Blog

Sun, 12 Feb 2017  |  

This Thursday sees the release of the January labour force data. We will see the update on a wide range of labour force measures including for unemployment.

In December, the unemployment rate stood at 5.82 per cent, which was the highest unemployment rate since January 2016. It was a poor result and reflects the ongoing sluggishness in the economy. The RBA, curiously and without much attention to the hard data, concluded in its regular Statement on Monetary Policy that the labour market was poised to improve. Who knows, it might turn out to be accurate. If so, terrific! The improvement must start now for the RBA to validate is upbeat stance and recent reluctance to cut interest rates.

If not and say the unemployment rate stays at 5.8 per cent or worse, rises, there will need to be a serious rethink about the current policy settings, including Australia having some of the highest interest rates in the industrialised world with an unemployment rate that is also above most non-European countries.

Wed, 08 Feb 2017  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/why-a-piece-of-bread-half-an-avocado-and-a-few-crumbs-of-feta-costs-16-045746860.html 

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Why a piece of bread, half an avocado and crumbs of feta costs $16

Have millennials trimmed their spending on smashed avocado brunches and other food indulgences and started saving for a house?

No one can be sure, but there might some tentative evidence that the smashed avocado debate of last year had some influence on consumption patterns and not just away from smashed avocadoes, but overall spending in restaurants and on takeaway food.

The retail sales data shows that spending in cafes, restaurants and take-away food shops has dropped in recent months. In October last year, when the smashed avocado debate reached its pinnacle, spending in cafes, restaurant and on takeaway reached a record high $3.6383 billion.

In November, spending was $36.6 million lower than this peak, while December spending was still down $30.7 million from the October high. Something was happening in this segment of retail trade.

Sun, 05 Feb 2017  |  

I wrote the article below in 2011 when there was a discussion about the role of an economist and what makes a good economic forecast.

It is possible, if not likely, good economists can be wrong with a spot forecast, but for investments based on that forecast to be highly profitable.

Being correct and successfully forecasting something that is fully priced into the market (ie, the RBA will not adjust interest rates at its February meeting) is a largely useless forecast versus a forecast for, say, the AUD to hit 0.8000 at the end of the year (from a spot price of 0.7200) and it gets to that level in June and then eases back in the second half of the year. Or forecasting rate cuts for, say, 6 months time and none are priced in and the cut is delivered in 3 months. That forecast is wrong but investments based on that forecast would make a lot of money.

I have highlighted in bold the key point of the old article.

Cheers, Stephen

 

November 2011
Economists and Traders - Like Chalk and Cheese

Christopher Joye’s particularly interesting and well-reasoned article here did a good job shedding some light on the similarities and differences between money market traders and market economists. His conclusions were largely based on an assumption that market economists and traders were trying to do a similar thing, that is, working out where markets were going. The difference was that traders take a shorter run perspective and economists or strategists look at the longer run and are required to produce "point" forecasts (e.g., the cash rate will be 3.25% in December 2012).

Thu, 02 Feb 2017  |  

The Mid Year Economic and Fiscal Outlook released by Treasurer Scott Morrison in December 2016 gave us an update of the budget numbers for the current financial year and the forecasts or estimates for the next few years.

They are always interesting to analyse to judge the size of government, the accumulation of government debt, change in tax and spending and other issues associated with managing a $1.75 trillion economy that will be a $2 trillion economy in 2020.

I was looking through the numbers, in a welcome distraction from issues relating to Donald Trump, and found the following facts.

Tue, 31 Jan 2017  |  

This article first appeared on the Yahoo7 web site at this link: https://au.finance.yahoo.com/news/the-link-between-education-and-incomes-unwapped-052209833.html 

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Education delivers high incomes and low unemployment

It’s back to school week for thousands of children around Australia.

Let’s celebrate the fact that at the end of this year of learning for all children, from kindergarten to year 12, students will be better placed in life because of that education and learning. It will also be good for the economy as the link between educational attainment, unemployment and income is irrefutable.

