Lunatic RBA toys with the tipping point

The lunatic RBA doesn’t want to cut interest rates. This is for two reasons that I can see:

  • first, it thinks the Aussie economy is in good shape;
  • second, it would rather hike to rebuild ammunition for the future.

The first point is fast losing air. Australia’s fading growth drivers make it plain:

  • credit growth has stalled;
  • consumption is weakening via cars and wider retail;
  • dwelling investment is about to crash;
  • infrastructure investment has peaked and will fall;
  • business investment will track the other three;
  • recurrent government expenditure remains strong but will get hit at the state level by collapsing state stamp duties.

That’s all there is for domestic activity. Obviously it is going to slow sharply over the coming months and unemployment rise, not least given 1.6% population growth.

This is a late cycle point in which a central bank would normally wait it out and begin easing when inflation ebbed with job shedding. But this is not business as usual. It is not some late cycle moment in which the RBA has tightened a little far to squash inflation. The downturn underway is being driven by a house price crash that has arrived without any rate hikes at all. Nor is there any inflation to speak of.

That is, it is a bursting bubble.

In these circumstances the central bank is faced with something very different. Housing busts are balance sheet not profit and loss recessions. They burrow deep into the national psyche where they lay an egg of fear. At some point it hatches then eats and displaces the germ of greed that drove the bubble. Then the market moves by itself, shifting past a tipping point, as getting out overtakes all other priorities. To wit, Domain:

Entrepeneur Andres Vargas, 29, has spent ten years investing in property and agrees the market has turned sharply in the last 18 months.

Having already sold one house near Mt Druitt for a tidy profit last year, Mr Vargas has decided to sell his remaining Sydney investment in Green Valley, west of Liverpool. He expects to list within a fortnight.

“I got it valued at $619,000 by the bank when I was applying for my home loan a year and a half ago,” Mr Vargas said. “I’ve now seen similar properties going up for sale for $540,000, so there is a clear 10 per cent drop there alone.”

“It’s quite scary. The longer I hold onto it, the more I’m losing,” Mr Vargas said.

In central banker speak, deflation expectations become embedded.

How far must prices drop before this tipping point is past? Nobody knows and that’s my point. The RBA is punting that the extant fastest and deepest historical price falls won’t do it when, frankly, there is no need that it take such a wild risk.

The headwinds for property prices have never been so extreme in my lifetime and even if the RBA cuts four times we’re not going to see some new boom. We’ll be lucky to see price stabilisation:

  • out-of-cycle mortgage rate hikes will hold half the easing back;
  • tight lending standards will continue, driven by legal reform;
  • macroprudential tightening will persist, driven by a chastened regulator;
  • the Chinese capital inflow bubble is bursting;
  • the removal of long standing property investor subsidies lies dead ahead;
  • as does building oversupply and rental deflation;
  • plus, volatile global markets will persist and, soon enough, unemployment will rise at home.

In such circumstances any tipping point into panic selling in the property market is likely to shift forward in time and price. To wit, Morgan Stanley:

“This rate of decline will be difficult for the economy to absorb,” the Morgan Stanley report warns.

“A key question then for the 2019 macro outlook is whether the return of sales volumes in February and March can stem the rate of decline back to what was seen earlier in 2018 (around 0.5 per cent a month),” the report concludes.

“This suggests conditions in 2019 are likely to be similar to what we saw in 2018, although risks skew to the downside,” it warns.

If the RBA can’t see that then its long burnished bubble manager credentials are about to take a fearful pounding.

Comments

    • Yep…..could well be the beginning of the end!
      Life will never be the same again, that’s for sure!

      • boomengineeringMEMBER

        Life will never be the same again.
        In th he early fifties the milkman came horse drawn the breadman came horse drawn the only one with a truck was the ice man. A huge cube for the ice box. Point of MB interest is the nearly everyone owned their house and also had a holiday home which was left vacant all year until holiday without break ins. Yep member, things have changed alright, for the average punter this was normal.

    • The Traveling Wilbur

      Two of the seven signs of the coming of the anti-lord-of-land.

      The next one on the schedule is reports of parents telling their live-at-home children they should save a bigger deposit instead of bidding at the weekend auctions as “prices are only going to go lower”.

      The one after that is the colour of the ink of all of the pens in all of the RE offices across the land turning red.

  1. Good article. Really interesting times for the RBA. Rock and hard place are getting closer and closer together.

      • Rba board is basically all bus people, all they want is confidence inferred, not the reality, as they lose money if they were to scare the horses.

    • The Traveling Wilbur

      Never been a better time to be Govenor of the RBA.
      He should have gotten a better job.
      Its no longer a concern, we have the Grocery Code of Conduct.
      There’s absolutely no need for a Royal Commission, which is why we won’t be having one.
      The economy is stable and we’re delivering with our jobs and growth promise. [with several RBA vacancies soon to come up unexpectedly contributing to the ‘new jobs’ count]
      We have the strongest banks in the world [which is why the government is guaranteeing their deposits]

      And…

      The banks have already learned their lessons and taken appropriate remedial action voluntarily. There would be nothing to be gained from further punitive action against the banks at this point – which might further impact the flow of credit and the value of most people’s main asset, their home, unnecessarily.

      [I just thew-up in my mouth a little]

    • The Traveling Wilbur

      If I was TAB[corp] I’d have the betting line on ‘Remdial action (effective) implemented by the Government before the election’ sitting at 1.02 for the ‘SFA’ option. And post the election running at the same (should Libs win somehow).

    • Consider this though: the bubble has burst with cash rates unmoved (at their lowest level in history). When your bubble bursts without a single rate hike you know it’s about to get ugly. Nothing will save this bubble now — sweet FA.

  2. GunnamattaMEMBER

    I added this to one of the piece last week about RE prices….fits here just nice

    The RBA has issues

    https://www.macrobusiness.com.au/2019/02/corelogic-house-prices-falling-fastest-rate-ever/#comment-3279539

    …..and it is for precisely this reason that I actually suspect next weeks RBA meet is the ‘livest’ in ages. I dont think they will cut but mainly because of the politics involved.

    But on house prices they cant escape that falls are still picking up momentum and will presumably pick up more with foreign buyers absenting themselves, with a Banking Royal commission almost certainly going to bring some standards back to lending, and with an incoming ALP government nailed to a position of doing something about negative gearing and CGT concessions. Anyone in, and speculating on future house price rises to justify their speculation, would surely be looking to get out.

    The RBA for system stability reasons would want a lot of those speculators out, but would want their exit orderly. Not changing rates next week will be a punt that it wont become disorderly in the coming months. My guess is that they will assume that all mainstream banks will increase mortgage rates soon after the Hayne recommendations are out, and possibly again soon after an ALP government moves in. Any sudden moves on Chinese buyers from the Chinese side (as part of a trade war) or from the global capital side (maybe a BBSW spike) or a black swan like more ugly construction discoveries in apartment land could lead to a chorus of fluttering cloacas.

    Their bedrock position is presumably that the bulk of mums and dads will continue to make ends meet and may get some succour in the form of handouts from the election campaign, and as buy to live types will continue living. But if their view encompasses any ugly job loss events they would want to have something up their sleeves for later.

    They are essentially in a position of driving the car coming down a steep slope, with the brakes shot and on their very last (2 or 3 pushes) legs At the bottom of the hill is a stop sign, but they are looking to get a run up the other side, and eyeing the intersection as a drive through possibility. And the radio is playing Hank Williams …..and they badly need to go to the dunny

  3. Don’t forget the really big unknown:
    Just how Permanent is/was this 1,6% Permanent migration?
    Ireland found out that their population boom was built on the back of their property boom
    Today’s economic immigration shares little in common with the 1960’s /70’s version, today it’s far more likely that the people go where the money flows and that sure ain’t Sydney if the RE market bubble really bursts.

    • Yes this is going to be really really interesting. My understanding is that all the rich middle class Chinese professionals who were going to migrate here already have. So that’s one group with the cash to buy outright who aren’t coming. The non rich Chinese professionals still want to come but they can’t get their small amount of savings out. Also word has got out that in Australia (and the rest of the west) you actually have to work hard and that includes long hours, so the protected species of rich connected upper echelon Chinese professionals don’t want to do that because they aren’t used to it and they don’t have the connections here to do that in a purely Aussie business context only. If thee trade war turns into a cold war then their connections back in China become almost useless from a China Aussie business perspective so that group probably won’t come unless they decide to start their own business or to retire (but they do like making money and neither of those options give them guaranteed money making like they are used to). So yeah we might end up in a situation where only Chinese who really want to be Australian migrate, and they could be migrating with very little money if China gets really good at controlling EVERYTHING. And indications are that the gov is getting quite good at that these days. So this is going to be very very interesting to watch over the next 5 years

      • If China goes into a proper recession then a lot of the recent arrivals will be trying to get their money back home where it is needed to support extended family. Also many Chinese who emigrate here don’t get citizenship because China officially doesn’t recognise dual citizenship (yes there is fraud but anyway). So they remain on PR for the flexibility of movement. They will high tail at a moment’s notice for a variety of reasons.

