Interesting to see the momentum now turning to discussion of whether the Government intends to tackle negative gearing having U-turned on the tax cuts.
As The Conversation put it, there are two things the prime minister needs to get into his head about tax. One is that saying he won’t make any further changes no longer works. The other is that negative gearing doesn’t do much to get people into homes.
Australia’s Treasury has begun publishing estimates of the cost of the present unfocused system of negative gearing. Its latest, released last week, puts the cost at $2.7 billion per year, to which should probably be added a chunk of the $19 billion per year lost as a result of the capital gains concession.
Albanese is normally cautious. But as he is showing us right now with his rejigged Stage 3 tax cuts, there are times when he is not. If he really wants to throw everything he has got at building more homes, he knows what to do.
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Today’s post is brought to you by Ribbon Property Consultants.
We discuss the latest from the RBA, via the new press conference and the Statement On Monetary Policy.
In short, the RBA Governor Michele Bullock says she is yet to be convinced inflation is on a sustainable path back to target and further interest rate rises could not be ruled out as the bank seeks to curb price rises stoking the nation’s cost-of-living crisis.
“Domestically, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while the labour market remains tight,” the board statement said.
This translates into higher rates for longer, which was not what the market wanted to hear!
Do not expect a rate cut soon. Plan accordingly.
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Today’s post is brought to you by Ribbon Property Consultants.
You have been hit by large rises in grocery, energy, transport, child and aged care prices, only adding to other cost of living pressures, according to a bombshell report. But the report argues the ongoing cost of living crisis is largely due to corporations unduly increasing prices.
As the Conversation reported, while extreme weather and supply delays have contributed to the increases, an inquiry into what’s causing the hikes has confirmed what commentators and consumers suspected – many sectors are resorting to dodgy price practices and confusing pricing.
Headed by the former Australian Consumer and Competition Commission (ACCC) boss, Allan Fels, on behalf of the ACTU, the inquiry found inflation, questionable pricing practices, a lack of price transparency and regulations, a lack of market competition, supply chain problems and unrestricted price setting by retailers are to blame for fuelling the increases.
The inquiry, which released its final report on Wednesday, is one of four examining price rises. The other three are being undertaken by a Senate committee, the Queensland government and the ACCC, which has been given extra powers by the government.
The official inflation rate in Australia peaked at 7.8% in December 2022 and has been gradually dropping since then.
While the inquiry found higher prices contributed to inflation, it reported that businesses claimed it was inflation that caused price rises – making it a chicken-or-egg kind of problem.
However, many businesses made enormous profits in 2022-23, which the inquiry said contributed to rising prices and inflation. In most cases, post-pandemic profit margins were much higher than before the pandemic.
The current pricing practices for all business sectors must improve for greater transparency and to protect Australian consumers from unfair pricing.
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Digital Finance Analytics (DFA) Blog
Australian Households Pay More Because The System Is Rigged: Report
This is an edited version of a live discussion with Damien Klassen, Head of Investments at Walk The World Funds and Nucleus Wealth. Markets are rising, thanks mainly to AI related stocks, while expectations of rate cuts are being pushed out. More broadly, are returns able to justify current valuations, and which sectors are the most interesting ahead.
Original stream with chat here: https://youtube.com/live/lqYE35qTatw
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Digital Finance Analytics (DFA) Blog
DFA Live Q&A HD Replay: Investing Now With Damien Klassen
Another week shoots past, so Edwin is back for another property update. The chaos continues with talk of “pre-war”, home price rises, and more Government support for property. What could possibly go wrong?
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Today’s post is brought to you by Ribbon Property Consultants.
If you are buying your home in Sydney’s contentious market, you do not need to stand alone. This is the time you need to have Edwin from Ribbon Property Consultants standing along side you.
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We walk through the latest from our surveys and modelling ahead of our live show which will be on 13th February 2024 at 8pm Sydney where we will look at specific post codes in more detail.
Household financial stress continues to bite, and is spreading into many different types of communities.
Ahead, we do not expect cash flow to improve for many, as mortgage rates will not be falling very soon, the costs of living continue to rise and income growth in real terms is muted, at best.
If you want data on a specific post code, put it in the comments and I will either cover it Tuesday week, or via a separate show.
