Economics – Page 6 – Digital Finance Analytics (DFA) Blog

Look Who’s Wealthy Now!

One of the factors I see in my household surveys is wealth transfer from one generation to another, stoked by the paper wealth created by the massive upswing in home prices. We see more first-time buyers being assisted by the Bank of Grandparents, alongside the Bank of Mum and Dad. This means there is a historic wealth transfer is under way in Australia, for those fortunate enough to have parents or grandparents with assets, tough on those with none of those onramps to property and wealth. With a large chunk of that wealth stored in residential property assets, the shift is already reshaping property market activity, and will intensify in the years to come.

In my surveys I encounter a theme quite often, households who cannot get into the property market while their friends and colleagues seem able to do so. So how come some can and some cannot?

Well, it could be that others are simply just better at saving. Hustling. Investing. Negotiating salary. The second: they’ve got a loan of cash injection from the Bank of Mum and Dad or Grandparents (though often its not clear whether they will have to pay it back. And third, they are a beneficiary of the great intergenerational wealth transfer.

Demographic research firm McCrindle just published a report and they say Baby Boomers are passing on an estimated $6.2 trillion of capital to their children and grandchildren.

Since 2013, the percentage of 25 to 34-year-olds who think that Australia is a land of economic opportunity, where hard work brings a better life, has fallen from 80 per cent to 51 per cent. The same trend was observed across all age groups.

“Belief in the fair go … appears to be declining. We estimate that overall agreement that Australia is a land of economic opportunity has declined by 16 percentage points since 2013,” the researchers found.

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Digital Finance Analytics (DFA) Blog

Look Who’s Wealthy Now!

00:00 / 00:19:49

Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

This is our weekly market update, where we start in the US, cross to Europe and Asia and end in Australia, whilst covering commodities and crypto on the way. I do this to keep track of what is going on in today’s complex markets, so expect lots of data not superficial waffle. You have been warned. If that’s not for you, then look elsewhere for more cute cats!

We are, it seems, at the pointy end of the FED’s decision to cut rates when they meet next week as US shares rallied on renewed expectations that they could opt for a half percentage point cut. Futures have it as 50/50 for a half or quarter point cut, but everyone is now expecting the first of several ahead.

While the renewed hopes for a bigger cut were boosting large cap indexes on Friday the optimism seemed most evident in the Russell 2000 small cap index (RUT), which rose 2.5% on the day and 4.4% for the week. Smaller companies are more sensitive to rate changes as they depend more on borrowed money and floating rate loans.

The Dow Jones Industrial Average rose 0.72%, to 41,393.78, the S&P 500 gained 0.54%, to 5,626.02 and is just 1% shy of its July record while the Nasdaq Composite gained 0.65%, to 17,681.55. The potential for a large rate cut helped drive utilities, materials and industrials higher. Twenty-four of the Dow’s 30 components were higher; Techs mostly lagged.

All three major U.S. benchmark indexes ended close to roughly two-week highs and logged solid weekly gains. For the week the S&P 500 rose 4.02% and the Nasdaq climbed 5.95%, with both marking their biggest weekly percentage gains since early November. The Dow added 2.60% for the week.

European stocks rounded off the week on a positive note, supported by technology, real estate and mining shares, while investors shifted their focus to the U.S. Federal Reserve ahead of a long-awaited monetary easing at its meeting next week. Technology and real estate gave the market its biggest boost, followed by miners that advanced 1.3%, as copper prices hit a two-week high on buying ahead of a Chinese holiday and amid stimulus hopes.

Australian shares extended gains on Friday, but stopped short of a closing high as a drag in banks offset a strong push in mining stocks as commodity prices rose. The benchmark S&P/ASX 200 ended up 0.3 per cent to 8099.9, bringing weekly gains to 1.1 per cent.

http://www.martinnorth.com/

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Digital Finance Analytics (DFA) Blog

Will The FED Stoke Inflation And Drive An Even Greater Wedge Between Rich And Poor?

00:00 / 00:26:00

Listen, You Can Hear Home Prices Falling!

The mythology that home prices always rise has been busted before, because the high-level indices which are the fixation of the media, ignore the real variations, at a granular level.

The latest data from Corelogic shows that at the aggregate level there were small falls in Canberra, Darwin, Hobart, and Melbourne, while there were stronger rises in Brisbane, Adelaide and Perth (especially Perth) and a small rise in Sydney.

