PM Morrison’s Misdirection

PM Morrison’s Misdirection
PM Morrison’s Misdirection

There’s never a dull moment when it comes to the international scene.

Britain’s highest court says Prime Minister Johnson’s suspension of parliament was illegal.

Then we have US President Trump under the cloud of a possible impeachment.

This doesn’t help ease the uncertainty around the outlook for stocks.

But Australian politicians are at least reliable…

Here’s the solution we always get: juice the economy with more debt!

Even over in New York, Prime Minister Morrison says Australian banks shouldn’t be sheepish about lending.

According to the Australian Financial Review:

Mr Morrison said that if the banks became too gun shy, good ideas would not have access to capital and “they’re just going to be a story in a bar somewhere saying ‘I had a great idea but it didn’t really go anywhere’.”

That gives me a great, big belly laugh.
The prime minister would have you believe that Australian banks spend most of their time financing entrepreneurs that create business and jobs.

They do nothing for the sort. The Australian banks exist to finance purchases of existing assets — namely housing.

The consequences of this are right there for all to see: inflated property prices and staggering private debt levels.

Oh, and a growing list of families that rent, and most likely will for life.

The Age reports that Australia now has the highest proportion of renters since 1960. 7% of poor households pay three quarters of their income to landlords.

The big banks are slashing their mortgage rates, too.

A good policy…that won’t happen

The CBA is lopping off up to 90 basis points off its mortgage range. Westpac is easing borrowing requirements, too.

This should keep juicing housing prices up and away.

Oh, and what’s this? Victoria University’s latest research says the state government should abolish stamp duty and replace it with a broad based land tax.

The gains in efficiency and income are well known. These proposals come and go regularly.

But the economics of this are immaterial. Nothing ever changes because of the ‘political’ challenges.

That is to say…it’ll never get past Australia’s Finance, Insurance and Real Estate (FIRE) sector lobbyists.

I doubt the average voter even understands how the current system screws them.

No politician will dare take on this challenge. Bill Shorten couldn’t even tinker with franking credits without getting the flick. What a warning to present and future politicians.

Australia will keep its monopoly economy. The aim of the game is to acquire as many property titles as possible.

The market clearly thinks the same. Bank stocks have been rising lately.

However, I’m wary of becoming bullish on the banks. In November, the Reserve Bank of New Zealand will release its decision around increasing the capital ratio requirements.

This is bound to cause the market some uncertainty over October. I would expect the bank stocks to tread sideways until the outcome around this is known.

An adverse decision could really be a punch in the gut for the big banks. Be a little wary of that.

The good lords knows there’s enough uncertainty around the world right now, anyway.

We have the uncertain status of the trade war. The attack on Saudi Arabia. The rhetoric against Iran.

In New York, borrowing costs spiked last week and the Fed had to step in for the first time in a decade. Hmm.

Where to look for a trade idea or two? I’ve talked about energy shares often enough lately. The gold sector remains strong.

If you’re looking for short term momentum, I’d start there.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch