Hi All, hope you’re all going well with family, fun and finances!
You are receiving this email as at some point I have spoken to you about finance or done loans for you.
COVID rolls on, but we are of course the lucky State, for once, our isolation, clean air and big open spaces, is helping us keep COVID out of our communities and hence the cogs of the State turning under less disruption and PRESTO we have the Grand Final here!
I’m hard pressed to think of many Industries that aren’t feeling the curious effects of a COVID driven spend mindset.
Restaurants are full, coffee shops, local manufacturing, lending for finance, local tourism are all benefitting from people spending at home. I’ve found out the hard way if you want anything made or ordered in, you’ll need to wait and get in line, as the demand has gone thru the roof, with supply chains battling to keep up.
Employment agencies are struggling to find people to meet demand for Projects locally and in the North. The State Government has pressed the button on several infrastructure Projects to keep the State bubbling along and the Building Industry is currently hooked up to a big bottle of adrenaline to get people into houses and jobs into the market.
I don’t want to be around that Industry when the stimulus finishes! WA’s boom and bust cycle will continue there that’s for sure. Those who receive the $50K bonus to build may well find they lose that much in a few years’ time when they look to sell in the mushroom suburbs they were pushed into.
We have several twilight scenarios going on at the moment that basically defy traditional economic logic. Previously we could look at the Economic Clock and follow the push and pull of cyclical markets, the ebb and flow of housing and stocks, controlled by the accelerator pedal of the cash rate, set by the indominable Reserve Bank. They tweaked it up, they tweaked it down in studious deliberation, balancing the cash rate and inflation on one of those old times scales, so we fired on all cylinders like a well-tuned machine, well maybe with a bit of a smokey exhaust!
We relied on Keynesian Economics, as its termed, conceptualised in the 1930’s with one of its main weapons using Government Stimulus and money printing to invigorate a stagnating economy. This grand idea has been in play ‘big time’ worldwide since the GFC in 2008, where every economy was basically cooked. The response was to increase cash liquidity (money printing) along with lowering interest rates.
This has adversely provided two problems. The boil that needed to be lanced to release the shonky practices that caused the GFC, was covered over, buy ‘Bail Outs’ and Money Printing, allowing the current market to continue build and the excesses to continue.
Also, the ensuing tsunami of cash and low rates have exacerbated the problem. There’s so many ways that the concept of money can be sliced, diced, and multiplied, it has created huge complex revolving tumblers of cash. Throw into that mix an exponentially growing Superannuation national portfolio of over two trillion now in Australia, and you can see the Markets are awash with cash, breaking the mould of periodic cash shortages and excess, typical of a traditional Economy, that turned the economic clock.
Without a shortage of cash and liquidity and the access to cheap money, all Assets Classes are inflated. The housing market is marching on, the share market can do no wrong, each stumble is patched over, as the tide of funds flows back into the market, simply because it has nowhere else to go.
The RBA is currently pumping in $6 Billion a week into our economy
Economists have now coined a phrase for this new phenomenon as “Modern Monetary Theory”.
They postulate that major Government Deficits can run higher without being paid out and that if inflation starts to rise, its controlled by creating more jobs and lifting national production by printing money.
So essentially, creating money out of thin air, just like throwing petrol on a fire. Can’t see a problem with that…
The last time civilisations tried it, the Greeks and the Romans, it ended their society for good!
As for Trade, we pretty much married our biggest trading partner! and accepted everything she offered and would take from us. The relationship got intimate, a lot of Export Markets relied on the premiums prices China paid and how do you boil a frog? Raise the temperature of the water ever so slowly until the frog goes belly up, dead, not realising the hot water it was in!
Well, that’s us and many other Countries for that matter. COVID has taught us that.
In the ensuing spat with China about the Virus origins, Scomo poked the cat by making leading statements on its beginnings and our Markets unravelled from there, as our big trading partner slapped us down and put us in the doghouse.
How are we going now? Funnily enough, in the last 12 mths, our Terms of Trade, (exports going out vs imports coming in) has risen massively, mainly due the inflated commodity prices. We all know the iron ore story, sitting at $US160 tonne with cost of production less than $AUD30 for most producers. They are literally moving mountains of ore, which requires a bit of crushing and screening before being shipped off the market as a Raw Product.
