Propping Up the Wobbly Aussie Economy

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For most of this week, I’ve been hammering the same point.

For the Australian economy and property market to lift from here depends entirely on credit rising. The banks are the lynchpin.

It looks like the Australian government is going to try and bash a few heads together to make this happen.

It’s always astonishing how transparently legislation favours one part of the community over the other.

What gives?

The front page of The Australian Financial Review reports that the office of the Assistant Treasurer is going to ‘bring together’ the big players involved here.

Those are the regulators — ASIC and APRA — plus the banking industry.

A man called Michael Sukkar is the Assistant Treasurer. He also happens to be the Minister for Housing.

He wants to make mortgage financing easier to get.

The AFR quotes him as saying:

We don’t want to see rapid house price growth like in 2016 and 2017, but we do want to see slightly above inflation house price growth because for most people it is their biggest asset and source of wealth.’

Too bad if you’re a first home buyer, a renter or homeless. You’ll be sacrificed in the national ritual of house price inflation for supposed nationwide prosperity.

That’s a large constituency these days. One report from late last year said more than 40% of Sydney suburbs now have a majority of renters.

What the government is communicating to these people is a deliberate increase in the cost of living. It’s economic insanity, but we’ll keep doing it anyway.

It’s already starting to show symptoms of stress in the economy.

Down here in Melbourne, The Age reports that workers behind both the tram and train networks are planning a strike later this month for better pay.

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That’s going to be very disruptive if it goes ahead.

If you follow the business press, you’ll know there’s been a lot of angst around low wage growth in Australia for some time.

It could start showing up in more problems like this…

Throw the stiffs a bone, I tells ya!

It’s also why the Morrison government is trying so hard to push through its tax cut package.

It knows the working stiffs need some spending money or the economy will keep faltering.

How are things going there? The tax cuts are going through. The government won over the remaining holdout — Tasmanian Senator Jacqui Lambie.

The tax cuts are to be phased in over 10 years and in three stages.

The Guardian reports that 4.5 million low- and middle-income earners will get up to a $1,080 payment as part of stage one. This will run until the end of 2021-22.

I’m not going to bother telling you about the other two stages.

Here’s why.

Government projections: Total vanity (or absurdity)

They are based around projections of GDP growth almost certain to be wrong.

For 20 years, The Economist has been cataloguing from 15 rich countries. That’s a database of 100,000 forecasts.

Any more than one year out and the likelihood of government numbers being spot on are dismal.

And let’s not forget the major reason the government has any firepower at all: The massive iron ore rally.

That’s certainly something that the number crunchers didn’t see coming. They previously had the average price pegged at US$55 a tonne.

That’s not a criticism. It’s just to say that the world won’t sit still long enough for long-range price and budget estimates to be realistic.

There’s a lot of conflicting signals out there right now. The Australian trade surplus just hit another record. That appears to be propping up the Aussie dollar, too.  

We know the banks and government will do everything they can to prop up the housing market. And the share market continues to coast higher.

Hmmm. The future has a distinctly cloudy look about it right now. I’m not sure how much the ‘macro’ outlook can help us currently — in terms of making money.

I’m shifting my focus to individual companies within their own sectors. 

We know iron ore and gold are hot. But that’s mostly built into prices now. It’s now more a question of how long the prices stay high.

The risk reward ratio is nowhere near as good as it was at the beginning of the year — at least in general.

To me, that means taking a look at sectors that might move next. More on this soon. 

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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