"Intelligent Insight"
In this extended show I discuss property investment, asses classes, risks, and fractional reserve banking (versus credit creation) with Adam Stokes, who runs a channel on YT with a focus on Crypto.
This is my version of the show, Adam posted his at https://youtu.be/OrXUlTuBBqE
You can find our earlier discussion here: https://youtu.be/m8RQztfl78c
Amir Sufi is the Bruce Lindsay Professor of Economics and Public Policy at the University of Chicago Booth School of Business. His research on household debt and the economy forms the basis of his 2014 book, co-authored with Atif Mian: House of Debt: How They (and You) Caused the Great Recession and How We Can Prevent It from Happening Again.
Following the monumental Conservative election victory, now is the time for the economics to work through. Mark Carney is due to leave his post as governor of the Bank of England at the end of January after six and a half years in charge, and the chancellor, Sajid Javid, will be choosing a replacement soon – perhaps before Christmas. Via the UK Conversation.
This will be a pivotal decision for the chancellor – no doubt in close consultation with Boris Johnson and his advisers. Whoever they pick should not expect a honeymoon period. They are arriving against the backdrop of Brexit, widening regional inequality and the prospect of a downturn in the global economy.
The frontrunners are said to be Minouche Shafik, director of London School of Economics; Kevin Warsh, a former top official at the US Federal Reserve; and Andrew Bailey, chief executive of UK regulator the Financial Conduct Authority. Add to these names Jon Cunliffe and Ben Broadbent, both currently deputy governors at the Bank. Behind this sits a couple of more alternative candidates: Santander chair and former Labour minister Shriti Vadera and Boris Johnson’s former economic adviser, Gerard Lyons.
An alternative governor may be just the required medicine at present, since there is a strong case for someone willing to think differently about central bank management. With interest rates still very low in the UK and most other developed economies, there are widespread concerns that central banks will be unable to fight another downturn using the classic response of cutting rates.
Beyond this, there are arguments for revising the entire model of central banking. In recent years, the trend has been for them to manage rates without any political interference and to concentrate purely on keeping inflation low. Indeed, it is almost 30 years to the day since the Reserve Bank of New Zealand became the first central bank to make inflation the sole priority.
In times of inflation, this system made sense. But since the 2007-08 financial crisis, the world has found itself in a situation where economic growth is much weaker and deflation is more of a risk than inflation.
As former Federal Reserve chair Ben Bernanke said in a speech in Tokyo in 2003, “in the face of inflation … the virtue of an independent central bank is its ability to say ‘no’ to the government”, but with protracted deflation of the kind that has continually dogged Japan, “a more cooperative stance” by central banks towards the government is required.
His argument was essentially that it’s hard to sustain inflation by manipulating interest rates, and that you’re more likely to be successful using the fiscal levers of government spending and tax cutting. The same approach is arguably required in the UK today and across the developed world.
Having lost the ability to properly stimulate the economy using interest rates, the Bank of England and other central banks have taken it in turns to resort to quantitative easing – essentially creating money with which to buy mainly government bonds from banks and other financial institutions. This was supposed to drive extra liquidity into the economy, but mainly it has just been used to bid up prices in the likes of the bond market and stock market and exacerbate the wealth gap.
As an alternative, some commentators are now touting “helicopter money”: this would involve central banks creating money that would be handed straight to the public via government tax cuts or public spending – thus requiring them to coordinate their policies in a way that does not happen at present.
This could be pursued in conjunction with a novel concept called “modern monetary theory”, which envisages government targets to boost demand and inflation financed by a disciplined central bank that keeps interest rates at zero. We are already seeing signs of the government moving in the same direction by shifting away from austerity towards more generous spending.
As for the Bank of England’s own targets, greater policy cooperation with the government would provide wiggle room for focusing beyond inflation. In particular, the Bank could play a role in addressing regional inequality. The UK already has the one of the worst rates of regional inequality in the developed world, with areas like the north of England and West Midlands bringing up the rear. This will be heightened by leaving the EU, since these same areas are key to international supply chains and expected to be the worst hit.
The answer is for the government to pursue an industrial policy that aims to improve productivity in regions where it is weakest, through the likes of targeted tax breaks and economic development zones, with an accommodating Bank of England providing the funding to facilitate.
More productive areas attract more capital, which is the reason behind the north-south divide in the first place. Such an industrial policy would encourage more investment in these areas, produce real-wage increases, boost local demand and stimulate regional development. In short, it would help counteract the impact of Brexit.
