This is an edited version of a live discussion with Dr Cameron Murray, Independent Economist over at Fresh Economic Thinking.
Fresh Economic Thinking is Australia’s newest think-tank, with independent and insightful takes on major economic debates.
Cameron thinks economics could be much better than it is so he often writes very fine technical critiques of economic theory and comments on the nature of the profession. He specialises in property and housing markets, environmental economics, and corruption. I dabble in just about everything: macro, money, institutions, evolutionary economics, and more.
For the past four years, he was a Post-Doctoral Research Fellow in the Henry Halloran Trust at The University of Sydney.
https://www.fresheconomicthinking.com
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https://digitalfinanceanalytics.com/blog/dfa-one-to-one/ for our One to One Service.
n our latest show we pull apart some of the recent property spruiking, look at the latest numbers and deep dive into the gap between the “speak” from policy makers and the “reality” of what they do. As a result we underscore the need to go local, and not be misled by high-level waffle!
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Today’s post is brought to you by Ribbon Property Consultants.
Well, last week we got a glimpse of the vulnerability of global IT systems, including payment systems, the latest and perhaps most significant of a chapter of accidents, ranging from banks systems going down, through to disruption from floods and fire, when only physical payments in cash were accepted. US cyber-security firm CrowdStrike said it was responsible for the mayhem, which started on Friday after sending a ‘defective’ update to machines running Microsoft apps. Microsoft has suggested customers try rebooting their computers 15 times to resolve the issue.
The IT outage prompted federal politician Bob Katter to demand cash remains in circulation amid the “danger” of relying on digital technology. “This a wake-up call that the risk associated with a cashless society is too high for us to pay,” Mr Katter said.
According to a recent online survey, titled Cashless Future 2024’ while fewer payments may be made in cash these days, Australians are still expressing serious concerns about heading towards a cashless society. Seven in 10 say they’ve concerned, while two in five Aussies are extremely concerned about notes and coins becoming relics.
Significantly, even people who don’t use cash can be concerned about moving towards a cashless society for reasons including privacy concerns, security risks and dependency on technology. This includes concerns about their transaction data being tracked and analysed by corporations or government agencies, and digital payment systems can sometimes be vulnerable to technology outage, hacking or fraud. A recent report said: “Concerns about technological glitches, network outages, or power failures could lead to worries about being unable to make payments in the absence of cash.”
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The latest RBA bulletin, just released, contained a couple of significant articles relating to mortgage arrears and serviceability. The first, “Recent Drivers of Housing Loan Arrears” shows that Housing loan arrears rates have increased from low levels since late 2022, with banks expecting them to rise a bit further from here. High LVR and DTI loans are most at risk. No surprise there.
The second, “How the RBA Uses the Securitisation Dataset to Assess Financial Stability Risks from Mortgage Lending” makes the point that the data used relating to around one third of loans, contains lags of up to 2 years especially for highly leverage loans, which limits the usefulness of that dataset.
Securitisation data collected by the RBA, forming the Securitisation Dataset, on residential mortgage-backed securities (RMBS) as a condition for eligibility as collateral in repurchase agreements with the RBA. These loan-level data are provided monthly, and are both timely and granular. The data provide detailed information about each loan that can be used to help form a view of financial health among mortgagors. As lenders can face incentives to select certain types of loans for securitisation or ensure the performance of loans after issuance, the data may not be fully representative of all mortgages in the Australian market. In other words, the loans are hand-picked for securitisation.
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The ABS released the latest employment data today, and in response, investors have bumped up their bets on an August interest rate rise after the jobs market recorded another month of strong employment gains in June.
As always there is a degree of numberwanging here, and the numbers are being flattered by the still strong migration, but the seasonally adjusted unemployment rate rose by less than 0.1 percentage point to 4.1 per cent in June, With employment rising by around 50,200 people and the number of unemployed growing by 10,000 people, the unemployment rate rose slightly to 4.1 per cent, and the participation rate rose to 66.9 per cent.
The employment growth figures were better than market expectations for gains of 20,000 and highlighted the continuing resilience of the local jobs market in the face of the fastest interest rate tightening cycle in decades.
“The participation rate in June was only 0.1 percentage point lower than the historical high of 67.0 per cent in November 2023. The employment-to-population ratio rose by 0.1 percentage point to 64.2 per cent, which was also close to its historical high of 64.4 per cent in November 2023.