      • Excellent point/s. My only question is in a Chinese meltdown event, will China have enough discipline to prevent panicked hordes carrying bags of money trying to leave.

    • Also I would not be surprised if the ccp just stops people from emigrating at some stage if a cold war really gets going. Tbh I’m surprised they let so much educated human capital leave

      • Yep the human capital side it’s the old question of what you find on the end of the line when you pull it back in.
        it could be either sea turtle or sea weed, it’s real hard to know. One of course is useful the other’s just something you struggle to get rid of. or maybe in tomorrow land both have are equally useful but get deployed in different ways. I suspect Confucius had something wise to say about this exact problem.

  4. Pardon my vagueness, but I’m sure I read somewhere the other day a commentator mentioning that the RBA may now be emerging from a tightening bias. Without having tightened anything – well, maybe one thing.

  5. cutting rates would mean that economy is doing badly and this is not just a normal cycle … and that would kill little of winning chances Liberals have at the moment

    they’ll cut after elections (or just week before elections if they see that Libs have no chances)

  6. Can’t see cutting doing anything TBH. The answers lie back in time.

    Interesting how we never see any studies as to whether the gains made by cutting to save borrowers exceeds the damage done to savers by cutting.

    Risk of unintended side effects?
    Would cutting give us a lower currency, and inflation of consumer goods crimp the already stressed disposable income.

    Another possible option, maybe they just don’t have anyone at the RBA who knows how to do a rate cut press release, since it’s been so long since rates have moved. Maybe the drinking bird is in charge.N N N N N N …

    • Who said a falling currency though is a bad thing? The stubbornness of the dollar at the moment is part of the problem and why any adjustment will be harder. The household sector needs actual income from other sectors to repair its balance sheet. Without defaults/deflation it can only come from the import/export or government sectors and with a high dollar it isn’t coming from overseas.

      • The whole competitive devaluation argument is something of a croc, albeit an entrenched component of modern-day economic thinking. It should be obvious that a weaker currency is a bad thing because it means you are poorer: one day your AUD buys you US$1, the next it only buys you US$0.75. Effectively, you have taken a 25% haircut to your wealth/income. The average person is not very bright so they don’t recognise that they’ve become poorer.

        Nope, the reason such quackery is clung to is because countries measure their wealth in local currency terms, which is incorrect, but it plays well with the local electorate. And exporters love it too because they are lazy farkers, for the most part, and would rather the central bank just jawbone the currency lower than actually have to make efficiency improvements so that they can be more competitive. Exporters win, all citizens lose.

      • I don’t really agree dom, most people do spend their dollars at home so if a cheaper currency means more of those local dollars come in for whatever it is we’re selling, that works fine for most people.

      • Dom – we’re all going to be poorer anyway. The question is how to minimize it and where the pain should be felt. I feel the “producers” actually doing something in this country should be the ones protected from Australia’s fallout not the inner city types doing most of the importing. Keeping the currency higher means that we ratchet up even more household debt. Especially young people don’t seem to realise its all this housing debt and the way it is issued that keeps the currency artificially high that allows you to buy the next greatest tech/book on Amazon, jet to other countries once a year, etc.

    • Jumping jack flash

      Yes,

      cutting rates wouldn’t do much, but what it may do is cause inflation due to a falling dollar.
      The RBA needs inflation. It doesn’t matter if that is bad inflation, really, so long as the “economy” looks “good” which will mean that our banks’ interest rates they are given from their banks won’t rise too much.

      If interest rates rise by any meaningful amount, its all over.

      The RBA needs to tread very carefully or risk stagflation. But on the other hand, what do they care so long as the economy looks good on paper, and their private banks are taken care of?