Two central criteria for the appointment of the next Bank of England governor stand out. First, they must understand the deeper economic and social circumstances that have led to Brexit and the UK’s shift to the right. They must act as governor for the whole country and not just for London plc: a move away from focusing on smoothing short-term fluctuations towards prioritising long-term growth.
Second, the job specification for the next governor says that the candidate should have “acute political sensitivity and awareness”. This might suggest that the government does not want another governor with such outspoken views on say, the economic risks from Brexit. Be that as it may, policy coordination needs to be a priority. I don’t rule out the possibility of the leading candidates being able to work like this, but I worry that they will be too orthodox for the challenge. The government should recognise the shifting sands in central bank policy and appoint someone who is willing to lead from the front.
Author: Drew Woodhouse, Lecturer in Economics, Sheffield Hallam University
We look at the latest stats from the ABS. Net Migration remains strong, yet despite that we have more Australians over 65 years and a relative smaller working population. What could possibility go wrong?
The ACCC has announced an update on the timeline for the implementation and launch of the Consumer Data Right (CDR) in the banking sector, deferring the launch of certain aspects from February to July 2020.
Consumers will be able to direct major banks to share their credit and debit card, deposit account and transaction account data with accredited service providers from 1 July 2020. Consumers’ mortgage and personal loan data will be able to be shared after 1 November 2020.
The ACCC has formed the view that this updated timeline for these aspects of the CDR reforms will allow additional implementation work and testing to be completed and better ensure necessary security and privacy protections operate effectively.
“The CDR is a complex but fundamental competition and consumer reform and we are committed to delivering it only after we are confident the system is resilient, user friendly and properly tested,” ACCC Commissioner Sarah Court said.
“Robust privacy protection and information security are core features of the CDR and establishing appropriate regulatory settings and IT infrastructure cannot be rushed.”
The ACCC will make the CDR Rules in January 2020 that reflect this adjustment to the timetable, and will conduct further consultation regarding any consequential changes to other phases of the CDR.
Background:
The Consumer Data Right will give consumers the right to safely access data about them, held by businesses, and direct this information be transferred to trusted third parties of their choice.
Banking will be the first sector to which the CDR applies. The CDR will subsequently be rolled out sector-by-sector, with banking being followed by energy and telecommunications.
Data portability increases competition, particularly for more complex products and services, and allows businesses to make more tailored offerings to consumers.
The ACCC has been working closely for several months with the big 4 banks and the 9 entities selected to be the initial data recipients to test and refine the CDR ecosystem.
Nucleus Wealth’s Head of Investments Damien Klassen, Head of Operations Tim Fuller, as well as ex-fund manager, Analyst, and blogger Kevin Muir of ‘The Macro Tourist’ discuss ‘Is Inflation back from the Dead?’
Topics this week include a background on world markets and why growth and inflation have been so stagnant, Modern Monetary Policy, why Kevin believes inflation is just around the corner and the best option to deal with global debt, and their outlook on where China and Australia’s economy moving to.
The information on this podcast contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen and Tim Fuller are an authorised representative of Nucleus Wealth Management. Nucleus Wealth is a business name of Nucleus Wealth Management Pty Ltd (ABN 54 614 386 266 ) and is a Corporate Authorised Representative of Nucleus Advice Pty Ltd – AFSL 515796.
Note: DFA has no commercial relationship with Nucleus.
The Commonwealth Bank of Australia has confirmed that brokers will be able to apply for CBA’s First Home Loan Deposit Scheme loans for their clients from 2 January 2020, while NAB has outlined that brokers will need to wait a while longer.
The federal government’s First Home Loan Deposit Scheme (FHLDS) is due to commence operations on 1 January 2020.
The scheme aims to allow up to 10,000 FHBs per year to get into the property market sooner, requiring just a 5 per cent deposit, yet still giving them access to competitive interest rates and waiving the need for lender’s mortgage insurance (LMI).
The government has agreed to guarantee the difference between the borrower’s 5 per cent deposit and the standard 20 per cent deposit required to take out a home loan without paying LMI.
The initial 27 lenders that will offer FHLDS loans have now been revealed, but questions have been raised regarding broker access to these loans.
It has previously been announced that the two major banks involved in the scheme, NAB and CBA, would be the first two lenders to start accepting applications for the scheme from borrowers, while the other 25 non-major lenders on the lending panel (mainly mutual banks and credit unions) will be accepting applications from 1 February 2020.
Brokers can offer CBA FHLDS loans from 2 January
CBA customers will be able to apply for the scheme via the CBA website and call centres from 1 January.
