Kohler: RBA will have to cut in 2019

Alan Kohler podcast:

  • Shane Oliver is right on 20% Sydney/Melbourne housing correction;
  • economy to sink;
  • banks very stretched;
  • RBA to cut in 2019.

Bit of fun for ya.

Comments

  1. Dr Phil’s living in a dreamland. What happens to CPI if we see rental costs falling in Melbourne and Sydney like we’ve seen in Darwin (from yesterday’s post)…headline CPI inflation is going down to zero?

  2. US mortgage rates jump to highest level in 7 years – AP / The Washington Post

    https://www.washingtonpost.com/business/us-mortgage-rates-jump-to-highest-level-in-7-years/2018/11/08/4b9bf3c4-e379-11e8-ba30-a7ded04d8fac_story.html?utm_term=.0b92c54d9025

    U.S. mortgage rates jumped this week to the highest level in seven years, a trend that is pulling down home sales and slowing home price growth.

    Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year, fixed rate mortgage rose to 4.94 percent, from 4.83 percent last week. A year ago the rate was 3.9 percent.

    The average rate on a 15-year, fixed rate loan increased to 4.33 percent, from 4.23 percent last week. Read more via hyperlink above …
    .
    .
    TREASURIES -U.S. yields edge higher ahead of Fed statement | Reuters

    https://www.reuters.com/article/usa-bonds/treasuries-u-s-yields-edge-higher-ahead-of-fed-statement-idUSL4N1XJ5LV
    .
    .
    The US debt is like ‘the boiling frog,’ investors say … Yahoo Finance

    https://finance.yahoo.com/news/ballooning-us-debt-like-boiling-frog-211753177.html

    • Yes, and the most important savers are the pension funds around the world.
      Liabilities for pension funds have grown since ZIRP providing another huge problem in the West.
      A large percentage of pension funds are invested in sovereign bonds which have had very low yields the las 8 years
      Therefore interest rates MUST increase.

      • Dreaming.

        Pension funds are just one additional way that savers are going to to get to enjoy the anus jab.

      • Let’s do a little thought experiment shall we.
        I’m a senior politician or senior appointment at the reserve bank or similar, and am likely to have a 5-10 year career at most before being turfed. I have the option to raise interest rates now and destroy the economy immediately and wear the consequences now, or I can not raise interest rates and cause a problem for pension funds at some time into the future most likely after I am gone and no longer have to wear the consequences.
        Which do I pick? I must cover my own ass, so option 2 thanks. You are delusional if you think interest rates MUST increase.

      • Banks have foreign liabilities paid at international rates. Rates will therefor need to rise. The only question is will the RBA just hold and let the banks do their own hike or will the RBA be forced to protect the dollar at some point and raise. They can’t cut unless the world goes belly up or they will send a risk on signal to the rest of the world about the Aussie economy/bubble and banks funding cost will skyrocket. The punter is not going to get any relief.

      • I think pension funds [slush funds] seeking yield in PE is a bigger problem wrt allocation – see NC blogs works on CalPERS. Then some will say the pensioners are demanding too much or that they are underfunded and not a case of Grishams law on roids. Best bit is the PE mobs claim proprietary information to keep the information arb at def-con 5. On top of all that some complain about people getting into too much debt or not having enough savings like all the wage earners are a bunch of irrational agents screwing with the markets perfection.

      • If pensions are left unfunded then everyone will have to fall back on the old age pension.
        Then taxes MUST increase.

      • @Athlone
        You seem to be missing a fundmental factor here. Niether MUST happen. The government/RBA can print as many AUD as they like, it’s not a fundamental fixed amount. Their are consequences, but rampant inflation from printing is a third and reasonably probable option.

      • I don’t think rampant inflation resulting from net currency issuance would easily become a problem today or any time soon for us. Not within reasonable limits at least.

      • Athlone is right. Demographics in many Western nations is tilting toward an escalating pension crisis. By crisis, it is not a wake-up one day and read a front page news article about an overnight crash. It’s exactly the same phenomenon as wealth inequality. Shock horror, the people voted for another ‘populist’ candidate. What’s this all about?! Well, it’s people can’t bloody retire or afford to keep the power on. That process continues/speeds up until a shift in policy occurs.

      • @bjw678
        I’m certainly not missing inflation.
        Half my funds are in gold, the other half in gold shares.
        What governments depend on to get rid of government debt is inflation.
        They then stop inflation with very high interest rates.

      • Agreed. Once the ECB stops the bond buying program, then bond price bids will have to fall, thereby yield goes up. The biggest problem facing the world is a Pension Crisis in Europe and the in US. The Feds are trying to increase interest rates because they know the dangers lurking in the Pension Funds. In Europe, the Pension Crisis will be significant. .
        In Australia, all this talk about property crash is just BS. We haven’t seen a crash yet. Sure prices are down from very very lofty heights, but we haven’t seen blood on the streets yet…
        Reserve Bank cutting interest rates will have no affect, other than driving our AUD down further against the USD. The bull run in the USD has not finished yet!

