Blog

Wed, 24 Jan 2018  |  

Podcast on the economy: This link is to my chat with Philip Clark on Nightline, ABC radio about the year ahead in 2018:

https://www.abc.net.au/radio/programs/nightlife/economic-forecast-2018/9354482 

I must say the caller’s questions were a highlight.

 

Tue, 23 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2332204-002854969.html 

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'Disconcerting': 5 reasons why interest rates wont rise

Interest rates are about to rise.

So say a growing number of economists and the money market futures which are now pricing in a 25 basis point interest rate rise in the final quarter of 2018 and a further 25 basis point rise in the second quarter of 2019.

The market and many economists are increasingly optimistic that economic growth, wages and inflation will all of a sudden lift back to levels consistent with a healthy economy. The theory is that as a result of this good economic news, the hand of the RBA will be forced to hike rates from what are currently record lows. To be sure, these interest rate rises could happen over that time frame. It would be a most welcome development to see interest rates move higher as it would be a sign of a return to favourable economic conditions for the first time in many years.

But just how reliable are the forecasts and the market pricing?

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 

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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 

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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.

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 

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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.

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.

THE LATEST FROM THE KOUK

Here's why you need to buy a house NOW

Wed, 29 May 2019

This four part series on housing first appeared on the Yahoo website during March 2019 at these thinks:

Part 1: https://au.finance.yahoo.com/news/heres-need-buy-house-now-003308014.html 

Part 2: https://au.finance.yahoo.com/news/buy-house-live-late-043710857.html 

Part 3: https://au.finance.yahoo.com/news/many-australians-regret-buying-house-none-234007432.html 

Part 4: https://au.finance.yahoo.com/news/buy-house-hold-10-years-203418110.html 

 It outlines the case why it is a good time to buy a house. Any comments and feedback welcome!

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Part 1. Here's why you need to buy a house NOW

It would be a great shame if the current weakness in house prices does not see those groups previously frozen out of the housing market step up and buy a house to live in.

Whether it is in Sydney, Melbourne, Perth, Darwin, Canberra, Brisbane, Adelaide or regional Australia, housing affordability is improving rapidly with prices generally lower, mortgage interest rates remarkably low and competitive, and wages growth edging up in a steady if not spectacular way. Sure, saving that deposit for a house is still hard and the banks and other financial institutions are making it a bit more difficult to get the loan you need to buy your house.

But for many reasons, getting into the housing market now or in the next 12 months to buy your house to live in will set you on course for a life of fulfilment and financial security.

I want to set the scene with a few definitions – when I say “houses” and “house prices”, I am referring to all dwellings – that is free standing houses, units, townhouses and apartments. It is a generic term. And to make it clear, I am suggesting buying a house for you to live in, not to invest in, which is an entirely different kettle of fish.

Change of view on interest rates

Fri, 24 May 2019

Having been the only economist to correctly anticipate an interest rate cut from the RBA when close to 50bps of interest rate hikes were priced in to the market last year (See Bloomberg 17 August 2018), I have agonised over the exact months the cuts would be delivered and then how many rate cuts would be needed to reflate the economy.

Recently, I was of the view that the RBA would need to cut 100bps from now, to a level of 0.5%, but I did so with relatively low confidence. This is why I recommended all clients to close their long interest rate positions on 17 April 2019 (when the implied yields were 1.10% for the mid 2020 OIS; 1.35% on 3 year yields and the Aussie dollar was just over 0.7000 at the time).

Like in most good trades that were massively in the money, I left a little money on the table while I reassessed the outlook.

Since calling for interest rate cuts from the RBA, a lot of water has passed under the bridge, especially in the last few weeks.

Events mean I am changing my view on interest rates and have been placing / will be looking to implement new trades.