Lies, damn lies and pointless statistics

new “experimental analytical index” uses census data to measure relative socio-economic advantage and disadvantage for households in very small areas

An early contender for this week’s most pointless news article and even more pointless research has emerged from the crowd.

Disparities in social advantage within Sydney suburbs have been revealed by data that shows a pocket of about 80 households in the northern suburb of Frenchs Forest is the city’s most well-off locality.

Six of the 10 most advantaged suburban enclaves are located in the city’s north-west, but none are in the east, the Australian Bureau of Statistics new Index of Household Advantage and Disadvantage (IHAD) shows.

The second most advantaged neighbourhood was a cluster of just over 100 homes not far from Taronga Zoo within the harbourside suburb of Mosman.

Or put another way, “areas everyone already knew were affluent, are affluent“.

No, seriously.

If you have five minutes spare and fancy a chuckle, read the methodology here.

According to the calculation, if your mortgage payment exceeds $2,800 a month, you are “advantaged”. Lucky you!

In total, there are over 50 variables that have been shaken together in this advantaged/disadvantaged cocktail to provide the lovely colour-coded map reproduced in the news article.

When all the data has been crunched, what did we learn?

The people living in expensive areas with new German cars on the driveways of large houses with swimming pools are, in the main, “advantaged”.

Bill’s Opinion

When the employees of the Australian Bureau of Statistics go home on a Friday evening, do you think they tell themselves they’ve moved the human condition forward at all?

The same question applies to “churnalists” such Matt Wade and Nigel Gladstone.

The secret to becoming a millionaire in Australia

….is to invest three million dollars into a business built by a real estate “entrepreneur”.

Exhibit 1 McGrath Estate Agents

John “Million Dollar Agent” McGrath has presided over one of the most classic examples of wealth destruction of our time. I think the people we should feel most sorry for are those who bought into the bull traps in 2016 and 2017. It must have been like that exhilarating feeling a surfer gets as they catch a large wave but then realise they’ve got the angle wrong and are shooting to the bottom rather than gracefully gliding across the face of the wave.

Exhibit 2 – Yellow Brick Road

It would seem others have been paying attention to Mr. Bouris too:

ASX suspension? What ASX suspension?! Yellow Brick Road’s Mark Bouris has spent the week since the business failed to lodge first-half accounts doing what he does best. That is, self-promotion.

Ah, self-promotion. That’s a common factor, isn’t it?

Those who’ve spent some time in the UK might recognise the type:

Bill’s Opinion

Australia entered a per capita recession this week. Property prices have been on the slide since September 2017.

The two examples above are both completely reliant on the health of the real estate market to return a profit. Which direction do we feel these share charts are going in the near to mid-term? At the time of writing, Yellow Brick Road shares are on their 4th business day of suspension.

In the words of Bob Dylan, “just when you think you’ve lost everything, you find out you can always lose a little more“.

Introducing the “Are we there yet, Mum?” Index

In case you haven’t realised it already, the organisations that most loudly proclaim their “Independent. Always” credentials are, in fact, some of the worst peddlers of fake news. At best, there is a distinct lack of critical thinking when it comes to reporting what clearly vested interests are pitching. No-one is really looking for the dog that isn’t barking……

Worse, there are people out there heavily-invested in certain outcomes yet being interviewed and given publicity as if they were a credible information source; Stephen Koukalous, for example, long property much?

The epitome of this Lord Haw Haw mentality is the Doctor of Property himself, Andrew Wilson, a man with so little credibility, Fairfax fired him.

Two recent outputs from this mendacious fool have prompted the creation of the “Are we there yet, Mum?” index;

Firstly, this one where he claims prices have bottomed because the median price at auction didn’t fall significantly since the previous week. Just re-read that again slowly…… (by the way, I’m pretty sure he edited this from an earlier version that even claimed prices were on the rise – if anyone can confirm my suspicions, I’d be grateful).