However, given that 1 January 2020 is a public holiday, CBA has confirmed that it will make FHLDS loans available to customers on 2 January, via all channels – including branch and broker.
A Commonwealth Bank spokesperson told The Adviser: “We’re excited that, from 2 January 2020, customers will be able to apply for the First Home Loan Deposit Scheme with Commonwealth Bank through our home loan channels, including brokers.
“As Australia’s largest lender, we help more Australians buy their first home than any other bank, and its exciting that we can help get more first home buyers into the market under the scheme.”
NAB to offer FHLDS loans online first
However, brokers wishing to write FHLDS loans via NAB will need to wait a while longer before applying, as the bank will be taking a “phased approach”.
According to the bank, eligible customers will be able to apply for the scheme through NAB via its website and call centres from 1 January 2020, as well as through “select direct and retail channels”.
No date has yet been released for full rollout of the FHLDS loans via broker or the wider branch network, but NAB has said it will update broker partners in January with how the phased approach is tracking.
A NAB spokesperson told The Adviser: “It has always been our intention to offer the scheme through the broker channel. However, given the short timeframe between being announced as a participant lender and the go-live date, we’ve needed to take a phased approach to implementation.
“We are working hard to implement the scheme in the broker channel, and across our branch network, as quickly as possible,” the spokesperson said.
The delay will be a blow to brokers looking to write FHLDS loans for their clients, especially given the fact that the scheme is capped at just 10,000 loans per year and the choice of lenders available to brokers is limited.
While Minister for Housing Michael Sukkar commented that the “composition of the panel should also enable strong activation of mortgage broker channels and promote choice for first home buyers”, many brokers have highlighted that many of the smaller/regional lenders (who are expected to take up 50 per cent of the 10,000 loans) are not members of their aggregator’s panel – and therefore brokers would not be able to write loans to these lenders unless they directly accredit with them.
For example, brokers operating under the larger broker groups – AFG, Aussie, Connective, Loan Market and Mortgage Choice – are unable to access more than half of the lenders chosen under the FHLDS, as they are not on the groups’ lender panel (according to the lender panels listed on the groups’ websites).
These include: Australian Military Bank, Bank First, Bank of us, Community First Credit Union, Defence Bank, G&C Mutual Bank, Indigenous Business Australia, Mortgageport, People’s Choice Credit Union, Queensland Country Credit Union, Regional Australia Bank, The Mutual Bank or WAW Credit Union.
The US Federal Reserve Board on Thursday released Uncertain Terms: What Small Business Borrowers Find When Browsing Online Lender Websites, a report that examines the information that prospective small business borrowers encounter when researching and comparing credit products offered by online lenders.
Nonbank online lenders are becoming more mainstream alternative providers of financing to small businesses. In 2018, nearly one-third of small business owners seeking credit reported having applied at a nonbank online lender. The industry’s growing reach has the potential to expand access to credit for small firms, but also raises concerns about how product costs and features are disclosed. The report’s analysis of a sampling of online content finds significant variation in the amount of upfront information provided, especially on costs. On some sites, descriptions feature little or no information about the actual products or about rates, fees, and repayment terms. Lenders that offer term loans are likely to show costs as an annual rate, while others convey costs using terminology that may be unfamiliar to prospective borrowers. Details on interest rates, if shown, are most often found in footnotes, fine print, or frequently asked questions.
The report’s findings build on prior work, including two rounds of focus groups with small business owners who reported challenges with the lack of standardization in product descriptions and with understanding product terms and costs.
In addition, the report finds that a number of websites require prospective borrowers to furnish information about themselves and their businesses in order to obtain details about product costs and terms. Lenders’ policies permit any data provided by the small business owner to be used by the lender and other third parties to contact business owners, often leading to bothersome sales calls. Moreover, online lenders make frequent use of trackers to monitor visitors on their websites. Even when visitors do not share identifying information with the lender, embedded trackers may collect data on how they navigate the website as well as other sites visited.
Australia’s population grew by 1.5 per cent during the year ending 30 June 2019, according to the latest figures released by the Australian Bureau of Statistics (ABS).
ABS Demography Director Beidar Cho said: “The population at 30 June 2019 was 25.4 million people, following an annual increase of 381,600 people.”
Natural increase accounted for 37.5 per cent of annual population growth, while net overseas migration accounted for the remaining 62.5 per cent.
There were 303,900 births and 160,600 deaths registered in Australia during the year ending 30 June 2019. Natural increase during this period was 143,300 people, an increase of 0.5 per cent from the previous year.
There were 536,000 overseas migration arrivals and 297,700 departures during the year ending 30 June 2019, resulting in net overseas migration of 238,300 people. Net overseas migration did not change compared to the previous year.