      Australia may indeed become near unlivable due to insane living costs and low wages, but the RBA’s mandates are satisfied. Decades of sleight of hand has taken care of the rest: The CPI is manipulated into always showing the correct number no matter what – the fact that its showing less than the target band is incredibly concerning, and we can never have an unemployment problem again, and if we ever do, then, like the CPI, it would be incredibly concerning.

      In that regard what the inept incumbent treasurer says is actually close to being correct: that we need a steady stream of credit to make this whole mess we call an economy work. Can you imagine keeping up with costs of living, consuming enough so retailers don’t go all broke, while repaying gargantuan levels of private debt on slashed wages, slashed hours, and no credit?

      Impossible!

  7. Was at one of the larger bunnings in Syd today, and the car Park was 2/3 empty, just me and 3 others in the gardening department? Nice short l think

    • I flew to San Diego and back last week. The outbound flight from MEL to LAX had 200 free seats in economy (A380). Hosties claimed it was unusual. Flight home was the same.

    • The Traveling Wilbur

      Everyone’s too busy planning their auction bidding strategies to be thinkng about annoying tasks like home renos atm.

      LooooooooL.

    • I went to the Ashfield Bunnings and it was as full as ever..

      I did notice though that when I flew to SFO in November the flight was a little empty on the way over. Return was busier but I put it down to flying on a Monday.

    • I’m surprised that we don’t know what’s actually In the report by now. Too many people have now read the report for someone not to have resisted the urge to take to Twitter. But Josh sure seems to think lower rates are on the way?
      “We must ensure affordable access to finance for households and businesses.”

      • Well he certainly seems to think (know) that some help is on the way to get credit flow back to “normal”. But is it lower rates, or some other form of stimulus?

      • Janet I can’t help but think they have given themselves the weekend to study the report and the whole of Monday to make the necessary adjustments to their share portfolios to get in before the rush

      • Gov would have read prelim report a month s go, they know exactly what’s in it, and how they intend to implement none of it for the good of all wealthy business men.

    • Lower rates mostly only help if people want to borrow, Aussies may have already tapped out, if they haven’t falling house prices should do the trick.

    • Jumping jack flash

      As crazy as that sounds he is actually correct. Short-sighted, but correct.

      More credit is the only way to make this abomination we call an economy work.

    • Divide et impera

      Here it is folks.

      Interest rate cuts as a form of stimulus in a weakening economy are fine in an export oriented manufacturing market. If you are in an entirely inelastic tightly focused economy like Australia – education / resources – then cutting rates only serves to damage your economy and does not provide any stimulus.

      Stimulus will come through quantative easing – NOT INTEREST RATE CUTS.

      Its already been happening .

      If you head on over to ECONOMICS101.COM you can download an “update your assumptions pack” in order to maintain compatibility with economic theory in 2019 – the last update to this pack was in 1987….

      • Mate you get this consistently wrong. Cutting rates lowers the AUD which makes our exports more competitive overseas and more profitable in AUD terms.

      • Divide et impera

        No, no I do not get this consistently wrong Arrow2.

        Read what I am saying – seriously – read it.

        Words like inelastic MEAN SOMETHING.

        Australian exports like gas – are on fixed contracts – we do not magically start selling more because our AUD is lower. As I said – manufactured items are competitive – cars for example were entirely reliant on AUD for competitiveness.

        AUD denominated resources like Iron Ore and gas will absolutely NOT increase in volume based on the dollar – its absolutely 100% false.

        Our other major exports – Victoria – education – is once again a 100% fixed contract base – in other words there are only so many places. Increased demand does not mean Melbourne University suddenly increases places – a lower AUD simply translates to lower returns on the same volume.

        TRY READING.

        Again – there are plenty of things which absolutely will fluctuate based on importers desire to pass on those savings – wine being a good example – however this is pretty much irrelevant.

        Our major exports in inelastic fixed price based assets FAR outstrips our exchange rate responsive exports.

        As I said – once you understand this premise – you understand what the RBA did during the mining boom – you understand WHY Argentina collapsed – and you understand the world economy.

        Thinking “lowering the dollar increases exports” is what I was taught in year 10 (not even a word of a lie) in the 1970’s at high school.

        It really is some of the dumbest garbage people still carry around with them thinking it is relevant – its so absurdly outdated that it just PAINS me to have people like you tell me Im wrong.

        I’m not wrong – you are and so is Houses and Holes on the RBA – and has been for coming up to 5 years.

