House prices
Spot on @gsco, there's not much to add.
Yeah all good food for thought, cheers.
gsco wrote:lol but in all seriousness, if governments were worried about inflation they might have wanted to reconsider:
1. deregulating and privatising energy markets and setting up market based solutions for electricity provision which are highly susceptible to resource price shocks
2. spending the post 2014 period preparing Ukraine to go to war with Russia and manufacturing this very war, and then blowing up Nord Stream, and hence creating the very global resource price shock that market based electricity provision solutions can't handle
3. locking the population up and depriving them of their basic rights during covid, and pumping the economy full of money to pacify the population, and then once they're loaded with money release the population back into the world again to go "spending crazy"
The very fact that the governments, NGOs, think tanks, media personalities, etc, who pushed for and did the above are the very same people now just deflecting the inflation blame to "corporate profits" and "Putin" is a complete fucking disgrace.
And not only this, then our ALP govt has the hide to attack and launch an investigation in the the RBA.
Regarding the RBA:
- people started going borrowing and property spending crazy well before the RBA started including inflation and cash rate guidance in their commentary
- the RBA didn't get any forecasts wrong since they gave their inflation and interest rate guidance before the war in Ukraine, after which everything changed. Most central banks around the world did the same thing.
- the RBA engaged in QE and put itself insolvent in order to support the govt's massive covid spending program, which the RBA is now being attacked for doingEverything that has happened in the media and politics for the past year or so regarding the inflation episode and the attack of the RBA is a complete fucking disgrace and fabrication
Why are you so against the claim of huge corporate profits here? Some big companies are making record profits on the back of "inflation" justifying their price increases and yet you don't believe that it's just corporate greed?
As I said, you can't just up your prices and say it's due to inflation. Inflation is a measure of the price increase not the "cause of the price increase"!!!
donweather wrote:As I said, you can't just up your prices and say it's due to inflation.
You can if your business relies on raw materials and their costs.
You can up your prices and blame inflation in an inflationary environment. We’ve all been conditioned to accept it, and so we do.
Remember after the GFC the collective attitude of the market (retail level) was they needed to see value - you wouldn’t buy anything unless it was heavily discounted? Money was harder to get and value was in focus. Then after a while it seemed like everything was more expensive but then discounted to an acceptable level, so you thought it was ok cos you got a discount?
And then… the discounts disappeared. And then… everything became scarce. And then… you thought fuck it, I’ll pay whatever I have to to get it cos life’s short and I must enjoy every day. Plus I’ve got all this money that I came by fairly easily.
And here we are.
.
@don The problem is when this profit rhetoric gets used by media outlets against RBA's actions (to gsco's point). Why would RBA raise rates, impacting regular people, if profits are to blame? Sounds simple? Yes.
Well, things simply don't work like that. RBA's scope is very limited. There are many angles to this and @gsco repeatedly provided compelling evidence for it. So, I will not repeat what is already said but I will add a currency topic to the discussion (which I did previously).
Whether we like it or not USD is the currency of the world. FED steadily raised rates as a response to inflation. If RBA would not follow we would effectively devalue the AUD. Weak AUD would have serious implications as we import everything (you can have a long-term argument about this but it's short-term pain whichever way you twist this). And those invoices need to be paid in USD. Yes, it would benefit some exporters but let's be realistic, the impact overall would be negative with many consumer goods increasing in price significantly. I personally have several projects in the portfolio which would get shelved if USD/AUD conversion was unfavorable. Shelving them would lead to redundancies both internally and externally. No one will deny this.
I'm surprised at how little discussion is there about currency risk and the RBA's role in it. This is one of their core functions so it's bizarre how it gets ignored.
One more thing, you would think that this situation will get all big government fans excited. Why wouldn't we use taxes rather than rates to control inflation? And simply decommission the RBA? The government provides full employment, when things heat up they raise taxes to cool off the inflation. Why would we pay interest when we can pool money together into a community basket through taxes? Isn't this what MMT is all about (well, there's a bit more to it)? I would think that supporters of the MMT would be everywhere, screaming for attention. Somehow, that is not the case. BTW I believe this is an insane idea. I never want to see it come to life.