With got 50 years left at this rate…A couple of shovel fulls from each rumbling wagon goes in State Royalties and the rest is KOWABUNGA, Moola, going directly into the pockets of WA’s finest citizens and philanthropists.
The State Govt received about $5 billion in Royalties last year from Iron Ore, which is a pinch on total revenue, so that gives you some idea how much cash was produced by this sector of the market.
One so called spin off is that Twiggy Forrest and Gina Rinehart are the only ones who can compete with the Chinese on buying our Assets. They have both diversified into agriculture, aquaculture, commercial property acquisitions and cattle stations, at least keeping assets in Australian hands.
So mining is doing well and also Manufacturing.
Walking thru the forest now without our big mate holding our hand has meant we have pulled up our sleeves and gone about things ourselves.
We’ve been meeting our own local demand as we look inside our own shores for our dollar spend. Usually billions is spent overseas on travel, now that money, along with Govt Stimulus Packages and Bond buying ( i.e. – printing money as well) has supercharged local industries nationally.
It’s still tough out there for sure, I mean, once you end up making a dollar, most of it has been ripped and torn from you with the myriad of things making up the costs of production in this country.
There’s just enough candy to suck on to keep small business going. Business Owners are very proud of what they created, so they battle on, manoeuvring the minefield of compliance and govt regulation, high costs of labour and tax burdens to derive a proud living.
Inflation has come in at 3.8% this quarter, which is the highest number for a long time and outside the upper limit the Reserve Bank sets to act. (Usually between 2-3%). They won’t be moving on this number any time soon, as they realise that it’s an inflated number, caused mainly by the money printing and Govt stimulus packages. Once the stimulus balloon pops its reckoned inflation will settle again around 0.8%.
The Lockdowns in Sydney and Melbourne will have a huge impact on the National Economy for the September quarter. These self imposed measures will knock us back quite a bit as businesses struggle to keep going and also keep a lid on interest rates going forward. We may even have two quarters of negative growth leading into the end of the end, which is termed a Recession, but it has been a self-imposed sanction, that will be resolved once Lock Downs finish.
For the Property Market, we hit a switch about 6-7 months ago here in WA, where people decided they wanted to buy again. FOMO set in and people wanted a house to quit renting or upgrade. This is pretty much a national trend corresponding with Listings down about 30%, (Fence Sitters), people wanting to stay put and not sell and others wanting to buy, which equals high demand.
Every capital city has had price rises these last 12 months and this trend looks to continue into 2022, but maybe slow in 2023 as lock down’s cease and borders open to allow people to move around more.
Perth has lagged behind most other Capital cities and indications are that after this spike, Perth will drop back a bit again unless we have some serious immigration. This is the Wild Card in the pack, and when the COVID has become manageable, I think we’re going to see some serious Immigration Policies to lift our States out of Negative Population Growth and also fill those menial jobs some Aussies don’t want to do!
Again, Rentals are very tight in metro and regional areas. I think people living together in close quarters has forced them to seek their own accommodation. We have no Immigration, so the stimulus has come from within our own population which I find surprising, especially with the ramp up in new builds.
It’s very weird but it’s all part of the self-consumption now occurring. We’re relying on our nation’s resources. Many have come home from overseas and are looking for permanent homes here where things are safer.
It’s the same story overseas, the US housing market is up over 100% since the GFC.
Interest rates will remain low for the next 12- 18 months if we continue along the same trajectory. If you have a Mortgage, check your rate. If it is above 3%, you’re paying too much.
I call it a Mortgage Loyalty Tax. The longer you’re with a bank it seems, the more you pay to them in disparate rates between what’s cutting edge and what you are paying. Somehow, you fall thru the cracks and end up at the wrong end.
The best way to get a rate cut is to fix your rate. Currently fixed rates are below the best variable rates, so if you are confident that your position won’t change in the next 2 years, talk with your Lender about fixing your mortgage and paying much less than your current rate.
If you have paid down your mortgage to less than 80% of your property worth, then look at refinancing. Some Lenders have ‘cash back’ offers going where you will receive up to $4K on any refinance over $250K you do. So you get a better rate plus cash in your back pocket. Not a bad deal…
Let me know any questions and scenarios.
Comments