Stephen Koukoulas

Stephen Koukoulas

Thursday, 07 November 2019 13:28

How Labor lost the federal election SO badly

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

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How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html 

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Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.

Thursday, 07 November 2019 12:17

Inflation: How low can it go?

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/inflation-how-low-can-you-go-004522764.html 

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Inflation: How low can it go?

The Reserve Bank of Australia’s policy embarrassment continues with the September quarter consumer price index data showing the quarterly underlying inflation at 0.4 per cent, which translates to an annual rise of just 1.4 per cent.

In underlying terms, annual inflation has never been lower.

This locks in 4 straight years where underlying inflation has been below 2 per cent, the bottom of the RBA’s 2 to 3 per cent target.

It locks in 5 years where inflation has been at or below 2.5 per cent, the mid-point of that target.

It locks in just under a decade since inflation was above 3 per cent.

Missing the inflation target so badly for such an extended times says quite plainly that the RBA policy actions were wrong, particularly when other central banks around the world were able to meet their inflation targets with pro-active monetary policy settings.

Until the post-election interest rates cuts which have seen the official cash rate belatedly reduced to 0.75 per cent, the RBA held interest rates at a high level. So high, in fact, that annual economic growth slumped to a decade low under 1.5 per cent, this has seen the unemployment rate remain at or above 5 per cent and wages growth tracked plumbed near record lows.

This article was written on 23 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/economy-perking-up-kouk-195329917.html 

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Don’t look now, but the economy just might be perking up

Every month or so, I undertake a total revamp of my assessment and forecasts for the economy.

With this wipe-the-slate-clean revamp, I take account of the most up to date data, incorporate policy changes and I build in new judgments on the outlook for the global economy.

And so it was last week, when I was revamping my GDP forecasting spreadsheet to assess the risks of recession, the prospects for a booming rebound and all things in between.

It is a lot of fun and helps me to throw forward pre-empt how the economy and, importantly, financial markets will travel. That said, I am not one of those eggheads who lives and dies by what my model is telling me, but such spreadsheet fiddling makes me sit up and take notice of what is happening.

The last update, last week, was one of those times.

Economy to perk up in 2020: Here’s why

Indeed, for the first time in quite a while, I am getting a bit excited about the upside for the economy in 2020. Not a boom, but solid, strong, decent economic growth lies ahead. In fact, I now put the chances of the economy falling into recession in 2020 or 2021 for that matter at about 0.1 per cent. Never say never, but I am more likely to beat Usain Bolt over 100 metres than the Australian economy is of cascading into recession.

Here’s the how and why of how I reached that conclusion.

Thursday, 07 November 2019 12:06

Why are we so worried about household debt?

This article was written on 10 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/why-worry-household-debt-190036599.html 

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Why are we so worried about household debt?

The discussion of household debt and how it is meant to be the catalyst for a recession, house price crash or some other melodramatic catastrophe, is one sided, dull and invariably driven by purveyors of snake oil.

Sure, the level of household debt in Australia is higher than it has ever been, and the average Australian householder has more debt relative to their income than just about anyone else in the world.

But so what?

In isolation, this might be scary stuff. A worry. The reason why the Australian economy is at risk of an almighty collapse.

In context, however, there is very little to be worried about given the remarkable level of assets and accumulated wealth that debt is benchmarked against. In other words, the level of debt is a meaningless number unless it is benchmarked against the other side of the ledger – assets and wealth.

Household debt: Setting the facts straight

Here are some basic facts about household debt and wealth in Australia at the moment.

Household debt is 190 per cent of household disposable income.

Against this, the level of household wealth in the ownership of dwellings is approximately 500 per cent of household disposable income, even allowing for the fall in house prices between the middle of 2017 and the middle of 2019.
In addition to that are so-called household financial assets, which includes things like superannuation balances, bank deposits, direct share holdings and the like. The value of these assets is approximately 430 per cent of household disposable income.

This means the level of gross household wealth is around 930 per cent of income which, quite plainly, swamps the 190 per cent of household debt.

In turn, this means ‘net’ household wealth – which is the sum of all assets minus all liabilities (debt) is approximately 750 per cent of income.

This article was written on 14 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/ignore-government-debt-225040404.html 

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‘Utterly desperate’: Why Scott Morrison wants you to ignore government debt

When it comes to government debt, the Morrison government is desperate for you to keep your eyes and ears closes and ignore the facts.

Utterly desperate.

These facts are likely to be defined by Prime Minister Morrison as being ‘in the Canberra bubble’ and therefore not worth talking about.

So what is happening with government debt? You know, the government debt that when the Liberal Party was in opposition and Labor were in power was “a disaster”, that was “undermining our kid’s future” and threatened to “ruin the economy”.

When in Opposition, the Liberal Party promised to return to the budget to surplus and to “pay off Labor’s debt”. It was a promise that created and then reinforced a perception, at least in the mind of some voters, that the Liberal Party is a better economic manager than Labor. This perception has been a critical factor in the Coalition winning the last three elections in 2013, 2016 and most recently in 2019.

Last week, updated data on government debt were released which allowed for an up to the minute assessment of how those promises on debt reduction are going.

In terms of gross government debt, data from the Australian Office of Financial Management shows it reached a record $565 billion as at 11 October 2019. At the time of the September 2013 election, gross government debt was just $273 billion.

This means that in a little over six years, with six budgets and countless policy changes and reforms from the Coalition, gross debt has increased by $292 billion or 107 per cent.

Thursday, 07 November 2019 11:37

An open letter to Treasurer Josh Frydenberg

This article was written on 8 October 2019: It was on the Yahoo Finance website at this link https://au.finance.yahoo.com/news/open-letter-frydenberg-kouk-203308160.html 

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An open letter to Treasurer Josh Frydenberg

Dear Josh,

On a range of policy issues, we do not see eye-to-eye.

But on the big picture view of the economy, I am sure we at one that the best thing policy can achieve for the Australian economy is sustained, strong economic growth. This means a growth rate that is sufficient to give a job to everyone who wants one, where real wages are rising and where there are improvements in the well-being of every day Australians.

As I look at the economic scorecard since you have been Treasurer, I am bitterly disappointed to see that economic growth has slumped and is no better than during

I see the unemployment not only heading higher, but the level of underemployment rising to a point where one in 12 people with a job are not working the number of hours they would like.

I look at wages growth and see stagnation, and in per capita terms, the thing that best measures true economic progress, the economy is going backwards. A per capita recession, if you like.

Then I look at what is being done about this fragile state of affairs.

To its credit, the Reserve Bank is easing monetary policy but as I am sure you are aware, the cash rate is getting close to zero which could create policy concerns for the Bank if the economy remains in the doldrums. Sure, it could implement negative interest rates or embark on a program of quantitative easing, but the impact of these policies on growth and jobs is unpredictable and may be hard to unwind, even if they work.

Which brings me to the crux of my letter to you.

You are in charge of Commonwealth government spending and taxing policies which together amount to around $1 trillion per annum. Last financial year, as you recently noted, there was an unexpected narrowing of the budget deficit from the time of the May 2018 budget.

The balanced budget you delivered occurred with the Government’s tax take for 2018-19 a remarkable $11 billion higher than forecast, while government spending was over $6 billion lower than forecast.

These differences totalled nearly $18 billion, or 0.9 per cent of GDP. That’s the difference between 2018-19 GDP growth of the actual 1.9 per cent and something closer to trend at 2.8 per cent. This money was withdrawn from the economy by your government and it is a critical reason why GDP growth has collapsed so disconcertingly.

If you are fair dinkum about being a Treasurer that wants to preside over a strong economy, where there is full employment, rising real wages and improvements in individual well-being, how about using your policy powers and prowess to get a bit of extra cash into the economy?

This article was written on 17 September 2019: It was on the Yahoo Finance website at this link https://au.finance.yahoo.com/news/house-price-falls-near-end-022809313.html 

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House prices falls are coming to an end – and my house price bet is looking safe

About a year ago, the melodramatic Martin North from Digital Finance Analytics made the sensational claim on 60 Minutes that house prices “could fall 40 to 45 per cent” over “the next 3 years or so”.

This outlandish forecast was so reckless and irresponsible, that I offered Mr North a chance to put his money where his mouth was, offering him a bet that his forecast would be wrong. Having some ‘flesh in the game’ when making forecasts like that really focuses the mind and tests the resolve of those making headlines and scaring the general population who may actually believe such snake oil.

Surprisingly, Mr North was unwilling to take up my offer.

This was disappointing until Tony Locantro, Investment Manager with Alto Capital in Perth, stepped up to take the bet.

I was generous, offering odds of 6 to 1 that house prices would fall by more than 35.0 per cent over a 3 year period. The bet is framed on dwelling prices, measured by the Australian Bureau of Statistics on a quarterly basis in Sydney, Melbourne or for the average of the eight capital cities. If prices fall by 35.0 per cent or more from the peak levels by the time the December quarter 2021 data are released, in either Sydney, Melbourne or the average of the eight cities, I will lose.

It is as simple as that.

The ABS has just released the June quarter 2019 house price data.

Thursday, 07 November 2019 11:10

The RBA should cut interest rates next week

This article was written on 26 August 2019: It was on the Yahoo Finance website at this link https://au.finance.yahoo.com/news/rba-cut-interest-rates-september-033400092.html 

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The RBA should cut interest rates next week

The board of the Reserve Bank of Australia meets next week and the smart money is betting it will not cut interest rates. 

What’s more, the market is anticipating the RBA will not only hold the line this time and probably also in October, but will cut rates at the November Board meeting. This will be after what is expected to be a weak inflation result in late October and perhaps 50 basis points or more of interest rates cuts from the US Federal Reserve in coming months.

By November, the rise in the unemployment rate is likely to be further entrenched which will make the case for lower interest rates a certainty. This may well turn out to be the case, but the scenario outlined above begs a question, why should the RBA wait to give the economy a much needed boost?

No reason to hold off

In other words, why not cut interest rates next week when everyone and their dog knows the economy is currently weak, when inflation is testing record lows and the labour market is starting to deteriorate. Add to this the unfolding dislocation to global trade and economic growth, courtesy of US President Donald Trump and his irresponsible escalation of tariff wars, and there seems no sensible reason for the RBA to hold off cutting interest rates to help guard against these negative influences.

With the RBA mandate to target annual inflation at between 2 and 3 per cent in concert with full employment, if the RBA was to cut 50 basis points next week would it threaten to blow the inflation and full employment targets out of the water?

This article was written on 20 August 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/mortgage-rates-set-to-fall-to-new-recordlows-210011407.html 

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New record lows ahead: Your mortgage rate could be slashed further

Fancy a mortgage rate of 3 per cent? Maybe a little less?

Within the next few months, mortgage interest rates are on track to fall to fresh record lows, probably below 3 per cent.

That is the overwhelming message to come from the Reserve Bank as it struggles to deal with the soft economy where inflation is tracking at record lows, a long way from returning to the 2 to 3 per cent target range.
While the totality of these interest rate cuts are unlikely to be fully passed on to mortgage holders, strong competition within the mortgage market will see mortgage rates fall from current levels around 3.5 per cent down below 3 per cent. This is a stunningly low borrowing cost for those buying a house.

It also means that housing affordability in much of Australia will be at its best level in many decades.

How much could you save on your mortgage?

THE LATEST FROM THE KOUK

How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

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How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html 

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Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.