Don, I'm not against the fact that some companies are making a good profit. But lots of companies are not as well, for instance it seems that a new construction company goes bust every week.
It's just a too simpleton and one-dimensional argument to keep blaming inflation on corporate profits and price gouging etc. It's plain undeniable that the main drivers are not price gouging. There is plenty of research out there detailing this.
For many players to admit the facts of this inflation episode they would have to publicly admit their own mistakes over the past few years or even decades and lose face and credibility. Simple as that.
Also, a lot of the "corporate profits and price gouging", "executive pay", "using inflation as an excuse" etc stuff we keep seeing spammed is very much from the progressive left side of politics and their MMT pseudo-economics.
Echoing this stuff fits the left's social justice culture wars ideological bias and narrative, and importantly, it also aligns with their pseudo-economic political ideological bias towards things like large government, strong government spending, large government debt, modern monetary theory (MMT), etc.
These deranged crackpots think they're onto some new miraculous economic saviour that has no negative consequences. Remember, the RBA is out of touch and the idea of productivity is dead (even though it puts a cap on real wages growth and is still the most important driver of living standards)!
They just can't admit that they are wrong. They would be going against their own pseudo-economic crackpot ideology by saying something like "excessive government spending caused the inflation episode" so they just find something else to echo and spam, something that suits their woke culture and identity wars and that doesn't go against their MMT narrative.
When in Rome…
https://m.
stunet wrote:donweather wrote:As I said, you can't just up your prices and say it's due to inflation.
You can if your business relies on raw materials and their costs.
No you can then say your costs of your raw materials have increased.....not you're putting your prices up because of inflation. As I said inflation is a measure of the price increase not a reason to increase your price.
gsco wrote:They would be going against their own pseudo-economic crackpot ideology by saying something like "excessive government spending caused the inflation episode"
I just can't see how so far out past Covid lock downs and Gov stimulus inflation can still be so rampantly high, unless profits are driving it.
For example.....why are we still paying close to $2 a litre for fuel when the price of crude oil is below pre-Covid levels?
There's 4 main things every one needs:
- food
- shelter
- electricity
- fuel
Some would argue there's a fifth which we (Australia) drank copious amounts of during lockdown but I certainly won't entertain the idea that alcohol is must have in our modern day society. Anyway I digress.
My point is the last two drive up the price of food, so if you control the price of fuel and electricity, or at least ask why the prices are still so high (yes I know you've told us why electricity is so high and rising at 40-50% retail prices, but I just don't agree with again the retailers saying oh our wholesale prices have increased by 15-25% so therefore we'll increase our prices by 40-50!!!.....that's plain and simple profit gouging IMO....sorry that was another digression) and get some reduction in these prices then 3 of the 4 key inflationary drivers have reduced, all the while making the RBA look like they're achieving something without sending Australia into a recession.
It's obvious inflation has peaked and is coming down in the US, so perhaps with the Fed stalling on further interest rate hikes this might give the RBA some breathing room.
As for the 4th inflationary pressure above...housing....well rising interest rates combined with a recession will certainly kill the current stupendous housing prices....which should assist with reducing rents or at least taking some pressure off the rental competitive market. Or if you ask me, fck off housing tax incentives like CGT reductions and Negative Gearing along with introducing an AirBNB tax or similar and these will have a far better outcome on the severe rental crisis we have as a nation at present.
gsco wrote:lol but in all seriousness, if governments were worried about inflation they might have wanted to reconsider:
2. spending the post 2014 period preparing Ukraine to go to war with Russia and manufacturing this very war, and then blowing up Nord Stream, and hence creating the very global resource price shock that market based electricity provision solutions can't handle
Hey gsco, at least get your timelines right…
Couple of things on this point:
- western arms and training of Ukraine’s military started in 2014 in response to…. A Russian invasion of Donetsk, Luhansk and Crimea. Not the other way round
- even the Russians are starting to admit that the reasons for the 2022 invasion weren’t what you keep repeating. Prigozhin came straight out and said it on Thursday last week. No change to the situation on the ground. More about corrupt Russian officials wanting to exploit the annexed territories.
