House prices
Jees the Aussie is crumbling badly; it kind of had a blow off v the pound and Euro but just cactus the last 2 days; looks like it might go below US60c. Usually a big sign of risk off. Not going to help with inflation but might force the RBA's hand. I think we're returning to the Covid lows or thereabouts. Cash is king.
donweather wrote:3% per qtr is still 12% for a year. But I’m expecting way more than 3% a qtr for the next 12 months.
…And a 12% annual decline during 6% annual inflation…
Any one know about whisky investing schemes. In the current climate 9% guaranteed is looking attractive. But there’s gotta be a catch somewhere me thinks.
https://ownership.coburnsdistillery.com.au/
Edit: found this
https://www.eurekareport.com.au/investment-news/investing-in-a-low-inter...
donweather wrote:Any one know about whisky investing schemes. In the current climate 9% guaranteed is looking attractive. But there’s gotta be a catch somewhere me thinks.
https://ownership.coburnsdistillery.com.au/
Edit: found this
https://www.eurekareport.com.au/investment-news/investing-in-a-low-inter...
"Guaranteed appreciation"
The guarantee and return is only as good as the backing behind it. Seen plenty of guaranteed returns not paid due to the person/entity guaranteeing going bankrupt, then you're just an unsecured creditor.
In addition to some nice cognacs, I have a little stash of primo whisky. I wonder if I can get a few bob for it? Plus a nice little whisky bar down the road I (used to) pop into occasionally.
https://www.abc.net.au/news/2022-10-01/david-taylor-global-financial-cri...
“ So, the options are that the Bank of England keeps coming to the rescue of the UK financial system with the risk of exacerbating inflation which will lead to much higher interest rates, or allow the market to take over, and risk a full-blown financial crisis when the bond market collapses again.”
https://m.
unsettling realities
Silver lining...
Savers and pensioners cheer as bonds surge past 4pc
Savings accounts are beating the stock market for the first time since 2015
abc news
Donweathers macrobusiness site
https://www.macrobusiness.com.au/2022/10/stop-hiking-rba/
Unbelievable. Sanity prevails: https://www.bloomberg.com/news/articles/2022-10-03/uk-s-truss-set-to-aba...
https://www.news.com.au/finance/business/banking/fears-credit-suisse-is-...
it made the msm :p
gsco if you are on a bond desk, wow, what I'd give to just see the sights in such times of standard deviations flying around like in 08... (& yes that UK stuff was 3rd world policy, nicely reversed by a small spot fire in their gilt market lol)
Is over a decade ago now since I worked in capital markets (currently in machine learning), but this bloomberg graph of the daily swing in 30 yr UK yields is interesting (and radical):
and the MOVE index (the "VIX" for bonds) is showing volatility in US treasury yields getting up to what it was in the GFC:
Btw I think the Truss govt has the right idea. As you'd know, it was initially predominately cost-push/supply side inflation that reared its ugly head, which is at best costly and at worst dangerous and futile to fight with reducing demand and inducing a recession via restrictive monetary policy (Australia has been there and done that...!).
The best long-term way to fight cost-push inflation is by "shifting the aggregate supply curve to the right" - supply side economics. Tax cuts that create incentives are a (small) part of the box of supply side tools, but are not wise in an inflationary environment and when they're at odds with the activities of the BoE.
And tax cuts targeted at the better off in society are very on the nose in our current left progressive woke zeitgeist...
Australia learnt this lesson about supply side economics. A long-term agenda of controlling inflation and improving productivity and competitiveness via supply side reforms is what we embarked on for a number of decades, and it worked - things like microeconomic reform, labour market deregulation, competition policy, globalisation, infrastructure investment, etc...
I think the idea of supply side reforms aimed at increasing the productive capacity of the UK economy and combating cost-push inflation is really what the Truss government is rightly trying to get at. It just hasn't been well sold.