If you want to get the full data set, this is available via Patreon: https://www.patreon.com/DigitalFinanceAnalytics
Our One to One Service is also available: https://digitalfinanceanalytics.com/blog/dfa-one-to-one/
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Investors hate surprises and we got many this week – to the point where I begin to wonder whether markets are fundamentally broken as they were driven higher by good results from some of the magnificent seven, despite the shock revelation of mounting losses from commercial property by little-known banks in New York and Tokyo. And then the US jobs number came in so hot, as to lift bond yields while Central Bankers this week played a cautious hand, suggesting that they need to see more evidence before they start cutting rates, against market expectations.
Let’s start with commercial property. The problems particularly the office sector are well known: a combination of remote work and ageing buildings has pushed up vacancy rates and pushed down valuations; office property values in the US fell more than 20 per cent last year.
That’s a problem for landlords that must refinance loans against commercial property; about $US2.2 trillion of loans from the US and European commercial real estate sectors will come due between now and 2025.
US property billionaire Barry Sternlicht told a conference this week the US office property sector was worth $US3 trillion, and now it’s worth $US1.8 trillion. “There’s $1.2 trillion of losses spread somewhere, and nobody knows exactly where it all is.” At least some is in America’s regional banks, where commercial property loans account for about 30 per cent of all loans, compared with 6.5 per cent at large US banks.
Regional US lender New York Community Bancorp and Japan’s Aozora revealed problems with commercial property loans and dropped their share prices significantly underscored a critical question: is this the start of something bigger? Morgan Stanley strategist Mike Wilson says that even if banks holding this debt can cope with the losses, it crimps their ability to lend to other businesses.
But if there’s one broader lesson from the sudden re-emergence of commercial property fears, then it’s this: we still haven’t cleared out the excesses that built up in the era of very low interest rates, and were compounded during the pandemic period of extreme froth.
The world is now so indebted, and so financialised, that these cycles aren’t allowed to occur. With “households and corporates becoming hooked on leverage”, we can’t let bubbles pop because they’re “the essence of our economies”.
This is why investors are cheering the prospect of rate cuts with such gusto. And it’s why the fear of higher-for-longer interest rates – which the Federal Reserve reminded the world of on Thursday by killing off hopes of a March cut – is still real.
“The market has been horribly wrong about the near-term trajectory of Fed policy and this is another instance where that’s the case,” said Kevin Gordon, senior investment strategist at Charles Schwab in New York.
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Digital Finance Analytics (DFA) Blog
Markets Play Chicken With All Time Highs, As Risks Rise!
An important discussion with Robbie Barwick from the Australian Citizens Party, about democracy, the role of the Reserve Bank, and use of cash, as some are now calling for a significant change in the balance of power.
Who will win? Will un-elected technocrats dictate the future direction of the country, or will electable politicians step up and weald their accountable power?
This is a battle for the future.
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Markets were disappointed yesterday, as the Federal Reserve held interest rates steady for a fourth straight meeting as expected but more importantly signaled the possibility of a rate cut, but later in the year and pretty much ditched the prospect of a reduction in March, which some optimistic economists were banking on.
As a result, Stocks saw their biggest decline on a Federal Reserve day since last March after Jerome Powell said officials want to keep their options open instead of rushing to cut interest rates.
“If stock bulls expected a rate cut in March, Powell seems to have closed the door on that,” said Oscar Munoz at TD Securities.
As a result, and other significant news, the S&P 500 fell 1.61%, the most since September while the Dow fell 0.82% and the NASDAQ slid 2.23%.
Treasuries rose as fresh concerns about regional lenders added to economic worries after New York Community Bancorp’s surprise loss which dragged their shares down by 38% after it cut its dividend and posted a surprise loss. As a result, Regional U.S. bank stocks sank on Wednesday, renewing fears over the health of similar lenders.
Interest rates took the elevator going up — but are going to take the stairs coming down.
Now we turn to the Bank of England, which will hold rates again today, and markets are not expecting a possible cut until later in the year – higher for longer, again!
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Digital Finance Analytics (DFA) Blog
Markets Drop As The FED Reaffirms Higher For Longer Rates; Again…
This is an edited version of a live discussion as I explore the latest trends in population, home prices and productivity with Leith van Onselen, Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith writes as the Unconventional Economist. Leith has previously worked as an economist at the Australian Victorian Treasury and Goldman Sachs.
Original live stream and chat here: https://youtube.com/live/eclazIUDbz8
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