Blog

Mon, 22 Jan 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/2307140-040859645.html 

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

Get ready for election economics

Let’s get a bit of basic economics and budget analysis sorted out as 2018, a likely year for the next Federal election, starts to unfold.

Tax cuts do stimulate economic growth.

Be it company or income taxes that are cut, the impact on economic growth will be positive, at least in the short run. When the government decides to cut taxes by, say, $1 billion a year, there is a simple transfer of $1 billion cash from the government sector with its saving level reduced by that amount, to the private sector. That $1 billion will be available to be spent, invested or even saved by the private sector. Whatever the end mix, there is a boost to the economy.

And yes, it is as simple as that.

But what if the government decides to spend $1 billion extra on educational, roads, consultants, health care, or any other purpose for that matter?

Well, that would stimulate the economy too. The effect would be different to a tax cut because the money would be directed to a specific area (consultants for example) and not as broadly based as a tax cut. But in the end, $1 billion of cash is simply transferred from the government into the bank accounts of those receiving the money via the extra spending.

Again, it is that simple.

Fri, 19 Jan 2018  |  

The recent house price data from Corelogic are showing further falls in house prices.

The falls are, disconcertingly, most evident in Sydney where prices have dropped 0.5 per cent so far in January, which brings the aggregate fall since the September 2017 peak to a chunky 2.9 per cent. This means that for a $1 million property in September, the value has fallen $29,000 in just 4 months.

The house price weakness is not confined to Sydney.

In Melbourne, the Corelogic data shows house prices topping-out. Prices are down 0.3 per cent from the December 2017 peak which, to be sure, is not a large decline after the stunning increases of previous years, but a fall it is.

Thu, 18 Jan 2018  |  

There was another round of euphoria as the monthly labour force data hit the screens. The data showed a nice 34,700 rise in employment in December which brought the total rise in jobs in 2017 to 403,100.

This is good news, to be sure, but how good is it really? What is the context for this increase in employment and how is Australia going in an ever vibrant and dynamic global economy?

Of some concern, Australia’s unemployment rate remains at 5.5 per cent – it actually ticked up from 5.4 per cent the prior month. Interestingly, and something less favourable, is the fact that the unemployment rate has been below 5.5 per cent for just two months (October and November 2017) in the last four and half years. Where is that 5 per cent or lower full-employment target everyone reckons we are near?

What’s more interesting, and a sign of the policy sloth that Australia is enduring at the moment, is that around the world, unemployment rates are falling and are impressively low.

Sure each country will have its quirks but have a look at our 5.5 per cent against these countries.

Tue, 16 Jan 2018  |  

This article first appeared on the Dynamic Syndications website at this link: https://www.dynamicsyndications.com/news/Racehorse-Ownership-Sets-Record-High 

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

Racehorse Ownership Sets Record High

 Fantastic news in the racing industry.

Race horse ownership hit a record high in 2016-17, with Syndications giving an increasing number of people access to a share in a racing thoroughbred.

In 2016-17, there were 79,631 owners of a race horse or a share in a race horse. This is up 0.9 per cent from the number a year earlier and up a healthy 16.8 per cent from the level 5 years earlier in 2011-12.

The nature of horse ownership is changing. The number of registered horses to have 10 or more owners rose to a record high of 1,736 which represented 15.3 per cent of all registered horses. Just think of it, one in seven horses running around Australia’s race tracks is owned by 10 or more people. Back in 2005-06, there were only 659 horses with 10 or more owners, which was just 4.8 per cent of all registered owners.

Thu, 11 Jan 2018  |  

Every man, woman and their dog was blown away with the massive 1.2 per cent rise in Australian retail sales in November. It was enough to spark a sell-off in the bond market and a jump in the Aussie dollar.

The ABS noted in the release that the surge was influenced by the release of the iPhoneX which at around $1,500 a pop, was a big enough issue to mention.

Of course, the iPhoneX was released around the world at the same time in November which prompted me to have a look at the retail sales results in other parts of the world – to see if the iPhone effect was important elsewhere or just confined to Australia.

And guess what?

Wed, 10 Jan 2018  |  

The illion (formerly Dun & Bradstreet) Business Expectations Survey presented an confident outlook for the economy as 2018 kicked off.

According to the survey, a resilient Construction sector and resurgent Manufacturing industry have the most confident outlook for the first quarter of 2018, according to illion’s latest Business Expectations Survey. Driven by strong expectations for profits, selling prices, capital investment and employment, both sectors topped the final indices for the March quarter, with manufacturing confidence at its highest level since June 2003.

2018 is starting on a positive note for the economy with both business expectations and the actual performance of the business sector at multi-year highs. It would appear that the positive tone from a stronger global economy, together with low interest rates and a competitive level for the Australia dollar are all providing a tail wind for the business sector.

The full survey is available at this link: https://dnb.com.au/_media/documents/Business_Expectations_Q12018_Final.pdf 

 

 

Tue, 09 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2272401-034728405.html 

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

Australia has a trade problem

Australia’s international trade position is getting markedly worse.

The bad news is that exports are falling, despite a strong global economy and some strength in commodity prices. At the same time, imports have picked up partly because of the overvalued level of the Australian dollar and partly because of an increase in capital goods imports which are picking up in line with the improvement in business investment.

In November, Australia registered a monthly deficit of $628 million on trade in goods and services which was the second deficit in a row and it sits in stark contrast to the monthly trade surpluses around $3 billion in late 2016 and early 2017. The weakness in exports is surprising. The world economy is strong with growth getting close to the best in a decade. Commodity prices are rising in line with the global strength which should be adding significantly to our export receipts. The fact that exports have been falling for nine straight months in trend terms is probably best explained by the strength of the Australian dollar which is more than offsetting the positive influences. The strong Aussie dollar, it should be noted, is being held up by Australia’s relatively high interest rates.

