Must be about due for a predictions thread in lieu of no weekend links.
The housing bears are starting to lick there lips as the usual real estate forums light up with excited chatter. You’d think that house prices had already fallen 50% the way some people are posting. FHB thinking they are going to swoop in and buy a 4 bedder in inner Sydney for a bargain price.
Meanwhile US inflation is out and higher than expected at 8.6%. Making it more likely the RBA will hike and probably more than people are expecting… Maybe 0.75 or 0.65?
What’s your prediction from here? Will we see the government and banks swoop in to save housing? Or will we finally see the bubble burst that MB has promised for the last 12 years?
Let’s say they drop 25% in the next 18 months™ they go back to pre-pandemic levels, which the MB crew thought it was too expensive then with lower interest rates.
It will never drop enough for the bears. They all want prices to stay stagnant while they save up.
I can see no reason why interest rates won’t continually increase.
Fact is as well, most people don’t have a mortgage or sufficiently ahead with their mortgage they can wait out 5 years of high interest rates.
Those FHBs that borrowed too much will be in deep shit but some people need to learn the hard way. Sucker born every minute.
I think something thats been overlooked is investors that have waded back in. I know of a couple that loaded up on more investment properties and had to let me know how clever they were when housing bubble didn’t pop early covid days.
IP’s will be dumped on the market first. Id say the regional areas where people bought will take a hit due to the holiday home quietly up for sale.
No, holiday homes are the first to be dumped onto the market. At least IPs earn some money. However, some will be dumped once the more marginal investors can’t afford to continue their losses.
It’s definitely an area to watch, but got a feeling that being able to rent out holiday homes via AirBnB or other short term leases will allow them to hang on for quite some time.
Groundhog day
I think we had a thread several months ago where people made their predictions.
Think Freddy and Peachy refused to commit to anything
I believe I called down 5-10%
Obviously we are going lower than that
How much of a % fall would it require to get back to pre-pandemic levels?
I think 20%?
yeah close enough
https://www.abc.net.au/news/2022-03-24/six-ways-pandemic-reshaped-australias-housing-market-corelogic/100933182
so it was about 25% up from March 2020 to January 2022
Add another 5% after january
So maybe it was 30% trough to peak?
I think we go back to that level
If we overshoot more than that I think RBA/AHPRA/ALP will start to panic
EmBee mob claim plandemic increase was 35% so >25% retrace is requited to wipe out the ill-gotten capital gains..
at this stage RE has to drop min 60% to have some tiny connection to the Earth.
not sure in which universe this happens.
Absolutely they will panic. KRudd did during the GFC and he changed the foreign ownership rules. Nothing stopping them from doing it again.
Weren’t you going to write an article on incels? How’s that coming along?
that was me
i will get round to it one day
Take a day off from dole bludging and do it
Maybe the two of you should write it together
https://www.ezfka.com/2021/08/18/australian-soldiers-withdrawn-from-afghanistan-to-be-redeployed-against-australian-citizens/#comment-10640
I also called for 5-10% based on FOMOs having already purchased.
I now think the predictions of 15-20% by CBA etc will happen a lot faster. I will put is as a separate comment for discussion.
A general thought. A few property bulls have now turned bear including the likes of CBA predicting 15-20% falls over two years.
I believe those falls will happen faster, and if they happen faster may go deeper. I base this belief on a simple question: If you are a prospective buyer hearing from “respected” sources that house prices will fall 20% over the next two years, would you buy now or wait two years?
doesn’t the reverse apply also?
If punters hear it was to be a 20% drop, and its dropped 20% they will buy the dip
especially as psychologically it feels cheap to them (guy in the apartment downstairs paid 100k more for the same place!)
Think there are many people who are just itching for the opportunity to “have a go, and get a go” so dips will be bought
It just depends on if they can keep their job/get access to adequate credit, and that will depend on APRA and the ALP
unless this is the big one/controlled demolition, and the RBA/govt have given the nod to unwind the whole thing, I think that the property religion is unshakeable in Australia
got to say in my own experience there is a weekender that has just come on the market that I have had my eye on (or similar adjacent properties) for a long time
Agent has quoted a price that would be a bullish-to-fair price for January 2022
If it comes down 30% from there, my wife will have to hide the cheque book
There is usually an 18-month (TM) lag between prices and rates. By the time prices have bottomed rates are usually already back on the way down. However, if prices fall fast then rates could still be on the way up. Many buyers will wait for the rate cut signal.
