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Australian stocks, house prices and the economy in September 2010

September 23rd, 2009 · Greg Atkinson · 83 Comments

One year has now passed since the failure of Lehman Brothers sent global financial markets plunging and only recently has it felt that the global economy may finally be entering a period of recovery. But will conditions be better or worse in 12 months? Will house prices be higher or lower and where will Australian stocks be in September 2010?

The reality is that any prediction about the state of the Australian economy in September 2010 is at best a guesstimate and the chances of it being right with any degree of accuracy are slim. But like most investors I have to at least consider what might happen in months ahead and hope that I am at least a little more right than I am wrong. (although it is often the other way around!)

Rather than simply outlining my view regarding we might be in a years time I would like to open up the discussion and invite readers to also put forward how feel Australian stocks, house prices and the economy will be faring when September rolls around once again.

So after reading my outlook for September 2010 please feel free to comment not only on my ramblings, but also share with us your outlook for the Australian economy and let’s see how we all look in 12 months time!

Anyway at the risk of being very embarrassed in the not too distant future here is my attempt at reading the tea leaves.

Global Economic Background

Overall I expect the global economy still to be weak next September but most OECD nations should be showing signs of growth. Debt of course will be a major concern and governments will be trying to ease back on spending while carefully watching to see how private sector demand is faring. In short the worst of the economic crisis will be behind us, but we will still be feeling its effects and working to repair the damage.

Australian Shares

In 12 months time I expect (hope) the ASX All Ordinaries/ASX 200 will be higher than they are now. My view for a long time has been that the pre-Lehman Brothers level of about 4800 was the place for market during a recession and so if we not in a recession in September 2010,  then we should be above that level.

If I attempt to say in more detail where the stock market will be then I will most certainly be wrong,  so let me be a little vague and say I expect the Australian stock market to be up around the mid 5000 mark in a years time.

The ache in my left leg is telling me this might be a little low, but my head is saying that there are still a lot of challenges ahead for Australian companies and the impact of the ETS (Emissions Trading Scheme) is a big unknown. So although I am optimistic about the future I still remain cautious regarding the outlook for Australian shares over the next 12 months.

Australian House Prices

This is a subject that always causes quite a debate and over the last few months I have moved from a position of being fairly optimistic about the housing market to now being a little cautious.

The reason I am now a little cautious is because I expected home prices in Australia would have cooled a little during the economic downturn and I did not expect the Government to come in and increase the first home buyers handout.

This combined with lower interest rates has no doubt helped support the market in the sub $500k area and therefore I would expect when interest rates climb and the extra money for first home buyers ends, then prices are bound to fall back in this price range.

But will the government actually remove the extra handout for first buyers or will they simply find another way to prop up support the housing market?

I am not expecting an Australia-wide real estate bubble like collapse, but dare I suggest that prices in a years time are down say on average around 10%? (and yes I did pluck that number out of thin air)  In others words I expect the residential real estate market to cool a little, not plunge.

Australian Economy

I am probably in the minority, but I feel the Australian economy will still be fragile next September. Michael Pascoe and other financial commentators/journalists may feel commodities exports will be strong, but I don’t think they quite get how price cycles work.

Our commodities exports in dollar terms held up well because Australian miners hit a sweet spot in 2007-2008 where volumes and prices we both high. But it takes time for lower contract prices to trickle into the system as a result of falling demand and although Australia was still earning big bucks in early 2009, it is clear revenues are falling, and falling fast.

Yes commodities exports are coming down from records highs, but they are still falling while at the same time the nation is racking up billions in debt. In addition the mining industry will need to deal with the extra costs imposed by the ETS and we might find that exports like coal (even when we bury C02 underground and try to forget about it) may not be as strong as we expect.

I would guess our farming related exports will probably be doing well (if the weather is good) but these are not going to make up for a fall in the dollars from iron ore & coal etc. I also feel pretty sure the number of foreign students coming to Australia will be much lower until we manage to properly manage this sector.

So although I don’t anticipate Australia will be in a recession this time next year I am more cautions than many about Australia’s  growth prospects.  I simply believe that a lot of the economic forecasts coming out now are overly optimistic and we seem to be relying on China perhaps a little too much.

So that is my view of how things will look in September 2010. I know it is a little vague but my crystal ball has been dropped a few times over the last year and that is the best it can come up with this time around.

So now over to you…….


83 responses so far ↓

  • 1 Senator13 // Sep 25, 2009 at 11:17 pm

    This is very tricky… But I am going to have a stab and throw some things up just for the fun of it.

    I think the Rudd Government will get a second term and increase their majority. Biggest challenge will be cost of living pressures brought about by inflation and higher taxes (inc ETS)… RBA interest rate to be around 4% so bank rates around 6%. Unemployment to be around 7% and falling. The All Ords will be around 5500 and rising. House prices steady (I do not see the bottom falling out – but no massive recovery either).

  • 2 Greg Atkinson // Sep 26, 2009 at 10:42 am

    Senator thanks for having a go! It is not easy to think 12 months ahead and even harder to get in right. But at least the process makes you think about what might go wrong. For example when you thought about interest rates it probably made you think about what would happen to you personally if they went much higher.

    I pretty much agree with your outlook except I think housing prices may come down a little, although as with you, I do not feel there will be any collapse.

    Anyway let’s see how we look in 12 months time 🙂

  • 3 Anon // Sep 26, 2009 at 11:35 am

    Hey Guys,
    Note house prices in America were going down since 2006. They started slowly (for the first year or so) then accelerated as denial turned into panic:

    http://mysite.verizon.net/vzeqrguz/housingbubble/united_states.png

    Corrections from bubbles are seldom soft. Usually people spruke soft landings or flat to no growth before a significant correction:

    Published 19 November 2007:
    “Paul Samter, an economist at the Council of Mortgage Lenders, argues that house prices [in the UK] will flatten in 2008 but they will not crash.”

    http://www.newstatesman.com/economy/2007/11/house-prices-flatten-mortgage

    or

    “As the housing market began to soften in winter 2005 through summer 2006,[30][31] NAR chief economist David Lereah predicted a “soft landing” for the market.”

    http://en.wikipedia.org/wiki/United_States_housing_market_correction%5D

    Published 22 December 2008:
    “Soft landing for Australia’s housing market

    Australia’s housing market is cooling, after a three-year comeback, as the contagious impact of the global credit crunch spreads.”

    or

    Housing heads for a soft landing
    ROSS GITTINS
    November 26, 2008

    http://www.smh.com.au/business/housing-heads-for-a-soft-landing-20081125-6hf0.html

    Dejavu?

    On an aside:

    The banking system in America and Japan did not collapse as soon as house prices began to decline. There were 2-6 year lags.
    Note in Japan banks did not get into trouble until the second recession – 6 years after the start of the real estate correction.

    http://img132.imageshack.us/i/japanbanks.gif/

    I guess this shows borrowers can hang in for awhile, but eventually if they have taken on more than they can handle they will default – and the domino effect will take force arguably causing banks much pain.

  • 4 Greg Atkinson // Sep 26, 2009 at 2:09 pm

    Hi Anon I see your point but I am also wary of comparing bubbles and economic conditions from one nation to another unless there is a baseline. Take Japan for example.

    Firstly the banks in Japan came unstuck not because of home owners defaulting on loans. Massive non-performing company loans and the slump in commercial land prices did most of the damage. There was a lot happening in Japan during the post bubble years but people being tossed out of their homes was not common.

    Secondly the fall in land prices was all part of the unwinding of the bubble as were falls in stocks, luxury goods and the cost of a beer in Ginza. In other words if I plotted the price of beer in a bar in Ginza versus Tokyo land prices I would probably see a relationship. But it does not mean falling beers prices brought the real estate sector to it’s knees.

    Sometimes we need to be on guard against what I call economists logic. For example every time we see a major fire we also see fire engines, therefore using economists logic: fire engines must cause fires!

    Finally please note that Japan tracks land prices, not home prices, so the graph you have provided covers all land; residential, commercial and industrial. It is not a graph that can be used to say home owners were defaulting on loans.

    Of course home prices in Australian may collapse, but if they do it will be because of conditions on the ground in Australia. Why should they collapse just because they did in the U.K?

    BTW this article by Gregory Clark: Economic Lessons from Japan is well worth reading.

  • 5 Anon // Sep 26, 2009 at 4:52 pm

    “Firstly the banks in Japan came unstuck not because of home owners defaulting on loans. Massive non-performing company loans and the slump in commercial land prices did most of the damage. There was a lot happening in Japan during the post bubble years but people being tossed out of their homes was not common.”

    Ok, even so – we have highly overpriced commercial land aswell.
    So regardless of what did it…there was a bubble…banks lend money on overvalued assets during the bubble..the borrowers were unable to pay. The assets are not enough to payback the loans. Australia has a real estate bubble (confirmed by RBA, IMF), banks have lent lots of money on overvalued assets (lots of loans books expanded dramatically in the last few years), and the jury is out whether borrowers will be able to payback these loans.

    “Of course home prices in Australian may collapse, but if they do it will be because of conditions on the ground in Australia. Why should they collapse just because they did in the U.K?”

    Because both in the UK and Australia house prices were extremely overvalued based on historical norms for that particular country. You can nit pick arguments with differences here and there but the bigger the bubble the bigger the collapse. This has been true for centuries.