And this one where he claims a high auction clearance rate despite the glaring problem that only 55% of results were reported;

Therefore, readers who are interested or mildly bemused by the current “completely unpredictable” housing bust occurring in Australia may enjoy this new monthly feature.

William of Ockham’s “Are we there yet, Mum?” index.

This is a collection of public data, which is intended to illustrate the bottom of the Sydney housing market, when it arrives.

The datasets used are as follows;

Housing credit source: RBA
Monthly indices source: Core Logic
Auction data source: Core Logic

The last one was created by looking back on the Core Logic website for the final print of weekly auction data. I stopped at August last year but will continue collecting it while on a dull conference call. Of course, if anyone has access to an Excel version of the back series, please do let me know and I”ll drop that into the chart.

These charts will be updated monthly, probably just after the RBA credit change data is published.

Any debate or discussion on dataset chosen, interpretations or additions/modifications are welcome in the comments section.

(note: there are 4 to 5 weeks in December and January where auctions volumes are too low for Core Logic to bother reporting).

When the tide goes out we learn who has been swimming without clothes

The Lucky Country tends to lack the entrepreneurial spirit.

The reasons behind this are many, my personal view is that it’s a function of the incentives in the economy; for four decades, Australians have been rewarded by investing in property or working in industries relating to it.

The corollary to this is that there’s been few reasons and rewards for investing one’s cash or pension into stocks, shares, bonds and non-property assets.

Some people have won bigly in this environment. Fair play to them, they followed the cues and were rewarded accordingly.

Mark Bouris is one such big winner. In the 1990s he made his fortune in the mortgage finance business and has continued to go from strength to strength ever since.

The danger of viewing this type of success from a distance is believing that it is a) due to the unique and mercurial skills of the winner and, b) that it is repeatable across industries and markets or indeed, time.

In other words, just because Mark made a large fortune from real estate in a market where everyone made small fortune from real estate, it doesn’t necessarily follow that he can continue to make money in different areas or even in his area of expertise.

Today will be interesting, therefore; Yellow Brick Road shares suspended after trading close.

Bill’s Opinion

In a rising market, everyone is a genius.

Mark Bouris’ Yellow Brick Road might be having some innocent difficulties with the regular filing requirements.

On the other hand, 18 months into a property price downturn and an environment of tighter lending, one company has to be the first major casualty.

On verra.

Responsible borrowing

Australia is on a bank-bashing roll currently. As the market (and by that we mean property market – really the only important market in the Dutch Diseased country) rose solidly over the previous decades, the national psyche shifted to one where the expectation of continued growth became pervasive.

To a certain extent, that’s a rational position to take; if everybody, lending institutions and central banks included, is predicting a double digit rise next year there’s wisdom in listening to them.

There’s a similar theory about “technical analysis” of stock charts, that it might not be based on any underlying science but, because everybody believes in “support lines” and “double tops”, it becomes a self-fulfilling prophecy.

However, trees don’t grow to the sky and no market moves in a straight line.

More importantly, if you’re going to make a bet, any bet, you better bloody well know that you can live with the wrong result should it occur.

Westpac has been hit with the first class action against one of the big four since the banking royal commission’s final report earlier this month.

Lead plaintiff Michelle Tate told a media conference in Brisbane on Thursday she and her husband Ian were ruined after the bank lent them more than $1.8 million across five properties, despite the family having just one income.

Ms Tate said Westpac trusted a loan broker who provided information about her family’s financial position, and did not independently verify the situation. She said her family would now lose all of their properties save for a block of land.

Wait, what?

They bought their first home in 2008 but decided to invest in a further three in 2013 and 2014 while Mrs Tate was a full-time mum, all funded through Westpac loans they locked in as interest only and secured against their first property.

Are you insane?

Maurice Blackburn Principal lawyer Ben Slade said Westpac was “required to comply with strict obligations which are specifically designed to protect consumers from irresponsible lending and the risk of financial hardship”.

“This case will seek to prove that Westpac failed to comply with these obligations and that this failure caused substantial losses for many consumers,” he said.

