Market impact of a liberal win

I don't see any recession on the cards at all. And this election imo was absolutely essential to win. It was basically a referendum on socialism or capitalism. You choose. And Australians did.

 

We had a short break at our favourite Sunshine Coast location (Mooloolaba) over a week ago. Normally at this time of year it’s overrun by retirees. However this is the first time I’ve ever seen it so incredibly quiet. I can’t help but think that a lot of retirees were really worried about the loss of franking credit income under Labor and we’re being cautious with their money.

I’m guessing normality will return with the worry of Labor’s attack on retirees now gone (for now) and the existing Gov’t returned.

 

ASX200 Market at 6'461.1 at present

First time over 6'400 since 2007

 

The election was not a “referendum on socialism or capitalism”. The majority of Australians are very supportive of socialist policies, and we don’t have the same bizarre hysterical dislike of things like universal healthcare as America does. Most issues seem to turn on how to apply our strongly socialist policies sensibly and affordably. Labor lost because their policies were sold very poorly and because Shorten has about the appeal of eating dry spaghetti. Still, I don’t think the Liberals were expecting to win. They ran on basically no policy, and so Labor left themselves vulnerable to scare campaigning.

None of this has anything to do with whether Australia will have a recession. GDP growth is non-existent, and another negative quarter will see us in recession. Even if that doesn’t happen wage growth is at a decade low and consumer spending is miserably low. Job ads are also down more than 20% in many industries on the seek employment index (This is the ugliest indicator on Australia's jobs market we've seen in a while), which strongly indicates unemployment will rise in those industries. Construction, advertising, trades, retail have all seen huge falls, and we just saw a rise in unemployment. When the RBA cuts rates, and it probably soon will, it’ll also be seen as a sign the economy is weakening.

Australia is at a very high risk of recession. The election had nothing to do with that risk.

 

That's what Bill thought. He's now RIP.

 

Thats great insight but dont be too confident on day 1. There could be loss of confidence in policy changes from labor and people might be tightening there hatchets in response well ahead thinking labor would get in. give it a quarter to see how things progress. I do agree that economy is not run by govts; its run by sentiments and RBA.

 

If the ASX is any example just looking at the banks CBA is up over 5% and several others in the same trend ..

Sentiments change very quickly ...

 

This morning, I had a phone call an REA (one who I have known for a long time and whose thoughts/opinions I respect).

He told me the last few months were very slow and tough.

Then, after Saturday night’s outcome, he got a phone call yesterday morning and had a contract signed/accepted by last night. Property has been on the market for months.

This morning, he had a call from another buyer. Property has been on the market for 3 months and this buyer is talking the right money. The REA is hopeful of another contract by tonight.

Before property prices can rise (or at least, stop falling), we need buyers to have confidence.

I know it is early days but it looks like some people have the confidence to get on with ...

I feel this is pent up demand from the last few months. This might take 3 to 4 months to work its way throug the system.

Then, by August/September, we will have warmer weather (the Spring bounce), we will have had tax cuts, we will have an interest rate cut, we will have the banks loosening their finance restrictions, we will have had months of increased confidence, ...

Time will tell. Let’s hope anyway.

 

On socialism, that’s that more than five decades of policy indicates. The Liberals are still pretty socialist. Yes, less than Labor, but there’s nothing to say socialist policies were a deciding factor at all. They seem to have lost on the franking credits and negative gearing issues, which are not social policies, but tax policies. Labor didn’t run on any particularly socialist policies (e.g. raising the dole, introducing better universal health care). The Liberals haven’t tried to go after broad policies like medicare either, in the last several terms, beyond slight benefit tweaking. Yes they’re a bit more austerity happy but that doesn’t mean they are anti-socialist, or that the election was some sort of socialism vs. capitalism discourse.

On the stock market, the ASX usually spikes after elections. Same with most international markets. There was even a US study on this that showed stock markets had strong (though sometimes short lived) rallies after every single election since WW2. It means almost nothing. There are many studies from other countries showing similar trends, with almost all general elections seeing stock market rallies afterwards. Curiously some studies have shown right wing governments tend to lead to greater rallies in stock markets. It doesn’t translate to housing markets, and there’s no reason to think it should, because housing markets move much more slowly and depend on lending and supply, unlike (usually) stock markets. The stock market rally means nothing for the economy.

On housing, we're not going to see a turn real around unless lending loosens up a lot. Like a real lot.

 

Devil's advocate here, but this could also just be the fact stock is low coming into winter. Again if people were worried about Labor's negative gearing policy, there would have been a huge rush to get in corresponding with the announcement, espeically when a Labor win looked almost certain. We just didn't see that, which suggests it didn't have a big impact.

 

Is your REA friend from Brisbane? It would make me extremely happy if he is.

 

No offence but we have had enough of devil's advocates

There are other internet forums (like whirlpool and Reddit) where majority of users have fooled themselves into believing that Sydney property is 50-60% overvalued yet they will downvote you furiously if you questioned the wisdoms of investing into crypto.

There is much more reasonable crowd here but still a fair share of people who were hoping for a 30% Sydney crash as recent as 6pm on Saturday. Guess what there is not going to be a crash and those sitting on the sidelines may have missed a great opportunity to buy in Sydney at 10-15% discount from 2017 peak.

A rate cut or not, it's a matter of days before prices hit peak levels again. Well done to the courageous ones who bought in last 12 months.

 

agreed to some extent. prices are too high as well. so people cannot upgrade due to slow growth and high cost of property transaction. I wouldn't call a crash but stable on going chatter for few years.

 

Are you saying prices are going to rise back to peak levels "in a matter of days"? What? Oversupply and tight credit aren't going to magically disappear.

 

Royal commissioner would frown at you on this comment. NG is only a factor of the downturn and irresponsible lending and RC the big slice in the pie.

 

Its much more than that though.
Its general sentiment from uncertainty. I would argue majority of people sitting on the sidelines didn't even understand what the tax changes even meant (nowhere near how we do!). I know a few FHB mates who are personally "Sitting on the sidelines" until the election is over. When i ask them they don't even know what negative gearing or CGT is!

They just understand that their is huge changes if Labour gets in and this will undoubtedly flow on the market. With these no longer in play then its just business as usual = NO Uncertainty.

The other thing is just generally a change in Government. People need to allow time to absorb what that means, regardless of any property specific policy. With Liberal remaining in power, their is much less uncertainty.

 

What makes you think that Royal commissioner would dislike the idea of market recovery and that it would be any of their business which way market goes?

 

Market recovery in-terms of responsible lending and healthy income growth is what RBA or RC would hope to see. not where we are coming from in recent years.

 

I surely think so.

Tight credit is there but no oversupply given gradual drop in listings. May be some fringe suburbs have oversupply but new developments almost came to a halt leading up to the elections so supply constraints will start to surface fairly quickly.

A lot of buyers have been sitting on sidelines expecting further falls. They would have saved up bigger deposits than what they had a year ago.