Maybe wishful thinking. We’ll see.
This is the main reason I posted again and at the heart of why I’m confused about how this will play out. Twice before I remember when the chat on forums has been super excited about the crash happening. Once was on MB when IO loans were getting rolled into IP and the other was early covid when everyone was going to lose their jobs. Both times the vested interests have stepped in and the opposite has happened.
“unless this is the big one/controlled demolition, and the RBA/govt have given the nod to unwind the whole thing, I think that the property religion is unshakeable in Australia” This pretty much sums up what I’ve been thinking for a while. The property market will only crash only when the vested interests are on the right side of the play.
I was on the side of we might see 20% decline before RBA cuts rates again but now with inflation going the way it is then they might not be able to cut. Fuck knows what new crazy idea they will come out with next. Good time to be debt free though.
yes, the WEF stuff is kind of bizarre
Has really been ramping up lately, and getting a lot of publicity (“you will own nothing”)
and makes me think there is a non-zero chance that they are going to pull the plug / great reset etc
Jabcinda, former WEF alumnus, was just visiting blackrock headquarters a week ago, while prices in NZ were crashing
Things that make you go hmmm
Fair number of billionaires have boltholes in the south island esp near Wanaka and Arrowtown.
Thinking this is the big one. End of the currency cycle but I could be wrong. Totally different to GFC in Australia considering levels of debt and inflation but who know what Chalmers and Lowe will throw out.
I called property prices 5% up by end of year but that’s out the window now. Looking more realistically like 15% down or thereabouts on east coast.
FWIW wife and I have been considering pulling trigger and buying last 12 months but am now glad we didn’t and it’s a good time to be on the sidelines. Problem is I have no fuckingidea where to stash our deposit because i don’t trust bailins.
Short term government bonds. Think of them like a term deposit that is issued by the government, and you buy via a stock broker.
Bonds – prices (asx.com.au)
What platform you use for bonds? Mine doesn’t offer bonds.
I use Commsec. A complete list here:
Treasury Bonds | AOFM
A few things to note:
GSBG23 has an expiry date of April 2023 (10 months) and a coupon of 5.5%. Coupon means they will pay 5.5% pa interest (2.75% twice a year). There are two more interest payments due in October ’22 and April ’23. The current price of $103.56 is implying:
Can I ask a dumb question ?
if I have known CGT liability that will be due for payment, what is to stop me from buying this bond with the intention of booking the capital loss as an offset ?
im going to be compensated for the capital loss with a higher interest payment , so the CGT offset is an added bonus ?
ATO is a step ahead of you. Gains or losses from Treasury Bonds are recorded against income.
That’s not the problem – losses on income account are fine against capital gains (in fact, better, because you can have your capital gains discount).
I know. The problem is actually the other way. They don’t want you offsetting outstanding capital losses with capital gain on bonds. Either way, you can’t do capital gains/losses shenanigans with bonds
Losses are recorded against income ?
same result then ?
The problem is that the loss you’ll book is on the future.
buy the bsbg23 for $103, and you’ve got a loss of $3 locked in. But that loss will be in 2023.
Too late for your capital gain
Not if I have something else to sell in that FY
or I could buy a different bond with a shorter expiry and a similar capital loss
Still doesn’t really work, because the “loss” on maturity is all first paid back to you as extra income (interest) during the holding period.
so the timing is unfavourable – income, income, income, loss. It’s an acceleration.
what you’d want (but usually can’t get) is a deferral – big loss, income, income, income.
Thanks very helpful. Will investigate this week.
Freddy you you make this a separate article post.
ok. I will knock something up in a day or so.
Next hike to 1.25. US Fed meeting on Tuesday will set the tone.
Otherwise, waiting for the first kitchen sink from Chalmers in the next month or so. I think that should be worth a call – total super withdrawals? 50 year mortgages? Something else?
Tax deductibility of ppor mortgages has to be on the cards
they already have it in US , up to 750,000
it will be similarly limited in value here to help the battlers
Tax deductions for sure. I’m interested to see what the ALP do with superannuation as the unions will lose their lifeblood and commercial landlords are bleeding. Probably won’t touch it.
You raise another interesting point. Will property really be allowed to drop any substantial amount and hurt boomers retirement plan? Theyve been a protected species thus far so why would they be made to feel any pain now…
They’re trying to steal everyone’s wealth so I don’t think they give a fuck about boomers anymore esp considering they got them to take the jab in huge numbers.
hehehe … someone say tone?
check this🔻…proper savage
https://rudy.substack.com/p/the-fed-will-hike-until-something?s=r
Just read the Kim.com assessment that made me think.
US debt is apparently $90T more than what the whole US is worth lock, stock and barrel which translates to approx $2mil per tax payer. It seems that Alaska may change hands again and any currencies pegged to US$ may be sucked by the vertex of the sinking King. AUD too
Controlled demolition in stages may offer reduced risk to banks if specu-vestors are replaced with FHB’s whom can service interest only. That is probably better named controlling the earthquake.
Converting majority of loans to interest only is the great reset thing as essentially the ownership balance remains unchanged in that period. Expect reverse mortgage for those with some tangible equity, e.g every missed payment is taken from the equity available.
20% dip in RE will do sfa in my view. We need long term pessimistic outlook and .gov failure of several consequtive policies to support the RE. Once there is no more trust that .gov can do something to rescue the only show in town, the carnage is the next step. Until then, everything is ‘transitional’
Petersburg International Economics Forum (SPIEF) to hear their ideas preparatory to the forum on where Russia is “now, where we are going and what we need to do to ensure our absolute and unconditional progress, to make it beneficial for the country and everyone involved in this remarkable process” of transforming and changing Russia.
Putin situated this task within Russia’s continuous fight historically to ensure its sovereignty.
In today’s world of rapid “geopolitical, scientific and technological transformations,” Russia, or any country which wishes to exert leadership in any area, must be sovereign, he told them.
Western leaders with any brain left would do well to give some thought to Putin’s discussion of the essential components of sovereignty: military-political, economic, technical and social. He explained that by “social” sovereignty he means “the ability of society to come together to resolve national challenges, to respect history, culture, language, and all the ethnicities that share a single territory. This consolidation of society is one of the core conditions for growth. Without consolidation, things will fall apart.”
These components are interconnected, and of equal importance, “because one cannot exist without the other.” You cannot have external security without technological capability and technological sovereignty, he said, as exemplified in Russia’s development of hypersonic weapons.
Likewise, how could a society come together to resolve national challenges with “a limping, sneezing and coughing economy? … And if there is no consolidation, there will be nothing else, either.” To secure both requires dealing with “basic tasks such as demography which means healthcare, environment, research, education and upbringing.”
Putin emphasized the importance of basic values, of culture. Here, he referenced a discussion he had with the Patriarch some time back about education, in which the Patriarch commented that “even though education was indeed crucial, without proper upbringing, we would not succeed at anything, because you can teach a person something, but the question is how they will use their knowledge.”
Thus, “if we do not rely on the basic values of the national cultures of the peoples of Russia,” Putin said, “we will not consolidate our society. Without consolidation, everything will fall apart. And the fact that we have to sort of defend ourselves and fight for it is obvious.”
It was in that context, then, that he made his remarks about Peter the Great and his Great Northern War which have Western commentators in such a tizzy.
Russia and China will not be bending the knee again…..fool me once, shame on you. Fool me twice, shame on me.
Putin’s quote is worth repeating:
The question is who are these nations colonies of? The US or the “Neo” elites that have seized the leadership of that nation within the past 50 years and set about transforming America, and through it the world, into their idea of what we should be?
Draft legislation submitted in Russia under which “LGBT propaganda” can be fined millions.
https://euroweeklynews.com/2022/06/08/draft-legislation-submitted-in-russia-under-which-lgbt-propaganda-can-be-fined-millions/
Will affect fb meta etc…
Conley is seen as one of the leading U.S. experts on Russia. During the administration of President George W. Bush (2001-2009), she was part of the U.S. State Department’s leadership team responsible for Europe. Conley now heads the German Marshall Fund, one of the most important trans-Atlantic think tanks in Washington.
In the Handelsblatt interview, Conley calls on the German government to speed up arms deliveries to Ukraine. “It’s no good if the equipment arrives when the battle is decided,” she says. The war is turning into a battle of attrition in the east of the country, she declared.
“The military situation is reminiscent of Verdun in World War I,” Conley explains. “Little scraps of land are captured sometimes by one side, sometimes by the other, with no one winning.” That’s why, she says, the West must continue to support the Ukrainian army—and do so for the long term.
Beyond that, “We must prepare for the use of tactical nuclear weapons,” she said.
Imagine the outrage if Putin was to say the same thing.
@peachy – did you guys change something? I can now access ezfka again. Not sure why?
Well, you said you’d free up and be able to do weekend links by June, so we had the site re-opened to you, so you can do your thang.
Until yesterday I wasn’t able to connect to EZFKA since the 24th May.
Sounds like something to do with cookies !
https://www.zerohedge.com/economics/australian-housing-expected-drop-15-according-countrys-largest-bank
It must be a lot worse than they are letting on
On the contrary, they are doing this so government prepares a package to support house prices.
Wifey just told me that her sister and her partner just refinance their home (it has gone up by $100,000 in the last 18mths) to buy a Hilux, which has a 12mth waiting list.
They both work full-time on average money and have no buffer.
They are already talking about how they are going to upgrade their house in a few years.
This is the way. #EZFKA
I always have skepticism when a bank says 70% of customers are ahead on their repayments. To me, the other 30% can make the difference between solvency and insolvency. But I guess the bailins will mean my skepticism is wrong.
Only 35% of households are mortgaged and that ranges from people who bought 25 years ago to first home buyers.
Anyone that bought 20 years ago is laughing, anyone that bought 5 years ago will be fine I imagine, it’s really only first home buyers without a cushion who are fucked if they lose a job. Even then they won’t be kicked out onto the streets immediately, and even when they are the banks will might leave the houses vacant until prices recover.
They’ll let people raid their super if they are mortgaged and in financial distress.
Anyone waiting for the day that prices drop by half or more and they’ll come swooping in getting a bargain is dreaming.
We still have the second highest household debt to GDP in the world. So someones holding that debt.
When 20%+ of new borrowers have a debt to income of six or more, you have your answer. Soy Boy is right, new borrowers are most exposed.
mmmmm here’s some beer coaster scribblings….2016 Census, there were 8,286,000 households in Australia
x35% = ~2.9m….and say 30%(???) get severe mortgage stress.
so <1m dwellings?
is that enough to interest blackstone/rock or vanguard?
if not, it doesn’t matter. the S.I. Visa class will get cranked up.
probably another opportunity to be long megabank
More seriously… Why TF don’t megabank do their own residential asset management companies for spinning off later?
For sure a 25% drop is on the cards just because people won’t have the borrowing capacity with rising rates, tough world economy for who knows how long will make people less confident about their future.
That just takes us back to 2019 levels.
Hilux is an appreciating asset these days, so maybe not so irresponsible lol. They do hold their value even the ones used by tradies or bashed around in the bush.
It’s crazy what people spend on a device to get you from home to work, home to the shops, drop the kids off somewhere.
I can not see the war in Ukraine ending soon. The West will have sanctions on Russia for a while. This will mean stagflation for the foreseeable future. I think rates will go up until they realise that raising rates is not getting rid of inflation like they hoped. House prices will go down a bit, but rents are rising strongly. So there will be no crash.
russia is slowly grinding out a victory by chipping away at ukraines army with never ending artillery blasts as i predicted
i think it has the potential to last into the new year, at this rate itll take a few more months to clear the donbass region entirely, then the fun really begins
when the Rotten West claimed Ukraina will be a war of attrition, they were right but in totally inverted way. The longer the Ruskies are excluded from direct transactions with westworld the longer the pain that Westworld will endure and the major crack are expected if not in autumn, the latest by the mid winter. Some small fatigue with Ukraina is alredy present
Shot in the foot will fatigue westerners to dump the Ukraina in exchange for revert to normal cost of food and fuel. Besides, it may not show up in polls due to fear of cancellation, my take is that Westworld plebs are aware the extreme patience Ruskies had for shitfluckery right at their doorstep, and that this is equivalent to poking the bear just way too much.
By now, you can safely assume that anything that Zelensky is saying, the opposite is happening. In Western MSM, the way you know what is happening is by the number of articles published. When little is published, you know Russia has the upper hand.
The US Military Industrial Complex with their government proxies are the ones that want the war to keep going. If you want to minimise pain and suffering, then you will want peace negotiations as soon as possible.
well, the only peace negotiation offer left now is total pacification, denatsification and deUSification of Uke.
Lügen Imperien will not accept that peacefully and until the last Ukrainian blood pulse.
Moar War, unfortunately
I think the US want to turn the western half of Ukraine into their own Kosovo.
Australian govt bonds getting smashed again
10Y nearly 4%
Lucky my order didn’t get filled last week.
will enter at a better price this week.
🥰
Are you still betting that rates won’t increase as much as that assumed by the yield curve?
ultimately – yes.
either they won’t increase as much or maybe there will be a bit of a bond market rally, where the market will go dovish (priced as increases won’t be coming)
Wouldn’t you be trading long dated bonds? Something about duration from financial mathematics and interest rates.
I guess you are betting that stagflation won’t occur or we’ll look through inflation when raising rates has done nothing for energy price inflation.
long dated bonds will definitely react more to changes in interest rates. But the trouble for me is that:
whereas a 3-4 year bond represents about the time scale for my outlook and also has the automatic fallback of letting it run to maturity to collect the face value if my view is proven completely wrong.
Looking at Sydney my initial prediction was units down 30%, houses 50%. Based on popular sentiment these last few weeks, reading comments on social media, etc. it’s clear I’ve overestimated the intelligence of people and we’re going down ever harder. Minimum 40% units and 60% houses.
Even here people seem to think that Joe Pleb is going to get bailed out. Why would the elites care about him and his ilk? It’s not the rich who are overweight property, they are well positioned for what’s ahead.
No, rates are not coming down next year, and prices falls are not stopping at 10-15% (look at local listings – in my affluent Sydney suburb we’re already down 10%+). Buckle up!
Maybe at the top end of the market in a market like Sydney you have huge falls.
I think some of you forget what the average Australian earns, unemployment low, Australia is a commodity country, self sufficient for food, huge energy reserves apart from oil.
Not to mention in a high inflation environment the average Australian full time wage will probably be $150k in 6-7 years.
The top end is still booming in Sydney
I mean 10m+
these people should surely be in the know
given the 10yr has nearly hit 4%, does it not imply that they know that wage inflation is going to happen
I think some of you forget this is not 70s. There is no abundance of wealth sitting in a previously gold backed currency scrambling to buy assets. There is no union power. There is no unemployed house wife prepared to work to counter rising mortgage repayments. It will be very different this time around.
I sense that Freddy is right.
the big easy asset price supports, such as second earner entering the workforce, have all been used/spent. Peeps are more stretched now, with multiple jobs & there is little reserve.
the remaining stuff is much harder and more artificial. super access, quadruple grants, stamp duty waivers, incremental demand squeeze through migration. These are all nice, but they are very poor substitutes for a reduced mortgage payment. A reduced mortgage payment is what is really needed.
so the things that would be in play to counteract rising rates, from a financial engineering perspective are:
or – back to “lower teh rates”.
The other alternative is a serious wage breakout (ie way beyond CPI inflation), but I would rate that as a remote probability.
Lower the rates is the key factor here
PE/rent multiplier
everything else only helps a bit at the margins
and I don’t think we’ve really understood the cause for the inflation
wages haven’t really gotten that far according to official data ?
so how much of inflation was
-“money printing”
and how much of it was
-supply chain / Russia
on the money printing side I feel the jury is out
long bonds didn’t really go anywhere while the fed was doing it’s QE
Only really took off after the Russia stuff
if it was mainly supply chain / Russia then rates depend on a detente
maybe the west concedes and makes nice
maybe Putin dies or is couped and western puppets take over
maybe Xi gets pushed out, the Covid policy gets abandoned
lots of political possibilities in play that would suddenly/dramatically reduce inflation , and rates would suddenly go down and house prices up
Here’s a bit of shifting deck chairs around on the titanic already
https://www.smh.com.au/politics/nsw/nsw-to-phase-out-stamp-duty-introduce-property-tax-20220612-p5at3p.html
Isn’t this more of the same?
$900k NSW house buyer, now has $36k (times leverage) more in their pocket going to auction.
Minus a small recurring expense as part of serviceability.
Incremental demand squeeze by migration will have an impact, but initially through rents. Rents have been increasing and this will cushion investors. With rents increasing and little rights, some will buy into the market. Won’t help the top end of the market unless we make the golden visa easier to get.
Peachy, I am not totally disagreeing with your sentiment. No doubt some things may be tried at Fed and State to support house prices.
All I want to point out is that RBA is attempting to destroy the possibility large wage rises by killing demand and raising the unemployment rate. Anything that would result in wage rises, or more disposable income (such as deductible mortgage interest) will be met with much higher interest rates.
I also feel that Fed govt knows that the more slaves they rush into the country to undermine wages, the less rate rises. Fed will only do their bit to make life a bit easier for those on minimum wages.