    I found this interesting:
    “Pre-requisites for a substantial house price fall in Australia
    All we need for house price to fall substantially in Australia is (1) a reversal of house price rise expectation and/or (2) tighter credit and/or critical mass of debt servicing failure (which can be caused by rising unemployment- see RBA committing logical errors regarding Australian household finance). When that happens, the self-reinforcing feedback loop for higher prices will become a self-reinforcing feedback loop for lower prices.

    Look at UK…
    There are many ‘experts’ who argued that house prices are falling in the US due to ‘over-supply’ and that Australia’s housing ’shortage’ will prevent a house price fall. These experts conveniently failed to look at the UK. Just do a Google search on “housing shortage” site:uk and you will find many reports of a housing ’shortage’ in the UK too.

    We all know what happened to the UK housing market.”

    http://cij.inspiriting.com/?p=706

    If you go back in history (even into the 1800’s) and see how many times “soft landing” was said just prior to a big crash you will be surprised. Its a big warning sign. I note this was being said over and over in 2007 before the stock market tumble.

    “BTW this article by Gregory Clark: Economic Lessons from Japan is well worth reading.”

    Thanks for this. I have filled some of my gaps in Japanese history. You can never stop learning !

  • 6 Greg Atkinson // Sep 26, 2009 at 7:56 pm

    Anon for every example of the warning signs being correct I can dig up examples when the warning signs were not correct. The fact is that bubbles are easy to spot in hindsight. Are we in a property bubble now in Australia? I have no idea..maybe, maybe not and you will find most leading economists on the not side of the debate. Are they wrong? Only time will tell.

    Anyway since we are on the subject of forecasting can I tempt you into making some estimates about where stocks, home prices and the economy will be in Sept 2010?

  • 7 Anon // Sep 26, 2009 at 9:00 pm

    “Anon for every example of the warning signs being correct I can dig up examples when the warning signs were not correct.”

    Can you please show me an article where someone made a soft landing call for real estate, preceding a correction, that turned out to be true? I’m happy to stand corrected if I’m wrong.

    “The fact is that bubbles are easy to spot in hindsight.”
    If you cant spot this one you need glasses lol. Do you have substantial real estate positions in Australia?

    “Anyway since we are on the subject of forecasting can I tempt you into making some estimates about where stocks, home prices and the economy will be in Sept 2010?”

    Sure, firstly this is not advice and only for debate purposes. Please seek a qualified adviser if you wish to get financial advice.

    House Prices:
    In 12 months we may be down 5-10 percent. In 2-3 years I see possibly 20-30% declines. I think a catalyst for a larger decline may be some defaulting of the subprime loans given to first home buyers who bght at inflated values. This would lead to a self-reinforcing feedback loop for lower prices.

    Stock Market:

    I’ve been calling 5,000-5,500 since March but I may raise this.
    If the cash rate doesn’t increase substantially, there are no inversions of the yield curve and and oil prices dont get to demand destruction levels we could go to 6,000-7,000.
    I think the Nikkei could be the one that outperforms others in the next 5-10 years. As a consequence, I have alot of weighting in Japanese equities and real estate.

  • 8 Greg Atkinson // Sep 26, 2009 at 10:38 pm

    Anon think back to the Australian recession of the early 1990’s. I recall the situation well as it was when I first ventured out to buy a home. The property debate raged in the newspapers at the time with some experts saying prices would slump and others saying prices would soften. As we know now, house prices in Australia during the last recession held up fairly well…i.e. it was a soft landing! (despite the economy having a harder one)

    Also remember the housing market in Sydney has not done much since 2002/2003 and so in many respects it already has had a soft landing. I see no reason why this could not happen for other cities.

    As for me, I am not a real estate investment guy. If I buy a home it is because I need somewhere to live.

    Thanks for your forecast. It seems a few of us feel stocks will be higher next September. I also hope the Nikkei will do well, but alas it has disappointed me many times 🙂

  • 9 Anon // Sep 26, 2009 at 11:28 pm

    “Anon think back to the Australian recession of the early 1990’s. I recall the situation well as it was when I first ventured out to buy a home. The property debate raged in the newspapers at the time with some experts saying prices would slump and others saying prices would soften. As we know now, house prices in Australia during the last recession held up fairly well…i.e. it was a soft landing! (despite the economy having a harder one)

    Also remember the housing market in Sydney has not done much since 2002/2003 and so in many respects it already has had a soft landing. I see no reason why this could not happen for other cities.”

    I see where you’re comming from. I am wrong in assuming and extrapolating soft landing scenarios are contrary sell signals all the time.
    Nevertheless, my intuition says this real estate bubble will correct meaningfully.

    http://www.whocrashedtheeconomy.com/realhouseprices1880to2008.gif
    This chart just makes me cringe.

  • 10 Greg Atkinson // Sep 27, 2009 at 4:19 pm

    Anon I don’t think you are wrong as such, I just wanted to highlight the other side of the argument. Have you had a look at the debate we have had on this site regarding home prices? (see the first part here: Australian home prices debate: Part 1)

    That chart does look scary, do you know how the index is calculated?

  • 11 flawse // Sep 28, 2009 at 5:34 pm

    Ok Here’s the way i think and it may be a little different to most.

    In the GFC, the biggest threat to Australia lay in our huge debt in the external account. We were in serious danger of not being able to raise the finance to keep going (in the manner to which we are now accustomed) This problem was overcome in four ways
    1. Govt Guaranteed the Banks’ Foreign borrowings staving off a crisis
    2. The US and UK printed, avoiding a meltdown of the financial world (for better or for WORSE). This allowed us to continue to be able to borrow. The Banks were able to raise the $400B we needed to keep going for another 12 months.
    3.We have the greatest natural resources per head of population on earth. We were able to CONTINUE on selling these to whomever wnated to buy them. I don’t mean selling what we dug out of the ground, but selling the mines etc
    4. The ASX is about 2 % of world stock markets. According to Gottliebsen, in the past 12 months, we have raised 15% of all the equity capital in the world. Again refer to factor 1! We have virtually zero net savings so the raising of all this equity has involved further major sales of Aus equity to Foreign investors.

    So. the GFC is easing (for the moment), so even if the Govt ceases the Guarantee of Foreign currency denominated debt it can probably now be refinanced.
    The US and UK will not take any hard decisions so ‘printing on a massive scale is likely. Therefore the Foreign source of funds is unlikely to dry up. In addition Aus seems to be a bit ‘flavour of the month’ because of China and commodities. So the money will keep flowing here and may well accelerate.
    We will not tsake any hard decisions here either so we will continuie to sell off our assets to finance our massive (and again growing) CAD.
    Therefore the threat from the external account should not be a factor. Indeed given all the Reserves that are sitting around, and given that no changes have been made in any economies, any cash that is sloshing about must flow into the usual speculative and largely non-productive areas. The rise in the Share markets world wide since March demonstrates this. Hence the stock market ought to keep going up here!!! However we seem to slavishly follow the US so what happens there may really be the determinant of stock market direction (illogically)

    On the home front we have had massive govt stimulus. As a result, Harvey Norman, David Jones etc are reporting record profits (and the CAD gets a boost again but no worries we can borrow it!). The housing market has been kept afloat by the Bank Rescue Package AKA First Home Buyers Grant. The Govt is facing an election in a year or so and fiscally, provided the rest of the world holds together for another year or two, it can pull a few more rabbits out of the hat to kick the can down the road a bit further.
    So, one would conclude the domestic economy will continue to tick over with continued Govt stimulus and the Govt will NOT ALLOW the RE market to tank before the next election – no matter what the cost. Further the Govt has been successful in buying the Banks time to recapitalise so they are not in the same danger of collapse as they were in 2007 and will cooperate with the Govt in propping up the RE market. (That Govt and MSM story that our Banks are OK because they arte well managed, Paul Keating etc is just plain rubbish) Therefore the housing market will not collapse and may well indeed rise a small percentage. Anything to give the illusion that everything is A OK in AUS.
    Therefore one would have to conclude that we can stay afloat for the next year or two through further Foreign borrowings and persuading the Aus population to continue on accumulating more debt. In addition The Govt will continue to take on massive amounts of debt. The Central Banks will all jawbone about raising interest rates but will in fact not do so! So, for the next 12 months Aus looks fairly safe. I don’t like it but that is how I see it right now.
    The risk is someone will breathe and cause one of the cards to fall out of the precarious house somewhere and the whole damned thing collapses.

    All that having been said, I’m really here to get other people’s opinions so please feel free to tear this apart.

  • 12 Greg Atkinson // Sep 29, 2009 at 10:17 am

    flawse thanks very much for posting your view of the Australian economy. I agree with everything you have said and and believe over the longer term that many of the more developed economies are going to find themselves slaving away to pay down debt.

    You raise an excellent point regarding the Government keeping things ticking over until the next election and that is why the economic stimulus money will keep flowing regardless of whether it is needed or not. Even if the Government needs to waste billions to keep the GDP number looking good that is what will be done.

    I think the Gorgon Project is a good example of the path we are heading down. We are becoming a mining colony.

  • 13 Ralph // Sep 29, 2009 at 4:08 pm

    Hi all,
    It’s fun making predictions for 12 months down the road. A bit like sticking your finger in the air to guage the wind direction, but that’s what makes it fun.