This increase in employment was not enough to stop the jobless rate from rising to 4.1 per cent last month from 4 per cent in May, as a continuing surge in foreign arrivals helped push the participation rate to a near-record high of 66.9 per cent.
With inflationary pressures remaining uncomfortably strong, investors now ascribe a one-in-five chance the RBA board will increase the cash rate from 4.35 per cent to 4.6 per cent when it next meets on August 6, up from a 14 per cent chance before the jobs data. They are also pricing a 28 per cent chance of a move higher by September, up from 17 per cent on Wednesday.
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Households will see Inflation around for much longer than expected and while the pressure on households continue to build, so does distrust across the economy in Australia, according to data from the IMF and a special Roy Morgan End of Financial Year webinar.
Despite the better-than-expected US inflation figures, the International Monetary Fund in its quarterly update of the World Economic Outlook just warned that momentum on global disinflation had slowed, largely due to ongoing elevated rates of services inflation.
For example, the latest data today for the UK showed that The Consumer Prices Index inflation unexpectedly stays at 2% in June, higher than economists predicted and causing a paring of bets on when the Bank of England will cut rates at its next meeting. The news sent the pound above $1.30 for the first time in a year. Services inflation that has been a special focus of the BOE was also unchanged at 5.7%. Economists had expected the headline rate to drop to 1.9%, while the central bank had forecast services at 5.1% by now. Traders pushed back bets on a rate cut next month, pricing in a roughly 30% chance of a move on Aug. 1, down from almost 50% yesterday.
In Australia, the June quarter consumer price index on July 31 will be decisive in determining whether the Reserve Bank of Australia will be forced to deliver a 14th interest rate rise at its August 6 board meeting. With underlying inflation running about 4 per cent, markets are pricing in a 16 per cent chance the RBA will raise the cash rate to 4.6 per cent, from 4.35 per cent, when it next meets. That said, bets on another rate rise from the RBA eased over the past week as bond markets rallied on the back of an outright decline in the US consumer price index, though I think the read across from the US by the markets is over done.
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This is an edited version of a live discussion with Investment Manager Tony Locantro, from Perth. Tony offers several financial services, such as investment management, financial planning, stock selection and fundraising. Tony has helped countless investors and organisations with strategic investment strategies over the last two decades.
His understanding of market psychology has ensured valued investment strategies in bull and bear markets. Because of his ability to understand the small cap market space, Tony has been featured in dozens of well known publications across Australia, such as Small Caps, Sky Business, Digital Finance Analytics, and many more.
If you are looking for an investment manager who has your best interests at heart, Tony is the man for you. https://tonylocantro.com/
Tony Locantro’s Carnivore Transformation! https://youtu.be/FV0TWDeOG8E
Original show recording here: DFA Live Q&A: Tony Locantro: The Everywhere And Everything Bubble, This Time It’s Different! https://youtube.com/live/Tt7vpkujekM
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Latest data from REINZ shows further momentum falls across property sales and prices in New Zealand, as the higher rates continue to squeeze households and dampen the markets. Prices are now 16% below past peaks.
A big show this week, as Edwin and I consider how international events impact local markets, distressed sales especially from investors rise, and more builders collapse as markets might be taking a breather.
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Back in 2021 the Census revealed a shocking “one million homes were unoccupied”.
But now we have a new survey from economic research organisation Prosper Australia, looking at empty homes in Melbourne from 2019 to 2023. The report SPECULATIVE VACANCIES 11 makes the point that while around 30,000 people in Victoria have no home, it is hard to quantify the number of homes that have no people. This they attempt to do.
To access vacancy, Prosper measures vacancy rates across metropolitan Melbourne using data from Melbourne’s three water retailers – Yarra Valley Water, South East Water and Greater Western Water.
They found that of the 1.9 million dwellings with active water connections in the study area, in total 97,861 dwellings sat empty or under-used over the entire year: 5.2% of all dwellings in metropolitan Melbourne, or one in 20 homes. These vacant dwellings represent a huge pool of valuable resources not being used productively. At the average household size they could accommodate over 250,000 people.
If this were replicated across Australia, it could be there are sufficient spare homes to meet current need! This should be a top political issue, but one no-one wants to touch!
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