    • Depends on your reason for savings though right? I am a saver, so technically i should be upset over the interest rate cut. But I am saving to buy a house that isn’t inflated to crash. So whilst I will earn lower if RBA cuts , the prices of houses is going down at a faster rate.. so the intended expenditure of those savings is getting cheaper at a faster rate.
      I can either earn a penny from the RBA cash rate or save a penny with housing getting cheaper. Whilst it is crap for savers, I don’t really feel it. Call it the savers wealth effect when asset prices deflate, instead of the wealth effect of asset owners when their prices inflate.
      What was bad for me was when IR were low and the house prices were inflating at a much faster rate.. that felt like I was getting poorer by a lot by the day. Now it feels like I am getting ahead even with lower IR. And if RBA has to exhaust all their bullets to really sink in to the specufestor that this is the end game, it will just set it up for a bigger leg down.

      • Doesn’t housing go up when rates go down? That’s what’s happened over the last 5 years.

        At a minimum a rate cut will allow stressed investors to hold on for longer.

      • J, but right now there is the hope of rate cuts that is keeping speculator spirits alive. Sooner they cut and get past that part, the sooner it will be set in stone.

        Peachy, yeah it’s not as good as it could be but it is definitely better than before. Guess also is why they call it the wealth “effect” hey. It feels better even if it’s not exactly how much better it could be.

    • I see MB’ers talk about savings
      Savings like wtf are savings?
      I’m certain I don’t know what savings are, so I’m equally certain I have no idea how to protect or preserve savings especially during a volatile economic downturn.
      OK so what are savings (in the financial sense) if money can be created / destroyed at will to support the economy / business requirements?
      Savings are surely in this sense the entitlement/right to create liquidity, in a way this makes individual savings the Basel3 equivalent of a banks Core (tier1) capital. Logically in an expanding economy an individual needs to use their savings in much the same ways as a bank uses it’s core capital to create additional leveraged liquidity.
      Isn’t this precisely what an individual does when they buy an Investment property with 10% down?
      Ok so that’s savings with expansionary money policy
      What are savings in a contracting liquidity environment?
      I get the feeling that this is where many MBers stumble because they want savings to exist in some absolute (real) sense…pounds of gold or tonnes or oats but we live in a society where it is unreasonable for an individual to own (as in possess) either pounds of gold or tonnes of oats so we measure savings as zero’s in bank accounts and then wonder why someone else has created more zeros in their account than we have in ours
      hmmm strange how those with the most zeros in their accounts control the banks…hmm very strange…clearly they’re good savers.

      • “but we live in a society where it is unreasonable for an individual to own (as in possess) either pounds of gold”

        Speak for yourself!

      • Good topic!
        No time to explore now but what savings are and what savings should be are two different things. We now live in a world where the sole aim is to use up and destroy the resources of the planet as quickly as possible – hence zero interest rates so nobody saves (i.e. postpones consumption and release resources at a price) while everyone consumes at as fast a pace as possible using up resources as fast as possible. We place no value on the future of the planet or its people.

    • Yep. Just like the Kouk, Shane Oliver, MQG. Rain truth down on the punters after the trap has snapped shut on those who acted on the basis of your prior words of comfort.

  3. reusachtigeMEMBER

    Yeah boyeeee, Lower teh interest rates, that will fix thing, always does, always will, always can, always has, just always do it and do it always now!

  4. Whilst the AUD holds up, and it probably will as those bullets, bombs, tanks etc dont build themselves, the RBA and APRA will do what it takes, with the full support of the government (either side), to protect the business model of the industry running our public monetary system.

    Yep those rascally yet allegedly agency free private bankers and their stakeholders.

    Hard to see this credit crunch in Sydney being allowed to run much further with an election on the way.

    Expect some pre-election sugar in the form of

    1. A reduction in thevprice of private banker Pseudo Fiat

    2. Improved access to private banker Pseudo Fiat

    3. A massive multi channel confidence building campaign – reality TV, spruikers fest !

    https://theglass-pyramid.com/2018/06/14/crystal-balls-when-will-aussie-house-prices-crash/

    • The Traveling Wilbur

      So you’re finally starting to get how unfair what’s happening to struggling home renter-outers is and how something will have to be done about it?

      It’s only fair. It’s not like they could have seen it coming. It’s not like anyone tried to tell them. It’s not like theycouldanodeeeeeeeeeeeeee…!

      • TTW,

        Its not unfair what’s happening but we have never allowed fairness to get in the way of what is good and proper.

        Poor doing it hard is an opportunity for teaching moral lessons to the young.

        Middle classes folk doing it hard is a national tragedy.

        Rich folk doing it hard is class warfare.

    • Pfh007,

      Poor doing it hard is an opportunity for teaching moral lessons to the young.

      Middle classes folk doing it hard is a national tragedy.

      Rich folk doing it hard is class warfare.

      I love the above, I don’t think I’ve seen it written as succinctly as that, ever!

    • The Traveling Wilbur

      It would appear I had my sarc indicators on low beam.

      I agree with what you wrote, in both comments. However, I do think that you may have recently come to realise that there’s no way that the large L landlord party will let this state of affairs continue much longer. To ‘save’ that middle group you so eloquently referenced.

      Something others, e.g. footsore, have been predicting for, what, a decade now?

      • TTW,

        Not sure who you are referring to as the large L landlord party but they will rescue as much of the middle classes as they can.

        They have no choice.

        They cant afford to have them switch teams.

  5. Whats this guess number 25 for Shane Oliver on how the market will go ? Give it a month he will change his correction % again. All bullshit nobody has any idea how it will go !!!

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