price of 6 of the 11 categories offered to fall to win – ie, not ‘everything’.

Suffice to say, Roberts did not return my email, which is a pity. That $10,000 would have been handy beer and HSP money for 2017.

Anyway, to the facts.

Sun, 01 Jan 2017  |  

It’s that time of the year – making the calls for the year ahead for the economy and financial markets.

Key themes:
Ongoing sluggish growth in Australia with house prices set to weaken markedly, possibly fall. US (and most global) stock markets to fall, perhaps quite sharply. US dollar to weaken, Euro to rise strongly, linked to a reversal to the current market over reaction to US politics. The moves have been irrational. RBA to cut interest rates, bond yields to have only a limited sell off.

Without further ado, here are the Top 10 on the economy and markets, plus a couple on sport and horse racing.

Sat, 31 Dec 2016  |  

At the start of 2016, I posted my Top 11 tips for 2016. It has been a mixed bag with a couple of issues of timing and of course changes of view through the year taking their toll. Suffice to say, it was a borderline pass for the sum of all forecasts.

Outlined below are those 11 forecasts with my comments on their success of otherwise in brackets, in bold. Included is my self-rating out of 10 for each forecast.

1. Real GDP growth in Australia will accelerate to around 3.25 per cent, driven by strong exports, solid growth in household spending, a further lift in dwelling construction and a meaty contribution from public sector demand. Business investment will remain horribly weak, but even that might find a base during the course of the year. There seems precious little chance that GDP growth will slip below 2 per cent at any stage in 2016. [Well, against almost all expectations, annual GDP growth spiked to 3.3 per cent in the June quarter, before sling to 1.8 per cent in the September quarter. What looked a great forecast around September, ended the year looking not so hot. I jumped onto the slower growth band wagon around mid year when there were cleans signs of growth stagnation. My self rating is 6 out of 10]

Tue, 27 Dec 2016  |  

This is the podcast of my chat, along with Eliza Owen, Property Market Analyst with Corelogic and Mark, someone looking to buy their first house on ABC Radio National.

Listen in - I reckon it was a good discussion.

https://www.abc.net.au/radionational/programs/breakfast/digging-deep-into-the-housing-debate/8149112 

Wed, 21 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance at this link: https://au.finance.yahoo.com/news/aussie-economy-faces-significant-downside-risks-in-early-2017-005824675.html 

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

Aussie economy faces significant downside risks in early 2017

2016 is coming to an end with the economy muddling through - at best. Indeed, as the year has progressed, things have got worse across a broad range of indicators which suggest there are some significant downside risks into the early part of 2017.

Importantly, GDP growth was negative in the September quarter and annual growth slipped to a tepid 1.8 per cent which is a rate of growth rarely recorded in Australia. It’s bad news. At the same time, the unemployment rate has been stuck near 5.75 per cent having threatened to break lower earlier in the year. Any jobs that are being generated are overwhelmingly part-time which is a further signal that all is not well with the economy. It is simply not growing fast enough.

The most recent data also show a further weakening in wages growth, to a record low in fact, which is putting pressure on household budgets and dampening new consumer spending. In simple terms, it is difficult for households to build spending when wages growth is barely keeping up with inflation.

Tue, 20 Dec 2016  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/business/2016/dec/19/coalitions-policy-ineptitude-exposed-as-myefo-points-to-multiple-credit-downgrades 

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

Coalition's policy ineptitude exposed as Myefo points to multiple credit downgrades

When Joe Hockey, as treasurer, delivered the Coalition’s first budget in May 2014, he framed the government’s policy agenda around budget deficits of $10.6bn in 2016-17 and just $2.8bn in 2017-18. The budget was to swing into surplus in 2018-19 and every year beyond that.

With two-and-a-half years of Liberal–National party economic policy settings since that Hockey budget, today’s treasurer, Scott Morrison, has outlined the results of that plan, plus the impact of new policies and economic changes in today’s midyear economic and fiscal outlook (Myefo). Morrison has confirmed that the current projections are for budget deficits of $36.5bn in 2016-17 and $28.7bn in 2017-18, meaning the 2017-18 deficit alone is some six times larger than projected by Hockey.

The Hockey framework meant that Australia’s sovereign triple-A credit rating was assured with all three major ratings agencies noting the fiscal trajectory and underpinnings of solid economic growth as reasons for this favourable assessment. Helping also was the projection that net government debt would peak at low level of 14.6% of GDP under the Hockey 2014 budget scenario.

Alas, the strategy outlined in 2014 is in tatters.

THE LATEST FROM THE KOUK

Why are Bill Shorten and Labor scared to run on the economy?

Tue, 21 Mar 2017

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/16/why-are-bill-shorten-and-labor-scared-to-run-on-the-economy 

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

Why are Bill Shorten and Labor scared to run on the economy?

The dust is settling from the Western Australian election and there are some implications for the way the federal Labor party should conduct itself from now until the next election if it is to enhance its chances of winning.

For the Liberal party, the lessons are clear. It might sound trite to mention it but its electoral success will depend almost exclusively on its ability to deliver materially better economic conditions between now and election day.

For Labor, the task is easier. It needs to take the initiative on the economy, economic policy, the budget deficit and government debt and highlight how poor the Coalition has been in most aspects of economic managements since the 2013 election.

In those three-and-a-half years of the Coalition being in charge of the economy and budget, growth has been sluggish despite favourable conditions in Australia’s major trading partners. The Australian economy should be stronger because of the welcome news of the Australian dollar falling sharply in recent years, which has provided a boost to domestic economic conditions. What’s more, interest rates have been cut to record lows, yet the economy has been struggling to register annual GDP growth near 2.5%, the unemployment rate is the same as when the Coalition won the 2013 election, wages growth has plummeted to a record low, and the government debt has grown significantly faster than during the previous Labor government, which of course included the fiscal stimulus measures that kept Australia out of recession.

Ever since the mid-1990s, the Labor party has been reluctant to run hard on issues to do with the economy. For some reason, it is riddled with self-doubt that stems, it appears, from the high interest rates of the late 1980s and early 1990s, and its proactive use of budget debts and moderate debt accumulation during the global crisis to ensure Australia kept growing and to protect an estimated 200,000 jobs.

A $2 billion national building snow job

Sat, 18 Mar 2017

Prime Minister Malcolm Turnbull reckons his Snowy Hydro $2 billion investment is a “nation building project”.

Yes, that is what he said. Really. Turnbull think a one-off $2 billion government infrastructure project is “nation building”.

Let’s look at $2 billion in the context of the Australian economy.

In the December quarter 2016, Australia’s GDP was $435,445 billion dollars (seasonally adjusted). This works out at $4,769 billion a day which makes the $2 billion snow job about 10 hours GDP.

Useful? Sure!

Nation building? Ha!

By 2020, Australia’s GDP will be around $510,000 billion a quarter and $2 billion will be akin to about 8 hours GDP.

Here’s what elese $2 billion is now days.