    In general, I think flawse is close to the mark. We live in a house of cards. And I don’t think we’re really any further forward than when all this broke last year. It’s just been swept a bit further under the carpet and some smoke and mirrors applied. I can just hear all the world leaders going “whew, that was close” and hoping like hell that they can keep the nastiness well hidden.

    I too think that the ASX will probably go to around 5,500 or so. I think the entire economy is running on confidence right now and confidence is booming. The general public thinks we’ve got out of this so-called recession scot free. It’s a pity that most people don’t realise that it’s all funny money thrown around by the gov’t. So for that reason, I think the All ords will continue to bubble along, with a few bumps here and there.

    I think debt is the real worry and it’s going to come down to how economies everywhere juggle the mountains of debt thats fuelling everything. At the moment, there’s no serious appetite to reduce the debt. I suspect that at some point, there will be some debt forgiveness (bailouts), possibly even at the individual level. Sickens me, but I can envisage it.

    I think the government will have a tough time selling new stimulus to the public. As a consequence of all the good news lately, the public thinks we’ve licked this thing. So therefore, I think any new stimulus that’s announced will seem reckless and potentially electorally damaging. The coalition will be all over them like a rash.

    House prices are an interesting one. Prices should have fell last year, but the gov’t came in with handouts and we can see what that’s done. Now that the first home buyers grant will be phased out tomorrow, we’ll start to see what happens next. My thinking is that the home buyers boost will have to be withdrawn as planned – to continue it will damage the government’s credibility and show there is no urgency to buy. I think that at the first sign of meaningful price falls (~5%), the government will be very nervous and ready to step in again. I have no confidence that this mob is capable of keeping their hands out of it. If there is one thing that the Australian public has come to expect, it’s ever increasing house prices to make them feel wealthy. If people take a hit to their house ‘values’, they’ll blame the government and Rudd will be looking at being out on his ear. I don’t think Rudd fancies that much, somehow.

    So, I’m torn between Greg’s suggestion of 5-10% falls for house prices and Flawse’s suggestion that the government has such an enormous vested interest that it will never allow an RE collapse.

    Overall, I think the medium term outlook is very weak – an economy propped up by stimulus and little else for at least the next 12 – 18 months.

  • 14 Ralph // Sep 29, 2009 at 4:24 pm

    Oh, and I also like Flawse’s observation of the RBA jawboning about raising interest rates. I can’t help but come to the same conclusion. The RBA knows that the banks are blowing in the breeze with next to no capitalisation and would be hurt badly by RE price falls. And they also know that rate rises would push too many idiots into the danger zone of defaulting on their mortgages. So they’ll talk hawkish a bit, but at each monthly meeting they’ll determine that “the current monetary setting is appropriate for the time being” or whatever language Stevens likes to use. I don’t think they have the guts to put the squeeze on the economy because they know all of the negative effects that are just waiting to happen. Despite all the pretences that the RBA is independent, I think they can genuinely be seen as an extension of the government and will act in accordance with the government’s wishes.

    The other thing that worries me is what happened in the US – relaxation of mark to market accounting rules. If things get bad enough, I expect that sort of stuff to be tried on here too. There will be all sorts of ‘temporary’ conventions brought in to protect bank balance sheets, keep GDP numbers looking good and keep equity in voters’ houses.

    And if Rudd makes it past the election (looking likely), he might well decide that he’s happy with 2 terms and let things take their course. But that’s a very big if. He might just decide that he’d like to be there for 3 terms before effecting a seamless handover to Gillard or whoever is there at the time.

  • 15 Greg Atkinson // Sep 29, 2009 at 4:55 pm

    Ralph, I agree that looking out 12 months is a bit of a finger in the air exercise but I think it helps us appreciate some of the risks ahead. I guess the alternative is not to try and look into the future and that is pretty boring 🙂

    I am also unsure of the housing market outlook now. If prices had eased a bit this year and the Government did not throw money at first home buyers I would be a lot more relaxed. But now we have the RBA and the Government effectively supporting prices and flawse is probably right, in that more money will be tossed at propping things up if needed before the election.

    I suspect you might be right about Rudd leaving after a second election win if he can get that U.N job he clearly auditions for every time he travels overseas. In any case I reckon he is not the sort of guy to hang around if he senses things will turn bad and so if he does a runner, this would be a sign the economy is heading for trouble.

  • 16 Senator13 // Sep 29, 2009 at 5:43 pm

    Yes running on confidence is all we that we are running on at the moment. I think that everyone is just hoping that real earnings will pick up to sustain/justify current levels in the stock market and economic outlooks.

    I agree that the time for letting house prices fall was about a year or so ago now. But, since that did not happen, I think things will just tread water for the time being. I note that this afternoon the RBA was again stating that there was a dwelling shortage…

    The RBA will be very cautious about what they do. They do not have all that many options. But I still think that over the next 12 months their will be at least 4 interest rate rises of 0.25% each. The Government will also be pressing them pretty hard because they will want to continue to be painted as the people who got Australia through the GFC.

    The Govt is coming into an election year and from a purely political perspective they are sitting pretty. They are coming off a low base in terms of expectations and forecasts and Rudd just seems to write his own version of history and everyone seems to believe him for the moment so they will do pretty much anything just to get them across the line with out hurting anybody. It is only 6 to 9 months away so not too far when you think about it.

    If we are all still talking about the GFC in the second half of 2010 it means we are still in trouble and it is very bad news. But if by then we are actually on a recovery trajectory then we may have actually got through all of this…?

  • 17 flawse // Sep 29, 2009 at 10:07 pm

    Ralph
    I think the RBA may well increase rates. Now this only effects the Overnight cash rates and by extension the near short term rates. As we get out into more long term rates we are more dependent on actual savings and Foreign borrowings. For myself, I don’t care much what the overnight cash rate is. My decison to borrow or save is very much determined by the 5 or 10 year. Any businessman with half a brain would think the same way.

    Now Australia (The Govt, that idiot Ken Henry in Treasury, and Stephens basically look at Foreign Debt as free money. There is no limit as to how much of it we can take on and its supply is unlimited. (How much do you want to bet that Ken Henry, Glen Stephens, and Guy Debelle all have substantial mortgages one form anmd another????)
    So as long as USA UK Europe et al keep on creating unlimited credit at near or at zero percent interest rates and we are able to borrow it, then there is no problem.
    The RBA is not really effecting interest rates, on average, by that much. If the RBA raises by 1% the effect on the 10 year will be negligible to nothing.
    What is important is that other Central Banks keep on printing, keep interest rates near zero, so that we can sell ourselves to, and borrow from, Foreign sources.
    On the other hand the RBA needs to raise A$ interest rates a little so we can continue to attract that foreign money. We need to both refinance money we already owe denominated in Foreign currencies and also to fund our growing CAD.

    Now virtually all the Govts of the western world are running massive fiscal deficits (and external deficits). So either they need to rein back consumption by saving (increase real interest rates)to pay for those deficits or keep printing. They will keep printing as long as their currencies are accepted internationally. So, for us it may in fact be more important what the Fed in the US does with interest rates than what our own RBA actually does.
    I expect other than ourselves and NZ, the UK will be the first major economy to find itself between a rock and a hard place with respect to printing and deficits (both Private, Govt and external)

  • 18 flawse // Sep 30, 2009 at 1:14 am

    Hi again Ralph…..then again??????????
    Hell I don’t know. If the RBA raises even o.5%, given that most loans are not fixed, will that knock the hell out of Real Estate??
    I’m thinking 1% will do a bit of damage which would have serious implications for the economy.
    So I’m thinking they will go 0.25% to 0.5% over a couple of months and THEN call a halt as you suggest.
    One thing, thinking about it does not clear one’s thinking!!!! I have a lot of trouble working out what the average poor deceived and disoriented punter will think and how he will react as compared to what I, who is merely a disoriented long-suffering punter, will think!!
    Cheers

    P.S. Sorry about the spelling of Glen Stevens!

  • 19 Anon // Sep 30, 2009 at 7:24 am

    The last threshhold was 9% plus to keel over the market. We would need substantial interest rate rises from here for rates to do damage (maybe 4-5% at least). Losing your job will be more of an effect than interest rates. Obviously unemployment will keep rising as it is a lagging indicator (but a forward indicator for housing related bad debts). Hedgies and prominent investors are going long treasuries and the sheep are in full force calling for higher rates. Thus, rates might stay where they are for the intermediate term.

  • 20 Greg Atkinson // Sep 30, 2009 at 7:49 am

    I believe we also take into account the impact the ETS may have on energy prices and on inflation overall. If interest rates moved up say 1-2% this alone would not be enough to concern me, but if the RBA moves too early (and they probably will) and then we see some form of ETS coming in say in 2010-2011 then we might have a problem.

    People may have budgeted for interest rate increases, but have they also considered higher petrol & electricity prices? In addition an ETS would have a knock on inflationary impact on the economy, so could Australia run into a situation of rising inflation, rising interest rates and rising unemployment?

    I know the mainstream thinking is that unemployment will peak soon but I am not so sure. Where exactly are the jobs going to come from that will get people working again? Yes some jobs are popping up at new mining projects but are these new jobs as such or simply workers moving from mines that have been mothballed or closed?

  • 21 Anon // Sep 30, 2009 at 7:55 am

    “I know the mainstream thinking is that unemployment will peak soon but I am not so sure. Where exactly are the jobs going to come from that will get people working again? Yes some jobs are popping up at new mining projects but are these new jobs as such or simply workers moving from mines that have been mothballed or closed?”

