Blog

Mon, 01 Jan 2018  |  

 A year ago, I outlined 10 top calls and forecasts for 2017 for the economy, markets and policy.

The full text of those calls are included below, and my self-rating of the success out of 10 for each of them is in the square brackets in bold. I have tried to reflect the underlying success of the forecast and whether there was money made by taking a position in markets on the basis of those forecasts.

Let me know if you disagree.

In 2016, I got a borderline 50% for my forecasts – it was a mediocre year.

This year has been a whole lot better at 62 per cent which, when it comes to forecasting, economics, policy and markets, is a great result.

I am happy, most of my clients are happy and my 2018 calls will be out in the next day or two.

Cheers, Stephen

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 1. Global stocks

When the dust settles from the irrational market reaction to the US Presidential election win of Donald Trump, US (and most global) stocks seem set to fall. Trump policies in trade, foreign affairs, accountability on government spending and tax could all conspire to undermine confidence when the reality of the misguided policy strategy of Trump moves to reality. How much weakness is hard to say, but the Dow, for example, back to 17,500 would seem likely. It could fall further than this. [0/10 By far the worse call, and hopelessly wrong. The geopolitical issues did not amount to zac, the markets appear to be unaware of the issues associated the crunching of the US budget position, and the tax cuts were a positive for markets. US stocks boomed and I was wrong.]

2. The ASX
With the bearish lead from the US, a likely dip in commodity prices and a firm Australian dollar, expect some pull back during 2017. The ASX may hit 6,000 in the early part of the year, as local interest rate cuts are delivered but the negative influences from offshore will likely counter that. A dull forecast, in many ways, but 5,250 for the ASX200. [4/10 It was a solid year for the ASX with a gain of about 7 per cent, 31 December on 31 December. It hit 6,000 points late in the year, not early, which was a favourable position to take at the start of the year. My within year forecast was askew.]

Wed, 20 Dec 2017  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/2195187-050039322.html?soc_src=social-sh&soc_trk=tw 

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Ignore the spin, government debt is going up and up

Despite all the spin and torture of the data, government debt is still rising, the return to budget surplus is based on fickle economic forecasts and the Turnbull government is on track to be one of the top 10 taxing governments in Australia’s history.

Gross government debt is already at a record at $520 billion and it will keep rising through till at least 2027-28 when it will reach a new record high just under $700 billion. Net government debt (which allows for some of the assets the government owns to offset gross debt), will reach a peace-time record in 2018-19 when it hits 19.2 per cent of GDP, having roughly doubled from the time of the 2013 election.

This is a long way from promises of the Liberal Party prior to it taking office to run budget surpluses and pay off debt.

With Treasurer Scott Morrison delivering the Mid Year Economic and Fiscal Outlook, the new record levels for government debt were confirmed, notwithstanding a small narrowing in the budget deficit which was driven by an unexpected rise in the iron ore price which fed into company profits and taxes paid to the government, as well as higher superannuation taxes based on the solid performance of the stock market last year.

The budget is forecast to return to surplus in 2020-21, but this will require everything to ‘go right’ with the economy between now and then. GDP growth is forecast to pick up to 3 per cent in 2018-19 which, according to Treasury, will underpin a solid rise in employment and a further acceleration in wages. A stronger economy will deliver higher taxes which is the driver of the return to surplus, so the theory goes.

Mon, 11 Dec 2017  |  

The illion Business Expectations Survey presented a positive outlook for the economy.

Business profits expectations for 2018 are the highest they’ve been since 2011, with companies set to boost employee numbers in the first quarter on the back of the positive outlook, according to illion’s latest Business Expectations Survey.

Data from the survey indicated businesses operating in the Finance, Insurance and Real estate sector had the highest profit expectations approaching the new year, followed by the Transport, Communications and Utilities sector.  The survey shows that overall, the Business Expectations Index is up 25.7 percent on the same period last year and the actual performance of businesses across all sectors is at a 13 year high.

Stephen Koukoulas, illion Economic Adviser, said there were a number of factors driving the positive outlook for 2018. “Corporate profits are getting a boost from lower costs, which are being driven by record low interest rates and on-going low wages growth – which is all occurring at a time of solid gains in the ASX”.

Fri, 08 Dec 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2138618-050543271.html 

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Oz economy: The good, the bad and the ugly

The Australian economy continues to grow, but the pace of expansion remains moderate, being constrained by ongoing weakness in household spending and a slide in housing construction. The good news is further evidence of an upturn in private business investment and stronger growth in public sector infrastructure spending which is providing support for the economy.