Annual population change
The preliminary estimated resident population of Australia at 30 June
2019 was 25,364,300 people. This is an increase of 381,600 people since
30 June 2018 and 75,600 people since 31 March 2019.
The annual population growth rate for the year ended 30 June 2019 was 1.5%.
Annual population growth rate (a)(b), Australia
(a) Annual growth rate calculated at the end of each quarter.
(b) All data to 30 June 2016 is final. Estimates thereafter are preliminary or revised.
Components of population change
The growth of Australia’s population is comprised of natural increase (births minus deaths) and net overseas migration (NOM).
The contribution to population growth for the year ended 30 June 2019
was higher from NOM (62.5%) than from natural increase (37.5%).
Components of annual population growth (a), Australia
(a) Annual components calculated at the end of each quarter.
Natural increase
The preliminary estimate of natural increase for the year ended 30 June 2019 was 143,300 people, an increase of 0.5%, or 700 people, compared with natural increase for the year ended 30 June 2018 (142,600 people).
Births
The preliminary estimate of births for the year ended 30 June 2019 (303,900 births) was lower by 700 births from the year ended 30 June 2018 (304,600 births).
Deaths
The preliminary estimate of deaths for the year ended 30 June 2019 (160,600 deaths) was lower by 1,400 deaths from the year ended 30 June 2018 (162,000 deaths).
Net overseas migration
For the year ended 30 June 2019, Australia’s preliminary net overseas migration estimate was 238,300 people. This was 100 people higher than the net overseas migration estimated for the year ended 30 June 2018 (238,200 people).
NOM arrivals increased by 1.6% (8,500 people) between the years ended 30 June 2018 (527,500 people) and 30 June 2019 (536,000 people).
NOM departures increased by 2.9% (8,400 people) between the years ended 30 June 2018 (289,300 people) and 30 June 2019 (297,700 people).
The preliminary NOM estimate for the June quarter 2019 (34,900 people) was 26.7% (12,700 people) lower than the June quarter 2018 (47,600 people).
States and territories
At the state and territory level, population growth has three main components: natural increase, net overseas migration and net interstate migration (NIM).
Although majority of states and territories experienced positive population growth in the year ended 30 June 2019, the proportion that each of these components contributed to population growth varied between the states and territories.
For the year ended 30 June 2019, natural increase was the major contributor to population change in Western Australia and the Australian Capital Territory. Net interstate migration loss was the largest component of population change in the Northern Territory. NOM was the major contributor to population change in New South Wales, Victoria, Queensland, South Australia and Tasmania.
NIM gains occurred in Victoria, Queensland and Tasmania. All other states and territories recorded net interstate migration losses.
Natural increase
Births
Compared with the previous year, the number of births registered for the year ended 30 June 2019 decreased in half of the states and territories.
The largest percentage decrease was in Western Australia at 2.7%. This was followed by Victoria (2.2%), The Northern Territory (1.9%) and Queensland (0.5%).
The largest increase was in Tasmania at 4.0%, followed by the Australian Capital Territory (2.1%), New South Wales (1.8%) and South Australia (1.6%).
For more information, see table 10.
Deaths
Compared with the previous year, the number of deaths registered for the year ended 30 June 2019 decreased in half of the states and territories.
Tasmania had the largest percentage decrease at 5.2%. This was followed by the Australian Capital Territory (4.7%), Queensland (2.7%) and New South Wales (1.0%).
Increases occurred in Western Australia at 2.1% followed by the Northern Territory (1.7%) and Victoria (0.1%). South Australia had no change.
For more information, see table 11.
Preliminary estimates of births and deaths are subject to fluctuations caused by lags or accumulations in the reporting of birth and death registrations (for more information see Explanatory Notes 10-11).
Net overseas migration
Compared with the previous year, NOM decreased the most in New South Wales (4,800 people), followed by Victoria (3,700 people), the Australian Capital Territory (1,500 people) and the Northern Territory (100 people).
The largest increase was in Queensland (5,200 people), followed by Western Australia (3,900 people), South Australia (1,100 people) and Tasmania (10 people). For more information, see table 13.
NOM arrivals
The number of NOM arrivals for the year ended 30 June 2019 increased in Tasmania (9.1%), Queensland (5.5%), South Australia (5.1%), Western Australia (3.9%), Victoria (1.8%) and the Northern Territory (1.2%).
The largest percentage decrease in NOM arrivals was in the Australian Capital Territory (11.4%), followed by New South Wales (0.7%). For more information, see table 13.