    Good points Greg.

  • 22 Ralph // Sep 30, 2009 at 9:54 am

    All this just confirms to me how complex and confusing the economy is. So many variable to consider and a change in any of them could have impacts. That’s why it’s really like sticking your finger up in the air to guage the wind direction.

    On interest rates, I think the RBA will have to move this year – they’ve talked about it so much, that they’ll look silly if they don’t. They’ve backed themselves into a corner. And like with the election in 2007, I think they still feel the need to act every now and then to prove their independence. So raising rates while the gov’t is still stimulating could be one way of showing they are independent.

    I’m with Flawse in thinking that they’ll probably just move in 0.25 amounts. I think it’ll take probably a full year to increase 1%. They might never get back to where they were. Which is crazy because they saw fit to drop 4% in no time. What amazes me, though, is how hysterical the coalition and the general public is getting about an interest rate rise. We have the lowest rates ever and the public has become so accustomed to that that the RBA and the gov’t is nervous about rates climbing off the floor.

    The ETS is certainly very interesting. Personally, I’m in favour of an ETS if only because I believe it’s the right thing to do. My take is that, regardless of whether the climate change science is true or not, it’s better to take precautions and later find out not to have needed it. After all, that is what we all do every year with health and car insurance. Acting alone without international support has its risks, but I think the world will get there eventually, so we are right to plan for it. Yes, it’s effectively a tax on everything, but I also believe that we’ll just be paying for an externality that we probably should have been paying for long ago anyway.

    And while we’re on contentious issues, I think peak oil is a real problem, even more so than climate change. I think we’ll see oil supply shortages in the years ahead, so I’m long on oil-related shares.

  • 23 flawse // Sep 30, 2009 at 3:55 pm

    Ralph every time we go around we are deeper in debt. So we cannot go back to interest rates of yesteryear. The real problem is we NEED to get substantially positive REAL AFTER TAX interest rates to get out of the whirlpool. This is about the point my mind goes blank as everything suddenly disappears into some big black hole!

    However back to the point of the next 12 months I think you are correct about the ARB.
    Also Anon, you are correct, as I understand it, that employment is more crucial than interest rates. Will employment collapse in the next 12 months – I don’t think so without some great shock to the system – like China suffering massive dislocation or a the US (or the UK) disappearing down the great hole that is its financial system, or outbreak of hostilities in the Middle East plus a few other things we cannot see.
    Nevertheless i went to cash late last week out of a whole lot of Junior Gold Miners. I’m holding off buying more oil for a few months. I have been thinking the stock market is in for a major move down following the US. So I’m keeping the powder dry a while.
    Ralph sort of agree with you about ETS. But what worries me is that so many lies are being told i worry about what the real agenda is. The confiscation of private property that has been going on in the name of the ‘environment’ is a major worry!!!
    I could rabbit on for a while but that would divert from the topic at hand.

  • 24 Anon // Oct 2, 2009 at 9:37 pm

    Marc Faber on US Interest Rates:

    “Q. While the rally has been intact, there seems to be one concern which is that interest rates will soon start moving higher and that in turn will start sucking the liquidity out or the easy liquidity out. Is that a real fear for the market?

    A: I don’t think so. I think we have to distinguish between short-term interest rates and long-term interest rates. Long-term interest rates, the Federal Reserve does not really control them in the long run. Temporary they can somewhat control them through quantitative easing and through the purchases of 10 year bonds, 7 year bonds, 30 year bonds but what they control are the short-term interest rates in other words, the Fed fund rates. Reading through the literature and through the speeches that are being given by Mr Ben Bernanke, my impression is that the short-term interest rates will stay long for a very long time. In America the fiscal deficit this year will be around USD 2 trillion and I do not think they can cut the fiscal deficit next year because if they cut it, it will have a negative impact on the economy. So I rather think that the fiscal deficit will stay at this level or in my opinion actually even increase. That will lead the Fed to keep interest rates artificially low because should they increase short-term rates meaningfully then the cost of servicing the government debt in the US will escalate substantially. So I think as far as the eye can see, monetary policies in the US will stay expansionary.”

  • 25 flawse // Oct 6, 2009 at 6:24 am

    So Anon…we need to be in debt and in commodity and various dodgy assets (such as RE)that will inflate for a while and then step bloody lively!!! I am not sure i can stand the stress!
    I note Faber reckons 3 to 5 years then the world falls apart.

  • 26 Greg Atkinson // Oct 6, 2009 at 7:34 am

    Yes Marc Faber has had to push back the collapse of the world a bit as have most of the doom & gloom crowed. He really does dislike Ben Bernanke though, about every time he says anything he drops in a dig at the guy. I am sure if you asked him about the lousy weather he would find a way to pin it on Bernanke 🙂

    Seriously though I reckon the U.S. will eventually be squeezed into raising rates lest the U.S dollar become the new Peso. Obama and Co. are going to have to make some pretty dramatic spending cuts and I reckon defense and U.S. overseas bases might suffer some big cutbacks.

  • 27 Anon // Oct 6, 2009 at 9:27 am

    “I note Faber reckons 3 to 5 years then the world falls apart.’
    Faber is abit inconsistent with some of his predictions. He changes his mind alot, altho I guess you need to remain nimble in these market conditions.
    We bounced off 9,500 support pretty hard last night – a continuation may mean I need to lighten some shorts.

  • 28 Greg Atkinson // Oct 10, 2009 at 9:03 am

    Yes Faber has shifted as have others, personally I think some of these guys spend too much time looking at data and not enough time getting their hands dirty running an actual business. The Asian growth story is still in play and will move ahead even with weaker U.S. domestic consumption. I think the GFC has woken people up to the fact that the road to riches now longer leads only to New York.

  • 29 Alex Caraco // Oct 18, 2009 at 10:56 am

    I have experienced 4 Real Estate recessions , (1975, 1991 & 2001 & 2008/2009) .All had different causes but ultimately availability of credit & migration drives housing prices upwards .Currently we have high migration numbers however housing finance for SME’s is very difficult and rates are on the rise reducing buying capacity .

    There is an undercurrent of shortages in the new housing field due to the high migration and movement of population who still want the 1/8 of an acre ,so this will fuel purchases of established property in 2010 contrary to some who think the housing market bubble is upon us .

    However there is high demand for affordable housing and we are headed for many thousands of apartments to be constructed on the Coast line as well as New Homes in transport corridors. Prices for resources rise over the next 50 years so public Transport or quick access to services ie: City Living will drive future markets . Whilst communities do not want urban sprawl or high rise living its still inevitable as we move to the European Model of Vertical living or commutable self supporting communities new green eco friendly subdivisions close to major cities.

    There is no doubt certain markets will rise dramatically and others fall due to oversupply . So its not possible to make blanket assumptions of the whole of the Real Estate Market with accuracy and in affordable Real Estate market
    sections of the market will rise because the stock market is reaching a strong recovery point and investors have to decide between a balance of investments. Whilst the Real Estate market has more upside as people have to rent or buy ..so you can pay the landlord or the Bank or pay yourself if your lucky to pay cash for a property .

    Surprisingly will be the question for those who migrate here in 2010 as to wether they will refrain from transferring their currencies to Aus Dollars or will they wait in the hope the Aus dollar crashes after USA dollar recovers in mid to late 2010 or will it? So pressure from Migrant FX into the Real Estate Market in early 2010 may evaporate as there homes in NZ ,UK, Europe fail to sell whilst Asian Markets recover ahead we are I believe to see many Asian companies buy Commercial and Residential Land as this is the most valuable commodity we possess .

    So in conclusion there will be some winners and losers but the comment of 10% in Real Estate prices reduction is incorrect and too vague .

  • 30 Anon // Oct 19, 2009 at 12:14 am

    Interesting points Alex, thanks for sharing your thoughts. Some very convincing arguments.

    Regarding Housing Shortages – apparently this is just another myth to fuel the bubble even further:

    Australian housing shortage myth…
    http://cij.inspiriting.com/?p=458

    We are producing more housing than we need…
    http://bubblepedia.net.au/tiki-read_article.php?articleId=10

    “Thought i wanted to pursue the issue more on housing supply compared to population growth in Australia, so i did some figures using ABS data and compared the average number of persons per household with the average number of persons per dwelling completions.

    I came up with some interesting figures – mainly reflecting that we have been overbuilding for decades. Some periods (early-mid 90’s) we were building a new dwelling for every 1.1 persons in Australia when the avg per household was 2.8 persons. The current period is close to even with a dwelling created for every 2.4 people when the approx. persons per household is 2.5.

    I’m sure there is a small element of dwelling DEstruction, but bearing in mind that many torrens title properties are replaced with strata units and could potentially be replaced with 50 units for one house.

    I’ve done my best with the figures for avg person per household as the figures haven’t been done since 2001 (2.6 p/household) but i’ve been keeping it in line with trends since 1980 when it was 2.9 p/household.

    Dwelling completions include all residential property (houses & units). The avg people per household is calculated across the board for all these types of dwellings so some units might have 1-2 people in them, but some houses would have 3-6 people. Population is calculated using births, deaths and NET migration as well as natural increase factoring aging population.

    Anyway, this being one of the subjects i was sitting on the fence about, i’m pretty convinced now that’s its all just media hype and that the rental shortage is merely a reflection of the influx of FHB’s unable to afford to buy. This would reflect the increasing supply on the buy side and the lack of supply on the rental side.