        And this is the reason why – you do not get what interest rates are used for in different economies – you simply rely on this school boy definition from the 1970’s….

        cheers.

      • I agree they will print like spastic without changing rates. Our money will be more worthless. Interesting times, been a long wait since the last gfc, one of the longest in history. This coming bust will be once in a lifetime stuff, usually it ends in world war but this time world war will knock out our existance. Can’t rely on the past to predict the future at the moment this is a new world.

      • Without sounding puritanical: the use of the word spastic in this instance is quite offensive. People born with Cerebral Palsy do not have a choice; bankers printing money do…

      • Divide, what you wrote has several huge flaws but t will have to wait until I have a proper keyboard …! 😁👍

      • The Traveling Wilbur

        This place has enough flawse already without Divide/0 creating​ moar!

        But allow me: the two major errors were A) forgetting ‘Australia is different’ and that interest rate cuts stimulate the only thing that matters in this economy – house prices. Every time. And 2) Their effect on the Confidence Fairy. But I repeat myself.

      • DIVide: still no keyboard so this will be brief: you reckon lower AUD doesn’t boost exports and I reckon it does.

        – students are NOT fixed number. Student visas are uncapped. Uni places likewise. Plenty of room at our lesser unis (not necessarily the big 8). And we compete with other countries so we are cheaper when AUD lower. We do attract more when our dollar is cheaper. Education (international students) is boosted by lower AUD.
        – Tourism hugely boosted by lower AUD, makes us comparatively cheaper than overseas competitors and spurs investment here (more hotels, facilities, etc).
        – resources eg iron ore: we compete with others, prices in USD. Lower AUD means we can undercut others and sell more due to cheaper cost of production, or take the cream ie more AUD profits which means more likely more investment here, new capex, new mines, more jobs etc etc.
        – gas likewise
        – agri likewise although they often have more imported inputs so lower AUD more of a mixed blessing there.

        The above does not mean I am saying flog everything off to foreigners ASAP. That is a different debate. I am simply saying a lower AUD absolutely unequivocally boosts exports.

    • Not long after Phil took over he did make comments around the work of the rba is mostly done and he expects the government to do some heavy lifting before rba moves again. We might get surprised and Phil may not cut until he forces the gov to implement some fiscal stimulus.

      • Good guy Phil wants affordable housing for millennials. I suspect Hayne does also. Frydenberg doesn’t.

  8. Elderly bloke with lnp election advertising in Kenmore in Brisbane.
    Alp tax will cause a reduction in the value of YOUR house
    Alp will see the value of your rent to increase
    The old bloke was about 80. Sitting and reading a book. Wonder if he is on the pension? Wonder what he bought his house for? I wonder considering he probably is in his twilight if he reflects on his grandkids and where they will live. Will they live near poppa?
    I won’t say all but most over 60 in australia are the most entitled and self absorbed group of people that has ever walked the face if this earth.

    • The generational blame game is generally lame but if we’re going to go that route then in my opinion, Boomers are financially entitled, Milennials are emotionally entitled.

      (I’m Gen X FTR)

      • If I could buy a house with my emotions it would be a f#cking angry house. Although looking slightly less angry every month ATM.

      • Mining BoganMEMBER

        Mine would have the skulls of RE spruikers, politicians and regulators on spikes on the front lawn.

      • Divide et impera

        Identity politics killed Gen Y and Millenials.

        A return to class politics and discrimination will resolve it. Its honestly like they were looking for something to call their own.

      • True again D, I’m gen y and it beats me why gen y/z are so caught up in this extreme politcally correct bs. Seems like everyone wants to be a Californian these days

      • Good grief with the generational memes …. anywho the offending boomers were just the door prize winnars in the run up to front running neoliberalism or as some opine the hedge against socialist or commie infiltration during the cold war and after that was thought settled the wealth needed to be liquidated and returned to its capitalist true owners, on loan as it were.

        Now pure capitalism could finally flourish and greatness bestowed on dawgs picks ….

      • Being pedantic… millenials ARE gen y – those who came of age around/after the turn of millennium. Term coined in 80s.

        Gen z are neo-millenials – born in new millennium.

        What comes next is the great Australian depression generation

      • Jumping jack flash

        skippy, if what you mean is that they couldn’t end the cheap debt frenzy because it wouldn’t have been fair for people to miss out on the privilege of being massively indebted, then you’re correct.