Imagine trying to shore up confidence making the reassuring phone calls:
Credit Suisse
"The teams are actively engaging with our top clients and counterparties this weekend,” an executive told the newspaper. "
The calls might sound a bit like this:
.... yes Monsieur de la Fontaine your $10mill account is very safe, I can assure you... Moving your funds is unnecessary.
.... no Herr Hamburger, we are not like Lehman Brothers, your family's large gold holdings in our vault have not been pledged as security in any of our derivatives without your knowledge. No, now is not convenient to collect your gold bars. They are being off being polished by our official polisher to make them extra shiny. You can view them next month.
Some sweaty palms on both sides.
“And tax cuts targeted at the better off in society are very on the nose in our current left progressive woke zeitgeist...”
You say that like it’s a bad thing
nowadays you only hate on me bonza ;)
Monday ~ 4 Corners ( No Place to call Home )
https://www.abc.net.au/4corners/
gsco wrote:nowadays you only hate on me bonza ;)
Ha! I’m just here to help. Haha
pretty interesting times when people like alan kohler are coming out and explicitly suggesting the reserve bank...
'put rate rises on hold for a while'
thanks for that reply gsco, that was very good. You must've got to see the PIIGS CDS spike until Draghi did 'whatever it takes'. A question, where would the supply side go to make things more competitive, especially in 10%+ inflation? It would seem we've deregulated hours, labour markets, international borders away to such an extent the workforce is already very flexible (and wage growth suppressed). How much more can be gained? I can see renewable powered automated domestic manufacturing/value adding, but that one is capital intensive and a fair way away.
Also, I guess I'm still cheering on rate rises as I see a great, long term imbalance in property prices to average income (and see artificially low interest rates for too long as causative, blowing bubbles everywhere) This ratio is a critical determinant in how early young people can do family formation (and create the next generation of productive workers). The CBs will stop as things start to break, it seems. Reversion to the mean here would be helpful, and the imbalance precedes the most recent supply side inflation spike by a long shot.
And: why did productivity per capita peak in 2012 and has been going down since ?(hello, social media, lol) Productivity per capita is such an interesting metric.
emergency fed meeting this AM
https://www.reddit.com/r/wallstreetbets/comments/xt4q39/emergency_meetin...
Just sussing out property prices around the nation I would say they are still very high. Maybe some small drops but in the broader context of what happened in the last 2-3 years, it is nothing crazy.
flollo wrote:Just sussing out property prices around the nation I would say they are still very high. Maybe some small drops but in the broader context of what happened in the last 2-3 years, it is nothing crazy.
Just remember there’s a reasonable lag between RBA interest rate hikes and the downward trend of house prices. The first indicator is how much longer properties are on the market for. This has already blown out in the last few months. Significant price falls will follow suit.
velocityjohnno wrote:emergency fed meeting this AM
https://www.reddit.com/r/wallstreetbets/comments/xt4q39/emergency_meetin...
This has already occurred. Do we know the outcome? Based on the US stock market overnight and ASX today if there’s any news out of this board meeting then it must be good?
Edit: haven’t read it yet.
https://www.newyorkfed.org/newsevents/speeches/2022/wil221003
velocityjohnno wrote:thanks for that reply gsco, that was very good. You must've got to see the PIIGS CDS spike until Draghi did 'whatever it takes'.
A question, where would the supply side go to make things more competitive, especially in 10%+ inflation? It would seem we've deregulated hours, labour markets, international borders away to such an extent the workforce is already very flexible (and wage growth suppressed). How much more can be gained? I can see renewable powered automated domestic manufacturing/value adding, but that one is capital intensive and a fair way away.
Also, I guess I'm still cheering on rate rises as I see a great, long term imbalance in property prices to average income (and see artificially low interest rates for too long as causative, blowing bubbles everywhere) This ratio is a critical determinant in how early young people can do family formation (and create the next generation of productive workers). The CBs will stop as things start to break, it seems. Reversion to the mean here would be helpful, and the imbalance precedes the most recent supply side inflation spike by a long shot.