- the destruction of Nordstream 1 did nothing to stop the gas supply to Europe. Putin had already stopped it. It had ceased. This was in response to western discussions about a price cap on Russian gas
-Nordstream 2 hadn’t even started to deliver gas to Europe at that point. Hadn’t been opened.
- there’s still a functioning pipeline (according to the Russians) they’re just not using it. And aren’t energy prices back to ‘normal’?
- so, I have no idea how you can specifically link Nordstream destruction to global energy shock.
As for the rest of it, carry on.
donweather wrote:stunet wrote:donweather wrote:As I said, you can't just up your prices and say it's due to inflation.
You can if your business relies on raw materials and their costs.
No you can then say your costs of your raw materials have increased.....not you're putting your prices up because of inflation. As I said inflation is a measure of the price increase not a reason to increase your price.
Semantics, mate. Very odd thing to get upset about.
If the price of raw materials increases due to inflation then the explanation is justified.
Move along...
no worries etarip I won't get so loose with the geopolitics!
Don, just quickly your statement:
Don wrote:I just can't see how so far out past Covid lock downs and Gov stimulus inflation can still be so rampantly high, unless profits are driving it.
I reckon is partly, maybe mostly, answered in Australia's M0 money supply graph:
The RBA is having a hard time doing quantitative tightening (QT). So all that covid stimulus money is still sloshing around.
But anyway, hopefully it will all be over for Australia as we get towards the end of the year.
Some good news, hopefully it continues:
The monthly headline consumer price index (CPI) fell to a 13-month low of 5.6% over the year to May. But the trimmed mean measure remained elevated at 6.1% in May, despite decelerating from a 6.7% annual growth rate in April. The #RBA target is 2-3%. #commsec #ausecon #auspol pic.twitter.com/DsvOt4wMVW
— CommSec (@CommSec) June 28, 2023
donweather wrote:I just can't see how so far out past Covid lock downs and Gov stimulus inflation can still be so rampantly high, unless profits are driving it.
My simpleton's version is:
a) Everyone who owned real estate pre covid have this new found wealth in the increased equity of their real estate which the banks have been happy to realise for them by handing it back like lollies. Just think about it. How many people do you know have upgraded their cars in the past couple of years funded by this new found wealth. And it just filters down from there - right down to not giving a fuck what you buy in the supermarket - it's only money you never had to work for so let's just spend it.
b) Cashed up boomers are on an absolute spending orgy at the moment. Have a look inside any flash car you pass nowadays and see what is driving it. Here's a hint, they can hardly see the road which is why they are doing 30km/h in a high performance vehicle. If not they're in a $200k motor home lapping up the over priced culinary delights popping up all over in places you never thought possible. Once again money (this time probably earned) but just being spent with no end in sight.
Supply and demand donweather. The demand is there in droves and human nature dictates we take advantage and supply this insatiable demand with over priced products.
Why do price increases persist? Here is one:
"Considering the current inflation instability, the price stated in this tender is based on .....
.... matching the CPI increase amount based on the Australian Bureau of Statistics' All Groups CPI, All groups.... "
The 2023 price is a step jump up from the past contract to catch up a bit on costs not increased fully over 2019 to 2023 inflation period. And then to keep margins, build it in to the next contract.
Once the inflation ball gets rolling in many industries, it keeps rolling for years.
15% initial jump then + 5% + 5% + 5% compounds pretty quickly to over 30%
Supplier may well be just treading water profit wise. The client of the supplier's cost shock is only just beginning in 2023 if the contract just came up for re-tender. Then the customer of the client is next in line for increases.
Yeah frog, that's correct. If I was to sign a new contract today (as a business owner or a business exec) I would 100% factor in the CPI increase + the risk of further interest rises. Considering the overall ambiguity about the future, it would be a responsible thing to do.
Interest rate lag effects:
An analyst looked at a US stock index and found 78% of companies in the index were profitable assuming the past low interest rates applied.
But once the current higher interest rates were applied to their debt i.e. the ones that will apply following refinancing, only 7% were profitable!
That is the lag effect of interest rate rises.
It is so dramatic due to a decade of businesses being in la la land of close to free debt.
Most of these businesses have to refinance over the next few years. It is better to do so early rather than just before the loan term ends.
Lots of lag effect to come all over the economy from the past year of interest rate rises and in housing to some extent.
Labour lag effects:
Companies horde labour due to recent recruitment difficulties.
But stressed companies may horde for only so long. Profit shocks are when they start to cut. It can happen slowly then quickly.
This is a sort of "phony war" phase pre-recession when macro data seems negative but it is not showing up fully in the real economy.
In a similar vain to Frog's post above:
https://thenewdaily.com.au/finance/finance-news/2023/07/03/inflation-tar...
Last Friday economists at the US Federal Reserve published a paper entitled ‘Distressed Firms and the Large Effects of Monetary Policy Tightenings‘, which concluded:
“With the share of distressed firms currently standing at around 37 per cent, our estimates suggest that the recent policy tightening is likely to have effects on investment, employment, and aggregate activity that are stronger than in most tightening episodes since the late 1970s.
“The effects in our analysis peak around one or two years after the shock, suggesting that these effects might be most noticeable in 2023 and 2024.”
What’s everyone’s money on with the RBA decision today?
My money is no rise today. Pause. Rise next month.
My bet is that no-one will get it right.
To which, I am not sure if I'll be correct or not.
July 30 day contract shows 95.85 bid 95.855 ask so looks very close to rate we already have to me, plug into gsco's formula on pages above and it will generate a probability. My solid prediction for today is that time will pass and theta will decay.
Yep looking at the 30 day interbank cash rate you linked last month JV, it indicates to me a pause..
https://www2.asx.com.au/markets/trade-our-derivatives-market/derivatives...
House price rises not what the RBA wanted. A pause would be driven by Phillip being headline shy not by good policy (according to the parameters and policy guidelines Central Banks tend to espouse).
Dealing with inflation is core business. After a making the RBA insolvent for close to zero benefit (a measly 0.3% drop in interest rates - a major major embarrassment but under reported by the interest rate fixated media) it is appropriate for the RBA Board to at least try to attend to core business and practice what they preach - serious voice: "we are tough on inflation must get it under control".
Then there's also the possibility he goes anyway to spite the govco which is being inflationary... but I dunno if that's a big one.
Meanwhile, everyone is bringing more people in
And there we have it. A pause.
Surfers using 30day bill: 1
3 of 4 major banks' economists: 0
Haha!
Wilhelm Scream wrote:#Cat Meet Pigeons
Very good. The white grey font on white grey images not so much.
Similar article in the age a few days ago. This one better.
Maybe a stupid question here for the brains trust. Why is it that in Australia the majority of loans are variable compared to fixed in other countries?
Is it lack of competition amongst banks? Guess it's good for borrowers when low but they are getting bent over now, which does seem unfair, good for banks. How do other countries manage with fixed, banks not as profitable when rates increase?
Cheers.
https://www.abc.net.au/news/2023-07-05/reserve-bank-interest-rates-on-ho...
andy-mac said “…..good for banks. “
Yep, that’s it
Fixed rates sound good for borrowers. But mostly, variable rates are better (lower). The reason is that banks don't have to factor in a risk premium for unexpected rises in rates. Just as with betting bookmakers they have a tilt in the table (extra margin) factored in to their fixed rates. They predict the odds (rate) then add their risk premium like a bookies over round.
In normal times banks are very able to forecast interest rates and make sure fixed works well for them. You are the mug horse racing punter betting against a team of experts who study the form nonstop.
Only occasionally, this is not so and the borrower's bet on interest rate moves beats the banks "oddsmakers" line e.g. 2021
Fixed give the borrower certainty which has its positives.
I think Australia has more variable because the local banks source their funds from shorter term sources in the wholesale funds market - being small and distant from the major capital markets.
Variable rate loans can be advantageous if the situation is right , you gamble with the rate but the conditions of the loan allow for extra payments on you loan anytime and if you are lucky enough to be able to pay it off earlier there is no exit charge , the banks seemed to put low doc loans on variable with no choice of fixed ( maybe seeing it as their risk factor cover?) While fixed at or when a lower rate is available the gamble is if rates go down more ( which they did the years between gfc and covid) they have their win on the fixed rate punters , also with fixed there is no capacity to pay extra off your monthly/ weekly loan payment and if you want to get out early they hit you again .
I guess that's why so many have some fixed and some variable rate combo loans?
Bookies in flash buildings
Thanks @frog and @mike for your explanation.
Cheers.
Banks / Govts / Media are all lying about the wildcard driver of inflation.
March 2020 Supermarkets lobbied for Double Credit...
3rd April 2020 AusPayNet doubled Contactless Credit from $100-$200 to halve contact.
https://www.auspaynet.com.au/insights/Media-Release/ContactlessLimitsCOV...
3 month Trial comes & goes...
https://www.smh.com.au/money/banking/tap-and-go-200-limit-remains-despit...
2nd Sept 2020 Bios Security Emergency extended Trial
APN extended the Trial
17th Dec 2020 comes & goes...
2nd Sept 2021 Extends Biosecurity Trial
https://www.auspaynet.com.au/resources/ContactlessLimits
Banking Customers claim they were never informed of 2x limit and say the limit was high enough!
Banks claim they informed customers via web sites.
*Largest ever 100% Banking > Inflation spike was a link on a website!
https://www.smh.com.au/money/banking/tap-and-go-200-limit-remains-despit...
17th Dec 2021 Comes & goes
During 2021 Society started reopening with $200 credit > inflation started ramping from 1.1% > 6.9%
17 April 2022 Govt End Covid Biosecurity > $200 Credit should Expire here.
.....................................................................................................................................................................................................
But the Double Credit Cards continue doubling spend for another year to spike record consumer inflation!
Dec 2022 Spending peaked with Inflation @ 6.9%
Supermarkets grow tired of fleecing Aussies & let the Banks have a crack...
Feb 2023 (Important) Banks choose flexi dates to end $200 Supermarket Credit
It seems as if Govt have deregulated contactless Credit Limit!
https://www.mebank.com.au/support/tap-go-limit/
https://www.westpac.com.au/personal-banking/credit-cards/manage/using/co...
tbb thinks o/s Companies are trialling Card Payment Systems under Oz open Biosecurity Trial.
For certain it looks that way as AusPayNet are trialling many & say nothing of $200> $100 expiry!
Oz are leaders in this field...Govt are overseeing Digital Credit Trials!
Not just saying this, as there are plenty of IT payment trials on the go...using the upper $400 limit.
Totally corrupt Banking system without Regulation of Biosecurity Credit Measure checks by Govts.
Spending drops > Banks reduce $200 credit > $100 credit limit > Inflation Drops
Supermarkets / Banks exploited Covid Emergency for an extra 1 year 2x credit ...> (Economic Crisis)
These bastards squeezed every last $1 from Aussies before they lifted their snouts from the trough.
https://www.rba.gov.au/inflation/measures-cpi.html
Just saying...where do we read that the Banks drove inflation by doubling Shopping Credit.
Super Market / Fuel credit > Spiked record inflation which in turn ramped their Rates...snort! snort!
They now sit there pointing the bone at us Aussies for doubling credit card spend that they mandated.
Their temporary Credit was supposed to end with Biosecurity End but went the whole Hog...
How about an inquiry as to why everyone was so stupid enough to allow these fuckerz to roll us!
Nice work if ya can get it ...even better when Govt / Media play dumb & pretend not to notice...even now!
Why not have this 100% Credit Card Change Frontline the Budget for fuck sakes...huh?