  9. RBA sees things are going to get grim & want to have something in reserve on the cash rate?
    Yes but,,
    A Federal Election is coming up so they need it closer to the election to be a voter / influence factor.

    So a March or April cut is more likely.

    • Correct Mike mb. I read it as saving something for the current federal government to do so as to say “see, we are dealing with this!”
      In other news, the RBA is probably now just a tool of the AUS RentSeekers (banks,Insurance, R.E., etc.”FIRE” as it were)

  10. At what point do we allow the market to become rational? When do those that made bad decisions have to pay the piper? When are savers supposed to be rewarded for their efforts? I read these articles that demand the can be kicked further down road; lower the rates; let’s become the next Japan why don’t we? I feel like I’m taking crazy pills.

    • Right there with you Ralphyboy. I’ll never understand how you can be anti-bubble but pro low interest rates.
      Its like The Day of the Triffids when everybody wakes up blind after watching a meteorite shower and the only ones who can see are those who were in jail or unconscious.
      Like Satyajit Days has said… property in this country has become a religion and you and I, Ralphyboy, are non-believers.

      • Yes, those of us who are pro-free markets would like interest rates to be set by the markets but the MB crew are largely pro-intervention (within a Keynesian framework) which is why the call for lower rates — while the bubble be dealt with via macro-prudential i.e. more intervention.

        You’re right though, the best way to deal with all the distortions and malinvestment is to resort market-based interest rates. In a rational world no one would lend someone else their hard-earned money at 2%. Proper interest rates that better reflect the time value of money (plus credit risk) start at 5% and work up from there, IMO.

        Artificially low rates are little more than a subsidy (from savers) to borrowers. One day, when people wake up and understand this there will be lynchings of public sector officials.

    • Divide et impera

      Australia, ergo this blog, is so far behind the world it makes me weep – I generally put it at a ten year lag – (Im technology based). Although graduated with economics, politics, and international relations. But almost all these fields are the same.

      The interest rate issue is seeing the world realising that it can not go on any longer and the only way to resolve the global malaise is to restore the spending power – savings of the working class. The Yellow Vests, German ultra far right, Poland, MAGA, and pretty much everywhere else are seeing the elites realise this and its going to change.

      The ultra low rates were great for corporates, but the reality is that they realise they will be slung across the mechanical dispatcher lickety-split and KNOW it can’t go on. Worse it is threatening their own wealth base as consumers evaporate.

      Basically – interest rates are going to rise and there is going to be a reset over the next 12 months. Into this environment – ten years after we dodged the GFC – we wander up thinking about lowering our rates, as we hit our own GFC – and the entire planet goes yeah, naaaah – that was ten years ago – we’re all raising.

      And that is why we will raise.

      Irrelevant what our pathetic backwater of economy is doing – absolutely totally irrelevant about housing construction, or economic activity in Melbourne – if the world raises rates – so will the RBA – no question about it.

      • Would’ve agreed with you a few weeks ago. But hasn’t the Fed just shown that it hasn’t actually got the stomach to keep raising?

      • You can’t restore the spending power/savings of the working classes, because they can’t find enough decent paying jobs.

        Global interest rates aren’t going anywhere. Central banks sh*at the bed by driving interests so low and the uber-financialised world markets snuck in and took the pictures to prove it. They won’t let rates go higher at anything faster than snail’s pace, if at all. (As per GC’s point).

        Re Aust, it’s obvious that local manufacturing is basically non-existent. I interpret the MB view to be that lower rates/lower currency may give it a chance to regrow. It’s a long game without guarantees, but goes directly to my first point – a vain hope of an economy with real jobs producing real stuff and paying real wages.

        Of course, none of the above will be solved without addressing wealth distribution and captured political systems…

      • Nah! Rates aren’t going anywhere as there is no demand too few borrowers. What we are seeing is them wobbling around, which is what I expect …. Until either the world financial system implodes or more likely we spend decade/s playing back all the debt & India & Africas young gain some spending power. Interest rates have demographics at their foundation, eg in the 70’s when interest spiked it was due to boomer households hitting peak spending.