    I was begining to get irritated about the articles that indicated that we had x amount of population growth and were only building y amount of houses. Obviously you don’t need one house per person. Not even close. I’m always dubious as to how those reported in the media decide that we need 190,000 new homes for the coming year. No one ever seems to indicate how that figure is concluded. I mean we are seeing net population growth of 330,000, and at 2.5 persons per household you would conclude we only need 132,000 dwellings, and we are currently producing 165,000. If they are basing this on future expectations, then that is simply speculation, and besides, we have established there are plenty of empty homes leftover from previous decades of overbuilding as indicated by the same figures they no doubt are using.”

    “There is no doubt certain markets will rise dramatically and others fall due to oversupply”

    Yes this happened in the states where some areas didn’t fall or even rose whilst the rest of the market tanked. Trying to pick out a single flower amidst a farm of weeds would be a very difficult thing to do.

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 31 Alex Caraco // Oct 19, 2009 at 9:59 pm

    Thanks Anon,

    I expect your correct as there are many houses in the cities only occupied by 1 or 2 people hence the high cost of city housing . If the density was higher there would be more supply of city housing .

    If indeed the goverment does its figures on poulation in the manner you described we don’t need the housing numbers at a standard price either for rent or sale . What we need is affordable & green housing being more apartments in the cities to make it more ecological sustainable to reduce gas emmissions in the cities with reduced car use and maybe the idea of Ken Henry of a conjestion Tax makes a lot of sense . Pay as you drive ! However with Australia’s regional areas this maybe too harsh ..

    Anyway food for thought but I do see many areas with oversupply and obviously many with undersupply . I guess due to there being Federal, State and Local Goverment Laws this causes the inbalances as various laws suits all parties to permit or negate development with varying regulation hence these supply and demand chains are created without proper consultation…

    Time will tell

    Alex

  • 32 Senator13 // Oct 19, 2009 at 10:13 pm

    You make some good points alex and anon.

    I agree that the trend towards apartment style living will continue. The average size of a family is getting smaller and with costs rising – maintaining back yards and commuting long distances I think are less desirable then several years ago – so it makes sense that more people are now choosing apartments over a house.

    I would not be a fan of any form of congestion tax as I feel that governments already get too much money from taxes on fuel and pay parking around the CBD’s. And in a place like Australia I don’t think it would stop people from driving. Public transport n
    eeds to be improved for one… But, I would not put it past them bringing it in.

  • 33 Alex Caraco // Oct 20, 2009 at 11:29 pm

    I agree Senator13 however having spent 4 weeks in London last year they have a congestion tax which taxes single car drivers going to the city centre . Whilst sitting in a car idling mutiplied by 1000’s of cars every morning I agree with the City of London curbing the conjestion …so problem areas like Sydney & Brisbane need to improve the public transport as its overcrowded , late and dirty . So if we get a whole bunch of new services city slickers can help by reducing car emmissions and Global warming . I have 3 cars in the family between 3 drivers but where we can we car pool where possible …City driving is good only for Macquarie Bank and Commonwealth and Bris Connections to make money from the public what happend to the word “Freeway ” now its a Moneyway still and in many cases a carpark

  • 34 Greg Atkinson // Oct 21, 2009 at 10:56 am

    I am also a little wary of the talk about a housing shortage in Australia as I covered back in: The Australian home prices debate Part 2: Why prices may not collapse.

    I also accept that making a statement about a 10% housing price correction is vague, but the property market itself is vague because it varies so much from one area to another it is almost pointless to try and make national forecasts. If you then factor in changing home styles, construction methods etc. then this makes looking at 20 year plus home price trend graphs almost pointless as well in my opinion.

    What we do need to factor in as I have mentioned a few times is that a home is also a product and not simply some abstract economic indicator. This means there are emotions and abstract forces at play that simply cannot be modelled or predicted accurately. At the end of the day a home is worth what someone is willing to pay for it…regardless of it’s intrinsic value.

  • 35 Ralph // Oct 21, 2009 at 2:02 pm

    Good points Greg. I’ve been thinking about this a little and I think you’ve hit the nail on the head – a home is worth what someone is willing to pay for it.

    To that end, my current thinking is that it’s the availability of credit that will drive house prices. There is a lot of demand for houses, but that won’t necessarily mean ever increasing prices if credit availability is reduced. With the first home buyer’s grant reducing, loan to value ratios increasing and prices outstripping wages growth, the general effect will be less credit available. If people want the asset but can’t obtain enough credit to pay the asking price, then there can be no sale, no matter many migrants are flooding in. So that leads to one of two outcomes – either the price comes down over time to meet market expectations or availability of credit must increase to maintain current prices.

    That’s what logic tells me. But then we all know that logic doesn’t always apply when you have a government keen to get its hands on the levers of the economy and plenty of lobbyists telling the government how to operate those levers.

  • 36 Greg Atkinson // Oct 22, 2009 at 7:24 am

    Ralph it seems less foreign students may also be heading to Australia next year as reported today here: Dollar’s rise, attacks hit demand The stronger AUD may cause quite a few nasty surprises sooner than many people think.

  • 37 Ralph // Oct 22, 2009 at 12:58 pm

    Thanks for that Greg. Very interesting. I can imagine our universities $h!tting bricks at the thought of it. Foreign students have certainly become a cash cow lately. I just finished a postgrad degree recently and I couldn’t believe how many foreign students there are. Certainly a big change from my first attempt in the mid-late 90s when Australian students were the mainstay. Now it’s almost like universities need foreign students to ensure they can fund courses to educate Australians.

    All of that just goes to illustrate how fragile demand is at the moment. Money seems to be tight everyone and people are looking at any excuse to close up their wallets.

    The strength of the dollar aside, I can’t get over how much demand is linked to maintaining levels of credit growth. If credit falls away, I reckon demand would fall off a cliff. Our economy relies on brought-forward consumption. If we have to go back to actually saving to consume, then there is no choice but to go backwards. If the take up of credit does not keep increasing, where is the demand to buy plasma tv’s, lounge suites, holidays, cars and most importantly, houses? Harvey Norman would go broke.

    If the stimulus winds down, as the government says it’s going to, and people aren’t standing ready with confidence to max out their credit cards and borrow to the hilt to buy more houses, we’re toast. Kev will have to come to the rescue again.

    Also, I’m reading Ross Garnaut’s ‘Great Crash of 2008’ – it’s a cracker. Very easy reading and puts it all into perspective. You could probably knock it over in an afternoon.

  • 38 Pete // Oct 22, 2009 at 2:23 pm

    Ralph:

    I can imagine our universities $h!tting bricks at the thought of it.

    Yep. They have a lot to worry about:
    – funding issues as Uni’s start to require more money (debt?) and seek more international students
    – quality issues as seeking international students will likely mean a reduction in quality of education (particularly as overseas parents would expect good results)
    – rising dollar issues as you mentioned
    – reputational issues whereby Indians are upset that their student(s) got beat up. Their media sensationalises a lot of stuff

    There’s more to add to that list, but i’m a bit scattered at the moment.

    So, far from Australia being a nucleus of education and innovation, we may end up as dummies?

  • 39 Greg Atkinson // Oct 22, 2009 at 2:48 pm

    Ralph please let me know your final impression Garnaut’s book? I might have to get a copy sent up to me here.

    The drop in foreign students will also hit the old studio apartment market as well I reckon. Plenty of rich parents were prepared to fork out money to buy their child a place to live while they studied in Australia and so this niche area might be interesting to watch.

    Pete if we keep selling off our resource assets at bargain prices we will end up poor dummies 🙂

  • 40 Senator13 // Nov 2, 2009 at 4:25 pm

    Rate rise tomorrow?

  • 41 Greg Atkinson // Nov 2, 2009 at 5:15 pm

    Senator I reckon the RBA will raise rates again, they sound worried about house prices.

  • 42 Anon // Nov 2, 2009 at 5:18 pm

    I have no idea whether rates will rise or not. If the RBA wants to get rates back to a neutral stance, they will obviously need to move abit more.

    People are speculating a rate rise partly because of rising house prices in the 3rd quarter (yes they rose again !)

    “The weighted average price of established houses in Australia’s eight capital cities rose 4.2 per cent in the third quarter from the second quarter, the Australian Bureau of Statistics said today.”

    The housing shortage pumpers are at it again:

    “Unless significant action is taken to remove the structural impediments to housing supply, Australia will face an intractable shortage of housing that will drive a deterioration in housing affordability beyond anything we have ever seen before,” Mr Braddick warned.”

    Mr Swan the prophet:

    “In a statement released today, Mr Swan said that if not for the direct impact of the fiscal stimulus, Australia would have experienced a technical recession and the economy would have gone without growth for two consecutive years.”

    http://www.theaustralian.news.com.au/story/0,25197,26293557-601,00.html

  • 43 Anon // Nov 2, 2009 at 5:36 pm

    All our house price decline predictions are looking mightily wrong atm ! Still a long way to go — I hope we dont have to concede Biker Pete was right !

  • 44 Greg Atkinson // Nov 2, 2009 at 6:53 pm

    Anon we will be made to pay if Biker Pete turns out to be right 🙂 But you know he is probably closer to the action than many of us so he probably has the inside running as they say.