But now, the people at Corelogic who release one of the main indicators of prices included in their Housing Chart Pack, the September ‘Chart of the Month’ which takes a granular look at value falls over the three months to August from a quarterly study of 3,655 suburbs across the country and found that house prices in almost one-third (29.2 per cent) had fallen. In comparison, in the three months to August last year prices had dropped in 17.2 per cent of suburbs. They say that Melbourne (79.1%) and regional Victorian suburbs (73.8%) made up the majority of falls over the quarter. Values also decreased across more than half of the suburbs in Hobart (54.3%), Darwin (51.2%), and Canberra (51.6%), while all suburbs in Perth saw values rise over the quarter.

The company said declines were becoming more common as high interest rates as well as cost of living and affordability challenges continued.

So, what’s ahead then? Well of course this depends on the trajectory of interest rates, remembering that the current higher rates have depressed the typical borrowing capacity of the first-time buyer by as much as 40% from just a couple of years back. Inflation in Australia remains significantly higher than in many other countries, so the RBA is sticking to its view there will be no rate cuts anytime soon.

To try and highlight the potential sensitivities of interest rates, we run three scenarios, and look three years out, to illustrate the sensitivities across units and houses by state.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Listen, You Can Hear Home Prices Falling!

00:00 / 00:18:30

Listen, You Can Hear Home Prices Falling!

The mythology that home prices always rise has been busted before, because the high-level indices which are the fixation of the media, ignore the real variations, at a granular level.

The company said declines were becoming more common as high interest rates as well as cost of living and affordability challenges continued.

To try and highlight the potential sensitivities of interest rates, we run three scenarios, and look three years out, to illustrate the sensitivities across units and houses by state.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Find more at https://digitalfinanceanalytics.com/blog/ where you can subscribe to our research alerts

Today’s post is brought to you by Ribbon Property Consultants.

Latest CPI Data Says Services Inflation Is Still Riling!

On Wednesday the BLS released the latest US inflation data and top line, it appears the post-pandemic spike in U.S. inflation eased further last month as year-over-year price increases reached a three-year low. However, while the spike in goods, food and energy prices is over, services inflation remains uncomfortably high.

Core prices rose 3.2% in August from a year ago, the same as in July. And on a month-to-month basis, core prices rose 0.3%, a slight pickup from July’s 0.2% increase. Core of course is closely watched by economists as it typically provides a better read of future inflation trends.

But it is important to look at the elements which flowed into the headline cpi. For example, a key reason for last month’s drop in overall inflation was the third drop in gas prices in the past four months: Average gas prices fell 0.6% from July to August and are down 10.6% from a year ago.

Importantly, the tick-up in core inflation from July to August reflected an acceleration in housing costs and some spikes in the prices of air fares and hotel rooms. Shelter highlights another serious issue — the high level of “sticky” inflation for services and commodities whose prices take a long time to change. Including shelter, this measure, calculated by the Atlanta Fed, remains above 4%. If shelter is ignored, it’s below 3%, making it far easier for the Fed to start easing!

But the big question now is whether we are in a pre-recession period in the US. Markets continue to expect big cuts ahead and bond yields are responding accordingly.

For Australia, where inflation is higher, and rates are unlikely to change this year from the current 4.35%, the economy will be buffeted by weaker demand from China, and rate cuts in other places. Which once again highlights the dilemma we are in thanks to poor monetary and fiscal policy in recent times. And again, the neutral rate does appear to be higher now, so we should not expect rates to miraculously slide towards zero. We are now in a higher rate for ever environment.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Latest CPI Data Says Services Inflation Is Still Riling!

00:00 / 00:22:42

Markets Caught Saying Hello To A Hard Landing!

This is our weekly market update where we start in the US, cross to Europe and Asia and end in Australia, covering commodities and crypto on the way, and a reminder, this show is data rich, not shouty stupidity like so much on socials these days, and the purpose is to help me understand what is really going on at the moment. If it helps you too, that’s great!

As often in September, market uncertainty rippled through markets this week, adding fuel to an already-volatile period which points to more of the same ahead.

The flows of data remained mixed, and U.S. stocks tumbled on Friday after closely watched jobs numbers showed labor market momentum slowing more than expected, suggesting a narrower path for the U.S. to achieve a soft landing, defined as the Fed being able to cool inflation without badly damaging economic growth. Beyond that, investors are still grappling with a shift in Federal Reserve policy, a tight U.S. election and worries over stretched valuations, plus numerous geopolitical tensions, and a resetting of AI tech related expectations to boot.

So, we saw an ebbing risk appetite across markets. The S&P 500 dropped 1.7% on Friday and has lost nearly 4.3% in the past week, its worst weekly decline since March 2023.

Nonfarm payrolls expanded by 142,000 last month, compared with expectations for a 165,000 advance. The prior two months of gains were lowered, another sign that the US labour market is weakening.

Positioning remains extreme, and investors are complacent about the risks that a soft landing could turn into something nastier. September often brings volatility on markets, but don’t ignore the direction of travel.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Markets Caught Saying Hello To A Hard Landing!