That highlighted claim reminds me of the regrettable line we all mistakenly say once in our lives;

“Honey, does this dress make my bum look fat?”

“No dear, your bum makes your bum look fat”.

Bill’s Opinion

Michelle Tate and her husband knew exactly what they were doing when then went all in on property. It was a one way bet they couldn’t lose.

Blaming the bank that lent you the money in the hope of compensation is an understandable tactic and a common coping mechanism rather than coming to terms with one’s own stupidity and greed.

But you were still stupid and greedy and you absolutely knew what you were doing.

Write down the NBN? Write the whole thing off

We’ve spoken before on the utter disaster that is Australia’s National Broadband Network and how it was unlikely to ever achieve its stated goal and also cost significantly more than budgeted.

Well, things just got a whole lot worse for the beleaguered Australian taxpayer as it would seem reality is starting to rudely impose itself on the business model, such that it is: The NBN will need to write off a huge chunk of value, if that’s even possible now.

Crikey (in the vernacular), who ever could have predicted that?

Oh yes, everyone.

From the article:

It is self-evident that you can’t write $20 billion off a $10 billion (or less) equity base.

Ya reckon?

Rue made the point that when people called for a write-down, what they were actually calling for was a dramatic reduction in wholesale prices. It’s a mechanism, not the objective.

There are alternatives to a write-down that could lower wholesale prices, although they would involve heavy costs for government.

Hold on one second, sunshine…. heavy costs for whom?

The government? Nope, don’t think so. The government only has money for one of the following reasons:

1. Taxes paid by citizens (yes, that includes corporation tax – who do you think buys their goods and services?)

2. Borrowing on behalf of the public….which will be repaid by, yep, taxes

Read this with that in mind:

If the federal government were to cash out the $7.4 billion of subscriber payments and buy out the lease agreement, it would effectively inject more than $20 billion of value into NBN Co by carving those payments from its cost base and boosting its cash flows.

The substantial change in its economics would enable NBN Co to pass through the savings to retailers without damaging its ability to generate a positive IRR.

Or, in English; if the government spent more money it would make the NBN company seem like it was less of a turd.

Bill’s Opinion

The lesson every generation of voters always has to learn the hard way is, if you really want to fuck something up, and I mean really fuck something up and stay fucked up for a bloody long time, get the government to do it.

Because of/despite Brexit (delete where appropriate)

From the BBC (Brexit Blocking Corporation), comes this tale of woe and personal disasters.

British nationals who have retired to EU countries may no longer have their healthcare costs covered by the NHS in the event of a no-deal Brexit and many are considering returning home, reports Vishala Sri-Pathma.

Why’s that?

Currently expat pensioners can get treatment reimbursed by the NHS under an EU-wide deal

Ah, yes that would be a problem.

How does it currently work?

Pensioners who have paid in to the UK’s national insurance system for the qualifying number of years benefit from the S1 reciprocal healthcare rules if they retire in EU/EEA countries or Switzerland.

What’s the revenue flow for that arrangement, one wonders? How much is charged each way, who runs the deficit?

The system currently saves the NHS about £450m a year. In 2017, a senior health department official told a parliamentary select committee that Spain charges an average of £2,300 for every pensioner it treats, compared with £4,500 charged by the NHS.

I though the NHS was “the envy of the world“? Are we now saying it’s twice as expensive for the same outcome?

Why on earth hasn’t Britain started running hospital tourism cruises to Santander and saved a fortune?

Yet there are no guarantees that this arrangement will continue under the Prime Minister Theresa May’s proposals to protect the rights of EU citizens, including the 1.2 million Britons living elsewhere in the EU.

Frankly, nobody has a clue what bloody deal will be implemented on March 29th, least of all the incompetent idiots negotiating it.

The UK government is currently advising expat Brits in the EU to register for access to healthcare in the EU/EEA country they live in, as some residents may need to be a long-term resident or to pay social security contributions to access free or discounted healthcare.

Good advice.

Of course, even better advice is; whenever you reside in a new country long enough to qualify for citizenship, seriously consider it as an option, given that taxation and immigration are the most frequently amended laws.

