Archive for August, 2008
Britain’s Treasury chief has told a newspaper that the country is suffering its worst economic crisis for 60 years, and more pain is yet to come.
» UK economy in ‘worst crisis’ in 60 years – The Sydney Morning Herald, 30th August 2008.
» UK in ‘worst downturn since WWII’ – The ABC, 30th August 2008.
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And here come the job loses :
A survey has found that four out of every 10 businesses have cut their workforce since May because of the deteriorating economy.
» 40pc of companies cutting jobs: Sensis – The ABC, 28th August 2008.
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A senior banker in the UK says the economic turmoil gripping the world is at least as bad as that seen in the 1970s, and will drag on for considerable time.
Charles Bean, the BoE Deputy Governor said “the downturn was at least as bad as the 1970s oil shock and possibly as bad as the Great Depression.”
» Economic turmoil ‘as bad as the 70s': banker – The ABC, 26th August 2008
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HOUSE values are bleeding up to $7500 a week as a downturn in the property market hits home.
Top-end properties are selling for $200,000 less than they achieved late last year, while the average $400,000 home has lost about $40,000.
» Boon for buyers as house prices tumble – The Herald Sun, 24th August 2008.
Posted in Australian Economy, Australian Housing | Comments Off on Melbourne : Boon for buyers as house prices tumble
Britain’s economy saw zero growth in the second quarter compared with the first three months of 2008, official data showed Friday, leaving the country on the brink of recession, analysts said.
» Britain’s economy stops growing in second quarter – The Age, 22nd August 2008.
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News Limited Journalists have crafted up an article today which originally was titled Housing bubble ‘set to burst’.
HOUSE prices could fall sharply if a global slowdown continues to hit the domestic economy, forcing up unemployment and causing repossessions to soar.
However in continuing with their Reserve Bank bashing, the headline was later changed to ‘Rates cut could come too late’ again blaming the RBA for this mess.
House prices in Australia have risen more sharply than comparable nations and leave us exposed to a sharp fall as soon as unemployment rises.
Economists are warning that Australia’s property is even more overpriced than in America, which has seen prices slump by as much as 40 per cent in some areas, and no bottom in sight.
And a report last week warned that Australia has the most expensive property in the world, relative to incomes.
but the truth comes out :
“Australians have been living on excess for many years, spending too much on property, on credit cards, on everything.
» Housing bubble ‘set to burst’ – News Limited, 10th August 2008.
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Something must be done! This is something. Therefore it must be done. Following such logic, governments have blundered into all sorts of interventions which they have subsequently lived to regret.
But don’t prop up house prices. They have got wildly out of line with the economic fundamentals. They can only get back into line by falling or by the fundamentals adjusting to those prices. The latter would mean higher wages and salaries and that would entail much higher inflation for several years. That is a route we should want to avoid at almost all costs. Accordingly, it is house prices that have to do the adjusting. The faster that they fall, the sooner that they can get back to a reasonable level and normal conditions can resume.
» The faster house prices fall, the better off we’ll all be – The UK Telegraph, 4th August 2008.
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Yesterday, the Australian Bureau of Statistics released stats indicating Australian retail trade fell 1 percent in June. This was a surprise to financial markets who expected a 0.1% rise instead.
The Sydney Morning Herald reported sensibly that
Retail sales have fallen in four of the first six months of calendar 2008, as consumers battle high interest rates, soaring fuel costs and heavy losses on share markets.
As well, the commercial banks have lifted their mortgage rates independently of decisions by the central bank, in a bid to recoup higher funding costs in wholesale money markets.
This Morning’s headline news in The Daily Telegraph was “RBA’s Retail Recession – Rate rises backfire as families cut spending“. It was plastered in bold across the front of the first page.
THE Reserve Bank is under unprecedented pressure to cut interest rates after figures released yesterday showed the economy is on the brink of recession. Unless rates are cut soon, we face the sharpest economic downturn in 16 years, experts warned.
The article went on to confidently say
IT’S official, the Reserve Bank has gone too far with its relentless run of interest rate rises, with economists now calling for urgent rate cuts to save the country from full-blown recession.
So there you have it – It’s now official it is the Reserve Bank’s fault! Never mind the fact that Australia and possibly the world is among the biggest housing bubble ever, fueled by cheap credit provided to speculative owners and investors who can’t afford it and then packaged into securities through credit derivatives and collateralized debt obligations and off sold to unsuspected institutions backed with excellent credit ratings. This rapid growth in house asset prices then fueled retail spending through the wealth effect and this retail spending fueled company profits and shareholder returns.