  • 45 Pete // Nov 3, 2009 at 1:12 am

    Firstly, love that quote from Swan there Anon. A prophet indeed hahaha 🙂

    As for Biker’s predictions, well he’d be right but for the wrong reasons.

    Property is a good investment. But we all realise that property is in a bubble right now – and those prices are not realistic at all.

    That makes it a poor investment currently, unless you love high risk and debt.

    We all know what fuels the the property bubble. The natural supposition is that when the artificial fuel runs out, the property fire will die down to the level it is sustainable at.

    Essentially what we end up arguing about is the fuel, be it the new found heightened immigration, a FHOG boost, taxation incentives, artificially low rates, property spruiking, etc.

    So we second-guess the Government, wondering what new fuel it will put into the bubble. Meanwhile, global storm-clouds are gathering.

    To suggest that people are ‘right’ simply because house prices didn’t fall doesn’t seem correct to me. If a person predicted the actual reason(s) why they don’t fall (eg, increased FHOG), perhaps even merely saying “Government stimulus”, then that is fair enough.

    But to say property won’t fall, because it didn’t in the last 10 years…is completely pointless.

    You could think of it like this:
    If I predict right now that the RBA will keep raising interest rates forever, I can claim that I am right for as long as that lasts. My reasoning may be completely flawed, but I am still technically right.

    On that point, would I necessarily have an ‘insight’ into the system? No.

    And all it would take is a single time whereby the RBA cuts rates, and I am no longer the ‘rate guru’. Luck and bull$h1t springs to mind. Much better off discussing why the RBA may/may not raise rates on each occassion and consider the economic conditions that may affect the RBA’s decisions.

    It is also fallacious thinking, such as:
    Property ‘experts’ say property prices will not fall. Person says property prices will not fall. Property prices do not fall. Therefore person is a property ‘expert’.

    I don’t particularly like ‘experts’. To me, expert=bias. (technical experts being the exception). This was particularly confirmed when yesterday I met Antal Fekete

  • 46 Ralph // Nov 3, 2009 at 2:32 pm

    Excellent post, Pete.

    As each day passes, it’s obvious that Australian property is a dead man walking. Right now, we’ve got interest rates increasing (up 0.25 again today) and banks supposedly tightening credit. All that’s in favour of higher house prices is government handouts and expectations of future price increases.

    The more I think of it, the most I come to the conclusion that availability of credit is the key. With credit being tightened up (through interest rates and banks increasing LVRs), the ability to pay ever increasing prices has to be diminishing. But wages aren’t keeping up. Yes, we have rampant migration, but how can they keep pushing prices up if they can’t get loans? If banks don’t keep pushing loose credit, who is going to have the money to pay higher prices? The only way house prices can keep going up is if banks go subprime. Or if Rudd keeps up with the handouts.

    I reckon the gov’t is in a serious bind right now. They are cutting back non-essential stimulus, such as the pink batts. That got reduced by $400 the other day. And then some school spending has been deferred. So money is tight. But you can be sure that the FHOG boost will be the last stimulus to be cut. If too many people squeal about higher interest rates, does K Rudd come out and stimulate some more to ease the pain? I think there is limited room for Goose and K Rudd to shower us with cash to make all these troubles go away. In short, times are getting interesting.

  • 47 Greg Atkinson // Dec 4, 2009 at 11:31 am

    I wonder when the interest rate hikes will start to bite? I would guess we will see some interesting house price statistics early next year when there will probably be a fall in the number of first home buyers.

  • 48 Ned S // Dec 4, 2009 at 1:45 pm

    Oz stocks are battling a bit as you’ve pointed out. More than one reason I guess. But a contributing factor is the current difficulties our biggest trading partner seems to be experiencing perhaps. Although QE/falling ER looks like it is good for the Nikkei. (That’s my simple minded take on it anyway?)

  • 49 Greg Atkinson // Dec 4, 2009 at 2:07 pm

    My view is we have simply seen markets and economies across the globe come back from some very low positions but I don’t see anything to get excited about just yet. I have said for a long time that 2010 will be a challenging year and I just saw a survey of Japanese companies which seems to suggest firms here expect things to be fairly tough for quite a while yet.

    The strong yen is hurting the Japanese economy at the moment and so until something happens in that area I would guess the Nikkei will keep struggling. But overall I am fairly optimistic about the long term outlook for Japan Inc.

  • 50 Ned S // Dec 4, 2009 at 2:59 pm

    Didn’t seem to be widely reported but apparently the American Fed reckons it could be 5 or 6 years for their economy and the labour market to get back on a path of full health:

    http://au.news.yahoo.com/thewest/business/a/-/world/6513153/fed-sees-slow-us-recovery/

    This bloke doesn’t seem to warm to Japan’s prospects too much at all – “Japan is drifting helplessly towards a dramatic fiscal crisis” blah, blah, blah …

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6480289/It-is-Japan-we-should-be-worrying-about-not-America.html

    That mightn’t be at all nice for Oz!

    Although Japan’s recent recommitment to QE seems to have made him tame down his assessment a bit? :

    http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6703032/Japan-steps-up-quantitative-easing-to-fight-deflation.html

  • 51 Greg Atkinson // Dec 5, 2009 at 1:41 pm

    Hi Ned, a lot of western journalists take great delight in predicting the demise of Japan Inc and have been doing so for around 10 years. But the nation looks to be holding up pretty well from my spot here in the land of the rising sun. Sure they have problems, but I reckon the U.K and U.S are hardly global economic role models at the moment.

    The Fed could be right about it taking 5 years or more for the U.S. to recover from the GFC fallout if it fact the nation ever recovers. Perhaps the U.S. will need to deal with their own “lost decade”?

    A lot can change in 5-10 years and I believe Asia in general will do better Europe & the U.S over that time frame. People in the older developed economies believe they have a right to a high standard of living, hundreds of millions in people across Asia know they will have to work for it.

  • 52 Ned S // Dec 5, 2009 at 4:07 pm

    I distinctly remember a conversation between two Chinese immigrants Greg (One a dentist and the other a geneticist) – Went along the lines of “Yes, in Australia they pay people to NOT work – It is very strange.” Hey, the more immigrants we can get who have those sorts of attitudes (and quals), the better I reckon.

    It is a bit humourous to see a Brit financial reporter pointing his finger at Japan – If I was him I think I’d be hoping Japan holds up real well on the assumption that when Brittain has to trundle off to the IMF for a handout, the fewer in the queue the better! 🙂

    Seems that there could be a disconnect between big business and small business in Oz at the moment with policy makers preferring to focus on the future happy prospects for big business. The hope being that feeds into small business in 2010 I guess. :

    http://www.smh.com.au/business/small-business-big-trouble-20091205-kb9u.html

    And NAB has said they expect a 5% house price correction next year. Wonder why they’d talk house prices down? The RBA coming out and saying house prices are sustainable after maybe 7 years of saying they fear a bubble could form “in the future” is a bit wierd too. If one was even a little bit cynical he could be tempted to think NAB was trying to assure people that any drop in prices would only be small. And ditto from the RBA.

  • 53 Gary // Dec 6, 2009 at 12:13 pm

    I have not heard too many small business owners talking about how good things are at the moment. It seems to me all we have achieved so far in Australia is to push “our” recession back maybe a year or so.

  • 54 Senator13 // Dec 6, 2009 at 7:06 pm

    Small businesses seem to be the forgotten section of the economy at the moment. Changes to workplace laws, the economic downturn, rising interest rates will all be hitting small business hard. This is even before possible changes to the tax laws from the Henry Review come into play as well as the biggest hit of them all being the introduction of the ETS.

    The retail sales figures after Christmas will be a very interesting read I think. It should give a good indication of how people are holding up on a personal level as well as how small business are going and if they are able to keep their heads above the water.

  • 55 Greg Atkinson // Jan 15, 2010 at 1:58 pm

    The sales figures for Christmas appear to have been pretty good, unemployment has nudged down but the stock market is stock under 5000. Something is just not right and I wonder if we are in for a nasty shock?

    I am actually getting a touch nervous about property prices..they still seem to be creeping up.

  • 56 Ned S // Jan 15, 2010 at 6:32 pm

    Treasury told Kev last budget time he was gunna get a “V” shaped recovery. (And I pretty much rolled around on the floor laughing!) But it is how things seem to be playing out – So Yeh, what’s the catch?

    Houses have defintely gone up as you say – I try not to have an opinion on what they’ll do anymore! 🙂

  • 57 Greg Atkinson // Jan 28, 2010 at 4:52 pm

    Well property prices are heading up and the stock market has been falling so my “guesstimates” for September 2010 are not looking very good at this stage.

    I can’t help but get a little nervous though as I see residential property prices still heading up. Are people really that confident about Australia’s economic outlook?

    Has all the talk about China and the commodities boom convinced people that Australia is an economic fortress?

  • 58 Ned S // Jan 29, 2010 at 12:21 pm

    Guess I’m thinking in terms that even if things should go a bit pear shaped in the short term, there’s going to be lots more competition for housing here in the long term mate. And central bankers seem to have proved that they can hold the line against deflation.

    You did a good job on calling the start of this recent stock market correction.

  • 59 Greg Atkinson // Jan 30, 2010 at 8:39 am

    Ned I felt something was in the air simply because the media hype about a global recovery and the actual data (such as the BDI) were not matched. Now we are probably going to see the market move down too low simply because investors will get spooked by the notion that the Chinese may stop over-stimulating their economy. (which is actually a good thing)

    As for the long term outlook for housing it is hard to see how prices could fall, but maybe if we saw a long term decline in the value of our exports then maybe that would cause some grief?

  • 60 Ned S // Jan 30, 2010 at 6:19 pm

    Think that by and large we come back to the same point that we’ve agreed on in the past Greg – That the next 30 years look better for Asia than for most. But with it seeming reasonable to expect some hiccups along the way.

    The Yanks do remain a huge wildcard in the deck though? Depends if going quietly is part of their game plan – With the indications being definitely not! … 🙂

  • 61 Greg Atkinson // Apr 16, 2010 at 4:34 pm

    I wonder how my prediction that the property market will cool this year is looking? So far it looks like I have been off the mark, but there are some signs that house prices are cooling in some areas…so I wonder what will happen over the next few months?

    For the record I am sticking with what I wrote back in September 2009 in terms of the global economy, the stock market and house prices. Nothing I have seen so far makes me inclined to change my mind.

  • 62 Alex Caraco // Apr 18, 2010 at 9:45 pm

    Greg,

    As predicted last October with the steep rise in migration for 2009 this has pushed pockets of the Sydney and Melbourne into a boom with expats,migrants,investors and foreign purchasers creating a rise in prices.

    Sadly I don’t personally believe this mini boom is sustainable unless China is able to continue its growth rates. However I have been told from a reliable source that the middle class in China is emerging and will require the resources of this Country and many others to supply their growth . If USA can recover then we are headed for world recovery and I believe if you look around wether its the Stock market or Real Estate Market the increases are really only returning to the previous peaks . The real question is what happens when all markets breach the old levels …in effect there is no boom just a realignment of the companies and countries that have survived and monopolized markets by market share thus strengthening their positions .

  • 63 Greg Atkinson // Apr 19, 2010 at 5:02 pm

    Hi Alex, yes the middle class in Asia (not only China) is growing and that is one reason I always believed the global economy would recover to some extent. But I wonder if we will get back to the boom conditions of 2007 again for a while?

    The U.S and many major EU economies have an awful lot of debt to pay off and I would imagine consumption in these nations will remain subdued for while..maybe China can make up the gap, maybe not.

    There does seem to be quite a few tales of overbuilding coming out of China so it will be interesting to see what happens after the World Expo in Shanghai. The Baltic Dry Index for example is nowhere near the highs of 2007 and has yet to recover from plunge after the Lehman Brothers debacle.

    This suggests to me that world trade is not that robust and I reckon commodities prices might fall, not rise later this year.
    If that were to happen I reckon the RBA and Government would slip into panic mode!

  • 64 Geraldine Lea // Aug 5, 2010 at 2:23 pm

    Australias economic outlook is optimistic, already we have seen an increase in property and housing prices, but with only a year passed since the GFC, people will continue to be cautious about investments, especially considering that many have had substantial losses to the superannuation funds.
    I believe that if we are to recover, and recover well, savings must be made at every possible point and transaction. There is more that Australians can do on ‘home-land’, rather than waiting for the recovery of other economies.
    Personal cash generation is essential in achieving economic growth. One such proposal for the achievement of this is seen with the release of the Cooper Review which will see the demise of trailing fees and commissions of new super funds form July 2012. This will save Australians thousands of dollars a year, freeing up their cash and allowing extra spend and increased super contribution. The catch is that it will only take place with new funds opened post July 2012. However little do people know that financial cash-back services, offering the same incentive, are currently available. These services exist to give clients the same opportunities that the Cooper review proposes for 2012, only it is achievable right now.
    I only recently became aware of these services myself through an article in money magazine. It took me two minutes to calculate my possible cash-rebate from my super contributions, that i would receive by nominating them as my broker, allowing them to collect on ongoing trail fees and commissions and rebate them back to me. Over a 10 year period i could receive up to $10 000 in cash back and a further $10 000 contributed to my super. This cash can add to paying off my mortgage and increasing my cash flow.
    My question is, ‘why are we just finding out about this now, after decades paying unwarranted fees and commissions, and losing tens of thousands in super contribution?’

  • 65 Greg Atkinson // Aug 7, 2010 at 10:37 am

    Hi Geraldine, I agree with you regarding the fees and trailing commissions etc. I also think we need to make the tax system much simpler so that the average taxpayer can lodge their own return as opposed to having people need to pay for an accountant/tax agent to submit their tax returns.

    I would also like people given more choice regarding their superannuation, for example why not allow people to direct some of their superannuation towards reducing their mortgage? (or help raise their children?) It’s their money isn’t it?

  • 66 Biker // Aug 7, 2010 at 10:44 pm

    Thanks, Geraldine.

    We’ll look at this Monday.

  • 67 Realist // Sep 12, 2010 at 11:41 pm

    Ive been following some well known analysts and economist in the US closely these past months, and their predictions have not been very encouraging. In fact, they have been depressing..Harry Dent, Gerald Celente, Peter Schiff to name a few.

    What Australians need to remember is that although Australia did not experience the full extent of the recession in 2008 as compared to other countries, it does not mean that it won’t be affected by what is predicted around the corner…

    Three sectors that contain stocks that have benefited most from the China housing boom are industrials, energy and materials. These stocks make up about 39% of the entire Aust stockmarket. Because of huge demand from China for Aust resources, what is going to happen when the Chinese real estate bubble bursts…

    http://www.businessinsider.com/the-chinese-real-estate-bubble-is-the-most-obvious-bubble-ever-2010-1

    The abovementioned economists are predicting a stockmarket crash before the end of the year, one is even predicting another terrorist attack, similar to 9/11 before 2011 – if the Aust. economy is so reliant upon the demand of China for its resources, what is going to happen when everything comes crashing down?

    It doesnt even have to be with China’s economy…it could well be the US economy first (seeing as the US owe trillions to China too)

    Bottom line is – everyone needs to do their own due diligence and begin to dig deeper. Dont rely on mainstream media – they wont tell you what is really going on in the world – until its too late. Aust wont be immune to this next recession, in fact, it will affect Aust. in a big way because Aust is a commodity/resource focused country. Take the demand away, and what have you got? Alot of unemployment thats what..

    Bloomberg Businessweek wrote an amazing article about China and its demand on Australian mining resources and what will happen to Aust. when it all goes bust.

    Here are some things happening around the world that should make readers want to dig more:

    Russia’s PM Putin has ceased all exports of wheat out of their country until sometime in 2011..

    Australian farmers are bracing itself for a plague of locusts to destroy agriculture
    http://www.abc.net.au/news/stories/2010/09/02/3000537.htm

    Zimbabwe Food Shortages:
    http://www.zimbabwemetro.com/headline/famine-early-warning-system-says-food-shortages-by-september/

    US Food Shortages:

    http://www.marketskeptics.com/2009/12/2010-food-crisis-for-dummies.html

    All the natural disasters happening in the world at the moment, and the affect that they have on their economies and their exports.

    The failed banks in the US:
    http://www.fdic.gov/bank/individual/failed/banklist.html

    Could this happen in Aust? Where is all your money kept? Do you know how safe your super is? Do you even know what investment option your provider has your lifesavings in?

    Wouldn’t it be a good idea to call your superannuation provider and find what investment option your super is in…most people have their super in a default option, which is anywhere up to 90% in Aust shares, international shares and property. So if the market was to crash, as predicted by the above blokes – there goes 90% of your super…Might pay to check what investment option your super is in. Its your hard earned money – you have it in the hands of strangers who don’t really give two hoots if they lose it, really..the best person to monitor it is YOU!

    People trying to withdraw their money from their bank accounts and the banks don’t have enough money:

    http://shadow.foreignpolicy.com/posts/2010/09/03/tackle_corruption_before_a_kabul_bank_bailout

    We all need to remember, just because these things are not happening in our backyards, it does not mean that they wont affect us in some way or another. We need to be prepared for anything and begin to research and find out what we can do NOW to prepare for the worst. I mean its better to be safe then sorry..

    I have two young kids and I have already begun to stockpile food – rice, flour, powdered milk, tinned food, medical supplies, gas oven, water, collated all my important documents and made sure that I have cash on hand all the time.

    No the world isn’t going to end tomorrow (I pray), but when the prices for food, medical and housing skyrocket – then I want to know that I can feed my kids with what I have put aside.

    If there is a natural disaster of whatever kind, at least I know that I have some supplies that can last me a couple months..and even for my neighbours too.

    If a natural disaster cuts off power supply and there is no access to ATMs or banks, at least I know I have cash on hand. (Pure example – earthquake in Christchurch NZ a week ago – people couldnt buy food from the only store that was not damaged, because the EFTPOS was down and they didnt have cash on them).

    Ive started buying non hybrid seeds and planting my own veg garden. I live in an apartment too..so there isnt any excuses not to.

    At the end of the day, no one care rely on someone else to tell you what to do or even on mainstream media – you have to just trust your own instincts and be prepared for anything!

    Ive always been an optimistic person who sees the glass as being half full – but in this case, Im being a realist and I have two other lives in my hands, and I don’t want to have to explain to them why mummy wasnt better prepared..

    Be encouraged readers – whatever is around the corner, educate yourself on how you can turn the predicted economic hardship into an opportunity to prosper:)

    Knowledge is power – only when it is applied!