    • Divide et impera

      Labour are threatening the LNP with police action if there are leaks – lols – they might as well just move into the PM’s office now – its such a farce.

      https://thenewdaily.com.au/money/finance-news/2019/02/01/banking-royal-commission-report-police/

      “Prime Minister Scott Morrison and Treasurer Josh Frydenberg will spend the weekend considering the findings before releasing it on Monday at 4.15pm, after the sharemarket has ceased trading for the day. “

    • Just another really dumb and unnecessary decision by Scummo to have this report floating around in the ether for a full trading day. There is absolutely no reason why they could not have released the report this afternoon.

  11. “How far must prices drop before this tipping point is past? “…based on what we are reading/seeing, not much it would seem. The nose-bleed level of daisy-chained household debt has put paid to any resilience that may have been displayed in previous downturns.

    Expect aggressive, cannibalistic-style, white-anting in the workplace as people try to preserve their jobs as organisations downsize…it’s going to get very nasty.

    • Last year I called it at around 12% for Sydney. Basically we are there now but the effects won’t be felt until we hit 15-16% as these falls gather pace and become obvious to the blind. From 12% onwards most people that bought from 2015 on will not be able to refinance if they need to.
      My view anyway..

      • Yup, those that can hang will do so in the hope of a recovery — when the recovery doesn’t materialise then all hell breaks loose.

  12. Lmmao …. the U.K. is at the FIRE sector coal face and the U.S. has much more to risk since it shipped Mfg for an equity high and can’t go a day without a mass shooting or 3rd world display of paramilitary brute force against low socioeconomic mopes …..

    I personally thank goat I used time travel to come to Oz and diminish the effects of rank ideologues bent on social dominance …. the pure will burn first and by that time some might wise up and consider other options …

  13. Great post. Anyone care to offer an explanation on why Hayne looked so pissed on Friday? The Government has/had to be applying a certain degree of pressure on him to massage the outcome.

    On the anecdote front a mate who’s a mid level pen pusher at one of the top 10 residential builders has been told he’ll have to spread his work around the smaller subsidiaries. These have never been part of his responsibilities previously.
    Reason: Sales are way down. In-house developments are now barely breaking even.

    • Recently spoke to someone working for a design company that loans out furniture to real estate companies and people looking to do up their houses prior to selling. Seems things are moving very slowly and with houses spending a lot longer on the market they are finding themselves extending a lot of contracts and having to purchase more furniture stock for new customers.

      • Hey L, I’m curious to know how the current situation is playing out for the design company you speak of. Is it good or bad for their business? as they are highly exposed to the property market one would expect a property downturn to be bad for them but it sounds like they are actually riding high and expanding from what you say. Intriguing business model dynamics vis their sole focus on a single market sector. Property up=good for biz, property down=good for biz. Genius!

      • @Ralphyboy

        Hard to say. I got the sense that they had planned to move around existing furniture stock based on say a 2 month auction campaign/advertising time frame, but as places aren’t selling any additional income from an extended rental period would be offset by having to purchase additional furniture – a capital expense that may not have been budgeted for.

        I don’t think this business model is necessarily immune to a housing downturn as it is reliant on vendors agreeing to pay upfront for the advertising and all the bells and whistles associated. With falling prices, this is probably one expense that a desperate vendors are willing to give up.

      • @L, thanks for your reply. I have some (limited) exposure to a similar company that seems to be in a similar situation but I don’t know much else (thanks p2p lending). Perhaps this is as good as it gets for them and when it really starts to bite then they have more furniture to loan out than home sellers wanting to borrow it? Dunno. all bets are off in a proper recession I guess.

    • Could just be that Hayne was irritated at being dragged into a political photo op, especially one featuring Frydenberg.

  14. lol @ everyone thinking the RBA or Gov will do ANYTHING. They could give a toss about you… This game has winners and losers – you bought property in the last 10 years = LOSER. No Debt and/or stocks and/or intellectual property – WINNAR…

  15. Finally a return to normal market prices in -20 to -30% further falls. It will be good seeing prices back to long term trends so those who could not can hopefully buy a cheap house off an infestor.

    • 30% fall? Anyone who’s waiting for that won’t touch it if it happens! They’ll be either (1) traumatised by what they have seen happen to their mates and don’t want a bar of ‘that’ or (2) expecting another 10% minimum to be just around the corner.
      Buying, when a market is roaring up is easy, ( buying an appreciating asset) and selling hard ( there’s always a bit more in it). The reverse applies on the way down….