And: why did productivity per capita peak in 2012 and has been going down since ?(hello, social media, lol) Productivity per capita is such an interesting metric.
Yes I was working for a big-4 bank in Sydney during the GFC and a little while after it (then left the industry disgruntled...!) and it was an unenjoyable time to be in the markets.
Re your 2nd last paragraph, yes even though share and property prices have fallen, all indicators still seem to point to us (particularly the USA) being in the biggest asset price bubble of all time (maybe not so much Aus shares). To realign with historically sane valuation multiples, the US share indices still seem to have to fall 30-40%.
Regarding supply side economics, productivity and real wages, well it's the ultimate question on every advanced economy's lips right now.
To increase the long run supply side economic potential of the economy while maintaining low inflation, both the following need to increase: (i) the size/supply of factors of production such as natural resources, labour force, capital investment, infrastructure, etc, and (ii) the efficiency via which those factors are employed - i.e. productivity.
Productivity growth is the only thing that matters for real wage growth over the medium to long term - everything else is irrelevant. Competitiveness is one aspect of productivity. After riding the wave of microeconomic reform, competition policy, globalisation, etc, modern economies now need the next productivity growth stimulus.
But (and re your last paragraph) Aus has been doing pretty with productivity and real wages:
Average wages vs CPI:
Productivity (and average wages):
The only real issue is the current inflation event eating into real wages. But increasing wages to keep up with inflation would be the most disastrous thing that could be done.
What can be done - what are the drivers of productivity? I think this recent book by the World Bank is a pretty good place to start: Global Productivity: Trends, Drivers, and Policies. One important thing I think Aus has neglected and now needs to return to is education - both tertiary and vocational.
Btw I also don't object to some restrictive monetary policy to counter inflation since the drivers of inflation have broadened into demand and consumption.
But the problem we've had over the post-GFC period is that the only policy solution to getting economies going again was super easy monetary policy - low to zero interest rates and quantitative easing - that was not combined with appropriate, pragmatic and aligned budgets and fiscal policy focused on the drivers of productivity and competitiveness, due to incompetent governments (blinded by the political and economic ideology wars) being in charge of fiscal policy.
Note that this is a strong argument against the idiocy that is so called "modern monetary theory". Governments can not be trusted as economic managers due to incompetence and being blinded by ideology. Independent, pragmatic central banks need to do a lot of the work via pragmatic monetary policy, as they do. But importantly, I think modern economies also need independent, pragmatic fiscal policy and budget setting institutions set up, analogous to independent central banks, which take this crucial role of pragmatic, realist, non-ideological fiscal policy out of the hands of incompetent governments, and in particular make sure that it is aligned with central bank activities.
@gsco that's a brilliant post mate. Although, it will be a tough one to swallow for many people due to the reasons you highlighted.
What most surprises me out of all this is the sheer amount of central bank bashing and blaming that's occurring.
Central banks have been left with the task of trying to fix things since the GFC, often while governments work directly against them.
It's just a pure fact - no an ideological statement - that if you increase the money supply via zero interest rates and quantitative easing over and above increases in the productive capacity of the economy (the supply side) then:
- all that money sloshing around will have have nowhere to go except into asset price bubbles and inflation,
- everyone will be complaining about sluggish real wages and productivity growth, and
- when central banks then need to taper off the money supply growth to control inflation then we get financial market stability issues due to markets adapting to >10yrs of quantitative easing (in the industry they're aptly currently calling it a "taper tantrum").
And then central banks get the blame for the mess...
The real cause of the problem is a lack of coordination between monetary and fiscal policy, and government fiscal policy incompetence and neglect, all being driven by governments being engaged in the political ideology wars instead of economic pragmatism and realism.
Here's a good but quite long and technical read by John Hussman explaining a lot of this, even though he likes his central bank bashing as much as anyone..
0.25% rise. Looks like they haven't over-reacted and the markets have responded in positive fashion.