Residents of Spain, take note.

Another consideration is to plan for changes in laws. The European reciprocal arrangement for healthcare has only been in existence for about 15 years. Anyone emigrating for a retirement in Asia from Europe would budget for healthcare insurance, in contrast.

Another blow to the British in Spain has been the falling value of the pound. “It’s (Brexit) costing me great amounts of money in my pocket,” one bowler says as he lines up the balls for the next game. “I’d like to sees the exchange rate to go back to what it was six years ago – but that’s wishful thinking.”

Let’s fact check that shall we?

How long has the pound been in decline and is it really due to Brexit?

It’s currently sitting around $1.29, so unless the Forex markets knew about the Brexit vote result back in 2010, there’s not much about the exchange rate one can blame on Brexit.

If your retirement financial plan is underwater after a negative 10% exchange rate change, consider the possibility you weren’t ready to retire.

But possibly the best quote in the whole article is this:

“When I voted to leave I didn’t think it would change anything,” says Yvonne Stone

Good grief.

Bill’s Opinion

On verra. On verra.

Special pleaders gonna plead specially

For those not following the Australian economy (and judging by the readership statistics of this blog, that’s most of you), there’s some huge fun to be had in observing the logical knots people are currently tying for themselves.

 

The problem is that the Reserve Bank of Australia has again, not lowered interest rates. The last time the RBA moved rates was in August 2016, down from 1.75 to 1.5%.

 

I have a real job, i.e. I’m not an economist, so whether or not the RBA is taking the correct course of action is not really something I’m qualified to comment on. However, I am able to spot blatant special pleading when I see it:

 

The “Kouk is lining himself up for a job as an advisor in the next Federal government, assuming the current incumbents lose the election. This is likely to be a nice final job before his retirement. An ongoing house price crash in the two biggest cities of Australia will make this semi-retirement gig far more stressful than he’d appreciate.

 

 

The “Doc” was recently the “Chief Economist” (whatever that means; how many do they have to employ to need a chief?) at Domain, the only profitable arm of Fairfax…. until it was sold off. He was fired last year and is now pitching himself as “Chief Economist” of a company called My Property Market. The website of this esteemed company is still under construction, but I’m sure it’ll be finished soon. After all, they’ve got at least one employee now….. 

 

One imagines the Doc is personally very heavily invested in property.

One of the unusual quirks of the Australian property market is that there is a tax incentive to run your investment properties at a slight revenue loss.

There are, of course, two minor problems with this; firstly, you’re accepting an operating loss today in the hope of a capital gain tomorrow, and secondly, the tax benefit only works while you’re drawing a salary or other income at a level that attracts the higher marginal tax rates to offset the negative gearing. Amateur property investors who get fired from their regular job are clobbered with a double whammy, in other words. Ouch.

Bill’s Opinion

 

In the words of Upton Sinclair,

 

 It is difficult to get a man to understand something when his salary depends upon his not understanding it.

 

Westpac’s Diversity and Inclusion Officer writes…

…about banking and house prices. One wonders how that got past the Corporate Affairs twinkies.

Obviously we’re being facetious, Brian isn’t really the Head of LGBTQI123& non-TERF Advocacy (not that you’d know it to look at what he seems to spend most of his time focusing on).

No, he’s the CEO of Westpac

Which means, on balance, the article is even more worrying.

Why?

Ask yourself a question; when the CEO of the 2nd biggest bank decides to write a blog post explaining that the property market isn’t crashing, that the bank is sound and they are still open for business, does that make you feel great comfort and security?

Or, do you think to yourself, “why is he telling me this, why wouldn’t everything be fine, what does he know that I don’t?

Bill’s Opinion

The lady doth protest too much, methinks

It’s highly unlikely any of the major Australian banks are going to be in trouble any time soon. However, the prime candidate if one does hit hard times would be the one with the largest exposure to interest only investment loans and a top of the market (2007) acquisition of a competitor that they never got round to integrating and realising economies of scale….