I would not be surprised to see Fed govt mortgage bonds make an appearance as they did briefly during the 90s. Get all the people in mortgage stress on a long dated fixed interest loan at lower rates.
We’re going to get wage inflation, just not like the 70’s where unions tried to maintain wages to cost of living. People will have to get used to buying a lot less for their dollar but they will get paid a little bit more.
A Hilux is $70k these days, Landcruiser with all the fruit $140k. Cost of building a house must be up 50% or more in two years.
But a house you can live in (or rent out and earn some money) on land (which they don’t make anymore) in a country a lot of the world sees as a somewhat insulated safe haven, economy that is insulated (and will even benefit) in a world with high food, energy, mineral prices, we’re going to have house prices slashed in half?
Can’t see it happening. Plus to most people home ownership is something to aspire to so you don’t have a property manager going through your shit making sure you did your dishes and made your bed.
‘nother lamp post candidate
https://fresheconomicthinking.substack.com/p/is-ed-glaeser-a-nimby?s=r
As I’ve long maintained, the easiest way to fix mass migration is to build a housing commission tower block next to each compound owned by Lowy, Triguboff and any relative of Amanda Vanstone, then fill them with African diversity. Then continue buying and building housing commission tower blocks next to every property any of the above or their relatives move to ever afterwards.
House prices will be zero because of the imminent collapse of the debt based economic system. I am not a financial expert but a behavioral scientist.They would not be so open about a new economic order if that weren’t so. They don’t care now about what we think or what we want. They are just going to implement CNBC and have total control of our money and our lives – did you even hear what the wef was saying at Davos recently ? The jabs are just the bankers coming for our pound of flesh. All debts will have to be wiped and they don’t think debtors deserve to live about this
Calm down houses are not going to zero LOL
will the be “negative”, like the interest rates?
😄
crypto is tanking right now
btc under $26,000 at the moment
as usual there’s a tether rumour floating around
Has any of these tether rumours proved true?
Well that escalated quickly
how is the ezfka Wealth Peachy fund going ?
Looks like Stewie might win his Bitcoin back!
Huh?
i mean Bitcoin might finally dip below $20k… 😋
Yah – it’s just taken longer than I thought. I really can’t see it stopping before it gets below $5k.
Interesting that Celsius (and BlockFi) which mentioned in my last crypto post just before Christmas, looks like it is on the verge of imploding. The fall out from UST and Luna all but guaranteed it.
Everything I’ve been saying will come true, it is just taking longer than I imagined.
To build new houses the cost of material and labour has probably increased a minimum of 50% in two years.
ASX 200 futures down over 5%… Strap in for a bumpy ride!
5%, huh?
that is rather a big number for one day. Should be fun!
https://au.investing.com/indices/australia-200-futures
https://youtu.be/Q3KFS4Y4hT8
That was a bit painful to watch. Crazy John is just not a great presenter. Although he is much better than I remember he used to be back in the day.
I couldn’t work out whether he was saying that the Fed would actually
the latter seems more likely to me, but I’m too lazy to check what the Fed actually said. In some sense, I suppose it doesn’t matter all that much in aggregate, if every month they shrink their holding by $XXb.
this video did get me thinking about the idea of whether the cash rate needs to be jacked up above the inflation rate in order to squish inflation. My feels is that even if this was needed in the past, it’s probably no longer the case.
ill do a separate comment on that just below.
It’s funny because I considered putting a caveat about John being a bit of a crazy bear but this video actually had something to add for once. The decision to be made about housing v inflation got me thinking for sure.
Either way if we get a John scenario of interest rates above 10% or a bcn scenario, then everyone will be fucked, them included.
here are my thoughts:
first – we assume that somehow the current inflation can be squished by interest rates. This is debatable in itself, but it’s not what I want to comment on.
I want to compare the current episode of inflation with the historical ones.
I sense a couple of differences:
from point 1, adopting a cashflow view (as ultimately everyone does, both businesses and consumers) I think it follows that lower rates of interest today will have the same braking effect on behaviour as higher rates of interest previously.
from point 2, I think that the mechanism of action of interest rates is now significantly different. Previously there’d have been a significant element of interest rates placing strong pressure on businesses … businesses that were otherwise expanding and offering higher wages to attract and retain staff. Hammering the businesses (sometimes right into the ground) relieved the wage pressure in part by creating unemployment.
presently, interest costs will hit the mortgage borrowers. This will spank demand for everything …and also ultimately create local unemployment.
This effect will be much quicker, because gearing is higher AND consumers are much less resilient than businesses. Businesses have balance sheets that can absorb some pain and have the ability to try to trade through. Consumers have no balance sheet, they are pay check to pay check. They are more pure cashflow machines.
the other thing now is that the wage increases now are measured in bees-dicks.
these are my thoughts. These are behind my feels of why I think now is a decent time to buy some bonds, as there’s a good likelihood that things will break and then the interest rate doves will swoon.
theres another point of view that states that higher interest rates will INCREASE inflation
First, by discouraging investment into capacity expansion (particularly oil exploration and drilling)
Second, all those reserves/not money printing that the fed created will now earn more reserves in interest (which are also created from nothing)
Did you ever look at that link I sent you
can you share the link again? I probably read it…..but often I read long pieces a number of days after they are posted and by then it’s too late to go and reply to the comments.
This all goes to my initial assumption that interest rates can do anything to inflation at all, at the moment.
certainly Australian rates won’t do fucking shit to the amount of drilling etc.
I think the 500 goes to 3400 if it can’t hold 3800. I bought SDS at $45.23 as a trade. We’ll see how it goes.
The sun king returned to MB in triumph this morning !
seems like he changed his username , did they really ban him (again) ?!
Skin is paper thin over there
anyway what does everyone make of this ?
a bit incoherent , but I think he’s saying that rates won’t get much further before there is some kind of credit crisis , then we will get more QE/money printing, and the whole system will collapse into hyperinflation ?
it suffers from the MB effect in that it’s not quite internally consistent
BCN is a good story teller. A bond trader would understand why rates were so high. In the late 80s wages were rising 10-15% pa. House prices doubled between 1987-89. This is the period that Boomers went for gold having already paid off their mortgages early due to persistent wage inflation, then accumulating their portfolio of IPs.
To get rates at 25% it is implying wage growth of 15-20%+ pa. I suspect union bosses would be in prison before they had the chance to get that kind of wage growth. In any case, I don’t know how house prices can fall 90% vs that kind of wage growth. Maybe in real terms. Nominally, they might briefly fall hard before taking off like a rocket as soon as wages catch up to repayments.
yeh, for sure. If we see 10%++ wage growth (or even 7%, say, for a number of years), then a $1.5m house is going to look cheap pretty quickly.
and unless lending is restrained (which perhaps it might be, but that’s not where the trend has been) nominal prices will be supported as the wages catch up.
yes, that’s why its not internally consistent
(like the MB thesis of zero rates and a house price crash)
what doesn’t make sense to me is the theory that higher prices lead to wage inflation as workers demand more money to compensate
smells bullshit to me in the same way that the housing bull theory of higher interest rates lead to higher rents does
Workers will always try to get the highest wages possible, and landlords the highest rent possible, regardless of prices and interest rates
Then it comes down to supply and demand surely
I don’t really think we have seen any major wage growth yet, and not really sure there is much on the horizon though it would be the best way to escape from the current doom loop
There is a link there which is why the RBA would be panicking. Unions pushing for inflation linked wage increase at Federal and State government.
“the government argued the wages should not go backwards, following the consumer price index rising to 5.1 per cent”
Labor Anthony Albanese back 5.1% minimum wage rise Fair Work Commission Australia | Daily Mail Online
“PSA general secretary Stewart Little says government worker wages should rise in line with inflation”
NSW public sector employees strike for 24 hours over 3 per cent wage increase offer – ABC News
yeah, there’s an abstract link
but the practical link, these days, seems rather tenuous.
in the old days when stuff was manufactured locally, the higher prices could feed into higher wages. And higher wages into higher prices.
now when stuff is predominantly imported (set aside food, which is produced here*)
so where are those wage rises going to come out of? Possibly profit margins? In itself that may be a positive distributional effect, but it ain’t the same mechanism as in yesteryear.
I agree. The wage/price inflation spiral is not what it used to be. I doubt RBA’s models are that sophisticated.
why would they not have striked for a bigger share when profits were booming?
Now they’re getting crunched by falling demand and higher material costs
It doesn’t really make any sense, but I guess unions and workers aren’t rational either
Because they were at all relevant times (even when profits were booming) in a precarious position, effectively expendable.
Seems like there’s never been a more precarious time than now to lose your job when a lettuce costs $12
So true.
Lol 🤣
👌
https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-11