NOM departures
Compared with the previous year, the number of NOM departures for the year ended 30 June 2019 increased in Tasmania (19.7%), Victoria (9.0%), the Northern Territory (3.8%), the Australian Capital Territory (3.6%), New South Wales (3.4%) and South Australia (1.5%).
The largest percentage decrease was recorded in Western Australia at 6.7%, followed by Queensland (1.0%). For more information, see table 13.
Net interstate migration
In the year ended 30 June 2019, Victoria, Queensland and Tasmania had net interstate migration gains. Queensland had the highest net gain with 22,800 people. This was followed by Victoria (12,200 people) and Tasmania (2,000 people). Net losses from interstate migration were in New South Wales (22,100 people), Western Australia (6,500), the Northern Territory (4,400 people), South Australia (4,000 people) and the Australian Capital Territory (200 people). For more information.
Annual interstate migration – arrivals, departures and net
ASIC says that the Federal Court of Australia has today ordered Westpac Banking Corporation to pay a penalty of $9.15 million in respect of 22 contraventions of section 961K of the Corporations Act (the Act), and to pay ASIC’s costs of the proceeding.
The court case relates to poor financial advice provided by a former Westpac financial planner, Mr Sudhir Sinha, in breach of the best interests duty and related obligations under the Act. Westpac is directly liable for these breaches, which attracts a significant civil penalty, because the law imposes a specific liability on licensees for the breaches of their financial advisers.
The decision comes as a result of civil penalty proceedings brought by ASIC against Westpac in June 2018 (18-175MR). ASIC’s investigation revealed internal Westpac reviews, including an internal bank investigation in 2010, had raised concerns about Mr Sinha’s compliance history yet he continued to receive several ‘high achievement’ ratings from Westpac. It was not until 2014 that Mr Sinha was dismissed by Westpac and March 2015 that Westpac reported Mr Sinha’s conduct to ASIC.
The trial took place before Justice Wigney in April 2019, during which Westpac admitted that, as Mr Sinha’s responsible licensee, it had contravened the Corporations Act. The exact number of contraventions and penalty that should be imposed were contested by ASIC and Westpac.
In its decision, the Court found Mr Sinha failed to act in the best interests of his clients, provided inappropriate financial advice, and failed to prioritise the interests of his clients, in four sample client files identified by ASIC. Westpac is directly responsible for the breaches of the best interests obligations by Mr Sinha under section 961K of the Act.
‘Westpac, as Mr Sinha’s responsible licensee, failed to properly monitor and supervise Mr Sinha for a period of time. This meant his customers were not provided with advice in their best interests. ASIC brought this case as a result of Westpac’s suspected contraventions of the law and failures to observe its duties. The court has found that Westpac contravened the law in this regard’ ASIC Deputy Chair Daniel Crennan QC said.
In the judgment, Justice Wigney observed:
‘The relationship between Westpac and Mr Sinha was structured so that Mr Sinha was able to share in the commissions and fees earned or derived when, as a result of his advice or recommendations, clients signed-up for financial products in which Westpac or associated companies had an interest. As will be seen, that rather cosy arrangement turned out to be fruitful for both Mr Sinha and Westpac, but not always for their clients.
…
Unfortunately for four couples, it was subsequently discovered that the recommendations that Mr Sinha made, and the circumstances in which he made them, were deficient and defective, both as a matter of process and in substance. That should not have been a complete surprise to Westpac because Mr Sinha’s less than satisfactory conduct as a financial adviser had previously come to the attention of certain senior officers of Westpac as a result of various internal compliance reviews, audits or investigations.’
His Honour further found that Westpac ought reasonably to have known, from 1 July 2013, that there was a significant risk that Mr Sinha would not comply with the best interests obligations and that it failed to do all things necessary to ensure that the financial services covered by its licence are provided efficiently, honestly and fairly, and to comply with financial services laws. In doing so Westpac also contravened sections 912A(1)(a) and (c) of the Act.
Justice Wigney noted:
‘Westpac also stood to gain from Mr Sinha’s actions. That perhaps explains why Mr Sinha was permitted to continue as Westpac’s representative and partner despite the serious compliance breaches which were exposed by the 2010 investigation. It is tolerably clear that, at least prior to the commencement of the FoFA reforms, some officers or employees at Westpac were either unable or unwilling to terminate the services of a representative who achieved high achievement ratings and was plainly proficient and successful at promoting the financial products of Westpac and its associates. It may readily be inferred that Westpac’s compliance systems and practices were less than rigorously applied, at least in Mr Sinha’s case.’