Maybe, just maybe it’s that wealth effect. Just as consumers feel wealthy and spend more when their assets are increasing in value, with recent big falls in share markets, super funds and with the housing market doing a U turn, maybe consumers have put the breaks on spending.
The last time I looked, the Reserve bank wasn’t in control of oil prices or international credit markets. Even if the RBA choose not to increase rates, the credit and housing bubbles which has been growing unsustainable since about 2002/03 would pop sooner or later. It was inevitable.
But none the less, there is now “unprecedented” pressure on the RBA to reverse their “relentless” run on interest rates. The real trouble now is a de-coupling of official interest rates and the cost of obtaining credit in the global market place. The credit purse strings are being tightened and just because the RBA *may* later in the year decide to reduce rates, doesn’t mean the banks cost to obtain credit becomes cheaper.
By 2003 the housing market was already at giddy heights. Yet the media continued to talk it up running countless front page articles around the country suggesting prices can only go one way and houses double in price every 7 to 10 years. In one such example, News Limited, via it’s Adelaide Sunday Mail published in February 2007 an article under the bold front page headline of “Future Shock : Welcome to our millionaire city”. Even though the article mentioned house prices had unsustainably increased 160%, yet at the same time wages had only increased 54%, it went on to make the predictions by simply applying the annual 8.7 per cent growth rate recorded by the Valuer General’s office in the past decade to the next ten years. Simple Ha?
If News Limited Journalist’s have anyone to blame for this recession, maybe they should look closer to home.
Posted in Australian Economy | Comments Off on The ‘R’ Word.
There has been some smug remarks in the media, that Generation Y wouldn’t know what a recession is; They have always experienced boom times.
I hate these generalisations. How can every Generation Y, Generation X or Baby Boomer be the same? Everyone is an individual, some are lazy, some outgoing. Some are financially savy, some aren’t.
In my early thirty’s, I sit on the fence between Generation Y and Generation X. I consider myself more a generation Y than anything, likewise most of my peer group.
With all the media headlines today about the impending Recession, I had one home owner friend contact me tonight and ask :
What does a recession mean?
My immediate response was it is two or more quarters of negative economic growth.
There was a short pause from my friend, followed by the response “in simple persons terms?”
I then briefed him that consumers generally cut back on spending, the economy contracts and as retail, services and manufacturers see dwindling demand, jobs get axed.
His response was so “interest rates go down?”.
This was seen as a good thing until I cruelly said, yes, but that’s after you loose your job. I felt that he couldn’t comprehend the seriousness of the issue.
Later in the night I was talking to another mate. He said during the course of the day, his fiancée had asked the same question. With all the hype in the media of a recession and as Australia as had 16 years of continued economic growth, maybe New Limited should publish a piece on “What is a recession and what does it mean?”
Posted in Australian Economy | Comments Off on What is a recession?
Well what a week it has been. You could be mistaken for thinking every single Australian is pessimistic about housing. We have now got to the stage there is so much bad news it’s impossible to reference even a small subset of it all.
It’s now interesting to look beyond the Australian media to overseas to see what they are saying about the Australian Housing Bubble. This article from the International Herald Tribune is just one :
SYDNEY: Australia may be headed for a housing recession similar to those roiling the United States and Britain.
Prices in the property market — described by the International Monetary Fund in April as one of the world’s most “overvalued” — will fall 30 percent by 2010, according to Gerard Minack, senior economist at Morgan Stanley in Sydney. Prices dropped in all of Australia’s major cities last month for the first time since just before the Great Depression.
“I panicked” when the figures came in, said John Edwards, chief executive officer of Residex., a Sydney company that tracks property prices. “We’ve been doing this for 20 years and have data that goes as far back as 1865, and it’s really abnormal.”
Gee, now don’t everyone panic and please what ever you do, don’t sell all your overpriced assets at once. You could flood the market.
“Australia is headed for a once-in-100-year real-estate slump,” Edwards said. “I have never seen the convergence of so many negatives.”
O.k., now panic.
Household debt has almost doubled since 1999 to around 160 percent of incomes, a higher ratio than in the United States and Britain, according to AMP Capital Investors. The median national house price soared about 140 percent in the same period.
Something we have been preaching here for a couple of years now.
“By every metric I can think of, Australian houses are too expensive,”Minack said, costing an average of six years’ earnings, double what Americans paid before their property market started falling in 2006.
Where’s a baby boomer when you need them, “In my day . . “. Oh, that’s right they are too busy looking at plummeting super assets. It’s a worry.
» Australia facing housing slump – The International Herald Tribune, 31st July 2008.
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