  • 68 Biker // Sep 13, 2010 at 5:23 pm

    I feel there must be some other bad news somewhere in the world which might have been included in your list, Realist. Racking my brain to think what it might be.

    If your preparations help you sleep better at night, then you’re spending your time wisely.

    Ah, just remembered three more concerns: nuclear war, volcanoes, and North Korea. These could all prove deafening, so add earplugs to the list. Come to think of it, rising sea levels probably mean that blueprints for an ark might be worthwhile:

    http://www.arkblueprints.disastersimminent.com.uk

  • 69 Biker // Sep 13, 2010 at 5:28 pm

    Damn! That link didn’t work.

    Try this one:

    http://www.outswimatsunami.com.ind

  • 70 Realist // Sep 13, 2010 at 6:42 pm

    Biker – plenty more to add to that list matey..But that might just depress people:)

    While you’re on the topic of “arks” – look what happened to those that laughed at Noah.. Im sure they weren’t laughing when their backsides were being swept away..

    Write me in a year or two and let me know if you still have a job.
    Maybe I’ll invite you over for some fresh veges to share in my underground bunker:) And yeah, I’ll have some earplugs ready for you too..

  • 71 Biker // Sep 13, 2010 at 7:14 pm

    Realist, I really hope I _don’t_ have a job a year from now.
    That would mean the system _definitely_ isn’t working! 😀

    Looking back on the raising of our two sons, I now realise we instilled unnecessary fears in them. It’s not unrealistic to want to protect them… and ourselves… from harm, but panaphobia isn’t healthy and may actually limit children’s coping abilities later on down the line.

    We have all the fresh fruit, veges, eggs, olives, etc., we’ll ever need, thanks. No bunker, but our walls are 600mm thick.
    High on a hill, we’ll be on an island should the inundation come.
    My boat’s a hybrid (fuel and electric) so I think we’ll motor happily through any aquatic Armageddon… . 😉

  • 72 Realist // Sep 13, 2010 at 8:54 pm

    Sorry, I don’t recall mentioning any FEAR in my post:)

    Its great to hear that you didn’t instill any fear whilst rearing your boys.

    To clarify myself…My post was to merely share what is happening around the world – in case you don’t see it on the 6 o’clock news in Australia.

    This is not about FEAR and trying to spread doom and gloom. Its about not leaving any stones unturned, it’s about teaching the next generation to be “leaders” and not followers. It’s about empowering and encouraging our kids to use the grey matter between their ears for something other than texting.

    To the contrary, I’ve actually been teaching my kids about ways to prosper in a downturn and how we can do things as a family to cope IF anything was to happen. And how they can help others..

    My 4 year old and 11 year old are loving watering their garden, and they’re enjoying learning about how to recycle, and ways to save power, and how to make $150 from $10 by selling some of their things on ebay….Its hardly sowing fear.

    If anything, its teaching them “values”. How to turn a “half glass empty” into a “half glass full”. Something that has gone amiss in society today.

    I’m actually awaiting the “economic downturn” with open arms, because it’s my ticket to financial freedom.

    Bye bye corrupt bankers I say..

    By the way, just as a matter of interest, my kids ebay sales are going towards their physical gold and silver purchases. Who needs a mortgage.

    Glad to hear that you have all the fresh veges that you need:)

  • 73 Ned S // Sep 13, 2010 at 8:54 pm

    In the circumstances Realist describes, I face a long walk to my pretty much self contained Aunt ‘n Uncle’s 80 acres (almost all of which sits fallow) where I hope to become the unpaid help who produces more than he consumes.

    They got into self sufficiency as a rather full-on lifestyle thing when they retired. (One had been a computer programmer and the other was a superannuation bod with BIS Shrapnel.) The Uncle just turned 70 so I imagine they’d be happy enough of a hand. Providing I don’t eat too many of their pickled vegies while we’re waiting for the fruits of MY labour to mature.

    And most especially if I showed up with some useful stuff like a crossbow and a couple of kilos of nails?

    NOT that I consider such a scenario at all plausible in this country. But given some of the gloom ‘n doom predictions bouncing around these days, I agree with Biker when he says “If your preparations help you sleep better at night, then you’re spending your time wisely.”

    And just feel to add that when you have done so, then I hope you will feel happy to get back to thinking about preparing for a somewhat less shocking future as well?

  • 74 Realist // Sep 13, 2010 at 9:17 pm

    Thanks Ned S,
    Like I said to Biker…Im definitely looking forward to my future (rubbing my hands together)..

  • 75 Biker // Sep 13, 2010 at 10:22 pm

    “I’m actually awaiting the “economic downturn” with open arms, because it’s my ticket to financial freedom.”

    Good luck with that.

    Only hard work helped us achieve financial freedom. It would have been great to have simply put our faith in some external event which suddenly enriched us, but we’ve never experienced such an event, nor to we expect to ever see it happen.

    Both our sons, in their mid-twenties, have achieved that financial freedom you seek. We raised them to achieve goals, not to await a mysterious fortunate event which would bring them wealth. If rubbing your hands together warms your existence, it’s worthwhile.

    Teaching your kids to trade their toys for precious metals sounds just a little extreme, especially for a 4 yo. 😀
    Have you considered counselling, to help you with your issues?

  • 76 Ned S // Sep 13, 2010 at 10:53 pm

    The lady didn’t say she was teaching her kids to sell their toys on ebay for bullion Biker? Did she??? More a case of her teaching them to sell ‘stuff generally’ on ebay for bullion maybe? Hmmm … Still hope you and your’s feel a bit more secure before too long sister.

  • 77 Biker // Sep 13, 2010 at 10:58 pm

    Very confused, I’d say:

    “Ive been following some well known analysts and economist in the US closely these past months, and their predictions have not been very encouraging. In fact, they have been depressing..”

    and

    “I’m actually awaiting the “economic downturn” with open arms, because it’s my ticket to financial freedom.”

    Depression to elation in a few minutes. Alarm bells ringing…

  • 78 Ned S // Sep 13, 2010 at 11:27 pm

    Financial freedom comes at a lot of cost except to those who are born with the silver spoon poked in their posterior (providing they don’t drop their undies that are holding said spoon in and lose it) or to the occassional financial genius (as opposed to all the other types of geneii amongst which I don’t rate a place either.)

    Nope, for mugs like me, about the best that can be aspired to is that over multiple generations we just might lift ourselves out of the mire providing we work hard and all contribute our bit and none of us are ever excessively stupid. Such is life as my Irish namesake is reputed to have said.

  • 79 Biker // Sep 13, 2010 at 11:44 pm

    “…we just might lift ourselves out of the mire providing we work hard and none of us are excessively stupid.”

    That just about sums it up, Ned. I should have mentioned the second requirement, but was being sensitive… .

    I’ve no issue with a family:

    * renting rather buying;

    * conserving and managing their resources well;

    * learning useful lifeskills;

    * being prepared for a rainy day.

    The rest of the philosophy is as scary a manifesto as I’ve ever read. Perhaps it isn’t as unrealistic as it sounds, but there’s a distinct possibility these kids are home schooled. Let’s hope not. They need exposure to realistic, optimistic adults… . Doom’n’gloom is a very poor diet for children… .

  • 80 Realist // Sep 14, 2010 at 9:33 am

    Biker and Ned

    Whatever floats your boats boys..

    Hey look – Gold is up +3.50
    Wow…I wonder how much that makes it….okay bought 200oz @ $300 per oz and now its $1366oz AUD…what does that make it??? ummm can you help me out fellas….my calculator is jammed.

    Oh well, my 4 year old will be happy her pram got her a healthy return..
    Not bad for a SISTER aye??

    You keep telling your kids to work hard and I’ll keep teaching my kids to let their MONEY work for them.

    We’ll just keep counting the zeros on our calculator in our RENTED apartment while you go out there and work hard and make those banks RICH!!

    Biker…you might wanna drop by Ned’s hood and pick him up in your Hybrid so that you can both contemplate how you got it so wrong…

    Isn’t ASSUMPTION and IGNORANCE an ASS!!

  • 81 Greg Atkinson // Sep 14, 2010 at 9:55 am

    Time to stay on subject all 🙂 This is not a forum for trading witty retorts.

    A few general comments I have though:

    1. For some people it is probably better to rent than buy. In all depends on the sums. One solution is not suitable for all so I don’t think we can say someone has taken the wrong approach because they rent, nor can we say you are guaranteed to come out on top by buying a home.

    2. You haven’t made a cent until you sell gold, it pays no dividend or interest 🙂 I am sure there are plenty of people sitting on nice unrealised gains when it comes to gold, but you can spend an unrealised gain 🙂

    3. None of us can predict what will happen in the future. I don’t expect we are facing a “Mad Max” scenario in the years ahead but then again how can I be so sure?

    4. It is not use to accumulating wealth and being unhappy. There are far more important things in life than stocks and investing.

    Have a nice day!

  • 82 Ned S // Sep 14, 2010 at 1:14 pm

    Don’t be such a party pooper Greg. 😉 I’m actually curious now to know just what date it was back in either 1979 or 1982 that Realist had a spare 60K on hand to pick up her 200 oz of gold at 300 AUD per ounce? 🙂

  • 83 Biker // Sep 14, 2010 at 1:45 pm

    Wouldn’t spend too much time analysing fiction, Ned!~ 😀

    I think Ned and I are quite happy to have folk rent, Greg.
    It’s paying off our properties. 😉

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