In the 34 years since the Australian dollar was floated, there have been numerous examples of how a high (overvalued) Australian dollar has eroded the international competitiveness of the export sector.

Mon, 08 Jan 2018  |  

Eight days into 2018 and the Corelogic price series shows that Sydney house prices have edged a further 0.1 per cent lower since 31 December 2017.

Not a large fall, to be sure, but it builds on the falls in Sydney house prices recorded in October, November and December. It is signaling the impact of the quadrella of headwinds in the form of new supply, tighter lending rules, rising interest rates for investors and better investment opportunities in other asset classes.

From the peak in early September 2017, Sydney house prices have fallen by 2.5 per cent. That’s about $25,000 on a $1,000,000 property.

The price decline, to date, has been orderly and still small in the context of house prices doubling over the previous decade. But it does mean that some of the powerful wealth effects that helped to fuel the New South Wales economy will be missing in 2018, and perhaps beyond. If the falls become more acute, there could be some spill-over problems to the broader economy.

Fri, 05 Jan 2018  |  

The betting markets are fielding on the next Federal election and at the moment, the punters are saying Australians are set to elect the Labor Party to office.

There are several bookies offering odds and the best odds available are $1.62 for Labor and $2.60 for the Coalition. Allowing for the bookies margins, the probabilities are approximately 65 per cent chance of a Labor win and about a 35 per cent change of a Coalition win. This means Labor are a 2 in 3 chance of winning, with the Coalition a 1 in 3 chance. Enough of the lesson of odds.

Betting markets are not particularly reliable when elections are 6 to 12 months away. But the close the election is, the more accurate they become. Recent high profile exceptions were Brexit and Trump, but even there, the odds of both of those results was no wider than $5 a week or two from polling day.

Thu, 04 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/housing-vs-stocks-invest-2018-032901719.html 

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

Housing vs stocks – where to invest in 2018?

2018 is kicking off with the share market trading at its highest level in almost a decade and the housing market starting to weaken, with prices falling in Sydney, Perth, Darwin and Melbourne, and flat-lining or slowing in Adelaide, Brisbane and Canberra. House prices in Hobart are the only shining light amid the increasing nation-wide gloom on housing.

These unfolding trends present an interesting choice for investors, who in recent years have generally been well rewarded with a high allocation of investment funds towards housing and a lesser allocation to stocks.

This is changing and could well be set to continue through the course of 2018 and beyond. The prospect of half a decade of flat or falling house prices is not conducive for investors, almost regardless of the alternatives.

The dynamics of housing are well understood. Extraordinary prices gains over the past decade or so have delivered stellar returns, albeit with a relatively low rental yield, rising costs of ownership (council rates, insurance and the like). The very low interest rates that provided financial comfort to investors as many maximised their debt on the expectation house price rises would offset those costs is less and less relevant as prices start to fall. In other words, with house prices now flat and falling, these dynamics mean that investing in housing is at best marginal, even with the absurdly generous tax policies in the form of negative gearing. Add to that a rise in the interest rate the banks charge investors as a result of the regulatory changes imposed by the Australian Prudential Regulatory Authority, and it is fair to say housing, as an investment, has almost no appeal.

So what alternatives for investors are available?

THE LATEST FROM THE KOUK

Why Australians have lost $300 Billion this year

Mon, 22 Oct 2018

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/3665708-004156966.html 

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

Why Australians have lost $300 Billion this year

The total wealth of Australians has dropped by close to $300 billion since the start of 2018.

How much of that is yours?

The fall in house prices and now the slump in the stock market is undermining the wealth of Australian householders.

This is an important trend given the solid link between the change in wealth and household spending. Numerous studies show that when wealth increases, growth in household spending is faster than it would otherwise be. It appears that householders view their extra wealth in a manner that sees them lower their other savings or use that wealth as collateral for additional borrowing fund extra consumption. They may even ‘cash in’ their extra wealth and use those gains to fund additional spending.

When they observe falling wealth, experience weak wages growth and realise their savings rates are perilously low, they will adjust their spending – down.

Labor almost home, not quite hosed

Mon, 22 Oct 2018

The extraordinary vote in the Wentworth by election, with the 18 or 19 per cent swing against the Liberal Party, presents further evidence that the Morrison government is set to lose the next general election.

There is nothing particularly new in this with the major nation-wide polls showing the Liberal Party a hefty 6 to 10 points behind Labor.

The election is unlikely to be held before May 2019, which is a long 7 months away. A lot can happen in that time but for the Liberal Party to get competitive, but for this to happen there needs to be a run of extraordinary developments.

In the aftermath of the Wentworth by election, the betting markets saw Labor’s odds shorten.

While the odds vary from betting agency to betting agency, the best available odds at the time of writing was $1.25 for Labor and $4.00 for the Coalition.

If, as most now seem to suggest, Labor is ‘across the line’, $1.25 is a great 25 per cent, tax free return for 7 months ‘investment’. Yet, punters are not quite so sure and seem to be holding off the big bets just in case something out of the ordinary happens.

While some segments of the economy look quite good, at least on face value – note the unemployment rate and GDP – others that probably matter more to voters – husong, share prices, wages and other high-frewquency cost of living issues are all looking rather parlous. And none of these are likely to change soon.

There is an old saying for punters – odds on, look on. But $1.25 for Labor seem great value.