Stephen Koukoulas

Stephen Koukoulas

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.

Tuesday, 16 January 2018 14:18

Racehorse Ownership Sets Record High

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

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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.

Thursday, 11 January 2018 14:46

The iPhoneX economic boom

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?

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 

 

 

Tuesday, 09 January 2018 10:20

Australia has a trade problem

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

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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.

Monday, 08 January 2018 08:36

Sydney house prices still heading lower

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.

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.

Thursday, 04 January 2018 10:53

Housing vs stocks – where to invest in 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 

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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?

It’s that time of the year – to stick necks on the forecasting chopping block in an attempt to anticipate important trends in the economy and financial markets.

It is important to have some idea where things are going, whether you are an individual with savings, a mortgage or superannuation, a small business person, someone involved in business or indeed government.

So here are my calls for 2018.

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1. Global stocks
Having registered terrific growth in recent years, a cyclical pull-back in stocks seems to the on the cards during 2018. “Don’t fight the Fed” might prove to be apt again with a near certain continuation of monetary policy tightening from the US Federal Reserve and a wind back in QE. Overlay other policy/political risks from the Trump administration, I would be looking for the S&P500 to fall by 10 per cent or so to around 2,150 (or lower), the Dow down to 21,800 and would kick off the year with a trade to capture that sort of decline. Risk: Further downside

2. The ASX

Australian stocks are inexorably linked to commodity prices and the housing cycle, both of which are erring on the down side. With a probable change in global sentiment towards stocks, the ASX200 is forecast to pull back to 5,750 through the year. So not a bad result, but more likely down than up. Risk: Upside

Tuesday, 02 January 2018 09:20

Economists rules to live by, be judged by

During a holiday clean up, I came across an email that my former colleague at TD Securities, Jacqui Douglas (who is now Chief European Macro Strategist in London), circulated a little before I left.

It was apparently a list of rules that David Rosenberg, Chief Economist at Merrill Lynch at the time, circulated about being a good and relevant market economist.

The list, reproduced below, should be seen as an Economists Constitution. For those in the business of economic forecasting and market strategy, read it and see how many of the rules you stick to and how many you break. It is a lot of fun and certainly something that should also be read by those covering economics and markets, especially those who seem to have a strong bias to give oxygen to those who break most of these rules.

Here they are:

THE LATEST FROM THE KOUK

My house price bet with Tony Locantro - an update

Mon, 01 Apr 2019

This article first appeared on the Yahoo Finance web page at this link: https://au.finance.yahoo.com/news/aussie-property-crash-looking-even-unlikely-heres-021138614.html 

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My house price bet – I’m very happy and getting ready to collect

I recently made a bet with Tony Locantro, Investment Manager with Alto Capital in Perth on the extent to which house prices would fall over the next three years.

Just to reiterate, the bet centred on Locantro’s view that prices would drop 35 per cent or more by the end of 2021 from the peak levels in 2017, a forecast that looked absurdly pessimistic given the raft of factors that influence house prices over the course of years.

For Mr Locantro to win the bet, house prices measured by the Australian Bureau of Statistics on a quarterly basis in either Sydney, Melbourne or for the average of the eight capital cities would need to fall by 35 per cent or more from the peak levels by the time the December quarter 2021 data are released. The ABS released the latest residential property price data last week which presents an opportunity to see how the bet is unfolding, admittedly with three years to go until it is settled.

As everyone knows, house prices are falling in most cities, reversing part of the boom over several decades.

Get ready for a cash rate cut in April

Mon, 25 Mar 2019

This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/get-ready-cash-rate-cut-april-193244245.html

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Get ready for a cash rate cut in April

The data is in and it is compelling.

The Australian economy is faltering and the risk is that it will weaken further if nothing is done to address this decline.Not only has there been recent confirmation of a per capita GDP recession – that is, on a per person basis the economy has been shrinking for two straight quarters – but inflation is embedded below 2 per cent, wages growth is floundering just above 2 per cent, house prices are dropping at 1 per cent per month and dwelling construction is in free fall.

Add to this cocktail of economic woe an unambiguous slide in global economic conditions, general pessimism for both consumers and business alike and a worrying slide in the number of job advertisements all of which spells economic trouble.Blind Freddie can see that there is an urgent need for some policy action. And the sooner the better.For the Reserve Bank of Australia, there is no need to wait for yet more information on the economy.

It has been hopelessly wrong in its judgment about the economy over the past year, always expecting a growth pick up “soon”. Instead, GDP has all but stalled meaning that inflation, which is already well below the RBA’s target, is likely to fall further.In short, no. It is not like a 25 basis point interest rate cut on 2 April and another 25 in, say, May or June will reignite inflation and pump air into a house price bubble.

Such a claim would be laughable if there are any commentators left suggesting this.