      • I’ll correct myself here! Both buying AND selling (“Is this the bottom I’m getting out at?” and where are the buyers, anyway?) are hard on the way down…

  16. I think a good QEesque, stimulation a new Labor government should consider is to wipe HECS debt slate clean. This debt is a millstone around the neck if an entire generat, the economy will not stabilize quickly if this is not resolved.

      • Going back to when? 1989? I’m not disagreeing with your sentiment, but no matter what happens, someone(s) is going to be worse off if HECS is forgiven etc, even if it’s you, as the taxpayer.
        Much better to curtail future loans – make qualification standards higher etc, and let it wash though the system.

      • ErmingtonPlumbing

        “but no matter what happens, someone(s) is going to be worse off if HECS is forgiven”

        How is anyone going to be “worse off” Janet

      • I don’t know what the quantum of your HECS debt is, but judging by ours ( Student Loan Scheme here), it won’t be insignificant! And ‘someone’ has to foot that bill. Make it retrospective to 1989 – to be fair to all those who’ve gone through up till now – and I’d guess its will be a big figure.
        Of course, you can add it to your national debt, but it’s a bill that will have to be paid – ergo something else will be worse off – school funding, hospitals, police? You pick at the ballot box.
        As I said, curtail it, but rebate it/forgive it? Good luck!

      • (Oh, and what did we do with the same issue? For one year we had an incentive in place – that part of your student loan repaid during that time received a 10% discount; pay it all off and pay 90%. Also, Student Loans became Interest-Free, 0%, on any outstanding balance for any Kiwi inside the country; leave and you start paying after a grace period. But for those changes the number of providers was slashed; the approved courses slashed and the age of access curtailed to 55. Did it all help? Not much!)

      • Ermo, offcourse someone is going to be worse off if HECS debt is forgiven. HECS debt was incurred because the Govt paid the universities the tuition fee at the time of admission, with tax payer money at the time. This was done with the intention that the money will be repaid back to the tax payer in due time.
        So if now, the money is not repaid by those that took out the debt, but instead is “forgiven”, off course the tax payer is worse off, because that amount to be repaid has now be made up in higher taxes for the tax payer to have the books balances.
        On a personal level, if you were asked to put in money to lend to someone’s education with the intention of having it paid back, and then one day were told “no, you’ll just need to forgive the debt now”, would you not think “hang on, but I had to pay for my education back when I had borrowed the money, why don’t I get my money back when I’ve lent it to someone else now?”
        So how far do you go back to refund people’s debt?
        Money doesn’t come out of thin air.

      • Yeah the same mobs that miss priced how much due to their funding model pre GFC and in case your not aware is used as a political tool when the wrong sorts get democratically elected in some 2nd 3rd world country …. oops your rating just got lowered …. now again about our corporations and investors demands in your little country ….

        PS … many T1 mobs do their own in house risk diligence because of the above.

  17. @tonydd, I don’t disagree…but it’s still an important part of the economic management credential narrative employed by Australian gov’ts of both colours. Neither wants to be the first to lose it…however, after the first downgrade occurs you can be sure it won’t be quite so venerated. A bit like gov’t debt levels…notice how that hardly gets a mention these days in the “narrative” (gross debt was $59b in 2004, now over $550b).

    • This is the US (46.30 mins.)
      https://www.youtube.com/watch?v=ba8XdDqZ-Jg

      The trade deficit required a large Government deficit to cover it and the US government could just create the money to cover it.

      Then ideological neoliberals came in wanting balanced budgets and not realising the Government deficit covered the trade deficit.

      The US has been destabilising its own economy by reducing the Government deficit.

      Bill Clinton didn’t realise a Government surplus is an indicator a financial crisis is about to hit.

      The last US Government surplus occurred in 1927 – 1930, they go hand-in-hand with financial crises.

      Richard Koo shows the graph central bankers use and it’s the flow of funds within the economy, which sums to zero (32-34 mins.).

      https://www.youtube.com/watch?v=8YTyJzmiHGk

      The Government was running a surplus as the economy blew up in the early 1990s.

      It’s the positive and negative, zero sum, nature of the monetary system.

      A big trade deficit needs a big Government deficit to cover it.

      A big trade deficit, with a balanced budget, drives the private sector into debt and blows up the economy.

      E.g. government is not a house hold and private sector debt is the elephant in the room ….

    • Yes, got that fair call too.

      Further up the theead, may I suggest the possibility of tariffs and quotas fitting that discussion. IR MP and industry protection.