Craig wrote:0.25% rise. Looks like they haven't over-reacted and the markets have responded in positive fashion.
Yeah markets certainly on a tear the last few days since Truss did a backflip. ASX also liking the lower end of the predicted rate rise.
@ gsco "What can be done - what are the drivers of productivity? I think this recent book by the World Bank is a pretty good place to start: Global Productivity: Trends, Drivers, and Policies. One important thing I think Aus has neglected and now needs to return to is education - both tertiary and vocational."
Good point given the rate of functional illiteracy in school kids and the lack of both awareness and teaching skills necessary to begin to address this issue. Flollo posted something along these lines previously. Dropout rates in Tafe one indicator of this. Kids put in so called "diverse learning " classes when the real issue is they cant read, hence cant address the curriculum,
So we’re at 2.6%
NZ is 3% and consensus is tomorrow they’ll be 3.5% and possibly 4 by year end
US is 3.25% and have shown their hand that it will probably hit mid 4’s by year end.
Good stuff once more and thanks for the replies gsco. Find I'm in agreeance regarding there still being a bubble, the ultra easy monetary policy sloshing around and finding assets to punt, the horror of MMT, the need for some restriction in monetary policy.
The focus on productivity is very interesting. Are wage rates the same as productivity? Or are they different from the actual output of useful, value-added goods and services? Immediately, I think wages can be goosed by inflation (ie rising from it) or be suppressed by supply (extra workers arrive for the same jobs). It seems to me Australia has done the full 'Dutch Disease' since the mining boom, and we've hollowed out a great deal of our real, productive enterprises. What has replaced them (and pays the wages) is differently 'productively capable' pursuits, if I can put it that way. Are we more efficient now? Does it matter when our terms of trade is dominated by a couple of primary exports? (Edit: Recent QLD announcement on massive renewable infrastructure buildout looks to be very positive)
I can tell you from the vocational side down on the surf coast, there's all sorts of bonuses, perks, schemes for the tradies - to encourage young ones to begin and see it through. The education quality seems good, teachers excellent, and employer support also excellent.
0.25%, there's the slowing, too early to say RBA pivot after BOE pivot?
I'm seeing double.
Don, the US Fed meeting was tabled as concerning interbank lending. Much speaking and hoo-ha afterward.
Velocity, don and gsco is there a guide to some of the terms you guys use that work in finance sectors for the general people interested outside the loop. I heard the "bear market"the other day as well as the pigeons and the hawks terms being thrown around on the business and wondered how I can get more informed on industry terms that are commonly used by economists. Thanks for you interesting insights. Been great following the analysis you all provide as it all develops or unfolds..
Hi Rob, try this
https://www.investopedia.com/financial-term-dictionary-4769738
or just put up a question. For eg, Flollo and gsco are trained in economics and maths, and so will pick up the macro stuff (big picture) and understand it at a level I don't. I'm a historian with a monetary interest, so will be able to tell you the colourful stories from the history of markets, like Jay Gould trying to corner the gold market in 1869; or why the roaring 20's in the US can be explained as a result of both the adoption of postwar technologies, but also a large amount of credit creation; or how the gold:silver ratio naturally floated over most of the last of the last 500 years (15:1 on average iirc) to form a stable, solid monetary system.
thank you
https://investinganswers.com/dictionary/h/hawk
raaak! raaaak!
For Australian financial terminology::
- https://moneysmart.gov.au/glossary
- https://business.gov.au/finance/accounting/key-financial-terms
Some economics glossaries:
- https://www.economist.com/economics-a-to-z
- https://en.m.wikipedia.org/wiki/Glossary_of_economics
- https://www.stlouisfed.org/education/glossary
- https://www.core-econ.org/the-economy/book/text/50-02-glossary.html
- https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodo...
yeah, great reading Flollo, GSCO and VJ.
haha this is like a postgrad in macro
thank you
“…I guess I'm still cheering on rate rises….”VJ.