This year of learning does not mean that all of our children are on a path to become rocket scientists, medical researchers or actuaries. A good education system will ensure that every student reaches their full capacity and opportunity, including knowing how to read, write and add up, and having a mind set that allows them to be flexible within the ever-changing work place environment.

The recent Melbourne University Household Income and Labour Dynamics survey dug into the Australian experience of education and incomes. Its findings were stunning.

For women, for example, a diploma or higher educational attainment saw a 10 percentage point increase in the probability of full time employment compared with maximum educational attainment of Year 11 and below.

Mon, 30 Jan 2017  |  

This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/business-finance/countdown-economic-trumpageddon/ 

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Countdown to Economic Trumpageddon

United States President Donald Trump is a proverbial ticking time bomb for US and global economic conditions and financial markets.

While US stocks have generally been strong since Trump’s shock election win in November, the optimism has been based on a yet-to-be-tested policy approach, which is focused on high infrastructure spending, cuts to company tax, and policies aimed at supporting domestic manufacturing.

These may prove to be positive for the US economy, but what is being understated by the markets is his approach to trade and old-fashioned protectionism. These policies by themselves have the potential to dislocate trade flows and unwind decades of successful specialisation, which has resulted in a rapid productivity growth, sustained low inflation and falling prices for many goods and services. This in turn has been pivotal in reducing global poverty and increasing the wellbeing of the bulk of the world’s population.

Trump has already bullied a number of US car manufacturers to abandon their plans for investment in efficient, low-cost producing countries such as Mexico. Those cars will now be produced in the US, clearly at a higher price to consumers and a loss of jobs and investment in Mexico.

Sun, 29 Jan 2017  |  

I am going to sell both Dow futures (hopefully around 20,080) and S&P500 futures (at around 2,293). This new trade to be instigated at or near open on Monday 30 January and is based on my view and is not investment advise in any way. Please contact your financial advisor before investing.

[UPDATE:  10.10am Monday 30 January:  Entry level a little less favourable than hoped:  Dow 20,045:  S&P500 2,288]

The reason for the trade is simple. Trump is smashing and trashing the US economy and soon, the US stock market will follow.

His extremist approach to policy settings, both on economic and social issues, has generated a huge discontent in the US that runs the risk of derailing the momentum in economic growth over the past year. Business and consumer sentiment, and with it investment and spending, does not usually react well to political upheaval and divisive policies. There is a very real risk that the likely fall in sentiment will upset the economy and market sentiment.

Fri, 27 Jan 2017  |  

In 2015-16, Australia’s imports of goods from Mexico outpaced exports to Mexico by 4 to 1. That is, there were $2.4 billion of imports into Australia from Mexico and just $600 million of exports to Mexico from Australia.

I am waiting for One Nation or some crazy galoot to suggest that Australia should put a tariff on those nasty Mexican exporters to pay for, I don’t know, politicians travel? A fence around Parliament House? An anti-halal campaign?

To be fair, any one in Australia who suggested a tariff on Mexican imports would be laughed out of the room; treated with contempt; ridiculed for the absurdity of such a suggestion. So One Nation just might propose it? Ha - surely not, it wont happen.

Meanwhile, in the US, President Trump is promising to impose a tariff of 20 per cent on Mexican imports into the US to fund a similarly ludicrous issue, building the wall between the US and Mexico. Amid the justified ridicule there are, amazingly, some people supporting the idea. And no, they are not all the inmates from the Cuckoo’s Nest.

Wed, 25 Jan 2017  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2017/jan/25/australias-housing-affordability-is-much-more-complex-than-the-headlines 

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Australia's housing affordability is much more complex than the headlines

Demographia has again hit the headlines in Australia with its seemingly comprehensive report on International Housing Affordability “Sydney affordability nightmare laid bare” and the Australian housing market “severely unaffordable” scream the headlines as reporters cut and paste segments of the Demographia report into their news items. The clicks on these stories must be running high. It even inspired a photo gallery on this site.

There is no doubt that house prices in Sydney and other parts of Australia are high. Housing affordability is an important issue for policy makers including the recently elected premier of New South Wales, Gladys Berejiklian, who said it would be the “biggest issue” for her to deal with in her new role.

Affordability also featured heavily in the 2016 federal election campaign with Labor promising to restrict negative gearing concessions to cover only new dwellings meaning that investors would not be competing with other buyers in the established housing market. “Improved housing affordability” was a central element of this policy.

Unfortunately, the Demographia report doesn’t disclose the specific sources for key data and instead relies on vague and untestable assumptions for the numbers that form the basis of their calculations.

Tue, 24 Jan 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/the-dirt-on-govt-debt-015604567.html 

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Labor versus Liberal on Government debt

In the six years of the Rudd / Gillard Labor government from 2007 to 2013, gross government debt increased by $225 billion, from just under $50 billion to just over $273 billion. These figures are from the government agency that borrows money on behalf of the government, the Australian Office of Financial Management.

The escalation in government debt during the Labor years was due to the budget deficits which were driven by lower revenue as the global financial crisis hit tax payments to the government and were also the result of deliberate stimulus measures as the government implemented a range of one-off, big spending, policies to avoid a recession.

It was a policy response that in 2011 meant Australia attained the coveted triple-A credit rating from all three major credit ratings for the first time in its history.

In simple terms, government debt rose by an average of $38 billion a year under Labor and its policies.

THE LATEST FROM THE KOUK

Inflation is low and remains low

Thu, 27 Apr 2017

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/inflation-020818312.html 

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Inflation is low and remains low

Inflation edged up a little in the March quarter – from an annual rate of 1.5 per cent at the end of 2016, the headline rate rose to 2.1 per cent. The underlying rate of inflation, which the RBA trends to place more weight on when it comes to assessments of interest rate policy, was even more muted, lifting from 1.5 per cent to 1.8 per cent.

And recall, the RBA target range for inflation is between 2 and 3 per cent.

Annual underlying inflation has been at or below 2 per cent since late 2015, and has been below 2.5 per cent, the midpoint of the inflation target, since the end of 2014. That is a long time.

The data today confirm that inflation is low and remains low and in isolation, continues to give the RBA plenty of scope to further reduce interest rates. When the recent data on unemployment, building approvals, private sector business investment and wages growth are added to the mix, the case for an interest rate cut is strong.

The Australian budget is likely to confirm this is a big-spending, big-taxing government

Thu, 20 Apr 2017

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/apr/19/the-australian-budget-is-likely-to-confirm-this-is-a-big-spending-big-taxing-government 

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The Australian budget is likely to confirm this is a big-spending, big-taxing government

While much of the focus of the upcoming federal budget will, quite rightly, be policy issues associated with housing affordability, areas of changes to spending and revenue, there will also be an opportunity to analyse the underlying values of the government.

This will be the fourth budget of the current Coalition government and will show us the ‘big picture’ of government policies and priorities. There will be data on aggregate government spending, taxation receipts, gross and net government debt and the budget deficit.

The most accurate way to analyse the trends in the key budget figures will be to assess them as a ratio of GDP. Government spending, for example, totalled $48.8bn in 1982-83 and this rose to $423.3bn in 2015-16, which is, at face value, an enormous increase. But spending actually fell from 25.8% of GDP in 1982-83 to 25.6% of GDP in 2015-16. It is a similar issue with government debt, the budget deficit and other benchmarks.

Based on the performance of the economy since the last fiscal update in December 2016, the budget is likely to confirm that this is a big-spending, big-taxing government with a strategy for continuing budget deficits and rising debt as it funds some of its pet projects.

It is all but certain that government debt will remain above 25% of GDP in 2017-18 and the forward estimates, meaning the government will be the first in the last 50 years to have spending at more than a quarter of GDP for eight straight years.