This is an edited version of a live discussion with Research Director from The Australian Citizens Party, Robbie Barwick as we look at the contemporary issues surrounding the battle to keep cash in the economy, branch closures, the current financial settings, and the broader political and economic background.
The imperative for change has rarely been stronger, and we literally stand on the brink….
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While analysts still talk about the strength of the consumer, if you chose to look below the hood there are real issues emerging, thanks to the higher for longer interest rates that are now in the system because of Central Banks attempts to quell the inflation that they created by their earlier actions.
Jerome Powell conceded this past week that with perfect hindsight, their monetary policy settings through the pandemic would have been tighter – with rates not dropped so low, and quantitative easing less extreme.
My surveys in Australia continue to highlight the pressure on some households with for the first time more than half of mortgage holders underwater from a cashflow perspective. And its not only in Australia.
Americans, for example are falling behind on their auto loans at the highest rate in nearly three decades. With interest rate hikes making newer loans more expensive, millions of car owners are struggling to afford their payments. It’s a clear indication of distress at a time when the economy is sending mixed signals, particularly about the health of consumer spending.
And in the UK the bad news keeps coming for Britain’s lettings market, as a surge in mortgage payments pushes more landlords to the brink and threatens to pile extra misery on tenants.
Landlords paid 40% more mortgage interest in August than the same month a year ago, equating to an extra £4.3 billion ($5.3 billion), according to a report from broker Hamptons International. Mortgaged landlords handed over an average of 37% of their rental income to pay interest in August, up from 28% a year earlier.
“For some investors, this will be unaffordable,” said Aneisha Beveridge, head of research at Hamptons. “They will likely bow out, keeping upward pressure on rents.”
And more broadly, UK banks expect to tighten a squeeze on the mortgage market in the coming months as high interest rates stretch affordability and loan defaults pick up.
The Bank of England’s quarterly credit conditions survey found that lenders decreased the supply of mortgages in the third quarter and will restrict availability further in the coming months. Defaults and losses on home loans picked up in the third quarter as more households are forced to refinance at much higher interest rates.
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There is a critical issue now on the table, and it relates to what the right level of migration should be. In recent times, the taps have been open more than ever before, and there are significant consequences for households, and housing affordability. Some are now calling for a significant cut in migration, others are celebrating the potential for more home prices rises, as demand outstrips supply across the country.
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One stunning chart which I keep coming back to is the change in income and home prices overtime. It shows simply that housing is becoming more and more unaffordable. We also know that more households have bigger mortgages and so are heavily exposed to higher rates, and that many will still have mortgages well into retirement. Our debt ratios are some of the most extreme across the world, as I have been reporting for years. Great for banks, as they reap interest payments, bad for society. In fact, I believe we are at the point where the drawbridge is being pulled up making it harder than ever to get on to the property ladder or stay there.
Few policies are more harmful to young Australians seeking a place to live than forcing them to compete for housing with hundreds of thousands of new migrants each year.
Future Australians will have to make do with cramped shoebox homes owned by corporations and landlords.
Essentially, the property ownership drawbridge is being progressively raised – but this is by design, not accident. I hope post the voice, Albo and Co will get serious about correcting their mistakes, but frankly I am not holding my breath.
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Today’s post is brought to you by Ribbon Property Consultants.
This is an edited version of a live discussion with Cameron who republished his book from 2017 Game of Mates: How favours bleed the nation as Rigged “How Networks Of Powerful Mates Rip Off Everyday Australians”.
This book will open your eyes to how Australia really works. It’s not good news, but you need to know it.’ – Ross Gittins
‘You’ll be shocked at how far the Mates have their hand in your pocket.’ – Nicholas Gruen
Australia has become one of the most unequal societies in the Western world, when just a generation ago it was one of the most equal. This is the story of how networks of Mates have come to dominate business and government, robbing ordinary Australians.
Every hour you work, thirty minutes of it goes to line the Mates’ pockets rather than your own. Mates in big corporations, industry groups, government departments, the halls of parliament and the media skew the system to suit each other. Corporations dodge taxes, so you pay more. You pay more for your house and higher interest rates on your mortgage, more for your medicines and transport, and more for your children’s education and insurance, because the Mates take a cut.
Rigged uncovers the pattern of political favours, grey gifts and information-sharing that has been allowed to build up over two decades. Drawing on extensive economic research, it exposes the Game of Mates as nothing less than cronyism on a grand scale across Australia and how we have fallen behind other countries in combating it.
We also discuss housing policy and economics in general.
Dr Cameron K. Murray was a Research Fellow in the Henry Halloran Trust at the University of Sydney and an economist specialising in property and urban development, environmental economics, rent-seeking and corruption. Professor Paul Frijters teaches at the London School of Economics and was previously Professor of Health Economics at the University of Queensland. He is now an independent economist.
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DFA Live Q&A HD Replay: Cameron Murray: Mates, Power, Politics & Economics
US stocks mostly finished lower on Friday as tech shares fell and volatility surged, despite earnings from three major banks – JPMorgan, Wells Fargo and Citigroup helping to offset some of the negative sentiment.
Morgan Stanley’s Mike Wilson sees a rebound in earnings in the latter half of 2024 but for now, his message to investors is stick to the stock picker’s playbook as things are going to get worse before they get better.
The downward slide in US equities after the market peaked in July is set to continue with the catalysts for more declines already in place, according to the prominent equity bear who was ranked No. 1 in last year’s Institutional Investor survey after correctly predicting the 2022 stocks sell-off. His year-end target for the S&P 500 Index implies about a 10 per cent drop from the current level.
Oil on the other hand was more than 5 per cent higher, with WTI at 87.69 a barrel as concerns about the conflict between Israel and Hamas widening to include Iran flared. Some economists now estimate oil prices could soar to $US150 a barrel and global growth drop to 1.7 per cent — a recession that takes about $US1 trillion off world output if the conflict between Israel and Hamas widens to include Iran. Brent crude surged 7.5% in the week since the conflict began, posting its highest weekly gain since February, and was last at 90.94. All very inflationary.
Meantime gold surged more than 3 per cent back with the Gold contract above $US1900 an ounce to 1945.90 and the volatility index was more than 20 per cent higher at one point. The VIX was 15.8 per cent higher to 19.32 at the end of trade. The yield on the US 10-year note slid 8 basis points to 4.61 per cent in New York.
“This may be the most dangerous time the world has seen in decades,” JPMorgan boss Jamie Dimon said in a statement with the firm’s third-quarter results.
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Things Are Going To Get Worse Before They Get Better...
Today I want to dissect some the latest data from New Zealand. In summary, inflation and costs of living continue to bite, more households are in financial distress, inward migration is at a record high, but the property market remains in the doldrums. Worth thinking about ahead of the general election at the weekend.
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This has been another crazy week on the markets, as the truth of higher rates for longer has started to permeate not only bond markets, but equity markets too.
And after a stunningly strong U.S. jobs report bolstered the case for more tightening from the Federal Reserve, the U.S. Treasury yield surge that has shaken markets in recent weeks may have further to run.
As I discussed in my last show, US Jobs growth for September nearly doubled expectations as nonfarm payrolls increased by 336,000 for the month, strengthening views that policymakers will need to keep interest rates elevated to cool inflation.
That’s bad news for investors who were looking for a respite from a rise in Treasury yields that has wreaked havoc throughout markets over the past month, bruising stocks, supercharging the dollar and pushing mortgage rates to their highest levels in more than two decades. Treasury yields of course move inversely to bond prices.
The interplay between bearish fractals and potential bullish triggers continues to shape the unpredictable landscape. But we need to watch the unrealized losses among holders of bonds, because at some point the truth will out. And meantime, equities are still priced for a goldilocks soft landing, which is probably unlikely.
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Wall Street’s main indexes were poised for a sharply lower open on Friday after a strong jobs report deepened fears that interest rates may stay elevated for an extended period.
The Labor Department’s report showed non-farm payrolls increased by 336,000 jobs in September on a monthly basis, against expectations of 170,000 additions, according to a Reuters poll of economists.
Unemployment rate stood at 3.8% against expectations of 3.7%, while average hourly earnings increased 0.2%, compared with estimates of 0.3%.
The S&P 500 eyed its fifth straight weekly fall, while the Dow is on track to decline for the third straight week.
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