At face value, 2.8 per cent annual GDP growth rate is quite good, but the devil in the detail on how that growth has been registered is why there are some concerns about the sustainability of the expansion as 2018 looms.

Household spending remains mired with growth of just 0.1 per cent in the September quarter. It seems the very low wage growth evident in recent years, plus data showing a small rise in the household saving rate, is keeping consumer spending in check.

Making up well over half of GDP, household spending will be the vital element of the economy into 2018. If wages growth remains weak, there seems little prospect of a pick up in household spending. And if household spending remains weak, bottom line GDP growth will be relying on a strong expansion in business investment and public sector demand.

Tue, 28 Nov 2017  |  

The changing nature of work is causing significant disruption within the economy and for workers confronting an erosion of their take home pay and basic workplace conditions.

The precise nature of these changes is still unfolding in line with the spread of technology, the move to a more casualised workforce, globalisation and the steady decline of union influence.

The recent Per Capita round table discussion of these issues was particularly enlightening, not least because the participants helped to articulate how widespread these trends in the labour market are becoming, but they also covered what these changes might mean for the economy and the policy settings needed to ensure strong growth and a decent society.

One of the most potent manifestations of the workplace changes in the past decade or so has been the hit to wages. After several decades of annual wages growth around 3.5 per cent (which equates to an increase of around 1 per cent per annum in real terms), wages growth has slumped in recent years.

Fri, 24 Nov 2017  |  

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/2073035-004930587.html 

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Watch out below! The Aussie dollar is about to sink

Watch out below! The Australian dollar is on the cusp of a significant fall. Already in recent weeks it has slumped from about 81 US cents to around 76 US cents at present and the factors that generally hold sway over the direction of the Aussie dollar suggest more falls are in store.

Commodity prices are going nowhere. The days of US$150 a tonne iron ore and massive prices for coal are well past. While the week-to- week changes in commodity prices can appear extreme, they are in a range a good 40 to 60 per cent lower than the peak levels around 5 years ago when the dollar traded as high as 1.10 against the US dollar.

Also keeping commodity prices lower is the fact that miners have slashed the cost of digging these commodities out of the ground. They can sell their output at a lower price and still have a healthy profit, because of this cost cutting. At the same time, the tens of billions of dollars invested by the mining sector over the past decade have build what are now fully functioning mines, adding to the supply of bulk commodities in the world market. While demand is still strong, the fact that output (supply) has run faster and cost of production has fallen, it means the overall level of commodity prices is broadly flat.

The big issue rapidly unfolding for the Aussie dollar is the erosion of the gap between global interest rates and those prevailing in Australia.

Fri, 24 Nov 2017  |  

Late payment times down nearly 10 percent

According to the latest analysis by illion, the average late payment time for an Australian business was 12.6 days during the September quarter, down 9.1 percent from 13.9 days during the prior corresponding period. In addition to reducing the length of time for overdue bills, the data shows more businesses are also settling their invoices on time, demonstrating a broad shift in payment behaviour.

“If a company’s annual report is like the yearly medical check-up, then payment data is like Fitbit data. Timely payments are a crucial sign of business health. They are critical to small businesses running on slim margins, reducing the risk of job cuts and business failures.”

Simon Bligh, illion CEO

"In line with the pickup in business expectations and a more positive tone in other parts of the business sector, the sharp fall in late payments reflects better economic conditions and a clear improvement in cash flows. Business cash flows have also been boosted by higher profits, as seen in illion’s latest Business Expectations survey, which means firms are able to make their payments to suppliers in a timelier manner."

Stephen Koukoulas illion Economic Adviser

The full report is at this link: https://dnb.com.au/_media/documents/AU%20Late%20Payments%20Q32017%20Full.pdf 

Tue, 14 Nov 2017  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2024247-032933611.html 

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Why the RBA is wrong, wrong, wrong

The latest Statement on Monetary Policy has confirmed the failure of the Reserve Bank of Australia to implement monetary policy settings that are consistent with its inflation target and objective of full employment.

It used to be the case that the RBA could never have a medium term forecast for inflation other than 2.5 per cent – the middle of its target range. The thinking was that if the RBA had a forecast an inflation rate of say, 1.5 or 3.5 per cent, that was based on current policy settings, it would adjust interest rates to ensure inflation would not reach those levels, and instead would return to the middle of the target.

