Attack of the happy people

I won’t waste too much time on this but I want to make a simple point. There is a phenomenon at large in Australia’s economic and investment commentary; a confusion (or deliberate obfuscation) that mixes up being happy with getting rich. The Pascometer is constantly guilty of this. As is Ross Gittins and others. The argument goes that if we feel good (read confident) then we’ll all get richer by investing/spending more.

This is a hangover from an economic period when such things did make limited sense. The past thirty years of prosperity, and post-millennium especially, have been driven by an historic debt accumulation cycle that did reward the bolshy. Those that threw caution to the wind could toss a dart at a housing market or sharemarket that only went up and make more than a considered person who dealt in lower leverage.

But that era has passed. It is all about being discerning now. Choosing investments carefully in the full knowledge that prices fall over long periods as well as rise.

I write this today simply because last night Adam Carr in the Eureka Report released another of these mistaken missives, arguing with selective data that we are richer today than ever:

The Australian Bureau of Statistics released a bit of data over the last couple of weeks that may help explain the apparent disparity between data strong consumer spending on the one hand and then high savings, delveraging, a soft equity market and very weak credit growth on the other.

How is it possible that all seem to be occurring at the same time? It just doesn’t seem plausible, right? Well, it is and the ABS data makes plain why. Australians have never been wealthier – ever.

On this basis, Carr goes on to argue that we are “at the trough of the credit cycle”.

Carr’s chart excludes housing and other assets (which he acknowledges). Without putting too fine a point on it, here’s what wealth looks like when you take the whole picture. From the RBA:

Now, there are obviously some measurement differences with the RBA chart still seeing financial assets well below the ABS levels. But so what? The big one is housing wealth and you can’t exclude that if you’re going to discuss credit, investment or spending attitudes. As households, we’re simply not richer today than ever before, by some distance.

Now, as a nation, we are more wealthy than we’ve been in many years, owing to the commodities boom, which has helped backfill what was an illusion of wealth in the post-millennium credit boom. But do not mistake this for a trough in the credit cycle. That is many years away, as even the RBA has made clear (which pretty much guarantees it!)

I’m a happily married 40-something with two lovely kids. But that’s not an investment strategy.

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