For those interested, perhaps 2016 will be a good year after all.... So far 2016 hasn’t known whether it’s coming or going. The stock market was about to crash, and then it wasn’t. The property bubble was about to burst, then it wasn’t. Confusing to say the least. But then last week two pieces of good news that flipped sentiment on its head. First up, we had a stronger than expected print on Australian GDP. Australian GDP increased 3.0% over the year. That’s a very good clip. It’s faster than every economy in the G7, and much faster than the OECD average. Importantly, it’s “above trend”. That is, it’s better than we normally do. So in the eyes of the market, it’s a good news story. It’s a very good news story. Resources investment was a drag on growth, but that was always expected. Strength was fairly broad-based and it looks like Australia is pulling off the transition. Phew. But that wasn’t all. We also had an unusually strong employment result in the US. Actually, it was unusually perfect. Because what it showed was that jobs growth was still robust – up a decent 242,000. American job creation is holding form. At the same time, the unemployment rate held and at a more-than-comfortable low of 4.9%. But what makes the jobs data so perfect is that there is no evidence of wage-price inflation: wages have risen just 2.2% over the year. That means the Fed can just take it easy. There’s no rush to raise rates any time soon to head off inflation. They can just relax. And that means markets can relax. One of the quirks of the Quantitative Easing era was that good news was bad news. When the economy looked good, people worried that the Fed might take the sauce away, and share prices dropped. Good news became bad news. But last week we saw good news that was good news. Markets welcomed it. And with two pieces of strong news, suddenly the world is a rosier place. The fears of total economic collapse have faded to the background, and things are looking steady, both here in Australia, and globally. Good news. And of course, that’s good news for the property market. Everyone was wondering how the start of the year would play out. Improving sentiment will help the momentum we’ve seen building in recent weeks, and the market will be driven by fundamentals more than sentiment. Those fundamentals are still a mixed bag, with resource states WA and the NT struggling. But overall, the outlook for property remains solid.
On the surface our economy is the envy of the western world. 25 years without a recession! However, we’ve done it on borrowed money. --We haven’t saved a penny and we’ve just gone through the biggest commodity boom in history. --Our net international investment position stood at a deficit of $950 billion at the end of December. By the middle of the year, it will hit $1 trillion. In other words, we have no savings to protect us when the inevitable slowdown comes. --A lot of people think that our world class superannuation system means our saving levels are high. But the above deficit takes into account all the money pumped into superannuation. --The problem is that our love for debt-fuelled property overwhelms our superannuation ‘savings’. We borrow heavily from overseas to satisfy our demand for housing loans. And we have to pay interest on these loans. This is why Australia runs a constant current account deficit. The interest bill on our net debt is massive. We’re spending around $45 billion per year servicing our net debt. --Yet you never hear about this. You only hear complaints about the government spending and the interest bill on government debt. --I’m sorry, but government debt isn’t Australia’s biggest problem. It’s private debt, invested in land, which provides little to no productivity benefits. --Despite this well acknowledged fact, there’s been a storm of lies and misinformation about tax reform designed to increase productivity in this country and direct capital away from chasing a land boom. --Go Australia!
That's a great article @MTR . You'll need to put the link reference in and maybe not so much copy otherwise @Simon Hampel /propertychat will get in trouble for copyright.
Usually the markets boom when the experts come out calling crashes. Its a prett easy game. Do the opposite of what they say.
2016 is an election year in both countries, so all the good news should be taken with some salt, the real situation is not that good as it looks.