The middle of the target range is an important goal for policy because it means the risks to the forecast are symmetrical. A forecast of, say 2 per cent, means that a 0.5 percentage point error could see inflation fall to a troublesome 1.5 per cent as much as it could rise to a perfectly acceptable 2.5 per cent, while a forecast of 2.5 per cent that turns out to be wrong by 0.5 per cent would still mean the RBA meets its target.

And even if the 2.5 per cent forecast turns out to be wrong as economic events unfold in ways not fully anticipated, it would adjust policy again to keep the focus on the 2.5 per cent. The RBA did this well until the global crisis came along and changed the growth, wage, inflation dynamics.

Which is where the recent RBA policy settings have been so wrong.

It has been well over a year since the last interest rate cut.

Thu, 09 Nov 2017  |  

Getting out of property and into stocks

That seems to be a theme developing in the Australian market at the moment, with further evidence of a cooling in the housing market and a coincident lift in the value of the ASX hinting that those with money to invest are avoiding the ultra-expensive, low yielding housing market and instead are looking to the stock market for opportunities.

The Australia stock market is moving higher to the point where the ASX200 index is poised to break above 6,000 points for the first time since 2008. The past decade has been a rocky one for the Australian stock market. There has been the GFC, a commodity price boom and bust, speculators have jumped into and out of bank stocks based on extreme calls on the housing market and many local firms have been dealing with an unrelenting threat from foreign competition.

Some of these issues remain, but a combination of factors appear to be at play in the new found interest in the share market.

Sun, 05 Nov 2017  |  

The spring carnival is in full swing and it’s time to turn on the lights and examine the political and economic form guide.

My tip is Uncertainty, which seems to have the best track record in politics and economics. So here we go.

Turnbull: Looked promising early in career but only fell across the line last start. Lost all form and hard to have.

Shorten: Difficult to fault recent form, although task made easier in recent starts with inferior opposition. The testing material.

Government Debt: A stayer which is going from strength to strength. Being helped by a lack of tax reform and will be thereabouts.

Reserve Bank: Has done nothing in over a year despite the urgings of the 1.8 million people either unemployed or under employed. Needs to improve.

THE LATEST FROM THE KOUK

Get ready for a February budget

Wed, 15 Aug 2018

This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/heres-need-get-ready-early-2019-budget-010743625.html 

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Get ready for a February budget

 An early budget is the likely scenario given the Federal election is set to be held in May 2019. The budget, which in modern times is usually delivered by the government on the second Tuesday in May, cannot be handed down during the election campaign which will be running hot if Prime Minister Turnbull sticks to his word and holds the election in May.

To allow the government to deliver its budget before the election is called, the most likely time for it will be in the period from mid-February through to early March.

With the constraint of the election timing, this timeframe for the budget would allow the government to ramp up its economic rhetoric and no doubt engage in a bit of a voter friendly strategy in an effort to gain some political momentum into the election campaign. This timing also means that soon after voters return to work and the real world after the summer holidays, they will be bombarded with budget news which, if the government is smart, will be portrayed as ‘good news’ and ‘vote for us’ as it struggles to remain competitive with the Labor Party.

How the way you pay for stuff is fixing the budget

Mon, 06 Aug 2018

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/way-pay-stuff-fixing-budget-024912997.html 

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How the way you pay for stuff is fixing the budget

 Over the past few weeks, I have tried a little experiment with a few on my favourite small business retailers who, for what will be obvious reasons, will remain nameless.

For a range of smallish transactions of say $10 to $20, I deliberately made a bit of a fuss about paying with cash, rather than tapping with my card. Almost without exception, the proprietor, with a wink and nod, appreciated the use of cash, and passed a quick comment to the effect that “unfortunately, cash is rare these days”. I also noticed on a number of occasions the transaction was not rung up on the cash register, with the notes tucked into the cash drawer with no one other than me and the shop keeper aware of the transaction.

This got me thinking about an issue which has had me a little puzzled – the sharp improvement in the government’s budget position on the back of unexpectedly strong tax receipts. This extra tax revenue for the government appears to be an odd development given the sluggishness in the economy and consumer spending, and the ongoing weakness in inflation and wages, which over many decades have proven to be the driver of tax collections.

Rather than an unexpected pick-up in economic activity driving the revenue surge, it appears that technology, the decline in the use of cash and the greater use of cards accounts for the extra tax take.