00:00 / 00:23:50

The Australian Monetary Policy Civil War: With Tarric Brooker

In my latest Friday chat with journalist Tarric Brooker, we look back at the recent stoush between the Reserve Bank and the Government as inflation remains sticky, and the Treasurer says Government spending is helping to bring inflation down.

Plus, thanks to Tarric’s excellent slides we parse the latest data and delve into the mechanics of high migration, home prices, and falling real GDP per hour worked.

You can see the slides here: https://www.burnouteconomics.com/p/dfa-chart-pack-6th-september

Here is the article Tarric referred to in the show: https://www.burnouteconomics.com/p/burnout-economics-and-aussie-household

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

The Australian Monetary Policy Civil War: With Tarric Brooker

00:00 / 01:23:23

Worst Ever Great Idea: Australia IMPORTS LNG!

I have been talking about the absolutely stupid Government policy of gas supply, as a few big multinational companies continue to pump and export gas owned by Australia abroad, using energy from said gas sufficient to support Australian need, in order to liquidity it for export.

The stupidity stems from the lack of an east coast reservation approach (something which Western Australia has done well with a mandated domestic gas reservation policy and there energy prices are lower as a result), with exporters making massive profits (most of which do not hit Australian shores either) thanks to high international demand.

Australia does not have a physical shortage of gas so much as an artificial one, given most of the country’s supplies are exported via long-term contracts to lucrative markets in North Asia.

Gas has become a proxy fuel in two ways. First the marginal price of gas – which is roughly 5 times what it should be – drives the cost of electricity, which is also high – even after government support for households. In addition, the use of gas as a transition strategy despite its high contribution to the climate predicament we are in, blunts other more sustainable long term options. Gas is just as much a problem as oil and coal, a harmful fossil fuel that will doom the world to rising temperatures and ever more pollution.
But nevertheless here we are, because successive Governments appear under the thumb of big gas, and mumble on about Australia’s reputation risk if they acted in the interests of Australians!

The Australian Energy Market Operator (AEMO) is forecasting that within just a few short years, supplies of gas on the east coast could fall well short of demand at peak times, typically in winter.

So now, for the first time, and in spite of Australia’s position as one of the world’s biggest gas exporters, the country is preparing to do something that was once unthinkable. The scene of the crime of a place I know well, Port Kembla in New South Wales, near Wollongong and about 100 k’s south of Sydney.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Worst Ever Great Idea: Australia IMPORTS LNG!

00:00 / 00:11:28

Smashed!

Well now we know. Australia’s annual GDP growth rate fell to its lowest level since December 1991, outside of the pandemic as consumers hunkered down in the face of elevated borrowing costs and stubbornly sticky inflation.

Annual GDP growth has slowed markedly from a decade average of 2.4%, partly due to the RBA’s rate tightening campaign through 2022-23 to rein in inflation. The cash rate is currently at a 12-year high of 4.35% and policymakers have signaled they’re in no rush to cut any time soon.

Australia’s Q2 GDP was worse than economists expected, growing by only 0.2% over the quarter to be up only 1.0% year-on-year. The result missed analysts’ expectations of a 0.3% quarterly rise.

With Australia’s population still growing aggressively through net overseas migration, population increased by 0.6% in Q2, meaning that per capita GDP declined by another 0.4%. In fact, Australia’s per capita GDP has now declined for six consecutive quarters and seven of the past eight quarters, to be down 2.0% from its peak.

As you will know if you have been following my surveys, the household sector is especially hurting as higher household earnings were partly offset by an increase in income tax payable and mortgage payments and so despite the population surge, Household spending actually fell 0.2% in the second quarter, detracting 0.1 percentage point from GDP growth. Discretionary consumption was hit particularly hard. This puts a number on the political pain of falling living standards from the inflationary cost-of-living squeeze, made worse for mortgage borrowers by the RBA’s higher interest rates.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

Digital Finance Analytics (DFA) Blog

Smashed!

00:00 / 00:13:46

Its Edwin’s Monday Evening Property Rant!

In this weeks show we highlight the link between Government policy and home prices (rather than the economic theory of supply and demand), touch on the risks of renovations, as costs spiral and look at the latest listing and price trends as we move in the spring selling season.

Edwin Almedia, our property insider says, Melbourne is a bellwether. We will see.

http://www.martinnorth.com/

Go to the Walk The World Universe at https://walktheworld.com.au/

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Today’s post is brought to you by Ribbon Property Consultants.

Digital Finance Analytics (DFA) Blog

Its Edwin's Monday Evening Property Rant!

00:00 / 01:15:51