Maybe the Govt & Media are just so plain stupid to catch out the Cat licking the cream every night..
Consider we never even had a Fat Cat since End of Covid...how did we miss that? Boy are we fucked up!
Not today & not on our watch...crew have just busted AusPayNet with their fingers in the cookie jar!
News : tbb's flaberghastly whistle blowing goes on to never raise an eyebrow or even a little umph!
So it's still our fault for spending twice as much to spread twice as much Covid! (Ok! We're guilty of that!)
paging dr. gsco... paging dr. gsco...
https://www.abc.net.au/news/2023-07-11/central-banks-may-be-about-to-blo...
and...
https://www.zerohedge.com/markets/gold-standard-back-brics-intro-gold-ba...
...US supremacy just slipped through their fingers whilst too busy ignoring the obvious?
That ABC article is terrible. Clicking on the author one can see that he just recycles a set vocabulary in circles, week in week out. He clearly made his mind ages ago and he just shares his rants with the backing of ABC. ABC should not be lowering themselves to this propaganda style writing, they are losing credibility like this.
lol, some of the “economics” writers for the abc have completely lost the plot. It is well out there unhinged stuff and I really can’t tell if they’re serious or trying to be funny.. Not sure how they still have a job actually.
Re the zero hedge article, China, India, Russia, Africa, Latin America - basically the whole global south - are working together to create a multipolar world in which no individual country has controlling power economically, politically, financially, militarily, etc. Most the planet has had enough of Team America.
(Still here, just busy with some stuff right now..)
sypkan wrote:https://www.zerohedge.com/markets/gold-standard-back-brics-intro-gold-ba...
...US supremacy just slipped through their fingers whilst too busy ignoring the obvious?
That article doesn't really explain how it will work? And haven't we just come full circle, because wasn't the British Pound exactly that....it was originally worth a pound of gold.
don, these articles rarely talk about implementation. I always laugh when I see these hypothetical theories. The truth is, implementation is painful, long, expensive and full of issues. I believe these countries would find some benefits in moving away from the USD. However, path to get there will take years, probably decades.
Paddy Manning is right about the AFR. It once provided useful business, economic and financial commentary and analysis, but is now an automated clickbait spamming service.
Wilhelm Scream wrote:#Michael West, Ex-Corporate Media
https://michaelwest.com.au/want-to-fix-productivity-kill-kpis-they-rewar...
Whilst it's a very true article about execs and KPIs, I'm not convinced hiring more people assists with raising productivity?
129m2 - 209k
Bought in 2019 for 150 k
https://www.realestate.com.au/sold/property-residential+land-qld-calound...
udo wrote:129m2 - 209k
Bought in 2019 for 150 k
https://www.realestate.com.au/sold/property-residential+land-qld-calound...
Lotta money for a footpath.
This is one of the better articles I read in a long time. Well researched with some juicy details. A refreshment from all those paranoia driven macro business articles. It’s not Australia but well worth the read.
https://www.curbed.com/article/nyc-office-real-estate-rechler-rxr-projec...
flollo wrote:This is one of the better articles I read in a long time. Well researched with some juicy details. A refreshment from all those paranoia driven macro business articles. It’s not Australia but well worth the read.
https://www.curbed.com/article/nyc-office-real-estate-rechler-rxr-projec...
it’s pretty much all written about one very rich American however so I got a little disinterested half way through it and couldn’t help think “my heart pumps piss for the rich prick who is really only losing other peoples money!!”
It was a great article- what I took from it was that if commercial real estate and the office are really dead as a phenomenon then coastal real estate will continue to boom.
It's not about one rich prick at all. Yes, there is a protagonist but mainly to provide an easy connection between real-world cases with industry as a whole. This is a good analysis of that particular market which is combined with broader implications on the city budgets and therefore, communities. Also, there is an interesting discussion about the solutions to this particular problem which is good to see as most articles just bitch about things without offering any meaningful solutions.
House prices - going to go up , down or sideways ?
Opinions and anecdotal stories if you could.
Cheers