“…tax cuts targeted at the better off in society are very on the nose…” gsco . I think gsco was arguing against wage rises recently?
And I’m certain It was flollo who supported the stage 3 tax cuts back before the election? Was that you
I think all of you have excellent insight and are very good at demonstrating historical patterns and mathematical models.
Despite that I don’t think any of you have any idea how any of this Is going to play out. What’s interesting to me is that despite recent and not so recent events at whats clearly not working when it comes to inequality and home ownership you seem to be supporting trickle down economics?
To a dumb shit like me I just see your posts as fancy graphs, big dick high fives ,schadenfreude and an avoidance of pretty simple policy shit that can make a difference to inequality.
This is what I think. Interest rate hikes will only hurt the bottom feeders on the pyramid and conversely benefit the wealthy majority
There will be no crash except for the kids who were bullied into buying. Property will keep on booming. All the crack pipe shit that protect and boost property prices will continue and therefore so will prices.
No one will touch the things that actually needs to change in order to help stabilise sanity properly markets and by default improve inequality.
No disrespect intended. I do value your posts. I’m just your regular uninformed arsehole.
You are totally welcome to have those views. If we keep the interest rates at 5000 year lows, how big a bubble do you think we will blow, how many more people locked out by the increased unaffordability? All bubbles revert to a mean, eventually. We're living in the biggest one ever blown, and reversion to the mean is what's going to happen. Until that day, eat drink and be merry....
Or why not apply what others have been arguing for when it comes to houses. ? Taxation overhaul.Removal of perverse incentives. ?Sustainable immigration?. Land banking developer handjobs to the wall. ?
Interest rate hikes are only hurting those at the bottom. Yet the sustained period of low interest rates only benefited the
wealthy.
Why is your only recommended tool so shit at doing what you want?
The problems with my town are-
1)Bed and breakfasts have taken over removing most rental properties from renters availability and people /locals well liked characters of this town have to leave town to higher crime areas such as Carnarvon and Geraldton..
2) cyclone damage still isnt fixed to 70% of properties in town.This is partly due to how remote Kalbarri is to Perth for tradies and workers to fix everything.
3)workers who are here only work 2-3 days a week(if that) as for some reason- a slight shower or high wind causes workers to take the day off and not work on roofs etc.
-My block has had temp scaffolding setup all over several units and houses in my complex but not mine.
I have only seen workers on the roof for one day since they assembled the scaffolding structures 3-4 months ago.
4) The manager to our main local real estate agent thinks he is a king and decides who lives in Kalbarri. If they are in the so called purple circle or have a high paying mine job etc they are welcome to a propertyif you're just a cray fisherman with your own cray boat and business, make friends with a property to rent or leave town..
If you work 2-3 days a week in a servo or bottlo like myself you may end up kicked out of town once the workers are ready to fix the property.
5)After properties are fixed (within 5-6 months apparently) prices will go up for rent by around $100 a week at least. If they also do up carpet and bathrooms etc even more rent hike.
60when my property is set to get fixed we are expected to live here, strata insurance are not paying for alternative accommodation, even for heavily damaged properties such as mine. Luckily i have a friends house to move into while that happens, which is likely to be empty at the time.
Anyway Kalbarri real estate,tradie and insurance management at the moment is a total joke.
How’s the markets reactions to even a slight slowing of the interest rate hikes. Just imagine what happens when the Fed actually has to start pivoting. :)
Yeah pretty crazy eh.
And this quite unbelievable graph gives a decent indication of why - i.e. of what's driving markets right now (including property).
It plots the performance of the FANG+ index against the combined size of the balance sheets of the 5 largest central banks.
Explainers:
The FANG+ index is just a share market index containing the following shares:
Tightening monetary policy (rising interest rates, quantitative tightening via selling bonds back into the market) is effectively just another way of saying - is effectively equivalent to saying - that central banks are contracting the size of their balance sheets.
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers